SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(A) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14(a)-12
Northwest Natural Gas Company
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Fling Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applied:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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NORTHWEST NATURAL GAS COMPANY
ONE PACIFIC SQUARE
220 N.W. SECOND AVENUE
PORTLAND, OREGON 97209
(503) 226-4211
NOTICE OF 2001 ANNUAL MEETING OF SHAREHOLDERS
Portland, Oregon, April 16, 2001
To the Shareholders:
The 2001 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 24, 2001,
at 2:00 p.m., Pacific Daylight Time, for the following purposes:
(1) to elect one Class I director to a term of two years and four Class II
directors to a term of three years;
(2) to approve the Company's Long-Term Incentive Plan;
(3) to elect independent auditors for the year 2001; and
(4) to transact such other business as may properly come before the meeting or
any adjournment thereof.
Holders of Common Stock of record at the close of business on April 5, 2001
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
NORTHWEST NATURAL GAS COMPANY
ONE PACIFIC SQUARE
220 N.W. SECOND AVENUE
PORTLAND, OREGON 97209
(503) 226-4211
2001 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 24, 2001
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 24, 2001, 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, 2000,
including audited financial statements, has been mailed to all shareholders.
This proxy statement and the accompanying proxy card are being mailed to
shareholders commencing April 16, 2001.
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 and 3, 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 5, 2001 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 25,200,048 shares of Common Stock outstanding on March 16, 2001 were
held by about 10,300 shareholders residing in 50 states, the District of
Columbia, Guam, Puerto Rico and a number of foreign countries.
Each holder of Common Stock of record at the close of business on April 5,
2001 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 5, 2001 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 I - ELECTION OF DIRECTORS
The Company's Restated Articles of Incorporation provide that the Board of
Directors be comprised of not less than nine nor more than thirteen directors,
with the exact number of directors to be determined by the Board. The Board has
fixed the number of directors at thirteen. However, the number of directors will
be reduced to twelve upon the retirement, at the conclusion of this year's
Annual Meeting, of Mr. Richard B. Keller, who has served on the Board since 1983
and who has reached the mandatory retirement age for Board service. 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 II
directors expires with this year's Annual Meeting. Ms. Melody C. Teppola and
Messrs. Tod R. Hamachek, Wayne D. Kuni and Russell F. Tromley are nominees for
election to the Board as Class II directors to serve until the 2004 Annual
Meeting or until their successors have been duly elected and qualified. Each of
these nominees was elected by the shareholders at the 1998 Annual Meeting. In
addition, Mr. Richard L. Woolworth is a nominee for election to the Board as a
Class I director to serve until the 2003 Annual Meeting to fill the vacancy that
will be created by Mr. Keller's retirement from the Board. Mr. Woolworth was
elected by the Board effective September 1, 2000 to fill a vacancy created by a
temporary increase in the size of the Board. 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 five nominees who receive the greatest number of votes cast at the
meeting shall be elected directors. Abstentions and broker non-votes are counted
for purposes of determining whether a quorum exists at the Annual Meeting but
are not counted and have no effect on the results of the vote for directors.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF THE NOMINEES LISTED BELOW.
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INFORMATION CONCERNING NOMINEES AND CONTINUING DIRECTORS
NOMINEES FOR ELECTION TO BOARD OF DIRECTORS
CLASS I
(FOR A TWO-YEAR TERM ENDING IN 2003)
RICHARD L. WOOLWORTH
[PHOTO
OMITTED] Chairman and Chief Executive Officer, The Regence Group, Portland,
Oregon
Age: 59
Director since: 2000
Board Committees: Audit, Finance
Since 1995, Mr. Woolworth has served as Chairman and CEO of The Regence
Group, the largest regional affiliation of health plans in the western United
States, with about 3 million subscribers in Oregon, Washington, Idaho and Utah.
He also serves as the Board Chairman of Regence BlueCross BlueShield of Oregon
and Regence HMO Oregon, the largest health benefits company in Oregon, and as a
director of the Columbia Mutual Funds. He joined Blue Cross of Oregon in 1971 as
an assistant vice president and was appointed Chairman and CEO of Blue Cross and
Blue Shield of Oregon in 1990. Woolworth is immediate past chair of the National
BlueCross BlueShield Association. He is past chairman of the Portland Chamber of
Commerce as well as regional fund drives for the United Way and the Juvenile
Diabetes Foundation. Mr. Woolworth, a certified public accountant, is a graduate
of Lewis and Clark College.
CLASS II
(FOR A THREE-YEAR TERM ENDING IN 2004)
TOD R. HAMACHEK
[PHOTO
OMITTED] Chairman and Chief Executive Officer, Penwest Pharmaceuticals Company
Patterson, New York
Age: 55
Director since: 1986
Board Committees: Pension, Retirement, Organization and Executive
Compensation (Chairman)
Mr. Hamachek has served as Chairman and Chief Executive Officer of Penwest
Pharmaceuticals Company since October 1997. Penwest, which was spun off from
Penford Corporation in 1998, is engaged in the research, development and
commercialization of novel drug delivery products and technologies. From 1985
until 1998, Mr. Hamachek served as President and Chief Executive Officer of
Penford Corporation, a diversified producer of specialty paper, food starches
and pharmaceutical ingredients. He is a director of Penwest, The Seattle Times
Company and The Blethen Corporation (the majority owner of The Seattle Times
Company). Mr. Hamachek serves on the governing bodies of Williams College and
the National Peace Garden Foundation. He is a graduate of Williams College and
the Harvard Business School.
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WAYNE D. KUNI
[PHOTO
OMITTED] Chairman, Kuni Enterprises, Beaverton, Oregon
Age: 70
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
serves on the Board of Keller Enterprises and formerly served on the Board of
Trustees of the Oregon Health Sciences Foundation. He is Chairman Emeritus of
the Board of Governors of the Portland Shriners Hospital. Mr. Kuni is a graduate
in business administration from Kettering University, Flint, Michigan.
MELODY C. TEPPOLA
[PHOTO
OMITTED] Managing Partner, National Builders Hardware Company, Portland, Oregon
Age: 58
Director since: 1987
Board Committees: Executive, Pension, Retirement, Environmental Policy
Ms. Teppola has been associated with National Builders Hardware Company, a
regional and national distributor of builders hardware, woodworking machinery
and decorative plumbing, since 1965, and a managing partner since 1975. Her
community activities have focused on art, education and advocacy for women and
children. She is a member of the Marquam Hill Steering Committee of the Oregon
Health Sciences University, the Public Art Advisory Committee of the Regional
Arts and Culture Council and the Advisory Board of the Port of Portland Mentor
Program. She also serves as a director of the Bonnie Bronson Fund of the Oregon
Community Foundation and the Portland Metropolitan Chamber of Commerce. Ms.
Teppola is a Mills College graduate.
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RUSSELL F. TROMLEY
[PHOTO
OMITTED] President and Chief Executive Officer, Tromley Industrial Holdings,
Inc., Tualatin, Oregon
Age: 61
Director since: 1994
Board Committees: Audit, Finance
Mr. Tromley has served as President and Chief Executive Officer of Tromley
Industrial Holdings, Inc., since its formation in 1990. Tromley Industrial
Holdings is involved in nonferrous metals alloying and distribution, the
manufacture and sale of equipment for the foundry and steel industry, industrial
equipment leasing and industrial and retail business property investments. Mr.
Tromley is a past President of the Casting Industry Suppliers Association and of
the Arlington Club, and is a non-lawyer arbitrator for, and a member of the
House of Delegates of, the Oregon State Bar Association. He is a founding
director of The Bank of the Northwest, and also serves as a director of the
Evans Scholars Foundation and the Western Golf Association. Mr. Tromley attended
the University of Washington and the Harvard Business School.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
CLASS I
(TERM ENDING 2003)
RANDALL C. PAPE
[PHOTO
OMITTED] President and Chief Executive Officer, The Pape Group, Inc., Eugene,
Oregon
Age: 50
Director since: 1996
Board Committees: Environmental Policy, Organization and Executive
Compensation, Pension, Retirement
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 Co., Ditch Witch of Oregon & Washington,
Industrial Finance Co. and Pape Properties, Inc. He also is President, CEO and a
director of Liberty Financial Group, a holding company for Liberty Bank SB,
EcoSort LLC, and Sanipac, Inc., and a partner in Pape Investment Company. Mr.
Pape is a director and formerly served as President of Mt. Bachelor, Inc., and
also is a director of Obie Media Corporation. He serves as a Commissioner to the
Oregon Department of Transportation, is Chairman of the Board of Trustees of the
University of Oregon Foundation, and also serves on the Oregon Business Council
and as a trustee for The Nature Conservancy of Oregon. He earned a Bachelor of
Science degree in Finance from the University of Oregon.
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ROBERT L. RIDGLEY
[PHOTO
OMITTED] Retired Chairman of the Board of the Company, Portland, Oregon
Age: 67
Director since: 1984
Board Committees: Executive, Pension, Retirement, Finance,
Environmental Policy
Mr. Ridgley served as President and Chief Executive Officer of the Company
from 1985 until 1996 when he became Chairman of the Board and CEO. He retired as
CEO in 1996 and as Chairman of the Board in 1999. He is a director of Kaiser
Foundation Hospitals and the Kaiser Foundation Health Plan, and is a past
Chairman of the Oregon Business Council, the American Gas Association, the
Pacific Coast Gas Association and the Portland Area Chamber of Commerce. Mr.
Ridgley serves as a director of the Oregon Independent College Foundation and
the New Mexico 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
[PHOTO
OMITTED] Business Development Consultant, Portland, Oregon
Age: 60
Director since: 1992
Board Committees: Environmental Policy (Chairman), Audit
Mr. Sangrey works in the development of new businesses, primarily in health
care, engineering and information technologies. He has served as CEO of Santa Fe
Technologies, Inc. and Fraction Biologics, LLC, and from 1988 until 1994 was
President of the Oregon Graduate Institute of Science & Technology (OGI), and
was Professor of Environmental Science and Engineering at OGI until 1995. He is
a board member of Santa Fe Technologies, Inc., Airadvice, Inc. and Pacific
University, and also serves on several national education and science policy
committees. Mr. Sangrey is a graduate of Lafayette College, the University of
Massachusetts and Cornell University.
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CLASS III
(TERM ENDING 2002)
MARY ARNSTAD
[PHOTO
OMITTED] Managing Director, Cascade Festival of Music, Bend, Oregon
Age: 52
Director since: 1992
Board Committees: Audit, Environmental Policy
Ms. Arnstad was appointed managing director of the Cascade Festival of
Music in October 2000. From January 1998 until October 1999, she 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, Ms. Arnstad 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 Northwest
Business Culture and the Arts. She also serves on the Board of Directors of
Telos Development Company, based in Salem, Oregon. In 2000, Ms. Arnstad was
appointed to a second four-year term on the Oregon Tourism Commission. She is a
graduate of Wittenberg University.
THOMAS E. DEWEY, JR.
[PHOTO
OMITTED] Member, McFarland Dewey & Co., LLC, New York, New York
Age: 68
Director since: 1986
Board Committees: Finance (Chairman), Audit
Since 1989, Mr. Dewey has been a general partner (now member) in the
investment banking firm of McFarland Dewey & Co., LLC (formerly, McFarland Dewey
& Co.), which provides clients with independent financial advice, including
advice on corporate financial strategies and recapitalization proposals. He is
also a director of Genelabs Technologies, Inc., 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
[PHOTO
OMITTED] Chairman, President and Chief Executive Officer of the Company,
Portland, Oregon
Age: 61
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, and was appointed to the
additional position of Chairman of the Board in September 2000. Prior to joining
the Company, from 1992 through 1995, Mr. Reiten served as President and Chief
Operating Officer of Portland General Electric Company (PGE) after serving as
President of PGE's parent company, Portland General Corporation (PGC), from 1989
through 1992. He also served as a director of PGC from 1983 to 1987 and from
1990 to 1995 when he retired from PGE. He is a director of U.S. Bancorp, The
Regence Group and Building Materials Holding Corporation. He serves on the
boards of the American Gas Association, American Electric and Gas Insurance
Services, the United Way and The Nature Conservancy of Oregon. He is a past
General Chairman of the United Way campaign for Portland and a past Chairman of
both the Portland Metropolitan Chamber of Commerce and the Association for
Portland Progress. Mr. Reiten is a graduate of the University of Washington and
the executive and board of directors programs at the Stanford Business School.
BENJAMIN R. WHITELEY
[PHOTO
OMITTED] Chairman and CEO, Retired, Standard Insurance Company, and Lead
Director of the Company, Portland, Oregon
Age: 71
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 The Greenbrier Companies and Willamette Industries, Inc., and
a retired director of StanCorp Financial Group and Standard Insurance Company.
He has served as Lead Director of the Company's Board of Directors since 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,
Sangrey, Tromley and Woolworth, each of whom is an outside director. The
Committee approves the work program of the Company's internal audit staff and
reviews the corporate audit and other internal accounting control matters with
the independent certified public accountants elected by the shareholders. It
reports regularly to the Board. The Committee held four meetings during 2000.
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,
Pape, Ridgley and Teppola. These directors, together with a representative
chosen by the bargaining unit members, also constitute the Pension Committee.
The two Committees met three times during 2000.
The Organization and Executive Compensation Committee, which is comprised
of directors Hamachek, Keller, Kuni, Pape and Whiteley, each of whom is an
outside director, reviews the performance of executive officers, considers
executive compensation survey data in making recommendations to the Board
relating to the Company's executive compensation program and benefit plans and
administers the 1985 Stock Option Plan. This Committee also makes
recommendations to the Board on organization and executive succession matters.
Four meetings of this Committee were held during 2000.
The Environmental Policy Committee develops and recommends to the Board
appropriate environmental policies and advises the Board concerning the status
of the Company's compliance with environmental regulations. The Committee is
comprised of directors Arnstad, Pape, Ridgley, Sangrey and Teppola. This
Committee held two meetings in 2000.
The Finance Committee is responsible for reviewing strategies and making
recommendations to the Board with respect to the Company's financing programs,
financial policy matters and material regulatory issues. The Committee consists
of directors Dewey, Kuni, Ridgley, Tromley and Woolworth. The Committee held
three meetings in 2000.
The Executive Committee is empowered, during intervals between Board
meetings, to exercise all of the authority of the Board in the management of the
Company, except as otherwise may be provided by law. This Committee has been
assigned the responsibility of recommending to the Board of Directors nominees
for election as directors. Shareholders' suggestions for director-nominees may
be submitted to the Secretary of the Company for consideration by the Executive
Committee. The Company's Restated Articles of Incorporation provide that no
person, except those nominated by the Board, shall be eligible for election as a
director at any annual or special meeting of shareholders unless a written
request that his or her name be placed in nomination, together with the written
consent of the nominee, shall be received from a shareholder of record entitled
to vote at such election by the Secretary of the Company on or before the later
of (a) the thirtieth day prior to the date fixed for the meeting, or (b) the
tenth day after the mailing of the notice of that meeting. This Committee, which
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is comprised of directors Keller, Kuni, Reiten, Ridgley, Teppola and Whiteley,
held two meetings in 2000.
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.
During 2000, there were six meetings of the Company's Board and one meeting
of the Board of NNG Financial Corporation. No director attended fewer than 75
percent of the total meetings of the Company or subsidiary Boards or committees
on which he or she served.
DIRECTORS DEFERRED COMPENSATION PLAN
Directors may elect to defer the receipt of all or a part of their
directors' fees under the Company's Directors Deferred Compensation Plan. At the
director's election, deferred amounts may be credited to either a "cash account"
or a Company "stock account." If deferred amounts are credited to stock
accounts, such accounts are credited with a number of shares based on the
purchase price of Common Stock on the next purchase date under the Company's
Dividend Reinvestment and Stock Purchase Plan, and such accounts are credited
with additional shares based on the deemed reinvestment of dividends. Prior to
January 1, 2001, cash accounts were credited quarterly with interest at a rate
equal to the annual rate of interest paid on 30-year U.S. Treasury securities
plus three percentage points. Effective January 1, 2001, the crediting rate was
changed to the Moody's Average Corporate Bond Yield plus two percentage points.
The crediting rate is subject to a six percent minimum rate. The rate is
adjusted quarterly. At the election of the participant, deferred balances in the
stock and/or cash accounts are payable after termination of Board service in a
lump sum, in installments over a period not to exceed ten years, or in a
combination of lump sum and installments.
The Company's obligations under the Plan are unfunded and benefits will be
paid either from the general funds of the Company or from the Umbrella Trust for
Directors which has been established for this Plan. With respect to the cash
accounts, the Company has purchased life insurance policies on the lives of the
participants, the proceeds from which will be used to reimburse the Company for
the payment of cash benefits from the Plan. This insurance is designed so that,
if the assumptions made as to mortality experience, policy dividends and other
factors are realized, insurance policy proceeds paid to the Company will be at
least equal to all the premium payments and cash benefits paid under the Plan.
The cost of any one individual participant cannot be properly allocated or
determined because of overall Plan assumptions. In addition, the Company has
contributed cash and Common Stock to the trustee of the Umbrella Trust such that
the Umbrella Trust holds the number of shares of Common Stock equal to the
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number of shares credited to all directors' stock accounts. Shares so held will
be used to fund the Company's obligation to pay out the stock accounts.
The Company may from time to time transfer other assets to the trustee of
the Umbrella Trust to hold in trust for the benefit of Plan participants. The
Company's obligations under the Plan are not limited to trust assets, and Plan
participants will have a claim against the Company for any payments not made by
the trustee. The Company instructs the trustee as to the investment of the
trust's assets and the trustee's fees and expenses are paid by the Company.
Upon the occurrence of certain events, such as a change in control of the
Company, termination of the Plan or the failure by the Company to provide the
trust with adequate funds to pay current benefits, the Company may be required
under the terms of the trust to contribute to the trust annually the amount by
which the present value of all benefits payable under the Plan exceeds the value
of the trust's assets.
NON-EMPLOYEE DIRECTORS STOCK COMPENSATION PLAN
Non-employee directors of the Company are awarded approximately $50,000
worth of the Company's Common Stock upon joining the Board pursuant to the
Company's Non-Employee Directors Stock Compensation Plan. These initial awards
vest in monthly installments over the five calendar years following the award.
On January 1 of each year thereafter, non-employee directors are awarded an
additional $10,000 of Common Stock which vests in monthly installments in the
fifth year following the award (after the previous award has fully vested). All
awards vest immediately upon a change in control of the Company. Unvested shares
are forfeited if the recipient ceases to be a director. The shares awarded are
purchased in the open market by the Company at the time of award. Directors may
elect to defer unvested shares into their stock accounts under the Directors
Deferred Compensation Plan. Certificates representing a director's vested shares
are not delivered to the director until after the director leaves the Board.
DIRECTORS RETIREMENT BENEFIT
On January 1, 1998, in connection with the termination of a prior
retirement benefit for directors and in lieu of that benefit, the Company
credited a number of shares of Company Common Stock to a stock account under the
Directors Deferred Compensation Plan for each then current director. If such a
director retires from the Board at age 72 or older with 10 or more years of
service as a director or if the director earlier dies or becomes disabled or if
there is an earlier change in control of the Company, the Company is obligated
to deliver to the director (or to his or her beneficiary) the number of shares
credited to the account, plus an additional number of shares based on reinvested
dividends credited to the account over time. Concurrently with the creation of
the stock accounts, the Company contributed to the Umbrella Trust for Directors
a number of shares of the Company's Common Stock equal to the number of shares
credited to directors' accounts. Such stock is held in the Umbrella Trust and
will be used to fund the Company's obligation to pay out the stock accounts. The
number of shares of Common Stock in the retirement benefit stock account of each
such director at December 31, 2000 was: Mary Arnstad, 557; Thomas E. Dewey, Jr.,
1,793; Tod R. Hamachek, 688; Richard B. Keller, 2,483; Wayne D. Kuni, 2,104;
Randall C. Pape, 519; Richard G. Reiten, 1,139; Robert L. Ridgley, 1,659; Dwight
A. Sangrey, 1,059; Melody C. Teppola, 852; Russell F. Tromley, 1,059; and
Benjamin R. Whiteley, 2,283.
11
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers to file reports of ownership and changes in
ownership of Company Common Stock with the Securities and Exchange Commission.
The Company is required to disclose in this proxy statement any late or missed
filings of those reports made by its directors and executive officers during
2000. 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 2000 all directors and executive officers timely
filed all such required reports.
BENEFICIAL OWNERSHIP OF COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information with respect to beneficial ownership
of the Company's Common Stock as of February 28, 2001 (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 7,067 (2) *
Bruce R. DeBolt 29,253 (3) *
Thomas E. Dewey, Jr. 6,670 (4) *
Mark S. Dodson 19,354 (5) *
Tod R. Hamachek 10,606 (6) *
W. Richard Harper, Jr. 15,346 (7) *
Wayne D. Kuni 15,594 (8) *
Michael S. McCoy 36,583 (9) *
Randall C. Pape 8,497 (10) *
Richard G. Reiten 96,216 (11) *
Robert L. Ridgley 27,027 (12) *
Dwight A. Sangrey 6,855 (13) *
Melody C. Teppola 7,455 (14) *
Russell F. Tromley 8,816 (15) *
Benjamin R. Whiteley 11,408 (16) *
Richard L. Woolworth 2,838 (17) *
All directors and officers as 342,632 (18) 1.4
a group (20 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 1,890 shares subject to forfeiture under the Non-Employee
Directors Stock Compensation Plan (NEDSCP), 2,554 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, 15,491 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) and 88 shares held
indirectly under the Retirement K Savings Plan (RKSP) at February 20, 2001.
12
4 Includes 1,629 shares subject to forfeiture under the NEDSCP and 3,377
shares credited to a stock account under the DDCP.
5 Includes 7,500 shares which Mr. Dodson has the right to acquire within 60
days through the exercise of options under the 1985 SOP and 88 shares held
indirectly under the RKSP at February 20, 2001.
6 Includes 1,854 shares subject to forfeiture under the NEDSCP and 5,896
shares credited to a stock account under the DDCP.
7 Includes 9,700 shares which Mr. Harper has the right to acquire within 60
days through the exercise of options under the 1985 SOP and 5,343 shares
held indirectly under the RKSP at February 20, 2001.
8 Includes 784 shares subject to forfeiture under the NEDSCP, 5,095 shares
held in trust, and 7,902 shares credited to a stock account under the DDCP.
9 Consists of 11,233 shares held indirectly by Mr. McCoy under the RKSP at
February 20, 2001, 10,350 shares held jointly with wife and 15,000 shares
which Mr. McCoy has the right to acquire within 60 days through the
exercise of options under the 1985 SOP.
10 Includes 1,878 shares subject to forfeiture under the NEDSCP and 4,039
shares credited to a stock account under the DDCP.
11 Includes 16,275 shares held indirectly by Mr. Reiten under the RKSP at
February 20, 2001, 67,500 shares which Mr. Reiten has the right to acquire
within 60 days through the exercise of options under the 1985 SOP and 1,153
shares credited to a stock account under the DDCP.
12 Includes 1,900 shares subject to forfeiture under the NEDSCP and 3,379
shares credited to a stock account under the DDCP.
13 Includes 1,890 shares subject to forfeiture under the NEDSCP and 2,658
shares credited to a stock account under the DDCP.
14 Includes 1,854 shares subject to forfeiture under the NEDSCP, 2,243 shares
held in trust, and 2,424 shares credited to a stock account under the DDCP.
15 Includes 1,854 shares subject to forfeiture under the NEDSCP, 2,633 shares
credited to a stock account under the DDCP and 24 shares held by wife in an
IRA.
16 Includes 427 shares subject to forfeiture under the NEDSCP and 6,898 shares
credited to a stock account under the DDCP.
17 Includes 2,051 shares subject to forfeiture under the NEDSCP and 1,106
shares credited to a stock account under the DDCP.
18 Includes 33,040 shares of which 6,451 shares are held jointly with spouses,
459 shares are held as custodian for minor children, 4,657 shares are held
indirectly under the RKSP at February 20, 2001 and 19,600 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
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, 2000,
1999 and 1998, of those persons who were, during 2000 and at December 31, 2000
(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
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ------------
OTHER SECURITIES
NAME AND ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION(2)
- -------------------------- ------ -------- -------- ------------ ----------- ------------
Richard G. Reiten 2000 $426,174 $236,500 $ 2,520 15,000 $ 12,533
Chairman, President and 1999 405,004 190,500 9,300 0 7,900
Chief Executive Officer 1998 391,670 0 11,929 10,000 10,137
Michael S. McCoy 2000 212,504 79,000 0 7,500 5,625
Executive Vice President 1999 197,504 69,300 692 0 3,700
1998 183,354 0 27,111 5,000 4,701
Bruce R. DeBolt 2000 213,838 79,900 0 7,500 5,803
Senior Vice President 1999 206,504 71,300 785 0 4,030
and Chief Financial 1998 200,520 0 4,872 5,000 5,076
Officer
Mark S. Dodson 2000 188,340 72,100 0 7,500 5,106
Senior Vice President 1999 179,175 62,800 0 0 3,500
and General Counsel 1998 175,008 0 19,533 5,000 3,770
W. Richard Harper, Jr. 2000 158,340 54,700 21,792 5,000 4,000
Senior Vice President 1999 148,333 33,300 27 0 2,800
1998 138,333 25,000 19,733 8,000 3,227
1 The amounts shown for Mr. Reiten for the year 2000, for Messrs. Reiten and
DeBolt for the years 1998 and 1999 and for Messrs. McCoy and Harper 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 amount
shown for Mr. Harper for 2000 includes $320 for the payment of the tax
liabilities discussed in the preceding sentence and $14,780 for the payment
of an automobile allowance. The amounts shown for Messrs. McCoy, Dodson and
Harper for the year 1998 include $5,196, $0 and $209, respectively, for the
payment of the tax liabilities discussed in the first sentence and $15,480
each for Messrs. McCoy and Dodson and $13,380 for Mr. Harper for the
payment of automobile allowances.
2 Amounts for the year 2000 include Company matching amounts contributed or
accrued for the year 2000 for the Named Executive Officers under the
Company's Executive Deferred Compensation Plan ($7,433 for Mr. Reiten,
$5,625 for Mr. McCoy, $703 for Mr. DeBolt, $6 for Mr. Dodson and $173 for
Mr. Harper) and its Retirement K Savings Plan ($5,100 each for Messrs.
Reiten, DeBolt and Dodson, $0 for Mr. McCoy and $3,827 for Mr. Harper).
14
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the number of shares of the Company's Common
Stock subject to stock options granted to the Named Executive Officers listed in
the Summary Compensation Table during 2000, together with related information.
INDIVIDUAL GRANTS
---------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
NO. OF AT ASSUMED ANNUAL RATES
SECURITIES PERCENT OF TOTAL EXERCISE OR OF STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED TO BASE PRICE FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN FISCAL ---------- EXPIRATION ---------------------------
NAME GRANTED(1) YEAR(2) ($/SH) DATE 5 PERCENT 10 PERCENT
- ---- ---------- ------------------- ---------- ---------- ------------ ----------
Richard G. Reiten 15,000 9.8 $20.25 3/2/10 $190,950 $484,500
Michael S. McCoy 7,500 4.9 20.25 3/2/10 95,475 242,250
Bruce R. DeBolt 7,500 4.9 20.25 3/2/10 95,475 242,250
Mark S. Dodson 7,500 4.9 20.25 3/2/10 95,475 242,250
W. Richard Harper, Jr. 5,000 3.3 20.25 3/2/10 63,650 161,500
1 One-third of the options became exercisable on February 23, 2001, one-third
will become exercisable on January 1, 2002 and the remainder on January 1,
2003.
2 The indicated percentages represent the options to purchase the Company's
Common Stock granted to each Named Executive Officer expressed as a
percentage of the aggregate number of options to purchase the Company's
Common Stock granted to employees of the Company in 2000.
3 The 5 and 10 percent growth rates for the period ending March 2, 2010,
which were determined in accordance with the rules of the Securities and
Exchange Commission, illustrate that the potential future value of the
granted options is linked to future increases in growth of the price of the
Company's Common Stock. Because the exercise price for options equals the
market price of the Company's Common Stock on the date of grant, no gain to
the Named Executive Officers is possible without an increase in the stock
price. The 5 and 10 percent growth rates are intended for illustration only
and are not intended to be predictive of future growth; the actual value,
if any, that may be realized by any Named Executive Officer will depend on
the market price of the Company's Common Stock on the date of exercise.
15
LONG-TERM INCENTIVE PLAN - AWARDS IN 2000
"Item 2 - Proposed Approval of Long-Term Incentive Plan - New Plan
Benefits" is information with respect to long-term incentive plan awards in
2000. Such awards are subject to shareholder approval of the Company's Long-Term
Incentive Plan.
AGGREGATED OPTION EXERCISES IN 2000 AND YEAR-END OPTION VALUES
Shown below is information with respect to options to purchase shares of
the Company's Common Stock exercised in 2000 and unexercised options granted
under the 1985 Stock Option Plan to the Named Executive Officers and held by
them at December 31, 2000.
NO. OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
NO. OF SHARES DECEMBER 31, 2000 AT DECEMBER 31, 2000
ACQUIRED ON VALUE --------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE(1) EXERCISABLE(2) UNEXERCISABLE
- ----------------------- -------------- -------- ----------- ------------- ----------- -------------
Richard G. Reiten 0 $ 0 59,500 18,000 $292,950 $93,750
Michael S. McCoy 7,125 22,266 10,900 9,100 41,850 46,875
Bruce R. DeBolt 0 0 11,391 9,100 43,078 46,875
Mark S. Dodson 0 0 3,400 9,100 0 46,875
W. Richard Harper, Jr. 0 0 5,400 7,600 0 31,250
1 Unexercisable options are those options that have not vested. Of the
options shown, a portion became exercisable in early 2001 and the remainder
will become exercisable in 2002 and 2003.
2 Represents the difference between the option exercise prices for
in-the-money options and the closing price of $26.50 for the Company's
Common Stock as quoted on the New York Stock Exchange on December 29, 2000
times the number of options. Options granted to all Named Executive
Officers in 1998 were not in-the-money at year-end 2000.
16
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, Pape and
Whiteley, each of whom is an outside director. The program is designed to
attract, motivate and retain talented executives critical to the achievement of
the Company's long-term business strategy, its annual goals and objectives, the
enhancement of shareholder value, and the implementation of corporate values.
The program seeks to do this by:
o Tieing a portion of each executive's total compensation opportunity to the
achievement of previously-established annual performance goals.
o Aligning executives' long-term interests with those of the Company's
shareholders by encouraging ownership of the Company's Common Stock.
o Providing total compensation, including base salary and incentive
compensation, which is competitive with that of other energy service and
industrial companies of comparable size and circumstances.
EXECUTIVE COMPENSATION COMPONENTS
There are three primary components of the Company's executive compensation
program - annual base salary, annual incentive cash bonuses and long-term stock
incentives.
BASE SALARIES
Base salaries paid to executives are established by the Board of Directors
upon the recommendation of the Committee based, in part, on market salary
analyses prepared by the Company's independent compensation consultant. These
analyses include salary data for comparable executive positions of energy
service and industrial companies of approximately the same size in terms of
total revenues located throughout the United States. The energy services portion
of the analysis includes data from the American Gas Association executive
compensation survey, which includes substantially the same companies that
comprise the EdwardJones Natural Gas Distribution Index appearing on the
performance graph (page 21). 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.
17
EXECUTIVE ANNUAL INCENTIVE PLAN
The Company's Executive Annual Incentive Plan is intended to advance the
interests of the Company and its shareholders by means of an incentive cash
bonus program which will motivate key executives to achieve previously-
established annual performance goals. The amounts to be paid if these goals
should be achieved or exceeded, when added to base salaries, are intended to
place the Company's executives' compensation at between the 50th and 75th
percentiles of total cash compensation for comparable positions included in the
consultant's analyses.
Participation in the Executive Annual Incentive Plan currently is limited
to nine executive officers and three top managers selected by the Board. The
payment of awards under this Plan is contingent upon meeting predetermined
individual and Company performance goals.
At the beginning of each year, weighted performance goals are established.
At year-end, performance is measured against these goals. The results are
considered by the Committee in determining the amounts, if any, to be awarded.
The amounts of these awards are based on a formula which reflects an
allocation between Company and individual performance criteria. The allocation
depends upon each executive's ability to influence corporate performance.
Depending upon position, performance and the other factors considered by the
Committee, an executive can earn from 25% to 50% of base salary if the
prescribed Company and individual performance goals are met, or up to 37.5% to
75% of base salary if these goals are exceeded.
Performance goals established for 2000 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 2000
was conditioned upon the Company's 2000 net income exceeding a percentage of the
target designated in advance by the Board and being sufficient to cover the
payment of all dividends.
LONG-TERM INCENTIVES
The long-term component of the Company's executive compensation program has
historically consisted of the 1985 Stock Option Plan. Stock options incent
executives to increase the Company's Common Stock price performance, thereby
aligning their interests with those of the other common shareholders.
The Company typically makes stock option grants under the 1985 Stock Option
Plan every two years, rather than annually. When grants are made, as they were
in 2000, the number of options granted is not based upon a predetermined
formula, but rather upon the Committee's judgment as to how many options will
provide meaningful incentives to executives. In determining the number of
options to be granted, the Committee takes into consideration the number of
shares available for grant under the Plan, the number of options previously
18
granted, the number of shares then owned by each Named Executive Officer in
relation to a targeted objective for stock ownership by executives and
competitive factors.
In 2000, the Committee re-evaluated the competitiveness of the long-term
incentive opportunities provided to executives and determined that the long-term
incentive opportunity currently provided was significantly less than
competitive. Therefore, the Committee decided to add a new long-term incentive
to the Company's executive compensation program typically consisting of annual
awards payable in Company stock based on the Company's financial performance
over three-year performance cycles. The initial awards are subject to
shareholder approval of the Company's Long-Term Incentive Plan. See "Item 2 -
Proposed Approval of Long-Term Incentive Plan." The initial awards included both
the standard awards based on a three-year performance cycle and one-time awards
based on a two-year performance cycle.
CEO COMPENSATION
Compensation paid to Richard G. Reiten for the year 2000, as Chairman,
President and Chief Executive Officer, consisted of his base salary and an
incentive bonus. Mr. Reiten's 2000 compensation reflects a 5.7% increase in his
base salary effective as of March 1, 2000, 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 $236,500 under the Executive
Annual Incentive Plan. The award of the bonus for 2000, which is equal to 55.5%
of Mr. Reiten's 2000 base salary, was based 80% upon the achievement of the
corporate performance goals as described above under the "Executive Annual
Incentive Plan" and 20% was based upon the Committee's evaluation of Mr.
Reiten's performance in relation to the achievement of pre-established
individual performance goals. For 2000, the Company reported earnings of $1.88 a
diluted share and net income applicable to common stock of $47.8 million. These
2000 results exceeded the financial performance goals established for the year.
For 2000, the Company's return on equity of 10.8% ranked 10th among 16
comparable companies. Combined with the return on equity in 1999, the Company's
weighted two-year ranking for return on equity was 10th within this group. The
Committee determined that the achievements made with respect to these corporate
performance goals, together with Mr. Reiten's overall accomplishments for the
year, warranted the bonus awarded to Mr. Reiten for 2000.
DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code),
generally limits to $1 million per person the amount that the Company may deduct
for compensation paid in any year to any individual who, on the last day of the
taxable year, is its chief executive officer or is among its four highest
compensated officers (other than the chief executive officer). Certain
exceptions to this limitation apply to so-called "performance-based
compensation." The Company does not expect the sum of the base salary, annual
cash incentive bonus and other relevant compensation paid to any executive
officer to exceed $1 million in any year. In the event that in the future the
Company determines that an executive's annual compensation may approach or
exceed this limitation, it will consider the use of this exception to the
limitation under Code Section 162(m) as it has in the case of stock options and
long-term incentive awards as described below.
It is the Company's policy generally to grant options that meet the
requirements of the Code and the regulations thereunder so that any such
compensation recognized by an optionee will be fully deductible
performance-based compensation. In May 1995, the shareholders approved an
19
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
$1 million limitation. In May 2000, the 1985 Stock Option Plan was reapproved by
the shareholders to continue the Plan's compliance with the performance-based
compensation regulations under Code Section 162(m). 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.
The long-term incentive awards granted by the Company are also intended to
meet the "performance-based compensation" requirements of the Code and
regulations so that any compensation paid under those awards will be fully
deductible.
Respectfully submitted on February 21, 2001 by the Organization and
Executive Compensation Committee of the Board of Directors:
Tod R. Hamachek, Chair Wayne D. Kuni
Richard B. Keller Randall C. Pape
Benjamin R. Whiteley
20
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, 1995 and ended December 31, 2000.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
(Based on $100 invested on 12/31/95)
[GRAPHIC OMITTED]
1995 1996 1997 1998 1999 2000
- -------------------------------------------------------------------------------
NW NATURAL $100.00 $114.90 $155.69 $135.92 $121.10 $154.65
S&P SmallCap 600 $100.00 $120.13 $149.60 $146.47 $163.33 $181.33
EdwardJones NGDI $100.00 $113.60 $147.57 $158.34 $152.48 $190.75
- -------------------------------------------------------------------------------
*Total return assumes reinvestment of dividends at the end of the month
during which they were paid.
** EdwardJones Natural Gas Distribution Index is comprised of the following
companies:
AGL Resources Inc., Atmos Energy Corp., Cascade Natural Gas Corp., Corning
Natural Gas Corp., Delta Natural Gas Co. Inc., Energy West Inc., Energy South
Inc., Laclede Gas Co., New Jersey Resources Corp., Northwest Natural Gas Co.,
NUI Corp., Peoples Energy Corp., Piedmont Natural Gas Co., South Jersey
Industries, Southern Union Co., and WGL Holdings Inc.
21
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 $ 46,500 $ 79,100 $ 82,800 $ 86,600
200,000 68,200 111,600 116,600 121,600
250,000 89,800 144,100 150,300 156,600
300,000 111,500 176,600 184,100 191,600
350,000 133,100 209,100 217,800 226,600
400,000 154,800 241,600 251,600 261,600
450,000 176,400 274,100 285,300 296,600
500,000 198,100 306,600 319,100 331,600
550,000 219,700 339,100 352,800 366,600
600,000 241,400 371,600 386,600 401,600
650,000 263,000 404,100 420,300 436,600
700,000 284,700 436,600 454,100 471,600
For purposes of the ESRIP, "compensation" consists of the average of the
annual salary and bonus paid to a plan participant by the Company for the
highest three compensation years in the last 10 years prior to retirement.
The credited years of service under the ESRIP for Messrs. Reiten, McCoy,
DeBolt, Dodson and Harper are 13 years, 31 years, 21 years, 3 years and 8 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.
22
REPORT OF AUDIT COMMITTEE
The Audit Committee of the Board of Directors (Committee) is responsible
for providing independent, objective oversight of the Company's accounting
functions, financial reporting and internal controls. The Committee is composed
of independent directors, and acts under a written charter first adopted and
approved by the Board on May 25, 2000. Each of the members of the Committee is
independent as defined by New York Stock Exchange listing standards. A copy of
the Audit Committee Charter is attached to this Proxy Statement as Appendix A.
The Committee, in accordance with its written charter, assists the Board in
fulfilling its responsibility for oversight of the quality and integrity of the
Company's accounting, auditing, and financial reporting practices. During fiscal
2000, the Committee chair, or his designee, as representative of the Committee,
discussed the interim financial information contained in each Quarterly Report
on Form 10-Q with the Chief Financial Officer, the Controller, and the
independent accountants prior to its filing with the Securities and Exchange
Commission (SEC).
In fulfilling its responsibilities, the Committee has reviewed and
discussed the audited financial statements contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000 with the Company's
management and the independent accountants. Specifically, the Committee
discussed with the independent accountants those matters required to be
discussed by Statement on Auditing Standards No. 61, Communications with Audit
Committees. Management is responsible for the financial statements and the
reporting process, including the system of internal controls. The independent
accountants are responsible for expressing an opinion as to whether the
financial statements are presented fairly, in all material respects, in
conformity with accounting principles generally accepted in the United States.
In discharging its oversight responsibility as to the audit process, the
Audit Committee obtained from the independent accountants a formal written
statement describing all relationships and non-audit services between the
independent accountants and the Company that might bear on the accountants'
independence consistent with Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees. In this regard, the Committee
considered whether or not the provision of non-audit services by the independent
accountants for the year 2000 is compatible with maintaining the independence of
the firm. The Committee also discussed with the independent accountants any
relationships that may impact their objectivity and independence and satisfied
itself as to the accountants' independence. The Committee also discussed with
management, the internal auditors and the independent accountants the quality
and adequacy of the Company's internal controls, and the organization,
responsibilities, budget and staffing of the internal audit function. The
Committee reviewed with both the independent and the internal auditors their
respective audit plans, audit scopes, and identification of audit risks.
The Committee, in reliance on the reviews and discussions referred to
above, recommended to the Board of Directors (and the Board has approved) that
the audited financial statements be included in Northwest Natural Gas Company's
Annual Report on SEC Form 10-K for the year ended December 31, 2000, for filing
with the Securities and Exchange Commission.
23
Respectfully submitted on February 22, 2001 by the Audit Committee of the
Board of Directors:
Wayne D. Kuni, Chair Dwight A. Sangrey
Mary Arnstad Russell F. Tromley
Thomas E. Dewey, Jr. Richard L. Woolworth
ITEM 2 - PROPOSED APPROVAL OF LONG-TERM INCENTIVE PLAN
The Board of Directors has adopted, subject to shareholder approval, the
Company's Long-Term Incentive Plan (the Plan), effective as of January 1, 2001.
Historically, the Company has relied primarily on stock options to provide
equity incentives to officers and employees. To provide more competitive
compensation arrangements, particularly for executive officers, the Board of
Directors believes that the Company should have the flexibility to make
long-term stock incentive awards subject to such terms and restrictions as may
be determined at the time of the awards. The proposed Plan will give the Company
broad authority to make such awards covering up to 500,000 shares of Common
Stock. The Plan provides for the award of stock bonuses, restricted stock and
performance-based awards. Subject to shareholder approval, the Organization and
Executive Compensation Committee (the Committee) has made initial long-term
incentive awards under the Plan. See "New Plan Benefits." The material terms of
the Plan are described below, and a complete copy of the Plan is attached to
this Proxy Statement as Appendix B.
ELIGIBILITY
All employees, officers and directors of the Company and its subsidiaries
are eligible to receive awards under the Plan.
SHARES AVAILABLE
The Plan provides that not more than 500,000 shares of Common Stock may be
issued pursuant to the Plan. The Common Stock issued under the Plan may be
authorized and unissued shares, reacquired shares, or shares delivered to or
withheld by the Company in payment of any applicable consideration or
withholding taxes with respect to an award under the Plan.
ADMINISTRATION
The Plan is administered by the Board of Directors, which may adopt rules
and regulations for the operation of the Plan and generally supervises the
administration of the Plan. The Board of Directors may delegate to a committee
of the Board of Directors or specified officers of the Company, or both,
authority to administer the Plan, except that only the Board of Directors may
amend, modify or terminate the Plan. The Board of Directors has delegated to the
Committee general authority for making awards under the Plan. The Committee
consists exclusively of outside directors as defined in the regulations under
Section 162(m) of the Internal Revenue Code of 1986. The Committee determines
individuals to whom awards are made under the Plan and the terms of any such
awards.
24
TERM OF PLAN
The Plan will continue until all shares available for issuance under the
Plan have been issued and all restrictions on such shares have lapsed. The Board
of Directors may suspend or terminate the Plan at any time.
STOCK BONUS AWARDS
The Committee may award Common Stock as a stock bonus under the Plan. The
Committee may determine the persons to receive awards, the number of shares to
be awarded and the time of the award. No cash consideration (other than tax
withholding amounts) will be paid by employees to the Company in connection with
stock bonuses. Stock received as a stock bonus is subject to the terms,
conditions and restrictions determined by the Committee at the time the stock is
awarded. Restrictions may include restrictions concerning transferability and
forfeiture of the shares. Stock bonus shares which are forfeited to the Company
are again available for issuance under the Plan.
RESTRICTED STOCK
The Plan provides that the Company may issue restricted shares in such
amounts, for such consideration (including promissory notes and services),
subject to such restrictions and on such terms as the Committee may determine.
Restrictions may include restrictions concerning transferability, repurchase by
the Company and forfeiture of the shares. Restricted shares that are forfeited
to or repurchased by the Company are again available for issuance under the
Plan.
PERFORMANCE-BASED AWARDS
The Committee may grant Performance-based Awards denominated either in
Common Stock or in dollar amounts. All or part of the awards will be earned if
performance goals established by the Committee for the period covered by the
award are met and the employee satisfies any other restrictions established by
the Committee. The performance goals may be expressed as one or more targeted
levels of performance with respect to one or more of the following objective
measures with respect to the Company or any subsidiary, division or other unit
of the Company: earnings, earnings per share, stock price increase, total
shareholder return (stock price increase plus dividends), return on equity,
return on assets, return on capital, economic value added, revenues, operating
income, inventories, inventory turns, cash flows or any of the foregoing before
the effect of acquisitions, divestitures, accounting changes, and restructuring
and special charges. Performance-based Awards may be paid in cash or Common
Stock and may be made as awards of restricted shares subject to forfeiture if
performance goals are not satisfied, as determined by the Committee. No employee
may receive in any fiscal year Performance-based Awards denominated in Common
Stock under which the aggregate amount payable under the Awards exceeds the
equivalent of 50,000 shares of Common Stock or Performance-based Awards
denominated in dollars under which the aggregate amount payable under the Awards
exceeds $1,000,000. The payment of a Performance-based Award in cash will not
reduce the number of shares reserved under the Plan.
CHANGES IN CAPITAL STRUCTURE
The Plan provides that if the outstanding Common Stock is increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of any stock split, stock dividend
25
or recapitalization, appropriate adjustment will be made by the Committee in the
number and kind of shares available for awards under the Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief description of the federal income tax consequences
related to awards under the Plan. An employee who receives stock in connection
with the performance of services will generally realize taxable income at the
time of receipt unless the shares are substantially nonvested for purposes of
Section 83 of the Internal Revenue Code of 1986. Absent an election under
Section 83(b) at the time an employee is awarded nonvested stock, an employee
who receives substantially nonvested stock in connection with performance of
services will recognize ordinary taxable income in each year in which a portion
of the shares substantially vest.
If an employee makes a Section 83(b) election at the time of receipt of
nonvested stock, he or she will recognize ordinary taxable income in the year of
such receipt in an amount equal to the excess of the fair market value of the
stock (determined without regard to the restrictions imposed by the Plan) at the
time of transfer over any amount the employee pays for the stock. At the time
the employee sells such stock the difference between the fair market value at
the time the nonvested stock was transferred to him or her and the proceeds of
the sale will be taxed as capital gain or loss. If an employee makes a
Section 83(b) election with respect to stock that is subsequently forfeited, he
or she will not be entitled to deduct any amount previously included in income
by reason of such election.
An employee who receives cash under a Performance-based Award will
recognize ordinary taxable income at the time of receipt.
The Company will generally be entitled to a tax deduction in the amount
includable as income by the employee at the same time or times as the employee
recognizes ordinary income with respect to the shares or cash awards.
Section 162(m) of the Internal Revenue Code of 1986 limits to $1,000,000
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 the chief executive
officer or among the four highest compensated officers other than the chief
executive officer. Pursuant to the regulations under Section 162(m),
compensation received through a performance-based award will not be subject to
the $1,000,000 limit if the performance-based award and the plan under which it
is granted meet certain requirements. One such requirement is that shareholders
approve the performance criteria upon which award payouts will be based and the
maximum amount payable under awards, both of which are set forth in Section 8 of
the Plan. Other requirements are that objective performance goals and the
amounts payable upon achievement of the goals be established by a committee
consisting solely of at least two outside directors and that no discretion be
retained to increase the amount payable under the awards. The Company believes
that, if this proposal is approved by the shareholders, compensation received on
vesting of Performance-based Awards granted under the Plan in compliance with
all of the above requirements will not be subject to the $1,000,000 deduction
limit.
NEW PLAN BENEFITS
Subject to shareholder approval of the Plan, on December 13, 2000 the
Committee made Performance-based Awards under the Plan which are summarized in
the following table.
26
LONG-TERM INCENTIVE PLAN(1)
-------------------------------------------------------------------------
NUMBER OF SHARES
PERFORMANCE ------------------------------------------------
NAME AND POSITION PERIOD AWARD THRESHOLD TARGET MAXIMUM
- ----------------- ----------- ----- --------- ------ -------
Richard G. Reiten 2001-2002 8,000 1,600 8,000 16,000
Chairman, President and Chief 2001-2003 8,000 1,600 8,000 16,000
Executive Officer
Michael S. McCoy 2001-2002 3,000 600 3,000 6,000
Executive Vice President 2001-2003 3,000 600 3,000 6,000
Bruce R. DeBolt 2001-2002 3,000 600 3,000 6,000
Senior Vice President and Chief 2001-2003 3,000 600 3,000 6,000
Financial Officer
Mark S. Dodson 2001-2002 3,000 600 3,000 6,000
Senior Vice President and General 2001-2003 3,000 600 3,000 6,000
Counsel
W. Richard Harper, Jr. 2001-2002 3,000 600 3,000 6,000
Senior Vice President 2001-2003 3,000 600 3,000 6,000
Executive Officer Group 2001-2002 26,000 5,200 26,000 52,000
2001-2003 26,000 5,200 26,000 52,000
Non-Executive Director Group -- -- -- -- --
Non-Executive Employee Group -- -- -- -- --
- -----------------------------------
1 Each executive officer received two awards, one based on a two year
performance period (2001-2002) and the other based on a three year
performance period (2001-2003). The Committee established a series of
performance targets based on the Company's average annual return on equity
for the applicable performance period corresponding to award payouts
ranging from 20% to 200% of the target awards. A participant generally must
be employed by the Company at the end of the performance period to receive
an award payout, although pro-rated awards will be paid if employment
terminates earlier on account of death, disability or retirement, or for
other reasons within six months of the end of the performance period.
Awards will be paid in Common Stock as soon as practicable after the end of
the performance period. Participants will also receive dividend equivalent
cash payments equal to the number of shares of Common Stock received on the
award payout multiplied by the aggregate cash dividends paid per share by
the Company during the performance period. Upon a change in control (as
defined) of the Company, all outstanding awards will be paid at the target
award level.
27
VOTE REQUIRED
Approval 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 Plan is 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 - 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 2001, and that this
firm be elected by the shareholders at the Annual Meeting. A representative of
PricewaterhouseCoopers LLP will be present at the Annual Meeting of Shareholders
and will be provided with the opportunity to make a statement and to respond to
appropriate questions. In case PricewaterhouseCoopers LLP is not elected, the
Board of Directors will select another independent certified public accounting
firm to serve as independent auditors of the Company.
AUDIT FEES
PricewaterhouseCoopers' fees for the fiscal year 2000 audit and the review
of Forms 10-Q are $137,000, of which an aggregate amount of $102,780 has been
billed through December 31, 2000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
PricewaterhouseCoopers LLP did not render any services related to financial
information systems design and implementation for the fiscal year ended
December 31, 2000.
ALL OTHER FEES
Aggregate fees billed for all other services rendered by
PricewaterhouseCoopers LLP for the fiscal year ended December 31, 2000 are
$75,710. These fees include amounts paid for audits of the Company's retirement
plans, tax compliance work, services related to the issuance of securities and
other special projects.
VOTE REQUIRED
Under Oregon law, if a quorum of shareholders is present at the Annual
Meeting, the election of PricewaterhouseCoopers LLP as independent auditors will
require that the votes cast in favor of 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.
28
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
ELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS FOR THE YEAR
2001.
OTHER MATTERS
The management does not know of any other matters to be presented at the
Annual Meeting. If other matters should be properly presented at the meeting,
the persons named in the accompanying proxy will vote the shares represented by
such proxy with respect to such matters in accordance with their best judgment.
EXECUTIVE SEVERANCE AGREEMENTS
The Board of Directors has approved the Company's entry into severance
agreements with each executive officer of the Company, including all of the
Named Executive Officers. These agreements generally provide for the payment,
upon the termination of the employee's employment by the Company without cause
or by the employee for "good reason" (as defined in the severance agreement)
within two years following a change in control of the Company, of an amount
equal to two or three times the sum of the employee's annual salary and average
bonus for the last three years, and also provide for the three-year continuation
of life and health insurance benefits. In addition, if any payments to the
employee are subject to the excise tax on "parachute payments," the Company will
make an additional payment to the employee such that the employee will receive
net benefits as if no excise tax were payable. If such additional payments are
required, the Company will not be able to deduct such additional payments for
federal income tax purposes and also will be denied such a deduction for some or
all of the other payments made pursuant to the agreement and its other plans and
policies. Each employee is obligated under the severance agreement to remain in
the employ of the Company for a period of 270 days following a "potential change
in control" (as defined in the severance agreements). All of the executive
officers have executed the severance agreements.
On February 28, 2001, the Company entered into a separation agreement with
Mr. Harper relating to his separation from the Company on January 1, 2002. The
agreement provided that he would resign as an officer of the Company effective
February 28, 2001, but would continue to perform specified services as a
contract employee of the Company from March 1, 2001 through January 1, 2002. For
the period from March 1, 2001 through April 20, 2001 he would use up his paid
vacation time that had accrued to the date of the agreement. From April 21, 2001
through April 30, 2001 he would be paid $4,333, and from May 1, 2001 through
January 1, 2002 he would be paid $34,075 per month. In addition, a payment of
$16,057 would be paid representing vacation accrued in 2001, and $54,700 would
be paid as a bonus earned for his performance in 2000. However, for purposes of
ESRIP, the agreement provides that his salary and bonus for 2001 shall be deemed
to be $220,532.
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
29
ESRIP for supplemental retirement benefits at 65% of final annual compensation
with no reduction in benefits based on early retirement if he (a) dies or
becomes disabled, (b) is terminated other than for cause, or (c) becomes
entitled to severance benefits under his executive severance agreement in
connection with a change in control of the Company.
On July 2, 1997, the Company entered into an employment agreement with
Mr. Dodson for a term extending until December 31, 2002, with an option for
Mr. Dodson to renew for an additional term through December 31, 2007. Under this
agreement, the Company modified the service requirements applicable to
Mr. Dodson for purposes of the ESRIP. Accordingly, Mr. Dodson will be vested and
eligible under the ESRIP for supplemental retirement benefits at 32.5% of final
annual compensation upon retirement on or after December 31, 2002 and 65% of
final annual compensation upon retirement on or after December 31, 2007. The
agreement also provides that Mr. Dodson will be vested and eligible under the
ESRIP for supplemental retirement benefits at 65% of final annual compensation
with no reduction in benefits based on early retirement if he (a) becomes
disabled, (b) dies after December 31, 2002, (c) is terminated other than for
cause, or (d) becomes entitled to severance benefits under his executive
severance agreement in connection with a change in control of the Company.
2002 ANNUAL MEETING OF SHAREHOLDERS
The 2002 Annual Meeting of Shareholders is scheduled to be held in
Portland, Oregon on Thursday, May 23, 2002. 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 2002 proxy materials by
December 17, 2001.
The Securities and Exchange Commission's proxy rules allow the Company to
use discretionary voting authority to vote on a matter coming before an annual
meeting of shareholders which is not included in the Company's proxy statement,
if the Company does not have notice of the matter at least 45 days before the
date on which the Company first mailed its proxy materials for the prior year's
annual meeting of shareholders. In addition, discretionary voting authority may
generally also be used if the Company receives timely notice of such matter (as
described in the preceding sentence) and if, in the proxy statement, the Company
describes the nature of such matter and how the Company intends to exercise its
discretion to vote on such matter. Accordingly, for the 2002 Annual Meeting of
Shareholders any such notice must be submitted to the Secretary of the Company
on or before March 2, 2002.
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
Corporate Investor Communications, Inc. to assist in the solicitation of proxies
from banks, brokers and nominees at a fee of $2,500 plus reasonable
out-of-pocket expenses.
30
If you are unable to be present at the Annual Meeting in person, please
mark, date, sign and mail the enclosed proxy so that the business of the meeting
can be transacted.
By Order of the Board of Directors,
Portland, Oregon C. J. Rue
April 16, 2001 Secretary
31
APPENDIX A
NORTHWEST NATURAL GAS COMPANY
AUDIT COMMITTEE CHARTER
AS RECOMMENDED BY THE AUDIT COMMITTEE AND APPROVED BY THE
BOARD OF DIRECTORS ON AND EFFECTIVE MAY 25, 2000
ORGANIZATION
The Audit Committee ("Committee") and its Chairperson shall be selected by the
Board of Directors ("Board"), based on recommendations of the Lead Director and
the CEO, at a meeting following the annual shareholders meeting. The Committee
shall consist of at least three Directors including a Chairperson. The Committee
shall include only independent Directors as defined by the relevant listing
authority. Each member of the Committee shall be financially literate or must
become financially literate within a reasonable period of time after his or her
appointment to the Committee. At least one member of the Committee must have
accounting or related financial management expertise, as the Board, in its
business judgment, interprets the foregoing qualifications.
STATEMENT OF POLICY
The Committee shall, through regular or special meetings with management, the
Director of Internal Auditing, and the Company's independent auditor, provide
oversight on matters relating to accounting, financial reporting, internal
control, auditing, and regulatory compliance activities and other matters as the
Board or the Committee Chairperson deems appropriate.
RESPONSIBILITIES
The Committee shall:
o Recommend to the Board the appointment of the firm of independent certified
public accountants to serve as the Company's independent auditor and shall
review the activities and independence of the independent auditor,
including communicating to the independent auditor that it is ultimately
accountable to the Board and the Audit Committee.
o Have the authority and responsibility to select, evaluate and, where
appropriate, replace the independent auditor (or to nominate the
independent auditor to be proposed for shareholder approval in any proxy
statement), subject to the approval of the Board.
o Ensure that the independent auditor provides annually to the Committee a
formal written statement delineating all relationships between the
independent auditor and the Company.
o Actively engage in a dialogue with the independent auditor with respect to
any disclosed relationships or services that may impact the objectivity and
independence of the independent auditor.
o Recommend that the Board take appropriate action in response to the
independent auditor's report to satisfy itself of the independent auditor's
independence.
A-1
o Approve the appointment and evaluation, in consultation with executive
management, of the Director of Internal Auditing.
o Review the organization, staffing, scope, results, and effectiveness of the
Company's internal audit function.
o Have separate direct lines of communication between itself and the
independent auditor, the Director of Internal Auditing and, with regard to
litigation and legal and regulatory compliance, the General Counsel.
The Committee shall review:
o Annual audit plans of the Director of Internal Auditing and the independent
auditor.
o The results of the internal auditor's and the independent auditor's
activities, including major conclusions, findings and recommendations, and
related management responses.
o The Company's accounting and financial reporting practices, policies and
procedures.
o The Company's audited financial statements to be included in the Company's
annual report on Form 10-K.
o Material litigation involving the Company and litigation involving officers
and directors.
o Accounting, legal, tax and other developments of major significance to the
Company.
o Adequacy and effectiveness of internal controls.
o Progress or results relating to major capital projects or contingency
issues, as the Committee considers appropriate.
o Compliance with legal and regulatory requirements.
o The Company's policies relating to delegation of management authority.
o The continued adequacy of this Audit Committee Charter on an annual basis.
o Such other matters as the Board or the Committee considers appropriate.
REPORTING & OTHER REQUIREMENTS
o Prior to the filing of the Form 10-K and in addition to its assessment of
the independent auditor's independence, the Committee shall review and
discuss the audited financial statements with management, and discuss with
the independent auditors the matters required to be discussed by relevant
auditing standards, including the quality, not just the acceptability, of
the accounting principles and underlying estimates used in the audited
financial statements.
o The Committee shall report to the Board, based on its reviews and
discussions, whether it recommends to the Board that the most recent year's
audited financial statements be included in the Company's Form 10-K to be
filed with the SEC.
o The Committee shall report to the shareholders, in the Company's proxy
statement, whether it has reviewed and discussed the audited financial
statements with management; whether it has discussed with the Company's
independent auditor the matters required to be discussed under relevant
auditing standards; whether it has received the written disclosures and the
letter from the Company's independent auditor with respect to the auditor's
independence; and whether it has discussed the independent auditor's
independence with the auditor.
o With regard to filings on Form 10-Q, the Chairperson and/or his or her
Committee designee(s) shall review the document with management and the
independent auditor prior to its filing.
o The Committee shall receive periodic reports from management, the General
Counsel, the Director of Internal Auditing, and the independent auditor on
A-2
matters relating to accounting, financial reporting, internal control,
auditing, litigation and compliance with legal business policies and
regulatory requirements. The Committee shall receive these reports pursuant
to a schedule that the Committee Chairperson develops in consultation with
management.
o The Committee shall meet privately (without members of management present)
and separately with the Director of Internal Auditing and the independent
auditor at least once each year and, when deemed appropriate, with the
Company's General Counsel.
o The Committee may cause an investigation to be made into any matter within
the scope of its responsibility. The Committee may engage independent
resources to assist in its investigations, as it deems necessary.
o The Committee Chairperson shall make regular reports to the Board on the
Committee's activities.
A-3
APPENDIX B
NORTHWEST NATURAL GAS COMPANY
LONG-TERM INCENTIVE PLAN
1. PURPOSE. The purpose of this Long-Term Incentive Plan (the "Plan") is
to enable Northwest Natural Gas Company (the "Company") to attract and retain
the services of selected employees, officers and directors of the Company or of
any subsidiary of the Company.
2. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided below and
in Section 9, the shares to be offered under the Plan shall consist of Common
Stock of the Company, and the total number of shares of Common Stock that may be
issued under the Plan shall not exceed 500,000 shares. The shares issued under
the Plan may be authorized and unissued shares or reacquired shares. If a
Performance-based Award granted under the Plan expires, terminates or is
cancelled, the unissued shares subject to such Performance-based Award shall
again be available under the Plan. If shares sold or issued as a bonus or
Performance-based Award under the Plan are forfeited to the Company or
repurchased by the Company, the number of shares forfeited or repurchased shall
again be available under the Plan.
3. EFFECTIVE DATE AND DURATION OF PLAN.
(a) EFFECTIVE DATE. The Plan shall become effective as of January 1,
2001. However, all awards under the Plan shall be conditioned on and subject to
approval of the Plan by the shareholders of the Company. Subject to this
limitation, Performance-based Awards may be granted and shares may be awarded as
bonuses or sold under the Plan at any time after the effective date and before
termination of the Plan.
(b) DURATION. The Plan shall continue in effect until all shares
available for issuance under the Plan have been issued and all restrictions on
such shares have lapsed. The Board of Directors may suspend or terminate the
Plan at any time except with respect to Performance-based Awards and shares
subject to restrictions then outstanding under the Plan. Termination shall not
affect any right of the Company to repurchase shares or the forfeitability of
shares issued under the Plan.
4. ADMINISTRATION.
(a) BOARD OF DIRECTORS. The Plan shall be administered by the Board of
Directors of the Company, which shall determine and designate from time to time
the individuals to whom awards shall be made, the amount of the awards and the
other terms and conditions of the awards. Subject to the provisions of the Plan,
the Board of Directors may from time to time adopt and amend rules and
regulations relating to administration of the Plan, advance the lapse of any
waiting period, accelerate any exercise date, waive or modify any restriction
applicable to shares (except those restrictions imposed by law) and make all
other determinations in the judgment of the Board of Directors necessary or
desirable for the administration of the Plan. The interpretation and
construction of the provisions of the Plan and related agreements by the Board
of Directors shall be final and conclusive. The Board of Directors may correct
any defect or supply any omission or reconcile any inconsistency in the Plan or
in any related agreement in the manner and to the extent it shall deem expedient
to carry the Plan into effect, and it shall be the sole and final judge of such
expediency.
B-1
(b) COMMITTEE. The Board of Directors may delegate to a committee of
the Board of Directors or specified officers of the Company, or both (the
"Committee") any or all authority for administration of the Plan. If authority
is delegated to a Committee, all references to the Board of Directors in the
Plan shall mean and relate to the Committee except (i) as otherwise provided by
the Board of Directors, and (ii) that only the Board of Directors may amend or
terminate the Plan as provided in Sections 3 and 10.
5. TYPES OF AWARDS; ELIGIBILITY. The Board of Directors may, from time to
time, take the following action, separately or in combination, under the Plan:
(i) award stock bonuses as provided in Section 6; (ii) sell shares subject to
restrictions as provided in Section 7; and (iii) grant Performance-based Awards
as provided in Section 8. An award may be made to any employee, officer or
director of the Company or any subsidiary of the Company. The Board of Directors
shall select the individuals to whom awards shall be made and shall specify the
action taken with respect to each individual to whom an award is made. At the
discretion of the Board of Directors, an individual may be given an election to
surrender an award in exchange for the grant of a new award.
6. STOCK BONUSES. The Board of Directors may award shares under the Plan
as stock bonuses. Shares awarded as a bonus shall be subject to the terms,
conditions and restrictions determined by the Board of Directors. The
restrictions may include restrictions concerning transferability and forfeiture
of the shares awarded, together with any other restrictions determined by the
Board of Directors. The Board of Directors may require the recipient to sign an
agreement as a condition of the award, but may not require the recipient to pay
any monetary consideration other than amounts necessary to satisfy tax
withholding requirements. The agreement may contain any terms, conditions,
restrictions, representations and warranties required by the Board of Directors.
The certificates representing the shares awarded shall bear any legends required
by the Board of Directors. The Company may require any recipient of a stock
bonus to pay to the Company in cash or by check upon demand amounts necessary to
satisfy any applicable federal, state or local tax withholding requirements. If
the recipient fails to pay the amount demanded, the Company may withhold that
amount from other amounts payable to the recipient, including salary, subject to
applicable law. With the consent of the Board of Directors, a recipient may
satisfy this obligation, in whole or in part, by instructing the Company to
withhold from any shares to be issued or by delivering to the Company other
shares of Common Stock; provided, however, that the number of shares so withheld
or delivered shall not exceed the minimum amount necessary to satisfy the
required withholding obligation. Upon the issuance of a stock bonus, the number
of shares reserved for issuance under the Plan shall be reduced by the number of
shares issued, less the number of shares withheld or delivered to satisfy
withholding obligations.
7. RESTRICTED STOCK. The Board of Directors may issue shares under the
Plan for any consideration (including promissory notes and services) determined
by the Board of Directors. Shares issued under the Plan shall be subject to the
terms, conditions and restrictions determined by the Board of Directors. The
restrictions may include restrictions concerning transferability, repurchase by
the Company and forfeiture of the shares issued, together with any other
restrictions determined by the Board of Directors. All Common Stock issued
pursuant to this Section 7 shall be subject to a purchase agreement, which shall
be executed by the Company and the prospective purchaser of the shares before
the delivery of certificates representing the shares to the purchaser. The
purchase agreement may contain any terms, conditions, restrictions,
representations and warranties required by the Board of Directors. The
certificates representing the shares shall bear any legends required by the
Board of Directors. The Company may require any purchaser of restricted stock to
pay to the Company in cash or by check upon demand amounts necessary to satisfy
B-2
any applicable federal, state or local tax withholding requirements. If the
purchaser fails to pay the amount demanded, the Company may withhold that amount
from other amounts payable to the purchaser, including salary, subject to
applicable law. With the consent of the Board of Directors, a purchaser may
satisfy this obligation, in whole or in part, by instructing the Company to
withhold from any shares to be issued or by delivering to the Company other
shares of Common Stock; provided, however, that the number of shares so withheld
or delivered shall not exceed the minimum amount necessary to satisfy the
required withholding obligation. Upon the issuance of restricted stock, the
number of shares reserved for issuance under the Plan shall be reduced by the
number of shares issued, less the number of shares withheld or delivered to
satisfy withholding obligations.
8. PERFORMANCE-BASED AWARDS. The Board of Directors may grant awards
intended to qualify as qualified performance-based compensation under Section
162(m) of the Internal Revenue Code of 1986, as amended, and the regulations
thereunder ("Performance-based Awards"). Performance-based Awards shall be
denominated at the time of grant either in Common Stock ("Stock Performance
Awards") or in dollar amounts ("Dollar Performance Awards"). Payment under a
Stock Performance Award or a Dollar Performance Award shall be made, at the
discretion of the Board of Directors, in Common Stock ("Performance Shares"), or
in cash or in any combination thereof. Performance-based Awards shall be subject
to the following terms and conditions:
(a) AWARD PERIOD. The Board of Directors shall determine the period of
time for which a Performance-based Award is made (the "Award Period").
(b) PERFORMANCE GOALS AND PAYMENT. The Board of Directors shall
establish in writing objectives ("Performance Goals") that must be met by the
Company or any subsidiary, division or other unit of the Company ("Business
Unit") during the Award Period as a condition to payment being made under the
Performance-based Award. The Performance Goals for each award shall be one or
more targeted levels of performance with respect to one or more of the following
objective measures with respect to the Company or any Business Unit: earnings,
earnings per share, stock price increase, total shareholder return (stock price
increase plus dividends), return on equity, return on assets, return on capital,
economic value added, revenues, operating income, inventories, inventory turns,
cash flows or any of the foregoing before the effect of acquisitions,
divestitures, accounting changes, and restructuring and special charges
(determined according to criteria established by the Board of Directors). The
Board of Directors shall also establish the number of Performance Shares or the
amount of cash payment to be made under a Performance-based Award if the
Performance Goals are met or exceeded, including the fixing of a maximum payment
(subject to Section 8(d)). The Board of Directors may establish other
restrictions to payment under a Performance-based Award, such as a continued
employment requirement, in addition to satisfaction of the Performance Goals.
Some or all of the Performance Shares may be issued at the time of the award as
restricted shares subject to forfeiture in whole or in part if Performance Goals
or, if applicable, other restrictions are not satisfied.
(c) COMPUTATION OF PAYMENT. During or after an Award Period, the
performance of the Company or Business Unit, as applicable, during the period
shall be measured against the Performance Goals. If the Performance Goals are
not met, no payment shall be made under a Performance-based Award. If the
Performance Goals are met or exceeded, the Board of Directors shall certify that
fact in writing and certify the number of Performance Shares earned or the
amount of cash payment to be made under the terms of the Performance-based
Award.
B-3
(d) MAXIMUM AWARDS. No participant may receive in any fiscal year
Stock Performance Awards under which the aggregate amount payable under the
Awards exceeds the equivalent of 50,000 shares of Common Stock or Dollar
Performance Awards under which the aggregate amount payable under the Awards
exceeds $1,000,000.
(e) TAX WITHHOLDING. Each participant who has received Performance
Shares shall, upon notification of the amount due, pay to the Company in cash or
by check amounts necessary to satisfy any applicable federal, state and local
tax withholding requirements. If the participant fails to pay the amount
demanded, the Company or the Employer may withhold that amount from other
amounts payable to the participant, including salary, subject to applicable law.
With the consent of the Board of Directors, a participant may satisfy this
obligation, in whole or in part, by instructing the Company to withhold from any
shares to be issued or by delivering to the Company other shares of Common
Stock; provided, however, that the number of shares so delivered or withheld
shall not exceed the minimum amount necessary to satisfy the required
withholding obligation.
(f) EFFECT ON SHARES AVAILABLE. The payment of a Performance-based
Award in cash shall not reduce the number of shares of Common Stock reserved for
issuance under the Plan. The number of shares of Common Stock reserved for
issuance under the Plan shall be reduced by the number of shares issued upon
payment of an award, less the number of shares delivered or withheld to satisfy
withholding obligations.
9. CHANGES IN CAPITAL STRUCTURE. If the outstanding Common Stock of the
Company is hereafter increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company by reason
of any stock split, combination of shares or dividend payable in shares,
recapitalization or reclassification, appropriate adjustment shall be made by
the Board of Directors in the number and kind of shares available for grants
under the Plan. In addition, the Board of Directors shall make appropriate
adjustment in the number and kind of shares subject to outstanding
Performance-based Awards so that the recipient's proportionate interest before
and after the occurrence of the event is maintained. Notwithstanding the
foregoing, the Board of Directors shall have no obligation to effect any
adjustment that would or might result in the issuance of fractional shares, and
any fractional shares resulting from any adjustment may be disregarded or
provided for in any manner determined by the Board of Directors. Any such
adjustments made by the Board of Directors shall be conclusive.
10. 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 shall deem
advisable because of changes in the law while the Plan is in effect or for any
other reason. Except as provided in Section 9, however, no change in an award
already granted shall be made without the written consent of the holder of such
award.
11. 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 grants under the Plan. The foregoing notwithstanding, the
Company shall not be obligated to issue or deliver Common Stock under the Plan
if such issuance or delivery would violate applicable state or federal
securities laws.
B-4
12. EMPLOYMENT AND SERVICE RIGHTS. Nothing in the Plan or any award
pursuant to the Plan shall (i) confer upon any employee any right to be
continued in the employment of the Company or any subsidiary or interfere in any
way with the right of the Company or any subsidiary by whom such employee is
employed to terminate such employee's employment at any time, for any reason,
with or without cause, or to decrease such employee's compensation or benefits,
or (ii) confer upon any person engaged by the Company any right to be retained
or employed by the Company or to the continuation, extension, renewal, or
modification of any compensation, contract, or arrangement with or by the
Company.
13. RIGHTS AS A SHAREHOLDER. The recipient of any award under the Plan
shall have no rights as a shareholder with respect to any Common Stock until the
date the recipient becomes the holder of record of those shares. Except as
otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date occurs prior to the date the
recipient becomes the holder of record.
B-5
[LOGO OMITTED] NW NATURAL
220 N.W. SECOND AVENUE
PORTLAND, OR 97209
April 16, 2001
Dear Shareholder:
We cordially invite you to attend the 2001 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 24, 2001, 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
five directors; (2) the approval of the Long-Term Incentive Plan; and (3) the
election of independent auditors. Your Board of Directors unanimously recommends
that you vote FOR Items 1, 2 and 3.
Whether or not you expect to attend, to assure your representation at the
meeting and the presence of a quorum, please compete, date, sign and mail
promptly the enclosed proxy, for which a return envelope is provided.
Sincerely,
/s/ Richard G. Reiten
Richard G. Reiten
Chairman and Chief Executive Officer
[LOGO OMITTED] NW NATURAL REVOCABLE PROXY
This proxy when properly executed will be voted in the manner directed herein by
the shareholder whose signature appears below. IF NO DIRECTION IS MADE, THE
PROXY WILL BE VOTED FOR ITEMS 1, 2 AND 3.
ITEM 1. Vote on Directors [ ] FOR ALL
Class I Nominee: Richard L. Woolworth [ ] WITHHOLD ALL
Class II Nominees: Tod R. Hamachek, Wayne D. Kuni, [ ] FOR ALL EXCEPT
Melody C. Teppola, Russell F. Tromley
To withhold an individual nominee, mark
"FOR All Except" and write the nominee's
name on the line below.
---------------------------------------
PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING
ITEM 2. Approval of the Long-Term
Incentive Plan [ ] FOR [ ] AGAINST [ ] ABSTAIN
ITEM 3. Election of PricewaterhouseCoopers LLP
as Auditors for 2001 [ ] FOR [ ] AGAINST [ ] ABSTAIN
[ ] PLEASE MARK THIS BOX IF YOU PLAN TO ATTEND THE ANNUAL MEETING.
----------------------------------------
Signature(s)
----------------------------------------
Signature(s)
When signing as attorney-in-fact,
executor, administrator, trustee,
guardian or officer of a corporation,
please give full title as such. On joint
accounts, each owner should sign.
Date: , 2001
---------------------------
PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING
[GRAPHIC OMITTED] NW NATURAL
REVOCABLE PROXY
NORTHWEST NATURAL GAS COMPANY
PROXY FOR 2001 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 24, 2001, 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 2001 Annual Meeting and at any adjournments or
postponements thereof, on all matters properly brought before such meeting or
any adjournment thereof, including but not limited to the matters set forth on
the reverse side.
The Company will provide reasonable accommodation for a disability. If you need
an accommodation, please contact the Company at (503) 226-4211 ext. 3411 at
least 72 hours before the meeting.
PLEASE DATE AND SIGN THIS PROXY ON THE REVERSE SIDE
AND MAIL WITHOUT DELAY IN THE ENCLOSED ENVELOPE.