10-K 1 TEXT OF 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 _____ FORM 10-K (Check One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the Transition period from ___________ to____________ Commission file number 0-994 NORTHWEST NATURAL GAS COMPANY (Exact name of registrant as specified in its charter) Oregon 93-0256722 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 220 N.W. Second Avenue, Portland, Oregon 97209 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (503) 226-4211 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- None None Securities registered pursuant to Section 12(g) of the Act: Title of each class Shares outstanding on February 28, 1995 ------------------- --------------------------------------- Common Stock, $3 1/6 par value 14,622,386 Preference Stock, without par value 295,069 Preferred Stock, without par value 159,504 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ X ]. The aggregate market value of the shares of voting stock (common stock) held by non-affiliates of the registrant at February 28, 1995 was: $440,173,000 DOCUMENTS INCORPORATED BY REFERENCE List documents incorporated by reference and the Part of the Form 10-K into which the document is incorporated. Portions of the Proxy Statement of Company, dated April 14, 1995, are incorporated by reference in Part III. NORTHWEST NATURAL GAS COMPANY Annual Report to Securities and Exchange Commission on Form 10-K for the year 1994 Table of Contents PART I Page ------ ---- Item 1. Business General. . . . . . . . . . . . . . . . . . . . . . . 1 Gas Supply . . . . . . . . . . . . . . . . . . . . . 2 Transportation . . . . . . . . . . . . . . . . . . . 7 Regulation and Rates . . . . . . . . . . . . . . . . 7 Competition and Marketing. . . . . . . . . . . . . . 10 Construction and Financing Programs. . . . . . . . . 13 Environment. . . . . . . . . . . . . . . . . . . . . 13 Employees. . . . . . . . . . . . . . . . . . . . . . 13 Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . 13 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 15 Item 4. Submission of Matters to a Vote of Security Holders . . 15 Additional Item Executive Officers of the Registrant. . . . . . . . . . 15 PART II ------- Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. . . . . . . . . . . . . . . . . . 17 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . 20 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . 21 Item 8. Financial Statements and Supplementary Data . . . . . . 35 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . 72 PART III -------- Items 10. - 13. Incorporated by Reference to Proxy Statement . . . . 72 PART IV ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . 72 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 78 NORTHWEST NATURAL GAS COMPANY PART I ITEM 1. BUSINESS General ------- Northwest Natural Gas Company (the Company) was incorporated under the laws of Oregon in 1910. The Company and its predecessors have supplied gas service to the public since 1859. The Company is principally engaged in the distribution of natural gas. The Oregon Public Utility Commission (OPUC) has allocated to the Company as its exclusive service area a major portion of western Oregon, including the Portland metropolitan area, most of the fertile Willamette Valley and the coastal area from Astoria to Coos Bay. The Company also holds certificates from the Washington Utilities and Transportation Commission (WUTC) granting it exclusive rights to serve portions of three Washington counties bordering the Columbia River. Gas service is provided in 94 cities, together with neighboring communities, in 16 Oregon counties, and in nine cities, together with neighboring communities, in three Washington counties. At year-end 1994, the Company's service areas had a population of nearly 2,700,000, including about 78 percent of the population of the State of Oregon. The City of Portland, Oregon is the principal retail and manufacturing center in the Columbia River Basin. It is a major port and growing nucleus for trade with Pacific Rim nations such as Japan and Korea. At year-end 1994, the Company had about 347,000 residential customers, 44,000 commercial customers, and 600 industrial customers. Industries served include pulp, paper and other forest products; the processing of farm and food products; lumber and plywood; the production of various mineral products; the manufacture of electronic, electrochemical and electrometallurgical products; metal fabrication and casting; and the production of machine tools, machinery and textiles. The Company has four subsidiaries, each of which is incorporated in the State of Oregon: Oregon Natural Gas Development Corporation (Oregon Natural), NNG Financial Corporation (Financial Corporation), NNG Energy Systems, Inc. (Energy Systems) and Pacific Square Corporation (Pacific Square). Oregon Natural is engaged in natural gas exploration, development and production in Oregon and other western states, and, through its wholly-owned subsidiary, Canor Energy Ltd. (Canor), an Alberta corporation, also engages in natural gas and oil exploration, development and production in Alberta and Saskatchewan, Canada. Oregon Natural also holds an equity investment in a Boeing 737-300 aircraft. (See Part I, Item 2, and Part II, Item 8, Notes 2 and 10.) Financial Corporation holds financial investments as a limited partner in four solar electric generating plants, four wind power electric generation projects and a hydroelectric project, all located in California, and in a low-income housing project in Portland. Financial Corporation also arranges short- term financing for the Company's operating subsidiaries. (See Part II, Item 8, Notes 2, 6 and 10.) Energy Systems, through its wholly-owned subsidiary, Agrico Cogeneration Corporation (Agrico), formerly owned a 25 megawatt cogeneration plant near Fresno, California. Neither Energy Systems nor Agrico now has any operating activities. (See Part I, Item 2, and Part II, Item 8, Note 2.) Until 1994, Pacific Square was engaged in real estate management, principally in connection with two office buildings in Portland and other Company-owned properties adjacent to those buildings. During 1994, Pacific Square sold its partnership interests in these buildings and now has no operating activities. (See Part I, Item 2, and Part II, Item 8, Note 2.) Gas Supply ---------- General ------- The Company meets the needs of its core market (residential, commercial and firm industrial) customers through natural gas purchases from a variety of suppliers. The Company has a diverse portfolio of short-, medium- and long-term firm gas supply contracts. During periods of peak demand, supplies under these contracts are supplemented with gas from storage facilities either owned by or contractually committed to the Company. Natural gas for the Company's core market is transported by Northwest Pipeline Corporation (NPC), primarily under a contract expiring September 30, 2013, providing for firm transportation capacity of up to 2,460,440 therms(1) per day. NPC's rates for this service are established by the Federal Energy Regulatory Commission (FERC) under NPC's primary firm transportation rate schedule, as amended or superseded from time to time. The Company also has a contract expiring April 1, 2008 for 500,000 therms per day of firm transportation capacity for its core market through participation in an expansion of NPC's system, and an expansion of Pacific Gas Transmission's (PGT) pipeline through central Oregon, southeastern Washington and northern Idaho. In combination, this additional firm transportation capacity provides a connection through Alberta Natural Gas Company Ltd.'s (ANG) system to producing regions of Alberta, Canada. The cost to the Company of gas to supply its core market consists of the purchase price paid to suppliers plus charges paid to pipelines to transport such gas to the Company's distribution system. While the rates for pipeline transportation and peaking services are regulated, the purchase price of gas is not. Although pipeline costs have increased by 44 percent since 1992, the effect of such increases on core market customers has been largely offset by lower gas prices. In addition the Company [FN] ---------------- (1) For gas quantities expressed in therms, one therm is equivalent to 100 cubic feet of natural gas at an assumed heat content of 1,000 British Thermal Units (Btu's) per cubic foot. MMBtu means one million Btu's, or 10 therms. For gas quantities expressed in cubic feet, unless otherwise indicated, all volumes are stated at a pressure base of 14.73 pounds per square inch absolute at 60 degrees Fahrenheit, and in some instances are rounded to the nearest major multiple. Mcf means one thousand cubic feet, Mmcf means one million cubic feet and Bcf means one billion cubic feet. has been able to offset firm transportation charges, in part, by making off-system sales in periods when core market customers do not fully utilize firm pipeline capacity. The Company supplies many of its non-core customers (larger industrial interruptible customers with full or partial dual fuel capabilities) through gas transportation service, delivering gas purchased by these customers directly from suppliers. (See "Transportation".) Core Market Basic Supply ------------------------- The Company purchases gas for its core market from a variety of suppliers located in the western United States and Canada. At January 1, 1995, the Company had 14 contracts with 12 suppliers with original terms of from four months to 15 years which provided for a maximum of 2,468,790 therms of firm gas per day during the peak winter season and 1,543,300 therms per day during the remainder of the year. About three-fourths of this supply comes from Canada. The terms of the Company's principal purchase agreements are summarized as follows: An agreement expiring November 1, 2003 with CanWest Gas Supply, Inc. (CanWest), an aggregator for gas producers in British Columbia, Canada, entitles the Company to purchase up to approximately 960,000 therms of firm gas per day. This agreement contains a demand and commodity pricing structure and a provision for annual renegotiations of the commodity price to reflect then-prevailing market prices. The demand charges reflect the reservation of firm transportation space on the Westcoast Energy, Inc. pipeline system in British Columbia. These demand charges are subject to change as approved by the Canadian National Energy Board (NEB) in rate proceedings similar to those conducted in the United States by the FERC. This contract contains minimum purchase obligations. An agreement also expiring November 1, 2003 with Amoco Canada Petroleum Company, Ltd., on terms similar to the CanWest agreement, entitles the Company to purchase up to approximately 83,300 therms of firm gas per day. This gas is aggregated from production in Alberta and the Canadian Yukon and Northwest Territories. This contract contains minimum purchase obligations. An agreement with Poco Petroleums, Ltd. (Poco), a Canadian producer, expiring September 30, 2003, entitles the Company to purchase up to 155,160 therms per day during the winter and up to 110,000 therms per day during the summer of gas produced in Alberta. Two agreements expiring September 30, 2003 with Westcoast Gas Services entitle the Company to purchase up to 140,000 therms per day year-round, plus up to 92,750 therms per day as winter season supply, of gas produced in Alberta. Pricing for supplies under these agreements can be renegotiated annually. The current pricing arrangement includes demand charges for upstream capacity on the Canadian pipeline systems and a monthly reservation charge. The commodity pricing consists of a portion of the daily contract quantity at a fixed price and the remaining daily contract quantity tied to a monthly Canadian index. An agreement expiring October 31, 1996 with Poco entitles the Company to purchase up to 200,000 therms of firm gas per day. This agreement contains a demand and commodity pricing structure, a provision for annual renegotiations of the commodity price, minimum purchase obligations and a pro rata market share commitment. The demand charge is subject to NEB regulation. This gas is produced in Alberta and British Columbia. An agreement expiring October 31, 2000 with Summit Resources Ltd. entitles the Company to purchase up to 77,580 therms per day during the winter and up to 50,000 therms per day during the summer of gas produced in Alberta. Pricing for supplies under this agreement can be renegotiated annually. The current pricing arrangement includes demand charges for upstream capacity on NOVA Corporation of Alberta's system and commodity charges that are separated into two tiers. During 1994, new purchase agreements for firm gas were entered into with seven suppliers which provided for a total of 760,000 therms per day. These agreements were similarly structured, as follows: each was for a four-month term, from November 1, 1994 through February 28, 1995; each provided volumes based on a combination of reservation charges and indexed commodity prices; and all but one had a minimum volume obligation at a fixed price. All of the gas purchased under these agreements was produced in the United States Rocky Mountain and San Juan Basin regions. The Company intends to enter new purchase agreements for equivalent volumes of gas with these or other similar suppliers to be available during the winter season extending from November 1, 1995, until February 29, 1996. During 1994, less than one percent of the Company's purchases for its core market was from the spot market (30 days or less). The Company's goal in purchasing gas for its core market is to meet customers' needs at reasonable prices. The Company believes that gas supplies available from suppliers in the western United States and Canada are adequate to serve its core market customers for the foreseeable future, and that the cost of such gas generally will track market prices. Core Market Peaking Supply -------------------------- During peak demand periods, the Company supplements its firm gas supplies with gas from Company-owned or contracted peaking facilities in which gas is stored during periods of low demand for use during periods of peak demand. In addition to enabling the Company to meet its peak demand, these facilities make it possible to lower the annual average cost of gas by allowing the Company both to reduce its pipeline transportation contract demand and to purchase gas for storage during the summer months when prices are generally at their lowest. The Company has contracts with NPC which expire in 2004 for firm storage services from the underground gas storage field at Jackson Prairie near Centralia, Washington, and the liquefied natural gas (LNG) facility at Plymouth, Washington. Together, these facilities provide a daily deliverability of 831,380 therms and a total seasonal capacity of 13,082,647 therms. In addition, the Company has a contract with NPC which expires in 1996 for an additional daily deliverability of 94,670 therms and an additional seasonal capacity of 2,779,970 therms from the Jackson Prairie storage field. The Company owns and operates two LNG plants which liquefy gas during the summer months for use during the peak winter season. These two plants, one located in Portland and the other near Newport, Oregon, provide a maximum daily deliverability of 1,800,000 therms and a total seasonal capacity of 17,000,000 therms. The Company also owns and operates an underground gas storage facility at Mist, Oregon. This facility has a maximum daily deliverability of 1,000,000 therms and a total seasonal working gas capacity of 70,000,000 therms. The Company has a contract with Portland General Electric Company (PGE) expiring in 2010 that provides the Company with additional winter peaking supply. With certain limitations, the Company may interrupt gas deliveries to PGE, use that gas for the Company's core customers, and compensate PGE for its cost of replacement fuel oil. The daily deliverability under this contract is 300,000 therms, increasing to 760,000 therms in November 1995. Transportation -------------- Between 1988 and 1992, most of the Company's large industrial interruptible customers switched from sales service to transportation service whereby they purchased gas directly from suppliers and shipped the gas on the Company's system and those of its pipeline suppliers for a fee. Since 1992, more than half of these customers have returned to sales service, primarily because the Company's industrial sales rates were lower than those customers' costs of purchasing and shipping their own gas. The ability of industrial customers to switch between sales service and transportation service has made it possible for the Company to retain most of these customers. Because transportation charges typically are the same as the margin on an equivalent sale of gas, switching between sales service and transportation service by industrial interruptible customers has not had a material effect on the Company's results of operations. (See "Competition and Marketing" and Part II, Item 7.) Regulation and Rates -------------------- The Company is subject to regulation with respect to, among other matters, rates, systems of accounts and issuance of securities by the OPUC and the WUTC. In 1994, 92.1 percent of the Company's gas deliveries and 94.4 percent of its utility operating revenues were derived from Oregon customers and the balance from Washington customers. The Company is exempt from the provisions of the Natural Gas Act by order of the Federal Power Commission (now the FERC). The Company's most recent general rate case in Oregon, which was effective in 1989, authorized rates designed to produce a return on common equity of 13.25 percent. The most recent general rate increase in Washington, which was effective in 1986, authorized rates also designed to produce a return on common equity of 13.25 percent. Actual revenues resulting from the OPUC's and WUTC's general rate orders are dependent on weather, economic conditions, customer growth, competition and other factors affecting gas usage in the Company's service area. The Company has no plans to file general rate cases in either Oregon or Washington in 1995. The Company's returns on average common equity from utility operations were 15.9 percent in 1993 and 11.3 percent in 1994. Its returns from consolidated operations (including subsidiary results) were 13.7 percent in 1993 and 12.2 percent in 1994. In Oregon, the Company has a Purchased Gas Cost Adjustment (PGA) tariff under which the Company's net income derived from Oregon operations is affected only within defined limits by changes in purchased gas costs. The PGA tariff provides for periodic revisions in rates due to changes in the Company's cost of purchased gas. Costs included in the PGA adjustments are based on the Company's gas requirements for the 12-month period ended each June 30. Any resulting rate adjustments, derived from gas prices negotiated for the gas supply contract year commencing on the following November 1, are made effective on the following December 1. The PGA tariff also provides that 80 percent of any difference between actual gas commodity costs and related costs incorporated into rates will be deferred for amortization in subsequent periods. If actual gas commodity costs exceed those incorporated in rates, the Company subsequently will adjust its rates upward to recover 80 percent of the deficiency from core market customers. Similarly, if actual gas commodity costs are lower than those reflected in rates, rates will be adjusted downward to refund to core customers 80 percent of such gas commodity cost savings. In Washington, the Company is permitted to track increases and decreases in gas commodity costs coincidental with their incurrence, with the result that net income is not directly affected by changes in gas commodity costs. In October 1994, the Company filed under its Oregon PGA tariff to reduce rates for Oregon customers by an average of 5.6 percent. In a similar filing in Washington in November 1994, the Company filed to reduce its rates by an average of 7.0 percent. The OPUC and WUTC approved the respective filings effective December 1, 1994. The decreases pass through reductions in gas costs and remove temporary adjustments to rates which were put into effect on December 1, 1993 for the amortization of prior gas cost savings. In March 1994, the Company filed for rate decreases in Oregon to refund to customers savings from lower property taxes resulting from voter approval of an initiative measure which reduced property taxes. Effective April 15, 1994, all core market and cost-based transportation rate schedules for Oregon customers were reduced by an average of 1.1 percent. In December 1994, the Company filed with the OPUC to recover higher revenues from core customers through monthly service charges with an offsetting lower revenue recovery through volumetric rates. These rate redesign changes, which are intended to reduce earnings variability due to weather fluctuations, were approved by the OPUC effective January 1, 1995. Effective December 1, 1994, the Company terminated its Interruptible Sales Adjustment (ISA) tariff schedule in Oregon. This tariff had provided a mechanism to level margin fluctuations which resulted from the volatility of sales to large industrial interruptible customers caused by price competition between natural gas and residual fuel oil and the migration of such customers from one rate schedule to another. Through negotiation, the OPUC and the Company agreed to a permanent resetting of core market rates to reflect the ISA tariff's experience during the most recent two-year period. This agreement will result in a $1.8 million reduction in core market rates which will be phased in over two years, commencing December 1, 1994. During 1994, the Company filed with the OPUC, and the OPUC approved, revisions to the Company's tariffed policy relating to the extension of Company facilities which are required to serve new customers. The prior policy based costs for connecting new customers on system-wide average costs and granted such customers an allowance for the cost of constructing Company facilities to serve them which was based on the number of gas appliances installed. Under the new policy approved by the OPUC, installation charges are based on the actual distance and difficulty of the installation, and the estimated gas usage from all gas appliances to be installed. From this estimate, a margin revenue estimate is derived which is used to determine what amount, if any, the customer must contribute toward the cost of installing Company facilities. It is not expected that the new policy will limit future customer growth since most new space and water heating customers should continue to qualify for gas service without incurring installation charges for connecting Company facilities. The new policy encourages the installation of multiple gas appliances and enables the Company to restrict the addition of new customers to those that are profitable to serve, while retaining the right of other potential customers to contribute to construction costs if they desire gas service. The OPUC and WUTC have approved transportation tariffs under which the Company may contract with customers to deliver customer-owned gas. Under these tariffs, revenues from the transportation of customer-owned gas, except that of large industrial customers having the capability of bypassing the Company's system, generally are equivalent to the margins that would have been realized from sales of Company-owned gas. (See "Transportation" and "Competition and Marketing".) The OPUC and WUTC have implemented "least-cost planning" processes under which utilities develop plans defining alternative growth scenarios and resource acquisition strategies. In 1994, the OPUC and WUTC acknowledged and accepted the Company's submissions of its second Least Cost Plan. Elements of the Plan included an evaluation of supply and demand resources; the consideration of uncertainties in the planning process and the need for flexibility to respond to changes; a primary goal of "least cost" service; and consistency with state energy policy. Although the OPUC's order acknowledging the Least Cost Plan does not constitute ratemaking approval of any specific resource acquisition or expenditure, the OPUC indicated that it would give considerable weight in prudency reviews to utility actions which are consistent with acknowledged integrated resource plans. Competition and Marketing ------------------------- The Company has no direct competition in the territory it serves from other natural gas utility distributors. However, it competes with NPC to serve large industrial customers; with oil and, to a lesser extent, electricity, for industrial uses; with oil, electricity and wood for residential use; and with oil and electricity for commercial uses. Competition among these forms of energy is based on price, reliability, efficiency and performance. In 1994, the Company maintained its competitive price advantage over electricity and approximate price parity with fuel oil in both the residential and commercial markets. Throughout 1994, natural gas rates continued to be substantially lower than rates for electricity provided by the investor-owned utilities which serve approximately 75 percent of the homes in the Company's Oregon service area. The Company believes that this rate advantage will continue for the foreseeable future. As a result of price increases in recent years by the Bonneville Power Administration, the wholesale supplier of much of the electricity sold by publicly-owned electric utilities in the Pacific Northwest, the price of natural gas for home heating in most cases is competitive with the price of electricity provided by public utility districts. The relatively low (estimated at between 30 and 35 percent) residential (single family and attached dwelling) saturation of natural gas in the Company's service territory, together with the price advantage of natural gas compared with electricity and its operating convenience over fuel oil, provides the potential for continuing growth in the residential conversion market. In 1994, 17,793 net (after subtracting disconnected or terminated services) residential customers were added, including 7,983 units of existing residential housing which were reconnected to the system or were converted from oil or electric appliances to natural gas. Of the new heating conversions from other fuels, more than half also use gas for water heating. In addition, 1,421 net commercial customers were connected in 1994. The net total of all new customers added in 1994 was 19,211. This constituted a growth rate of 5.2 percent, nearly double the national average for local distribution companies as reported by the American Gas Association. Natural gas sales volumes to residential and commercial customers during 1994 decreased 5.5 percent to 454.6 million therms from 481.3 million therms in 1993, largely due to warmer weather. For the year 1994, temperatures in the Company's service territory, based on heating degree days, were 10 percent warmer than those of 1993, and were seven percent warmer than the 20-year average. In 1994, 78.3 percent of total utility operating revenues and 45.9 percent of the total therms delivered were derived from deliveries to residential and commercial customers. (See Part II, Item 7.) Natural gas sales and transportation deliveries to industrial firm customers during 1994 totalled 99.2 million therms which was 0.6 percent below the 1993 level of 99.8 million therms. In 1994, 10.4 percent of total utility operating revenues and 10.0 percent of total therms delivered were derived from deliveries to industrial firm customers. Total natural gas sales and transportation deliveries to industrial interruptible customers during 1994 totalled 436.5 million therms which was 5.6 below the 1993 level of 462.5 million therms. These deliveries included the transportation of 18.6 million therms to an electric generating plant in 1994, down from 29.3 million therms transported to two plants in 1993. In 1994, 11.1 percent of total utility operating revenues and 44.1 percent of total therms delivered were derived from sales and transportation deliveries to industrial interruptible customers. The Company and most of its largest industrial customers have entered into high-volume interruptible transportation agreements. These agreements are designed to provide rates that are competitive with the costs of alternative fuels, such as heavy oil, by reducing the per-therm transportation rate. They also are designed to provide rates competitive with "bypass" (direct connection to interstate pipelines) by applying fixed charges that are equivalent to the capital and operating costs of direct connections to NPC's system. These agreements prohibit bypass during their terms. The Company does not expect a significant number of its large customers to bypass its system in the foreseeable future. (See Part II, Item 7.) During 1994, the OPUC authorized the Company to enter into agreements with industrial customers, without OPUC approval, releasing, at negotiated rates, the Company's rights to portions of its firm pipeline capacity and pipeline transportation services. In its order authorizing the Company to enter into such agreements, the OPUC concluded that rate flexibility was warranted because competition for such services exists. The OPUC's order, which implements legislation adopted by the Oregon legislature in 1993, allows the Company to compete effectively with independent gas marketers. Eighty percent of all positive net revenues (gross revenues less the actual cost of gas or pipeline capacity) generated from these agreements will be credited to core customer gas costs. In a related order issued in February 1995, the OPUC eliminated its previously-mandated requirement that the OPUC make an annual determination that these markets are subject to competition. Construction and Financing Programs ----------------------------------- See Part II, Item 7, Management's Discussion and Analysis of Results of Operations and Financial Condition. Environment ----------- The Company is subject to air, water and other environmental regulation by state and federal authorities and has complied in all material respects with applicable regulations. Compliance with these regulations has had no material effect upon the capital expenditures, earnings or the competitive position of the Company. The Company owns property in Linnton, Oregon and previously owned property in Salem, Oregon that were sites of former gas manufacturing plants. Both sites are under investigation for potential remediation. (See Part II, Item 7, and Item 8, Note 12.) Employees --------- At year-end 1994, the Company had 1,338 employees, of which 975 were members of the Office and Professional Employees International Union, Local No. 11. These union employees approved a five-year Joint Accord covering wages, benefits and working conditions effective April 1, 1992. ITEM 2. PROPERTIES The Company's natural gas distribution system consists of 9,639 miles of mains, as well as service pipes, meters and regulators, and gas regulating and metering stations. The mains and feeder lines are located in municipal streets or alleys pursuant to valid franchise or occupation ordinances, in county roads or state highways pursuant to valid agreements or permits granted pursuant to statute, or on lands of others pursuant to valid easements obtained from the owners of such lands. The Company also holds all necessary permits for the crossing of the Willamette River and a number of small rivers by its mains. The Company owns service facilities in Portland, as well as various satellite service centers, garages, warehouses, and other buildings necessary and useful in the conduct of its business. It leases office space in Portland for its corporate headquarters. District offices are maintained on owned or leased premises at convenient points in the distribution system. The Company owns LNG facilities in Portland and near Newport, Oregon, and also owns two natural gas reservoirs at Mist, Oregon. The Company considers all of its properties currently used in its operations, both owned and leased, to be well maintained, in good operating condition, and adequate for its present and foreseeable future needs. The Company's Mortgage and Deed of Trust constitutes a first mortgage lien on substantially all of the real property constituting its utility plant. Oregon Natural holds interests in United States oil and gas leases covering 113,062 net acres located in Oregon, California, Wyoming, and Colorado. Canor holds interests in Canadian gas and oil leases covering 128,489 net acres in Alberta and Saskatchewan. Most Canadian gas production is sold under long-term contracts to markets in both Canada and the United States. Oregon Natural also holds an equity investment in a Boeing 737-300 aircraft. Energy Systems formerly owned a 25 megawatt cogeneration plant near Fresno, California, through its wholly-owned subsidiary, Agrico, which filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in December 1991. The U.S. Bankruptcy Court confirmed Agrico's reorganization plan in January 1994, allowing the sale in February 1994 of Agrico's assets to Wellhead Electric Company, the contract operator of the cogeneration plant. Neither Energy Systems nor Agrico now owns any property. (See Part II, Item 7, and Item 8, Note 2.) During 1994, Pacific Square, the Company's subsidiary engaged in real estate management, completed the sale of its partnership interests in One Pacific Square, a 227,000 square foot office building in Northwest Portland, and an adjacent 31,000 square foot office building, to its joint venture partner. Under the terms of the agreement, the joint venture partner assumed all of the partnership's joint obligations. Pacific Square no longer owns any property. ITEM 3. LEGAL PROCEEDINGS The Company is party to certain legal actions in which claimants seek material amounts. Although it is impossible to predict the outcome with certainty, based upon the opinions of legal counsel, management does not expect disposition of these matters to have a material adverse effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the year ended December 31, 1994. ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT Age at December 31, Positions held during Name 1994 last five years ------------------ ---------- ------------------------------- Robert L. Ridgley 60 President and Chief Executive Officer (1985- ); Director (1984- ); Chairman of the Executive Committee of the Board (1985- 95). Bruce R. DeBolt 47 Senior Vice President, Finance, and Chief Financial Officer (1990- ); Senior Vice President, Finance and Administration (1987-90); General Counsel (1983-90). Dwayne L. Foley 49 Senior Vice President, Operations and Information Services (1992- ); Senior Vice President, Gas Operations and Information Services (1990-92); Vice President, Gas Supply and Pipeline Relations (1985-90). Paul L. Hathaway 60 Senior Vice President, Districts and Administrative Services (1992- ); Senior Vice President, Marketing, Districts and Administrative Services (1990- 92); Senior Vice President, Market Services and Human Resources (1987-90). Michael S. McCoy 51 Senior Vice President, Customer Services Division (1992- ); Vice President, Operations (1990-92); Vice President, Districts (1984-90). Bruce B. Samson 59 Senior Vice President, Public Affairs (1990- ); General Counsel (1990- ); Senior Vice President, Regulatory Affairs (1990); President-Public Policy, U. S. WEST Communications (1989). Diana J. Johnston 50 Vice President, Human Resources (1992- ); Manager, Customers Office Department (1989-92). C. J. Rue 49 Secretary (1982- ); Assistant Treasurer (1987- ). D. James Wilson 55 Treasurer and Controller (1987- ). Each executive officer serves successive annual terms; present terms end May 25, 1995. There are no family relationships among the Company's executive officers. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) The outstanding common stock of the Company is traded in the over-the-counter market and its price and volume data are reported by the National Association of Securities Dealers Automated Quotation (Nasdaq) system. The Company's common stock is included in the Nasdaq National Market through which the high, low and closing transaction prices, as well as volume data, are reported. The Company's common stock is included on the Federal Reserve Board's list of over-the-counter securities determined to be subject to margin requirements under the Board's regulations. The quarterly high and low closing trades for the Company's common stock, as quoted on the Nasdaq National Market and published in the Wall Street Journal, were as follows: -------------------
1994 1993 ------------------- ------------------ Quarter Ended High Low High Low ------------- ------- ------- ------- ------- March 31 $36-1/2 $33-3/4 $31-1/2 $28-1/2 June 30 34-3/4 29-3/4 34 30-3/4 September 30 32 29 38 34 December 31 32 28-1/2 36-3/4 32
The closing quotation for the common stock on December 30, 1994 was $29-1/2. On December 31, 1993 the closing quotation was $34-1/4. The Company's convertible preference stock $2.375 Series is traded in the over-the-counter market. Because of the small number of shares of this Series outstanding trading is infrequent. On October 11, 1994, this Series was removed from the Nasdaq system because the Series no longer met the requirements for inclusion in the Nasdaq Stock Market. Prior to such removal, the quarterly high and low closing bid price quotations reported by Nasdaq were as follows:
Bid Prices ------------------------------------------ 1994 1993 ----------------- ----------------- Quarter Ended High Low High Low ------------- ---- --- ---- --- March 31 $56-3/4 $ 54 $51 $47-1/2 June 30 55-3/4 48-1/2 55-1/4 49-3/4 September 30 49 47-1/2 59 55-1/4 December 31 N/A N/A 59 52-1/2
The closing quotations for the convertible preference stock $2.375 Series on October 10, 1994 (the last date quotations were provided by Nasdaq for this Series) and December 31, 1993 were $49 Bid, $53 Ask and $53-1/2 Bid, $57-1/2 Ask, respectively. Outstanding shares are convertible into shares of common stock at a rate of 1.6502 shares of common stock for each share of convertible preference stock. The Company intends to give notice on March 31, 1995, of the redemption of the convertible preference stock $2.375 Series effective May 15, 1995. (b) As of January 31, 1995 there were 12,348 holders of record of the Company's common stock and 79 holders of record of its convertible preference stock. (c) The Company has paid quarterly dividends on its common stock in each year since the stock first was issued to the public in 1951. Annual common dividend payments have increased each year since 1956. Dividends per share paid during the past two years were as follows: Payment Date 1994 1993 ------------ ---- ----- February 15 $0.44 $0.43 May 16 0.44 0.44 August 15 0.44 0.44 November 15 0.44 0.44 ----- ----- Total per share $1.76 $1.75 ===== ===== It is the intention of the Board of Directors to continue to pay cash dividends on the Company's common stock on a quarterly basis. However, future dividends will be dependent upon the Company's earnings, its financial condition and other factors. The Company's Dividend Reinvestment and Stock Purchase Plan permits registered owners of common stock to reinvest all or a portion of their quarterly dividends in additional shares of the Company's common stock at the current market price. Shareholders also may invest cash on a monthly basis, up to $50,000 per calendar year, in additional shares at the current market price. During 1994, with about 55 percent of the Company's shareholders participating, dividend reinvestments and optional cash investments under the Plan aggregated $5.5 million and resulted in the issuance of 173,994 shares of common stock. During the seventeen years the Plan has been available the Company has issued and sold 2,850,791 shares of common stock which produced $54.6 million in additional capital. Item 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data concerning the Company's operations and financial condition.
1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- Operating revenues and cost of sales ($000): Sales revenues: Residential $176,510 $168,217 $124,834 $142,056 $129,830 Commercial 108,452 103,476 78,614 90,263 84,463 Industrial - firm 34,443 31,340 24,867 25,222 24,603 - interruptible 27,361 18,884 6,920 3,352 5,273 -------- -------- -------- -------- -------- Total gas revenues 346,766 321,917 235,235 260,893 244,169 Transportation 14,702 17,892 25,564 29,424 30,423 Unbilled revenues (5,571) 5,153 2,603 (9,362) 9,268 Other 829 2,890 2,781 118 66 -------- -------- -------- -------- -------- Total utility operating revenues 356,726 347,852 266,183 281,073 283,926 Cost of gas 163,026 138,833 101,733 107,398 110,605 -------- -------- -------- -------- -------- Net utility operating revenues 193,700 209,019 164,450 173,675 173,321 Non-utility net operating revenues 11,773 10,865 8,000 11,664 8,905 -------- -------- -------- -------- -------- Net operating revenues $205,473 $219,884 $172,450 $185,339 $182,226 ======== ======== ======== ======== ======== Net income $ 35,461 $ 37,647 $ 15,775 $ 14,377 $ 30,724 Preferred and preference stock dividend requirements 2,983 3,488 2,560 2,593 2,729 -------- -------- -------- -------- -------- Earnings applicable to common stock $ 32,478 $ 34,159 $ 13,215 $ 11,784 $ 27,995 ======== ======== ======== ======== ======== Average common shares outstanding (000) 13,295 13,074 11,909 11,698 11,522 ====== ====== ====== ====== ====== Primary earnings per share of common stock $2.44 $2.61 $1.11* $1.01* $2.43 ===== ===== ===== ===== ===== Dividends per share of common stock $1.76 $1.75 $1.72 $1.69 $1.65 ===== ===== ===== ===== ===== Total assets - at end of period ($000) $889,304 $849,036 $731,834 $731,494 $687,835 ======== ======== ======== ======== ======== Capitalization - at end of period ($000): Common stock equity $274,408 $258,565 $241,538 $216,280 $219,446 Preference stock 26,252 26,633 26,766 1,869 2,025 Redeemable preferred stock 15,950 17,041 28,218 29,148 30,102 Long-term debt 291,076 272,931 253,766 252,995 215,230 -------- -------- -------- -------- -------- Total capitalization $607,686 $575,170 $550,288 $500,292 $466,803 ======== ======== ======== ======== ======== Gas sales and transportation deliveries (000 therms): Residential 260,218 267,818 206,131 233,079 208,940 Commercial 201,925 209,642 169,406 189,384 173,508 Industrial - firm 81,348 80,588 67,847 65,535 62,252 - interruptible 89,899 66,370 22,399 13,155 13,554 -------- -------- -------- -------- -------- Total gas sale 633,390 624,418 465,783 501,153 458,254 Transportation 364,461 415,367 595,397 591,171 532,703 Unbilled therms (7,519) 3,844 4,163 (16,943) 18,774 ------- --------- --------- --------- --------- Total volumes delivered 990,332 1,043,629 1,065,343 1,075,381 1,009,731 ======= ========= ========= ========= ========= Customers (average for period): Residential 338,053 320,186 303,585 288,610 274,069 Commercial 43,367 41,906 40,481 38,954 37,286 Industrial - firm 398 388 374 366 350 - interruptible 148 122 75 57 91 Transportation 66 100 153 173 177 ------- ------- ------- ------- ------- Total customers 382,032 362,702 344,668 328,160 311,973 ======= ======= ======= ======= ======= Customer statistics: Heat requirements** Actual degree days 4,020 4,452 3,662 4,248 4,208 20-year average degree days 4,324 4,313 4,354 4,379 4,391 Average annual use per customer in therms: Residential 776 844 685 812 769 Commercial 4,680 5,029 4,214 4,874 4,670 Gas purchased cost per therm (cents) 23.44 23.11 23.76 21.91 22.67 ===== ===== ===== ====== ===== * Includes loss of $0.24 per share in 1992 (see Part II, Item 8, Note 2 to the Consolidated Financial Statements) and $1.23 per share in 1991 on Agrico Cogeneration Corporation. ** A degree day is the measure of the coldness of the weather experienced, based on the extent to which the average of the high and low temperatures for a day falls below 65 degrees Fahrenheit.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Northwest Natural Gas Company's (Northwest Natural) consolidated wholly-owned subsidiaries consist of Oregon Natural Gas Development Corporation (Oregon Natural); NNG Energy Systems, Inc. (Energy Systems); NNG Financial Corporation (Financial Corporation); and Pacific Square Corporation (Pacific Square) (see "Subsidiary Operations" below and Note 2 to the Consolidated Financial Statements). Together, Northwest Natural and these subsidiaries are referred to herein as the "Company." The following is management's assessment of the Company's financial condition including the principal factors that affect results of operations. The discussion refers to the consolidated activities of the Company for the three years ended December 31, 1994. Earnings and Dividends ----------------------- The Company earned $2.44 per share in 1994, compared to $2.61 per share in 1993 and $1.11 per share in 1992. The results for 1994 were affected by warmer weather which was partially offset by improved subsidiary results. Higher earnings in 1993 were due to cooler weather. The Company's earnings for 1992 were depressed by the effects of record-setting warm weather and a loss related to Agrico Cogeneration Corporation (Agrico), a subsidiary of Energy Systems. The Company earned $2.08 per share from utility operations in 1994, compared to $2.72 per share and $1.41 per share in 1993 and 1992, respectively. Weather conditions in the Company's service territory in 1994 were seven percent warmer than normal and 10 percent warmer than in 1993. The Company estimates that the weather-related reduction in margin during 1994 was equivalent to about $0.51 per share compared to a similar period with normal weather, and $1.06 per share compared to actual conditions during 1993. These estimates are derived from the Company's internal planning model. The model calculates expected sales to, and revenues from, residential and commercial customers for "base usage," representing gas use for water heaters, ranges, and other appliances not sensitive to outside temperatures. The model also calculates expected sales to, and revenues from, these customers for "heat sensitive" usage, primarily furnaces, as a function of heating degree days (the difference between 65 degrees Fahrenheit and the average of a day's high and low temperatures). The model then estimates the earnings effect of the difference between expected sales and revenues under actual temperature conditions, and expected sales and revenues under average weather conditions. Subsidiary earnings for 1994 were equivalent to $0.36 per share, compared to losses equivalent to $0.11 per share and $0.30 per share in 1993 and 1992, respectively. Improved subsidiary performance in 1994 resulted primarily from a one-time gain from the sale of Pacific Square's investments, equivalent to $0.14 per share, and improved operating performance of Financial Corporation's investments in windpower electric generating projects in California equivalent to $0.12 per share in 1994, compared to a loss equivalent to $0.06 per share in 1993. 1994 was the 39th consecutive year in which the Company's dividends paid have increased. In 1994, dividends paid on common stock were $1.76 per share compared with $1.75 in 1993 and $1.72 in 1992. Results of Operations --------------------- Regulatory Matters ------------------ Northwest Natural provides utility gas service in Oregon and Washington, with Oregon representing approximately 95 percent of its revenues. Future earnings and cash flows from utility operations will be determined for the most part by continued growth in the residential and commercial markets, by Northwest Natural's ability to remain price competitive in the large industrial market, and by the ability of management to control expenses. In 1994, the Oregon Public Utility Commission (OPUC) approved new tariffs for recovery of Demand Side Management (DSM) programs to encourage energy conservation. Also, the OPUC approved a new service line and main extension policy which supports Northwest Natural's strategy of promoting profitable growth. Prospective customers are required by this policy to contribute the amount which exceeds a construction allowance based upon estimated annual margin revenue. In 1994, Northwest Natural redesigned certain non- traditional industrial services to meet the changing demands of the industrial market. The result was OPUC and Washington Utilities and Transportation Commission (WUTC) approval for a new service to industrial customers combining natural gas from Northwest Natural's supply contracts with pipeline transmission capacity released from Northwest Natural's firm transportation contract with Northwest Pipeline Corporation (NPC). These new industrial services were made possible by the Federal Energy Regulatory Commission's (FERC) Order No. 636, which completed a restructuring of the interstate natural gas pipeline industry, and Northwest Natural's revision of its own gas procurement policies and practices. Effective April 15, 1994, the OPUC approved rate decreases averaging 1.1 percent for Northwest Natural's residential, commercial and industrial rate schedules. The rate decreases pass through Northwest Natural's lower property tax expenses due to Oregon Ballot Measure 5, an initiative measure adopted in Oregon which reduced property tax expenses. Effective December 1, 1994, the OPUC and WUTC approved rate decreases averaging 5.6 percent and 7.0 percent, respectively. These rate decreases pass through reductions in gas costs and remove temporary adjustments to rates which were put into effect on December 1, 1993, for the amortization of prior gas cost savings. None of the above rate decreases has a material effect on net income. Comparison of Gas Operations ---------------------------- The following table summarizes the composition of utility gas volumes and revenues for the three years ended December 31:
Thousands 1994 1993 1992 --------------------------------------------------------------------------------------- Gas Sales and Transportation Volumes (Therms): ---------------------------------------------- Residential and commercial sales 462,143 477,460 375,537 Unbilled volumes (7,519) 3,844 4,163 ------- --------- --------- Weather-sensitive volumes 454,624 46% 481,304 46% 379,700 36% Industrial firm sales 81,348 8% 80,588 8% 67,847 6% Industrial interruptible sales 89,899 9% 66,370 6% 22,399 2% ------- --------- --------- Total gas sales 625,871 628,262 469,946 Transportation deliveries 364,461 37% 415,367 40% 595,397 56% ------- ---- --------- ---- --------- ---- Total volumes sold and delivered 990,332 100% 1,043,629 100% 1,065,343 100% ======= ==== ========= ==== ========= ==== Utility Operating Revenues: --------------------------- Residential and commercial revenues $284,962 $271,693 $203,448 Unbilled revenues (5,571) 5,153 2,603 -------- -------- -------- Weather-sensitive revenues 279,391 78% 276,846 80% 206,051 77% Industrial firm sales revenues 34,443 10% 31,340 9% 24,867 9% Industrial interruptible sales revenues 27,361 8% 18,884 5% 6,920 3% -------- -------- ------- Total gas sales revenues 341,195 327,070 237,838 Transportation revenues 14,702 4% 17,892 5% 25,564 10% Other revenues 829 - 2,890 1% 2,781 1% -------- ---- -------- ---- -------- ---- Total utility operating revenues $356,726 100% $347,852 100% $266,183 100% ======== ==== ======== ==== ======== ==== Cost of gas $163,026 $138,833 $101,733 ======== ======== ======== Total number of customers (end of period) 391,600 372,400 353,000 ======== ======== ======= Actual degree days 4,020 4,452 3,662 ======== ======== ======= 20-year average degree days 4,324 4,313 4,354 ======== ======== =======
Residential and Commercial -------------------------- Typically, 75 percent or more of the Company's annual utility operating revenues are derived from gas sales to weather- sensitive residential and commercial customers. Accordingly, shifts in temperatures from one period to the next can significantly affect volumes of gas sold to these customers. Normal weather conditions are based upon a 20 year average measured by degree days. Weather conditions were seven percent warmer than normal in 1994, three percent cooler than normal in 1993, and 16 percent warmer than normal in 1992. Weather was 10 percent warmer in 1994 compared to 1993, and 22 percent cooler in 1993 compared to 1992. Higher rates in effect during most of the year and the addition of 19,200 customers, offset by the effects of warmer weather, combined to produce a one percent increase in revenues from residential and commercial customers in 1994 compared to 1993. Therm deliveries to these customers were six percent lower than in 1993. Cooler weather in 1993, combined with 19,400 customer additions and OPUC and WUTC approved rate increases, produced a 34 percent increase in residential and commercial revenues compared to 1992, on 27 percent higher therm deliveries. Northwest Natural's residential and commercial customer growth has continued at a steady pace. In the last three years, over 55,000 of these customers have been added to the system, representing an average growth rate of 5.2 percent. Industrial, Transportation and Other ------------------------------------ The combined net operating revenues (margin) from industrial firm and interruptible sales and transportation customers remained relatively stable at $44.0 million in 1994 compared to $44.4 million in 1993. Since other revenues are primarily regulatory adjustments to industrial sales amounts (see Note 1 to the Consolidated Financial Statements), they are treated in this discussion as a component of industrial revenue. Total volumes delivered to these customers were 26.6 million therms lower in 1994 than in 1993, while corresponding revenues and related adjustments from such deliveries were $6.3 million higher. Contributing to the lower volumes was a 28 million therm reduction in transportation deliveries to the James River Corporation's paper mill in Camas, Washington, which placed a direct (bypass) connection to NPC's system into operation in October 1993. Northwest Natural does not expect a significant number of its other large customers to bypass its system in the foreseeable future, since these customers are served under tariffs which are designed to be competitive with the capital and operating costs of direct connections to NPC's system. Although volumes decreased, Northwest Natural's revenues and related adjustments from industrial firm sales and industrial interruptible sales and transportation deliveries were 9 percent higher in 1994 compared to 1993, and 29 percent higher than in 1992. The revenue increase was primarily due to a higher level of industrial interruptible sales and a correspondingly lower level of transportation deliveries for these same periods. Since 1992, over half of Northwest Natural's transportation customers have switched to sales service. These customers, which have the option of purchasing gas directly from suppliers and shipping it on the systems of Northwest Natural and its pipeline suppliers for a fee, select the option which, from time to time, provides the lowest cost. The migration from transportation to sales tariffs by these customers reflects the fact that Northwest Natural's industrial sales tariffs were lower than the cost to these customers of purchasing and shipping their own gas. Since transportation charges typically are the same as the margin on an equivalent sale of gas, the increase in revenue attributable to the migration from transportation to sales tariffs was substantially offset by an increase in Northwest Natural's cost of gas. Cost of Gas ----------- Northwest Natural has a Purchased Gas Cost Adjustment (PGA) tariff under which its net income from Oregon operations is affected only within defined limits by changes in purchased gas costs. The cost of gas sold during 1994 was 17 percent greater than in 1993. Total gas volumes delivered to sales customers in 1994 were equivalent to 1993. However, there was an 18 percent increase in the cost of gas per therm, which includes purchased gas costs, related tariff adjustments, and line loss. Increased gas costs resulted from higher commodity prices, as well as higher demand charges placed into effect in April 1993 by NPC, Northwest Natural's primary pipeline supplier, pursuant to FERC Order No. 636. The cost of gas sold during 1993 was 36 percent greater than in 1992. The primary contributing factors were a 34 percent increase in total volumes sold and a 2 percent increase in the cost of gas per therm. Subsidiary Operations --------------------- Consolidated subsidiary earnings for 1994 were equivalent to $0.36 per share, compared to losses equivalent to $0.11 per share and $0.30 per share for the years 1993 and 1992, respectively. The improved subsidiary results for 1994 resulted primarily from three factors. First, Pacific Square sold its partnership interests in two office buildings, including the Company's headquarters building. The Company's gain on the sale was equivalent to $0.14 per share. As a result of the sale of these investments, Pacific Square no longer has any operating activities. Second, Financial Corporation's investments in windpower electric generating projects in California (see Note 10 to the Consolidated Financial Statements) benefitted from favorable wind conditions which improved net income. As a result, Financial Corporation's net income increased $2.2 million compared to 1993 and $1.7 million compared to 1992. Third, the Company realized a gain equivalent to $0.03 per share on the sale of Agrico's assets pursuant to its bankruptcy reorganization plan. Results of operations for the individual subsidiaries for 1994 were net income of: $0.3 million for Energy Systems; $0.4 million for Oregon Natural; $1.8 million for Financial Corporation; and $2.2 million for Pacific Square. The subsidiaries' results for 1993 reflect a fourth quarter write-down in the value of unproven gas and oil reserves equivalent to $0.11 per share and increased federal income tax expense equivalent to $0.05 per share (see "Depreciation, Depletion and Amortization" and "Income Taxes" below). The 1992 loss resulted primarily from charges equivalent to $0.24 per share related to Agrico (see Note 2 to the Consolidated Financial Statements). The following discussion summarizes operating expenses, other income, interest charges, income taxes, and preferred and preference stock dividend requirements. Operating Expenses ------------------ Operations and Maintenance -------------------------- Northwest Natural's operations and maintenance expenses were $0.5 million lower for 1994 compared to 1993, while subsidiary operations and maintenance expense increased $0.7 million. The reduction in utility operations and maintenance expense was primarily due to a $0.6 million decrease in accruals for estimated employee bonuses. Increased subsidiary operations and maintenance expense was primarily due to increased production expenses related to Oregon Natural's Canadian operations. The Company's operations and maintenance expenses were $6.5 million, or 10 percent, higher in 1993 than in 1992. Northwest Natural's expenses constituted $6.2 million of this increase including a $3.1 million, or 10 percent, increase in payroll expenses; a $1.3 million increase in employee benefit costs, including an increase of $0.7 million resulting from the adoption of Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions;" a $1.2 million increase in the allowance for uncollectible accounts primarily due to higher residential and commercial gas sales; and a $0.5 million accrual for estimated environmental investigation costs (see Note 12 to the Consolidated Financial Statements). Taxes Other Than Income ----------------------- Northwest Natural's property taxes were $1.9 million lower in 1994 compared to 1993 but were $0.6 million higher in 1994 compared to 1992. The increasing trend in property taxes has resulted primarily from increased plant additions to serve new customers. Between these same years, property taxes fluctuated due to a non-recurring accrual of $0.9 million in 1993 related to a dispute with the OPUC over the amount of prior-year savings on property taxes, which must be refunded to Oregon customers, resulting from voter approval of Oregon Ballot Measure 5. Partially offsetting the decline in property taxes in 1994 was an increase in franchise taxes based on higher utility operating revenues. Franchise taxes increased $0.6 million in 1994 compared to 1993 and $1.8 million in 1993 compared to 1992. Depreciation, Depletion and Amortization ---------------------------------------- Northwest Natural's depreciation expense increased $1.9 million, or six percent, in 1994 and $1.9 million, or seven percent, in 1993, primarily due to additional utility plant in service. A program for the removal of all of its underground gasoline tanks accounted for $0.4 million of the increased 1993 expense. Subsidiary depreciation expense decreased $3.5 million in 1994 compared to 1993, and increased $4.7 million in 1993 compared to 1992. The 1993 increase resulted primarily from charges totalling $3.5 million from the write-downs of Oregon Natural's unproven gas and oil properties (see Note 2 to the Consolidated Financial Statements). Other Income ------------ The increase in other income for 1994 compared to 1993 and 1992 resulted primarily from a $3.2 million pre-tax gain related to the sale of Pacific Square's investments and a $2.5 million increase due to improved operating results from Financial Corporation's investments. Interest Charges ---------------- Interest charges remained stable in 1994 compared to 1993 on equivalent total debt balances. Higher short term rates in 1994 offset lower long term rates resulting from 1993 debt refinancings (see "Financing Activities" below). Northwest Natural's interest expense for 1993 decreased $1.3 million compared to 1992. The decrease was a result of debt refinancings which reduced interest expense by $0.6 million; $11.5 million lower average outstanding commercial paper balances; and a decrease in average interest rates for utility commercial paper from 3.9 percent in 1992 to 3.3 percent in 1993. Subsidiary interest expense for 1993 decreased $0.3 million compared to 1992 due to a decrease in interest expense under Financial Corporation's commercial paper program. Financial Corporation's average outstanding commercial paper balances decreased $4.4 million from 1992 to 1993. In addition, Financial Corporation's average interest rates for commercial paper decreased from 4.1 percent in 1992 to 3.3 percent in 1993. Income Taxes ------------ The effective corporate income tax rates for 1994, 1993, and 1992 were 37 percent, 37 percent, and 31 percent, respectively, compared to the Company's statutory tax rates for these periods of 39 percent, 39 percent, and 38 percent, respectively. Effective January 1, 1993, the federal income tax rate for corporations increased from 34 to 35 percent. The cumulative effect of the tax rate increase was recorded in the third quarter of 1993 and resulted in additional income tax expense of $0.6 million, an increase in deferred tax liabilities of $3.0 million, and an increase in regulatory assets of $2.6 million. Preferred and Preference Stock Dividend Requirements ---------------------------------------------------- Preferred and preference stock dividend requirements for 1994 were lower by $0.5 million, or 14 percent, compared to 1993, due to redemptions and refundings of preferred stock in 1993. The principal amount of preferred and preference stock outstanding was $1.5 million, or three percent, lower at December 31, 1994, than at December 31, 1993. Also, effective December 1, 1993, the Company cancelled the $8.75 Series of Preferred Stock in exchange for issuance of the $7.125 Series of Preferred Stock (see "Financing Activities" below). Financial Condition ------------------- Capital Structure ----------------- Northwest Natural's capital expenditures are required for utility construction resulting from customer growth and system improvements. Northwest Natural finances these expenditures from cash provided by operations, and short-term borrowings which are periodically refinanced through the sale of long-term debt or equity securities. In addition to its capital expenditures, the weather-sensitive nature of gas usage by Northwest Natural's residential and commercial customers influences the Company's financing requirements. Short-term liquidity is satisfied primarily through the sale of commercial paper, which is supported by commercial bank lines of credit (see Note 6 to the Consolidated Financial Statements). The Company's long-term goal is to maintain a capital structure comprised of 40 to 45 percent common stock equity, 5 to 10 percent preferred and preference stock and 45 to 50 percent short-term and long-term debt. When additional capital is required, this target structure is managed by issuing new debt or equity depending upon market conditions. The Company also uses these sources to meet long-term debt and preferred stock redemption requirements (see Notes 3 and 5 to the Consolidated Financial Statements). Cash Flows ---------- Operating Activities -------------------- Cash provided from operating activities was 91 percent higher in 1994 compared to 1993 primarily due to rate increases in late 1993 reflecting completion of amortizations of credit balances in regulatory accounts. Also contributing was the effect of weather conditions from year to year on accounts receivable, unbilled revenue, and accounts payable. Northwest Natural has lease and purchase commitments related to its operating activities which are financed with cash flows from operations (see Note 12 to the Consolidated Financial Statements). Investing Activities -------------------- Cash requirements for utility construction, primarily related to system improvements and customer growth, totalled $77.7 million, up $7.3 million, or 10 percent, from 1993. 1993 expenditures were up $9.7 million, or 16 percent, from 1992. The 1994 and 1993 increases include $8.5 million and $6.3 million, respectively, for the replacement of Northwest Natural's customer information system. The total cost of the new system, scheduled for completion in 1997, is estimated at $25 million. Northwest Natural's construction expenditures are estimated at $76 million for 1995. Over the five year period 1995 through 1999, these expenditures are estimated at between $350 and $375 million. It is anticipated that approximately 60 percent of the funds required for these expenditures will be internally generated, and that the remainder will be funded through short-term borrowings which will be refinanced periodically through the sale of long-term debt and equity securities. In 1994, subsidiary capital expenditures were primarily for Oregon Natural's Canadian gas exploration and production program. In 1993, Oregon Natural received $2.3 million from sales and exchanges of gas producing properties. Oregon Natural anticipates investing up to $10 million, in addition to internally generated cash, in its Canadian gas exploration and production program during the three years 1995 through 1997. Investments shown on the Consolidated Balance Sheets under "Investments and Other" for 1992 included a $5.5 million restricted cash deposit with a commercial bank which related to Pacific Square. This deposit was reclassified as a current asset in 1993 due to the pending sale of Pacific Square's primary real estate investments. Upon the sale of Pacific Square's investments in 1994, $4.0 million was collected while the remaining $1.5 million was secured by a note receivable due no later than December 1, 1999. Financing Activities -------------------- During 1994, Northwest Natural sold $20 million of its Medium-Term Notes, the proceeds of which were used to repay short term debt incurred to fund Northwest Natural's construction program. During 1993 and 1992, Northwest Natural sold $100 million and $45 million, respectively, of its Medium-Term Notes. Of the proceeds from the 1993 sales, $82.6 million was used to redeem higher-cost long-term debt, and the remainder was used to pay the cost of Northwest Natural's construction program and to reduce short-term borrowing incurred for such purpose. Of the proceeds from the 1992 sales, $30.2 million was used to redeem higher-cost long-term debt and $15 million was used to reduce short-term borrowing. As a result of these transactions, the average interest rate on long-term debt declined from 9.7 percent at December 31, 1991 to 8.3 percent at December 31, 1993. In order to pay the cost of Northwest Natural's construction program, to refund higher-cost Preferred Stock, and to increase its equity ratios, Northwest Natural sold $25 million of Preference Stock and $28.5 million, or 990,000 shares, of Common Stock during the fourth quarter of 1992. In January 1993, approximately $9 million of the proceeds from the sale of Preference Stock was used to redeem all of the outstanding shares of Northwest Natural's $8.00 and $2.42 Series of Preferred Stock. In 1993, Northwest Natural also redeemed all of the outstanding shares of its $6.875 Series of Preferred Stock. In 1993, Northwest Natural refinanced $15 million of its $8.75 Series of Preferred Stock with an equivalent amount of the $7.125 Series of Preferred Stock. In the first quarter of 1995, Northwest Natural sold 1.15 million shares of its Common Stock. The net proceeds of $33.0 million received from the offering were added to the general funds of the Company and used for corporate purposes, primarily to fund, in part, Northwest Natural's construction program, and to repay short-term debt incurred for such purpose. The projected dilution of earnings per share resulting from this sale is estimated at five percent. Ratios of Earnings to Fixed Charges ----------------------------------- For the years ended December 31, 1994, 1993, and 1992, the Company's ratios of earnings to fixed charges, computed by the Securities and Exchange Commission method, were 3.08, 3.22, and 1.81, respectively. Earnings consist of net income to which has been added taxes on income and fixed charges. Fixed charges consist of interest on all indebtedness, amortization of debt expense and discount or premium, and the estimated interest portion of rentals charged to income. Environmental Matters --------------------- In June 1992, the City of Salem, Oregon, requested Northwest Natural's participation in its review of an environmental assessment of riverfront property in Salem that is the proposed site for a park and other public developments. Within the property is a block previously owned by Northwest Natural which was the site of a former manufactured gas plant. Northwest Natural's corporate predecessor owned the plant for less than four months in 1929. The City has determined that there is environmental contamination on the site, and that a remediation process involving Northwest Natural and at least two other prior owners of the block will be required. To date Northwest Natural has not obtained sufficient information to determine the extent of its responsibility for any such remediation. Northwest Natural owns property in Linnton, Oregon, that is the site of a former gas manufacturing plant that was closed in 1956. Although limited testing for environmental contamination has been undertaken by other parties on portions of the site, no comprehensive studies have been performed. Northwest Natural submitted a work plan for the site to the Oregon Department of Environmental Quality (ODEQ) in 1987, but further efforts were suspended at ODEQ's request while Northwest Natural and other parties participated in a joint hydrogeologic study of an area adjacent to the site. In September 1993, pursuant to ODEQ procedures, Northwest Natural submitted a notice of intent to participate in the ODEQ's Voluntary Cleanup Program and, in April 1994, the site was listed on ODEQ's Confirmed Release List and Inventory. It is anticipated that the site investigation will commence during 1995. In September 1993, Northwest Natural recorded an expense of $0.5 million for the estimated costs of consultants' fees, ODEQ oversight cost reimbursements, and legal fees in connection with the voluntary investigation at the Linnton site. To date, Northwest Natural has not obtained sufficient information to determine whether any remediation will be required at this site or, if so, the extent of its responsibility for any such remediation. Northwest Natural expects that its costs of investigation and any remediation for which it may be responsible should be recoverable, in large part, from insurance or through future rates. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS ----------------- Page ---- 1. Management's Responsibility for Financial Statements . . . . . 36 2. Independent Auditors' Report . . . . . . . . . . . . . . . . . 37 3. Consolidated Financial Statements: Consolidated Statements of Income for the Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . 38 Consolidated Statements of Earnings Invested in the Business for the Years Ended December 31, 1994, 1993 and 1992 . . . . 39 Consolidated Balance Sheets, December 31, 1994 and 1993. . . . 40 Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . 42 Consolidated Statements of Capitalization, December 31, 1994 and 1993. . . . . . . . . . . . . . . . . . . . . . . . 43 Notes to Consolidated Financial Statements . . . . . . . . . . 44 4. Quarterly Financial Information (unaudited). . . . . . . . . . 71 Supplemental Schedules Omitted All other schedules are omitted because of the absence of the conditions under which they are required or because the required information is included elsewhere in the financial statements. MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS ---------------------------------------------------- The financial statements in this report were prepared by management, which is responsible for their objectivity and integrity. The statements have been prepared in conformity with generally accepted accounting principles and, where appropriate, reflect informed estimates based on judgments of management. The responsibility of the Company's independent auditors is to render an independent report on the financial statements. The Company's system of internal accounting controls is designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with management's authorizations, that transactions are recorded to permit the preparation of financial statements in conformity with orders of regulatory authorities and generally accepted accounting principles and that accountability for assets is maintained. The Company's system of internal controls has provided such reasonable assurances during the periods reported herein. The system includes written policies, procedures and guidelines, an organization structure that segregates duties and an established program for monitoring the system by internal auditors. In addition, Northwest Natural Gas Company has prepared and annually distributes to its management employees a Code of Ethics covering its policies for conducting business affairs in a lawful and ethical manner. Ongoing review programs are carried out to ensure compliance with these policies. The Board of Directors, through its Audit Committee, oversees management's financial reporting responsibilities. The committee meets regularly with management, the internal auditors, and representatives of Deloitte & Touche LLP, the Company's independent auditors. Both internal and external auditors have free and independent access to the committee and the Board of Directors. No member of the committee is an employee of the Company. The committee reports the results of its activities to the full Board of Directors. Annually, the Audit Committee recommends the nomination of independent auditors to the Board of Directors for shareholder approval. /s/ Robert L. Ridgley ------------------------------- Robert L. Ridgley President and Chief Executive Officer /s/ Bruce R. DeBolt ------------------------------- Bruce R. DeBolt Senior Vice President, Finance, and Chief Financial Officer DELOITTE & TOUCHE LLP ----------------------------------------------------------------- 3900 US Bancorp Tower Telephone: (503) 222-1341 111 SW Fifth Avenue Facsimile: (503) 224-2172 Portland, Oregon 97204-3698 INDEPENDENT AUDITORS' REPORT ---------------------------- To the Board of Directors and Shareholders Northwest Natural Gas Company Portland, Oregon We have audited the accompanying consolidated financial statements of Northwest Natural Gas Company and subsidiaries, listed in the accompanying table of contents to financial statements and financial statement schedules at Item 8. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Northwest Natural Gas Company and subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Notes 7 and 9 to the consolidated financial statements, the Company changed its method of accounting for income taxes and postretirement benefits in the year ended December 31, 1993. DELOITTE & TOUCHE LLP February 22, 1995 NORTHWEST NATURAL GAS COMPANY CONSOLIDATED STATEMENTS OF INCOME (Thousands, Except Per Share Amounts) Year Ended December 31 1994 1993 1992 ------------------------------------------------------------------------ NET OPERATING REVENUES: Operating revenues $368,261 $358,717 $274,366 Cost of sales 162,788 138,833 101,916 -------- -------- -------- Net operating revenues 205,473 219,884 172,450 -------- -------- -------- OPERATING EXPENSES: Operations and maintenance 70,881 70,723 64,249 Taxes other than income taxes 24,263 25,561 20,865 Depreciation, depletion and amortization 38,058 39,683 33,035 Loss on cogeneration facility - - 4,575 -------- -------- -------- Total operating expenses 133,202 135,967 122,724 -------- -------- -------- INCOME FROM OPERATIONS 72,271 83,917 49,726 -------- -------- -------- OTHER INCOME (EXPENSE) 8,582 933 (267) -------- -------- -------- INTEREST CHARGES: Interest on long-term debt 21,921 22,578 23,001 Other interest 2,473 1,906 3,223 Amortization of debt discount and expense 850 775 511 -------- -------- -------- Total interest charges 25,244 25,259 26,735 Allowance for funds used during construction (325) (152) (2) -------- -------- -------- Total interest charges-net 24,919 25,107 26,733 -------- -------- -------- INCOME BEFORE INCOME TAXES 55,934 59,743 22,726 INCOME TAXES 20,473 22,096 6,951 -------- -------- -------- NET INCOME 35,461 37,647 15,775 Preferred and preference stock dividend requirements 2,983 3,488 2,560 -------- -------- -------- EARNINGS APPLICABLE TO COMMON STOCK $ 32,478 $ 34,159 $ 13,215 ======== ======== ======== AVERAGE COMMON SHARES OUTSTANDING 13,295 13,074 11,909 EARNINGS PER SHARE OF COMMON STOCK $2.44 $2.61 $1.11 ===== ===== ===== DIVIDENDS PER SHARE OF COMMON STOCK $1.76 $1.75 $1.72 ==== ==== ==== ----------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements. NORTHWEST NATURAL GAS COMPANY CONSOLIDATED STATEMENTS OF EARNINGS INVESTED IN THE BUSINESS (Thousands of Dollars) 1994 1993 1992 ------------------------------------------------------------------------- BALANCE AT BEGINNING OF YEAR $88,497 $77,690 $86,361 Net Income 35,461 37,647 15,775 Cash dividends: Preferred and preference stock (3,041) (3,401) (2,525) Common stock (23,365) (22,853) (20,406) Capital stock expense and other (277) (586) (1,515) ------- ------- ------- BALANCE AT END OF YEAR $97,275 $88,497 $77,690 ======= ======= ======= ----------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements. NORTHWEST NATURAL GAS COMPANY CONSOLIDATED BALANCE SHEETS (Thousands) December 31 1994 1993 ------------------------------------------------------------------------ ASSETS: PLANT AND PROPERTY IN SERVICE: Utility plant in service $908,238 $840,030 Less accumulated depreciation 279,112 255,282 -------- -------- Utility plant - net 629,126 584,748 Non-utility property 49,586 42,764 Less accumulated depreciation and depletion 24,456 20,646 -------- -------- Non-utility property - net 25,130 22,118 -------- -------- Total plant and property in service 654,256 606,866 -------- -------- INVESTMENTS AND OTHER: Investments 34,183 32,818 Long-term notes receivable 2,914 1,756 -------- -------- Total investments and other 37,097 34,574 -------- -------- CURRENT ASSETS: Cash and cash equivalents 8,068 4,198 Accounts receivable - customers 43,016 45,340 Allowance for uncollectible accounts (864) (1,368) Accrued unbilled revenue 20,320 25,890 Inventories of gas, materials and supplies 14,958 16,838 Prepayments and other current assets 10,041 16,412 -------- -------- Total current assets 95,539 107,310 -------- -------- REGULATORY TAX ASSETS 60,430 62,130 -------- -------- DEFERRED DEBITS AND OTHER 41,982 38,156 -------- -------- TOTAL ASSETS $889,304 $849,036 ======== ======== --------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements. NORTHWEST NATURAL GAS COMPANY CONSOLIDATED BALANCE SHEETS (Thousands) December 31 1994 1993 ------------------------------------------------------------------------ CAPITALIZATION AND LIABILITIES: CAPITALIZATION (See Consolidated Statements of Capitalization): Common stock $ 42,492 $ 41,728 Premium on common stock 134,641 128,340 Earnings invested in the business 97,275 88,497 -------- -------- Total common stock equity 274,408 258,565 Preference stock 26,252 26,633 Redeemable preferred stock 15,950 17,041 Long-term debt 291,076 272,931 -------- -------- Total capitalization 607,686 575,170 -------- -------- CURRENT LIABILITIES: Notes payable 53,654 72,548 Accounts payable 48,517 44,318 Long-term debt due within one year 1,000 - Taxes accrued 6,584 6,757 Interest accrued 4,570 4,438 Other current and accrued liabilities 11,757 10,180 -------- -------- Total current liabilities 126,082 138,241 -------- -------- DEFERRED INVESTMENT TAX CREDITS 13,530 14,567 -------- -------- DEFERRED INCOME TAXES 112,433 104,300 -------- -------- REGULATORY BALANCING ACCOUNTS AND OTHER 29,573 16,758 -------- -------- COMMITMENTS AND CONTINGENCIES (Note 12) - - -------- -------- TOTAL CAPITALIZATION AND LIABILITIES $889,304 $849,036 ======== ======== ------------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements. NORTHWEST NATURAL GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands) Year Ended December 31 1994 1993 1992 ------------------------------------------------------------------------ OPERATING ACTIVITIES: Net income $ 35,461 $ 37,647 $ 15,775 Adjustments to reconcile net income to net cash provided by (used for) operations: Depreciation, depletion and amortization 38,058 39,683 33,035 Loss on cogeneration facility - - 4,575 Deferred income taxes and investment tax credits 8,796 6,205 (1,115) Equity in (earnings)losses of investments (2,331) 302 1,506 Allowance for funds used during construction (325) (152) (2) Regulatory balancing accounts and other - net 8,989 (10,754) (10,776) ------- ------- ------- Cash from operations before working capital changes 88,648 72,931 42,998 Changes in operating assets and liabilities: Accounts receivable 1,820 (10,964) (5,821) Accrued unbilled revenue 5,570 (5,152) (2,603) Inventories of gas, materials and supplies 1,880 (1,041) 1,052 Accounts payable 4,199 4,036 (3,507) Accrued interest and taxes (41) (387) 881 Other current assets and liabilities 7,948 (1,899) 2,636 -------- -------- -------- CASH PROVIDED BY OPERATING ACTIVITIES 110,024 57,524 35,636 -------- -------- -------- INVESTING ACTIVITIES: Acquisition and construction of utility plant assets (77,668) (70,404) (60,709) Investment in non-utility plant (7,455) (955) (11,907) Investments and other (192) (40) (8,697) -------- -------- -------- CASH USED IN INVESTING ACTIVITIES (85,315) (71,399) (81,313) -------- -------- -------- FINANCING ACTIVITIES: Common stock issued 5,847 5,720 33,826 Preference stock issued - - 25,000 Preferred stock retired (1,091) (11,177) (930) Long-term debt: Issued 20,000 100,000 45,000 Retired (18) (82,606) (30,191) Change in short-term debt (18,894) 25,439 (41,510) Cash dividend payments: Preferred and preference stock (3,041) (3,401) (2,525) Common stock (23,365) (22,853) (20,406) Capital stock expense and other (277) (586) (1,515) -------- -------- -------- CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (20,839) 10,536 6,749 -------- -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,870 (3,339) (38,928) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 4,198 7,537 46,465 -------- -------- -------- CASH AND CASH EQUIVALENTS - END OF YEAR $ 8,068 $ 4,198 $ 7,537 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 24,262 $ 26,838 $ 26,502 Income taxes $ 12,054 $ 11,103 $ 10,141 SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES: Conversion to common stock: $2.375 Series of Convertible Preference Stock $381 $133 $103 7-1/4 percent Series of Convertible Debentures $837 $367 $131 ----------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements. NORTHWEST NATURAL GAS COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION (Thousands, Except Share Amounts) December 31 1994 1993 -------------------------------------------------------------------- COMMON STOCK EQUITY: Common stock - par value $3-1/6 per share; authorized - 1994, 60,000,000 shares; 1993, 30,000,000 shares: outstanding - 1994, 13,418,685 shares; 1993, 13,177,256 shares $ 42,492 $ 41,728 Premium on common stock 134,641 128,340 Earnings invested in business 97,275 88,497 -------- -------- Total common stock equity 274,408 45% 258,565 45% -------- ---- -------- ---- PREFERENCE STOCK, authorized 2,000,000 shares: $2.375 Series, convertible, stated value $25 per share; outstanding - 1994, 50,079 shares; 1993, 65,323 shares 1,252 1,633 $6.95 Series, stated value $100 per share; outstanding - 1994, 250,000 shares; 1993, 250,000 shares 25,000 25,000 -------- -------- Total preference stock 26,252 4% 26,633 5% -------- ---- -------- ---- REDEEMABLE PREFERRED STOCK, authorized 1,500,000 shares, all outstanding series have a stated value of $100 per share: $4.68 Series, outstanding - 1994, 7,319 shares; 1993, 9,301 shares 732 930 $4.75 Series, outstanding - 1994, 9,685 shares; 1993, 11,105 shares 968 1,111 $7.125 Series, outstanding - 1994, 142,500 shares; 1993, 150,000 shares 14,250 15,000 -------- -------- Total redeemable preferred stock 15,950 3% 17,041 3% -------- ---- -------- ---- LONG-TERM DEBT: First Mortgage Bonds -------------------- 9-3/4% Series due 2015 50,000 50,000 9-1/8% Series due 2019 25,000 25,000 Medium-Term Notes ----------------- First Mortgage Bonds: 4.80% Series A due 1996 5,000 5,000 7.38% Series A due 1997 20,000 20,000 7.69% Series A due 1999 10,000 10,000 5.96% Series B due 2000 5,000 5,000 5.98% Series B due 2000 5,000 5,000 8.05% Series A due 2002 10,000 10,000 6.40% Series B due 2003 20,000 20,000 6.34% Series B due 2005 5,000 5,000 6.38% Series B due 2005 5,000 5,000 6.45% Series B due 2005 5,000 5,000 6.50% Series B due 2008 5,000 5,000 8.26% Series B due 2014 10,000 - 8.31% Series B due 2019 10,000 - 9.05% Series A due 2021 10,000 10,000 7.25% Series B due 2023 20,000 20,000 7.50% Series B due 2023 4,000 4,000 7.52% Series B due 2023 11,000 11,000 Unsecured: 4.90% Series A due 1996 10,000 10,000 8.69% Series A due 1996 5,000 5,000 7.40% Series A due 1997 5,000 5,000 8.93% Series A due 1998 5,000 5,000 8.95% Series A due 1998 10,000 10,000 8.47% Series A due 2001 10,000 10,000 Convertible Debentures ---------------------- 7-1/4% Series due 2012 12,076 12,931 -------- -------- 292,076 272,931 Less long-term debt due within one-year 1,000 - -------- -------- Total long-term debt 291,076 48% 272,931 47% -------- ---- -------- ---- TOTAL CAPITALIZATION $607,686 100% $575,170 100% ======= === ======= === ------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: ------------------------------------------------ Organization and Principles of Consolidation --------------------------------------------- The consolidated financial statements include: Regulated utility: --Northwest Natural Gas Company (Northwest Natural) Non-regulated wholly-owned businesses: --Oregon Natural Gas Development Corporation (Oregon Natural) --NNG Financial Corporation (Financial Corporation) --Pacific Square Corporation (Pacific Square) --NNG Energy Systems, Inc. (Energy Systems) Together these businesses are referred to herein as the "Company." Intercompany accounts and transactions have been eliminated. Investments in corporate joint ventures and partnerships in which the Company's ownership is 50 percent or less are accounted for by the equity method or the cost method (see Note 10). Certain amounts from prior years have been reclassified to conform with the 1994 presentation. Industry Regulation ------------------- The Company's principal business is the distribution of natural gas which is regulated by the Oregon Public Utility Commission (OPUC) and the Washington Utilities and Transportation Commission (WUTC). Accounting records and practices conform to the requirements and uniform system of accounts prescribed by these regulatory authorities. Utility Plant ------------- Utility plant for Northwest Natural is stated at original cost (see table in Note 10). When a depreciable unit of property is retired, the cost is credited to utility plant and debited to the accumulated provision for depreciation together with the cost of removal, less any salvage. No gain or loss is recognized upon normal retirement. Northwest Natural's provision for depreciation of utility property, which is computed under the straight-line, age-life method in accordance with independent engineering studies and as approved by regulatory authorities, approximated 4.1 percent of average depreciable plant in 1994 and 1993, and 4.0 percent for 1992. Allowance for Funds Used During Construction (AFUDC), a non- cash item, is calculated using actual commercial paper interest rates. If commercial paper balances are insufficient to finance the amount of work in progress, a composite of interest costs of debt, shown as a reduction to interest charges, and a return on equity funds, shown as other income, is used to compute AFUDC. This amount is added to utility plant which is a component of rate base. While cash is not realized currently from AFUDC, it is realized in the ratemaking process over the service life of the related property through increased revenues resulting from higher rate base and higher depreciation expense. The Company's weighted average AFUDC rates were 3.4 percent for 1994, 3.5 percent for 1993, and 4.5 percent for 1992. Regulatory Balancing Accounts ----------------------------- Regulatory balancing accounts are established pursuant to orders of the state utility regulatory commissions, in general rate proceedings or expense deferral proceedings, in order to provide for recovery of revenues or expenses from, or refunds to, Northwest Natural's utility customers. Cash and Cash Equivalents ------------------------- For purposes of reporting cash flows, cash and cash equivalents include cash on hand and highly liquid temporary investments with original maturity dates of three months or less. Unbilled Revenue ---------------- Northwest Natural accrues for gas deliveries not billed to customers from the meter reading dates to month end. Inventories ----------- Northwest Natural's inventories of gas in storage and materials and supplies are stated at the lower of average cost or net realizable value. Foreign Currency Fluctuation Hedges ----------------------------------- Northwest Natural uses foreign currency hedge transactions to reduce its exposure to currency fluctuations on firm Canadian gas purchase commitments by entering into foreign currency forward contracts with concurrent maturities. Northwest Natural does not engage in currency speculation. The forward contracts generally have terms ranging from one to 12 months. All contracts are specifically purchased for firm commitments and are physically delivered to satisfy those commitments. Changes in market values of foreign currency contracts are deferred and recognized as adjustments to gas purchase costs upon concurrent settlement of these contracts (see Note 11). Income Taxes ------------ The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," on January 1, 1993. SFAS No. 109, among other things, (i) requires the liability method be used in computing deferred taxes on all temporary differences between book and tax basis of assets and liabilities; (ii) requires that deferred tax liabilities and assets be adjusted for an enacted change in tax laws or rates; and (iii) prohibits net-of-tax accounting and reporting. Regulated enterprises are required to recognize such adjustments as regulatory assets or liabilities if it is probable that such amounts will be recovered from or returned to customers in future rates. As of December 31, 1994, the Company had regulatory assets of $60.4 million, an amount which is primarily derived from differences between the book and tax basis of the utility plant in service and the accumulated reserve for depreciation. The Company provides deferred federal income tax for the timing differences between book depreciation and tax depreciation under the Accelerated Cost Recovery System (ACRS) for 1981 - 1985 property additions and Modified Accelerated Cost Recovery System (MACRS) for post-1985 property additions. Consistent with rate and accounting instructions of regulatory authorities, deferred income taxes are not currently collected for those income tax temporary differences where the prescribed regulatory accounting methods do not provide for current recovery in rates. Investment tax credits on utility property additions which reduce income taxes payable are deferred for financial statement purposes and are amortized over the life of the related property. Investment and energy tax credits generated by non-regulated subsidiaries are amortized over a period of two to five years. Earnings Per Share ------------------ Primary earnings per share are computed based on the weighted average number of common shares outstanding each year. Outstanding stock options are common stock equivalents but are excluded from primary earnings per share computations due to immateriality. The Company reports fully-diluted earnings per share when dilution is three percent or greater. This calculation reflects the potential effects of the conversion of the $2.375 Series of Convertible Preference Stock and the 7-1/4 percent Series of Convertible Debentures and the exercise of stock options. 2. CONSOLIDATED SUBSIDIARY OPERATIONS: ---------------------------------------- Oregon Natural Gas Development Corporation ------------------------------------------ Oregon Natural is a natural gas exploration and production subsidiary of the Company. Approximately $22.5 million of Oregon Natural's total assets of $40.7 million at year-end 1994 are invested in its wholly-owned subsidiary, Canor Energy Ltd., which manages and develops natural gas and oil properties in Canada. Oregon Natural accounts for its exploration costs under the successful-efforts method. Costs to acquire and develop oil and gas properties are capitalized until the volume of proved gas reserves is determined. If there are inadequate gas reserves, the related deferred costs are expensed. Capitalized costs associated with properties under development were $4.4 million at December 31, 1994 and $1.4 million at December 31, 1993. NNG Financial Corporation ------------------------- Financial Corporation provides short-term financing for Oregon Natural and Energy Systems and has several financial investments, including investments as a limited partner in four solar electric generating systems, four windpower electric generating projects, a hydroelectric facility and a low-income housing project (see Note 10). Pacific Square Corporation -------------------------- Pacific Square was a real estate management subsidiary of the Company. During 1994, Pacific Square sold its partnership interests in two commercial office buildings, including the Company's headquarters building. As a result of the sale of these investments, Pacific Square no longer has any operating activities. NNG Energy Systems, Inc. ------------------------ Energy Systems was formed to design, construct, own and operate cogeneration facilities. Agrico Cogeneration Corporation (Agrico) is a wholly-owned subsidiary of Energy Systems. In December 1991, Agrico filed with the United States Bankruptcy Court for the Eastern District of California a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The U. S. Bankruptcy Court confirmed Agrico's reorganization plan in January 1994. The sale of Agrico's assets closed in February 1994. Based upon the estimated costs to the Company under related settlements, the estimated net proceeds to be received from the sale of Agrico's assets, and other elements of a Chapter 11 reorganization plan, the Company recorded a charge of $4.6 million in 1992, resulting in an after-tax charge of $2.8 million, equivalent to 24 cents per share. Summarized financial information for the consolidated subsidiaries follows:
Thousands 1994 1993 1992 ------------------------------------------------------------------------ Statements of Income for the year ended December 31: Net Operating Revenues $ 11,773 $ 10,865 $ 8,000 Operating Expenses 11,253 14,168 13,635 -------- -------- -------- Income (Loss) from Operations 520 (3,303) (5,635) Income (Loss) from Financial Investments 2,115 (388) (28) Other Income (Expense) and Interest Charges 4,092 14 (1,642) -------- -------- -------- Income (Loss) Before Income Taxes 6,727 (3,677) (7,305) Income Tax Expense (Benefit) 1,986 (2,188) (3,682) -------- -------- -------- Net Income (Loss) $ 4,741 $ (1,489) $ (3,623) ======== ======== ======== Balance Sheets as of December 31: Assets: Non-utility property - net $ 24,212 $ 21,040 $ 27,911 Investments and other 41,419 34,731 39,781 Current assets 27,541 34,028 16,001 -------- -------- -------- Total Assets $ 93,172 $ 89,799 $ 83,693 ======== ======== ======== Capitalization and Liabilities: Capitalization $ 26,562 $ 21,843 $ 24,189 Current liabilities 42,164 42,538 33,940 Other liabilities 24,446 25,418 25,564 -------- -------- -------- Total Capitalization and Liabilities $ 93,172 $ 89,799 $ 83,693 ======== ======== ======== ---------------------------------------------------------------------
3. CAPITAL STOCK: -------------------- Common Stock ------------ At December 31, 1994, Northwest Natural had reserved 87,864 shares of common stock for issuance under the Employee Stock Purchase Plan, 449,209 shares under its Dividend Reinvestment and Stock Purchase Plan, 147,504 shares under its 1985 Stock Option Plan (see Note 4), 82,719 shares for future conversions of its convertible preference stock and 444,396 shares for future conversions of its 7-1/4 percent Convertible Debentures. In the first quarter of 1995, Northwest Natural sold 1.15 million shares of its Common Stock. The net proceeds of $33.0 million will be used for corporate purposes, primarily to fund, in part, Northwest Natural's construction program, and to repay short-term debt incurred for such purpose. The projected dilution of earnings per share resulting from this sale is estimated at five percent. Preference Stock ---------------- The $2.375 Series of Convertible Preference Stock is convertible into shares of common stock at a conversion rate of 1.6502 shares of common stock for each share of preference stock. Subject to certain restrictions, it is callable at stipulated prices, plus accrued dividends. The $6.95 Series of Preference Stock is not redeemable prior to December 31, 2002, but is subject to mandatory redemption on that date. Redeemable Preferred Stock -------------------------- The mandatory preferred stock redemption requirements aggregate $1.1 million in 1995, 1996, 1997 and 1998 and $1.0 million in 1999. These requirements are noncumulative. At any time Northwest Natural is in default on any of its obligations to make the prescribed sinking fund payments, it may not pay cash dividends on common stock or preference stock. Upon involuntary liquidation, all series of redeemable preferred stock are entitled to their stated value. The redeemable preferred stock is callable at stipulated prices, plus accrued dividends. At December 31, 1994, redemption prices were $100 per share for the $4.68 and $4.75 Series. Shares of the $7.125 Series are redeemable on or after May 1, 1998 at a price of $104.75 per share decreasing each year thereafter to $100 per share on or after May 1, 2008. The following table shows the changes in the number of shares of Northwest Natural's capital stock and the premium on common stock for the years 1994, 1993 and 1992:
----------Shares-------------Premium Redeem- on Common Prefer- able Stock Common ence Preferred (Thous- Stock Stock Stock ands) --------------------------------------------------------------------- Balance, December 31, 1991 11,785,177 74,771 465,454 $ 92,599 Sales to the public 990,000 250,000 -- 25,327 Sales to employees 9,350 -- -- 222 Sales to stockholders 157,046 -- -- 4,228 Exercise of stock options - net 19,918 -- -- 183 Conversion of preference stock to common 6,846 (4,150) -- 82 Conversion of convertible debentures to common 4,388 -- -- 117 Sinking fund purchases -- -- (23,859) -- Other -- -- -- 10 ---------- ------- ------- -------- Balance, December 31, 1992 12,972,725 320,621 441,595 122,768 Sales to employees 9,542 -- -- 249 Sales to stockholders 154,850 -- 150,000 4,724 Exercise of stock options - net 19,110 -- -- 172 Conversion of preference stock to common 8,740 (5,298) -- 105 Conversion of convertible debentures to common 12,289 -- -- 328 Redemptions -- -- (416,873) -- Sinking fund purchases -- -- (4,316) -- Other -- -- -- (6) ---------- ------- ------- -------- Balance, December 31, 1993 13,177,256 315,323 170,406 128,340 Sales to employees 10,856 -- -- 290 Sales to stockholders 173,994 -- -- 4,958 Exercise of stock options - net 3,401 -- -- 2 Conversion of preference stock to common 25,147 (15,244) -- 301 Conversion of convertible debentures to common 28,031 -- -- 748 Sinking fund purchases -- -- (10,902) -- Other -- -- -- 2 ---------- ------- ------- -------- Balance, December 31, 1994 13,418,685 300,079 159,504 $134,641 ========== ======= ======= ======== ---------------------------------------------------------------------
4. STOCK OPTION AND PURCHASE PLANS: ------------------------------------- Northwest Natural's 1985 Stock Option Plan (Plan) authorizes an aggregate of 300,000 shares of common stock for issuance as incentive or non-statutory stock options. These options may be granted only to officers and key employees of the Company designated by its Board of Directors. All options granted are at an option price not less than market value at the date of grant and may be exercised for a period not exceeding 10 years from the date of grant. Option holders may exchange shares owned by them for at least one year, at the current market price, to purchase shares at the option price. During 1985, 1990 and 1994, 150,000, 86,500 and 75,182 options were granted under the Plan at option prices of $17.625, $24.875 and $36.00, respectively. Since inception of the Plan, 20,182 options have expired. Information regarding the Plan is summarized below:
Options ---------------------------- 1994 1993 1992 ------------------------------------------------------------ Outstanding, beginning of year 71,303 101,326 138,408 $17.625 Options: Exchanged by holders (3,080) (6,184) (7,673) Exercised (3,401) (9,334) (13,440) $24.875 Options: Exchanged by holders - (4,729) (6,017) Exercised - (9,776) (6,652) $36.00 Options: Granted 75,182 - - Exchanged by holders - - - Exercised - - - Expired (1,000) - (3,300) ------- ------- ------- Outstanding, end of year 139,004 71,303 101,326 ======= ======= ======= Available for grant, end of year 8,500 82,682 82,682 ======= ======= ======= --------------------------------------------------------------
Northwest Natural has an employee stock purchase plan whereby employees may purchase common stock at 92 percent of average bid and ask market price on the subscription date. The subscription date is set annually, and each employee may purchase up to 600 shares payable through payroll deduction over a six to 12 month period. 5. LONG TERM DEBT: -------------------- The issuance of first mortgage bonds under the Mortgage and Deed of Trust is limited by property, earnings and other provisions of the mortgage. Northwest Natural's Mortgage and Deed of Trust constitutes a first mortgage lien on substantially all of its utility property. The 7-1/4 percent Series of Convertible Debentures may be converted at any time for 33-1/2 shares of common stock for each $1,000 face value ($29.85 per share). The sinking fund requirements and maturities for the five years ending December 31, 1999, on the long-term debt outstanding at December 31, 1994, amount to: $1.0 million in 1995; $21.0 million in 1996; $26.0 million in 1997; $16.0 million in 1998; and $11.0 million in 1999. 6. NOTES PAYABLE AND LINES OF CREDIT: --------------------------------------- Northwest Natural has available through September 30, 1995, committed lines of credit totalling $80 million consisting of a primary fixed amount of $40 million plus an excess amount of up to $40 million available as needed, at Northwest Natural's option, on a monthly basis. Financial Corporation has available through September 30, 1995, committed lines of credit with two commercial banks totalling $20 million, consisting of a primary fixed amount of $15 million plus an excess amount of up to $5 million available as needed, at Financial Corporation's option, on a monthly basis. Financial Corporation's lines are supported by the guaranty of Northwest Natural. Under the terms of these lines of credit, Northwest Natural and Financial Corporation pay commitment fees but are not required to maintain compensating bank balances. The interest rates on borrowings under these lines of credit are based on current market rates as negotiated. There were no outstanding balances on either the Northwest Natural or Financial Corporation lines of credit as of December 31, 1994 or December 31, 1993. Northwest Natural and Financial Corporation issue domestic commercial paper, which is supported by the committed bank lines, under agency agreements with a commercial bank. Additionally, Financial Corporation's commercial paper is supported by the guaranty of Northwest Natural. The amounts and average interest rates of commercial paper outstanding were as follows at December 31:
1994 1993 ----------------- ---------------- Average Average Thousands Amount Rate Amount Rate ----------------------------------------------------------- Northwest Natural $35,393 5.8% $53,446 3.4% Financial Corporation 18,261 6.0% 19,102 3.4% ------- ------- Total $53,654 $72,548 ======= ======= ------------------------------------------------------------
7. INCOME TAXES: ----------------- The Company adopted SFAS No. 109, "Accounting for Income Taxes," effective January 1, 1993. The adoption of the new standard resulted in an increase in net deferred tax liabilities of $62.1 million to reflect deferred taxes on differences previously flowed-through and to adjust existing deferred taxes to the level required at the current statutory rate. An offsetting regulatory asset of $62.1 million was also recorded. This regulatory tax asset has decreased to $60.4 million at December 31, 1994. The regulatory asset is primarily based upon differences between the book and tax basis of utility plant in service and the accumulated provision for depreciation. It is expected that the regulatory asset will be recovered in future rates. The implementation of SFAS No. 109 did not significantly impact results of operations. A reconciliation between income taxes calculated at the statutory federal tax rate and the tax provision reflected in the financial statements is as follows:
Thousands 1994 1993 1992 -------------------------------------------------------------------- Computed income taxes based on statutory federal income tax rate (1994 and 1993-35%; 1992-34%) $19,577 $20,910 $ 7,727 Increase (reduction) in taxes resulting from: Differences between book and tax depreciation 1,575 1,561 1,233 Current state income tax, net of federal tax benefit 2,189 2,525 711 Federal income tax credits (338) (348) - Restoration of investment tax credit (1,077) (1,064) (1,124) Elimination of amounts previously provided (588) (1,059) (1,229) Real and personal property taxes (123) 113 - Removal costs (556) (320) (335) Unconsolidated foreign subsidiary income (172) (496) - Other - net (14) 274 (32) ------- ------- ------- Total provision for income taxes $20,473 $22,096 $ 6,951 ======= ======= ======= --------------------------------------------------------------------
The provision for income taxes consists of the following:
Thousands 1994 1993 1992 --------------------------------------------------------------------- Income taxes currently payable: Federal $10,441 $13,368 $7,577 State 2,375 2,166 375 Foreign 21 30 13 ------- ------- ------ Total 12,837 15,564 7,965 ------- ------- ------ Deferred taxes - net: Federal 7,720 5,896 (676) State 993 1,718 616 ------- ------- ------ Total 8,713 7,614 (60) ------- ------- ------ Investment and energy tax credits restored: From utility operations (800) (800) (800) From subsidiary operations (277) (282) (154) ------- ------- ------ Total (1,077) (1,082) (954) ------- ------- ------ Total provision for income taxes $20,473 $22,096 $6,951 ======= ======= ====== Percentage of pretax income 36.60% 36.99% 30.59% ======= ======= ====== --------------------------------------------------------
The annual provision for deferred income taxes is comprised of the following:
Thousands 1994 1993 1992 -------------------------------------------------------------------- ACRS and MACRS deductions in excess of related book depreciation $ 6,086 $ 5,925 $ 8,661 Revenues and costs deferred for tax purposes (5,885) 1,528 2,600 Sale of Pacific Square investments (2,395) - - Agrico book loss 6,999 - (1,374) Real and personal property taxes - 2,329 (2,328) Alternative minimum tax credits 4,000 - (6,866) Elimination of amounts previously provided 336 (2,216) (1,025) Other (428) 48 272 -------- -------- -------- Total $ 8,713 $ 7,614 $ (60) ======== ======== ========
------------------------------------------------------------------- 8. EMPLOYEE RETIREMENT PLANS: ------------------------------- The Company has two non-contributory defined benefit retirement plans covering all regular, full-time employees with more than one year of service. The benefits under the plans are based upon years of service and the employee's average compensation during the final years of service. The Company's funding policy is to make the annual contribution required by applicable regulations and recommended by its actuary. Plan assets consist primarily of marketable securities, corporate obligations, U.S. government obligations, real estate and cash equivalents. The following table sets forth the amounts recognized in the Company's financial statements and the combined funded status of the retirement plans:
Thousands 1994 1993 1992 --------------------------------------------------------------- Service cost $ 2,952 $ 2,587 $ 2,528 Interest cost 6,264 6,024 5,688 Return on assets 4,056 (17,762) (8,797) Net amortization and deferral (12,804) 9,526 1,215 -------- -------- -------- Annual pension cost (benefit) $ 468 $ 375 $ 634 ======== ======== ======== ----------------------------------------------------------------- Vested benefit obligation $ 68,628 $ 69,859 $ 62,152 Total accumulated benefit obligation $ 70,186 $ 70,618 $ 62,971 ----------------------------------------------------------------- Funded status as of December 31: Plan assets at fair value $100,077 $108,579 $ 94,595 Projected benefit obligation for service rendered to date 85,206 86,814 77,278 -------- -------- -------- Funded status 14,871 21,765 17,317 Unrecognized net gain (15,992) (21,417) (15,895) Unrecognized net asset at transition (1,914) (2,310) (2,706) Unrecognized prior service costs 5,028 4,413 3,531 -------- -------- -------- Prepaid pension cost $ 1,993 $ 2,451 $ 2,247 ======== ======== ======== Total cash contribution $ 10 $ 579 $ 1,496 ======== ======== ======== ----------------------------------------------------------------- Discount rate: Funded status 8.00% 7.50% 8.00% ======== ======== ======== Pension cost 7.50% 8.00% 8.00% ======== ======== ======== Expected long-term rate of return on plan assets 9.00% 9.00% 9.00% ======== ======== ======== Rate for compensation increases 5.00% 5.13% 5.13% ======== ======== ======== ----------------------------------------------------------------
Effective January 1, 1995, the Company changed the assumed discount rate used in determining the funded status of the plans from 7.50 percent to 8.00 percent. The new discount rate was used in determining the funded status of the plans at year-end 1994 and will be used to determine annual pension cost in 1995. The Company has a qualified "Retirement K Savings Plan" under Internal Revenue Code Section 401(k) and a non- qualified "Executive Deferred Compensation Plan," for eligible employees. These plans are designed to enhance the existing retirement program of employees and to assist them in strengthening their financial security by providing an incentive to save and invest regularly. Contributions to these plans in 1994, 1993 and 1992 were $0.7 million, $0.5 million and $0.3 million, respectively. The Company has a non-qualified supplemental retirement plan for eligible executive officers which it is funding with trust-owned life insurance. The amount of coverage is designed to provide sufficient returns to recover all costs of the plan if assumptions made as to mortality experience, policy earnings, and other factors are realized. Expenses related to the plan were $1.0 million in 1994, $0.8 million in 1993 and $0.9 million in 1992. 9. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS: ------------------------------------------------------------ The Company provides continued health care and life insurance coverage after retirement for exempt employees. These benefits and similar benefits for active employees are provided by insurance companies and related premiums are based on the amount of benefits paid during the year. Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." The Company elected to recognize the cumulative effect of approximately $11.3 million over a period of 20 years. The incremental costs of approximately $1.1 million per year (pre-tax) relating to SFAS No. 106 are not included in Northwest Natural's rates. The staff of the OPUC has recommended that Northwest Natural's portion of these costs allocated to Oregon (approximately 87 percent) be authorized for recovery in rates only pursuant to a general rate case filing, and has recommended against the use of deferred accounting treatment for their recovery. Northwest Natural is charging the Oregon portion of these costs to expense. The WUTC has approved deferred accounting treatment for the portion of these costs allocated to Washington (approximately five percent), pending final approval for recovery in a general rate case filing. Northwest Natural monitors its need for general rate cases covering these and other expenses but has no present plans to file a general rate case in Oregon or Washington. The following table sets forth the postretirement health care and life insurance plan's status at December 31:
Thousands ---------------------------------------------------------- 1994 1993 ---- ---- Retirees $ 5,768 $ 6,675 Fully eligible active plan participants 834 260 Other active plan participants 3,792 4,815 -------- -------- Total accumulated postretirement benefit obligation 10,394 11,750 Fair value of plan assets - - -------- -------- Accumulated postretirement benefit obligation in excess of plan assets 10,394 11,750 Unrecognized transition obligation (10,152) (10,716) Unrecognized gain 1,942 76 -------- -------- Accrued postretirement benefit cost $ 2,184 $ 1,110 ======== ======== Service cost - benefits earned during the period $ 314 $ 255 Return on plan assets (if any) - - Interest cost on accumulated postretirement benefit obligation 859 932 Amortization of transition obligation 564 564 ------- ------- Net postretirement benefit cost $ 1,737 $ 1,751 ======= ======= ------------------------------------------------------------
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation for pre- Medicare eligibility is nine percent for 1995 and 1996; eight percent for 1997; then decreasing over the next seven years to 4.5 percent. The assumed rate for HMO plan and post-Medicare eligibility is eight percent for 1995 and 1996, then decreasing over the next seven years to 4.5 percent. A one-percentage-point change in the assumed health care cost trend rate for each year would adjust the accumulated postretirement benefit obligation as of December 31, 1994 and net postretirement health care cost by approximately 13.5 percent. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 8.5 percent at December 31, 1994 and 7.5 percent at December 31, 1993. 10. PROPERTY AND INVESTMENTS: ------------------------------ The following table sets forth the major classifications of Northwest Natural's utility plant and accumulated provision for depreciation at December 31:
1994 1993 --------------------- ------------------- Average Average Depreciation Depreciation Thousands Amount Rate Amount Rate -------------------- ------- ------------ ------ ----------- Transmission and distribution $758,093 3.8% $704,195 3.8% Storage 58,971 3.9% 58,120 3.9% General 60,675 6.4% 53,888 7.0% Intangible and other 10,313 13.6% 10,537 14.2% -------- -------- Utility plant in service 888,052 4.1% 826,740 4.1% Gas stored long-term 6,738 5,027 Work in progress 13,448 8,263 -------- -------- Total utility plant 908,238 840,030 Less accumulated provision for depreciation 279,112 255,282 -------- -------- Utility plant-net $629,126 $584,748 ======== ======== --------------------------------------------------------------------
The following table summarizes the Company's investments in affiliated entities accounted for under the equity and cost methods, and its investment in a leveraged lease at December 31:
Thousands 1994 1993 ------------------------------------------------------------ Electric generation (solar and wind-power) $21,622 $21,043 Aircraft leveraged lease 9,171 9,079 Gas pipeline and other 3,390 2,696 ------- ------- Total investments and other $34,183 $32,818 ======= ======= -----------------------------------------------------------
Financial Corporation has invested in four solar electric generation plants located near Barstow, California. Power generated by these stations is sold to Southern California Edison Company under long-term contracts. Financial Corporation's ownership interests in these projects range from 4.0 percent to 5.3 percent. Financial Corporation also has invested in four U. S. Windpower Partners electric generating projects, with facilities located near Livermore and Palm Springs, California. The wind-generated power is sold to Pacific Gas and Electric Company and Southern California Edison Company under long-term contracts. Financial Corporation's ownership interests in these projects range from 8.5 percent to 41 percent. In 1987, Oregon Natural purchased a Boeing 737-300 aircraft which was leased to Continental Airlines for 20 years under a leveraged lease agreement. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS: ----------------------------------------- The estimated fair values of Northwest Natural's financial instruments have been determined using available market information and appropriate valuation methodologies. The following is a list of financial instruments whose carrying values are sensitive to market conditions:
December 31, 1994 December 31, 1993 -------------------- ------------------- Carrying Estimated Carrying Estimated Thousands Amount Fair Value Amount Fair Value ---------------------------------------------------------------- Preference stock $ 26,252 $ 22,841 $ 26,633 $ 26,698 Redeemable preferred stock $ 15,950 $ 15,417 $ 17,041 $ 16,573 Long-term debt including amount due within one year $292,076 $283,732 $272,931 $301,358 ----------------------------------------------------------------
Fair value of preference stock and redeemable preferred stock was estimated using quoted market prices. Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities were used to estimate fair value for debt issues. In connection with its Canadian gas purchase commitments, Northwest Natural uses foreign currency forward contracts to hedge against currency fluctuation. At December 31, 1994, these contracts totalled $13.6 million, with a market value of $13.4 million. 12. COMMITMENTS AND CONTINGENCIES: ----------------------------------- Lease Commitments ----------------- Future lease commitments are: $4.9 million in 1995; $4.2 million in 1996; $4.0 million in 1997; and $1.8 million in 1998 and 1999. Thereafter, total commitments amount to $10.2 million. These commitments principally relate to the lease of the Company's office headquarters and computer systems. Total rental expense for 1994, 1993, and 1992 was $5.1 million, $5.2 million and $4.4 million, respectively. Purchase Commitments -------------------- Northwest Natural has signed agreements providing for the availability of firm pipeline capacity. Under these agreements, Northwest Natural must make fixed monthly payments for contracted capacity. The pricing component of the monthly payment is established, subject to change, by U.S. or Canadian regulatory bodies. In addition, Northwest Natural has entered into long-term agreements which release capacity. The aggregate amounts of these agreements were as follows at December 31, 1994:
Thousands ------------------------------------------------------------ Capacity Capacity Purchase Release Agreements Agreements ---------- ---------- 1995 $ 65,894 $ 3,984 1996 80,335 8,039 1997 77,692 8,039 1998 77,467 8,039 1999 77,467 8,039 Thereafter 736,528 87,085 ---------- -------- Total 1,115,383 123,225 Less: Amount representing interest 480,735 54,543 ---------- -------- Total at present value $ 634,648 $ 68,682 ========== ======== ------------------------------------------------------------
Northwest Natural's total payments of fixed charges under capacity purchase agreements in 1994, 1993 and 1992 were $50.0 million, $46.7 million and $34.7 million, respectively. Included in the amounts for 1994 and 1993 were reductions for capacity release sales totalling $3.7 million and $1.7 million, respectively. In addition, Northwest Natural is required to pay per-unit charges based on the actual quantities shipped under the agreements. In certain of Northwest Natural's take-or-pay purchase commitments, annual deficiencies may be offset by prepayments subject to recovery over a longer term if future purchases exceed the minimum annual requirements. Northwest Natural has contracted with an external vendor for the development of a customer information system with remaining commitments of $0.8 million in 1995 and $3.8 million in 1996. Environmental Matters --------------------- In June 1992, the City of Salem, Oregon, requested Northwest Natural's participation in its review of an environmental assessment of riverfront property in Salem that is the proposed site for a park and other public developments. Within the property is a block previously owned by Northwest Natural which was the site of a former manufactured gas plant. Northwest Natural's corporate predecessor owned the plant for less than four months in 1929. The City has determined that there is environmental contamination on the site, and that a remediation process involving Northwest Natural and at least two other prior owners of the block will be required. To date Northwest Natural has not obtained sufficient information to determine the extent of its responsibility for any such remediation. Northwest Natural owns property in Linnton, Oregon, that is the site of a former gas manufacturing plant that was closed in 1956. Although limited testing for environmental contamination has been undertaken by other parties on portions of the site, no comprehensive studies have been performed. Northwest Natural submitted a work plan for the site to the Oregon Department of Environmental Quality (ODEQ) in 1987, but further efforts were suspended at ODEQ's request while Northwest Natural and other parties participated in a joint hydrogeologic study of an area adjacent to the site. In September 1993, pursuant to ODEQ procedures, Northwest Natural submitted a notice of intent to participate in the ODEQ's Voluntary Cleanup Program and, in April 1994, the site was listed on ODEQ's Confirmed Release List and Inventory. It is anticipated that the site investigation will commence during 1995. In September 1993, Northwest Natural recorded an expense of $0.5 million for the estimated costs of consultants' fees, ODEQ oversight cost reimbursements, and legal fees in connection with the voluntary investigation at the Linnton site. To date, Northwest Natural has not obtained sufficient information to determine whether any remediation will be required at this site or, if so, the extent of its responsibility for any such remediation. Northwest Natural expects that its costs of investigation and any remediation for which it may be responsible should be recoverable, in large part, from insurance or through future rates. Litigation ---------- The Company is party to certain legal actions in which claimants seek material amounts. Although it is impossible to predict the outcome with certainty, based upon the opinions of legal counsel, management does not expect disposition of these matters to have a materially adverse effect on the Company's financial position or results of operations. NORTHWEST NATURAL GAS COMPANY QUARTERLY FINANCIAL INFORMATION (UNAUDITED) -----------------------------------------------------------------
----------Quarter Ended---------- Dollars (Thousands Mar. June Sept. Dec. Except Per Share Amounts) 31, 30, 30, 31, Total ------------------------------------------------------------------------ 1994 Operating revenues 128,534 66,505 48,474 124,748 368,261 Net operating revenues 72,325 37,219 26,922 69,007 205,473 Net income (loss) 18,780 2,465 (3,774) 17,990 35,461 Earnings (loss) per share 1.37 0.13 (0.34) 1.29 2.44* 1993 Operating revenues 128,714 61,789 47,451 120,763 358,717 Net operating revenues 82,116 40,141 30,805 66,822 219,884 Net income (loss) 24,653 2,767 (4,423) 14,650 37,647 Earnings (loss) per share 1.82 0.15 (0.40) 1.05 2.61* ------------------------------------------------------------------------
*Quarterly earnings per share are based upon the average number of common shares outstanding during each quarter. Because the average number of shares outstanding has increased in each quarter shown, the sum of quarterly earnings does not equal earnings per share for the year. Variations in earnings between quarterly periods are due primarily to the seasonal nature of the Company's business. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III (Item 10. Directors and Executive Officers of the Registrant; Item 11. Executive Compensation; Item 12. Security Ownership of Certain Beneficial Owners and Management; and Item 13. Certain Relationships and Related Transactions.) Information called for by Part III (Items 10., 11., 12. and 13.) is incorporated herein by reference to portions of the Company's definitive proxy statement. See the Additional Item included in Part I for information concerning executive officers of the Company. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are filed as part of this report: 1. A list of all Financial Statements and Supplementary Schedules is incorporated by reference to Item 8. 2. List of Exhibits filed: (3a.) Restated Articles of Incorporation, as filed and effective June 24, 1988 and amended December 8, 1992, December 1, 1993 and May 27, 1994. (3b.) Bylaws as amended effective February 24, 1995. *(4a.) Copy of Mortgage and Deed of Trust, dated as of July 1, 1946, to Bankers Trust and R. G. Page (to whom Stanley Burg is now successor), Trustees (incorporated herein by reference to Exhibit 7(j) in File No. 2-6494); and copies of Supplemental Indentures Nos. 1 through 14 to the Mortgage and Deed of Trust, dated respectively, as of June 1, 1949, March 1, 1954, April 1, 1956, February 1, 1959, July 1, 1961, January 1, 1964, March 1, 1966, December 1, 1969, April 1, 1971, January 1, 1975, December 1, 1975, July 1, 1981, June 1, 1985 and November 1, 1985 (incorporated herein by reference to Exhibit 4(d) in File No. 33-1929); Supplemental Indenture No. 15 to the Mortgage and Deed of Trust, dated as of July 1, 1986 (filed as Exhibit (4)(c) in File No. 33-24168); Supplemental Indentures Nos. 16, 17 and 18 to the Mortgage and Deed of Trust, dated, respectively, as of November 1, 1988, October 1, 1989 and July 1, 1990 (incorporated herein by reference to Exhibit (4)(c) in File No. 33-40482); Supplemental Indenture No. 19 to the Mortgage and Deed of Trust (incorporated herein by reference to Exhibit 4(c) in File No. 33-64014); and Supplemental Indenture No. 20 to the Mortgage and Deed of Trust, dated as of June 1, 1993 (incorporated herein by reference to Exhibit 4(c) in File No. 33-53795). *(4d.) Copy of Indenture, dated as of June 1, 1991, between the Company and Bankers Trust Company, Trustee, relating to the Company's Unsecured Medium-Term Notes (incorporated herein by reference to Exhibit 4(e) in File No. 33-64014). *(4e.) Officers' Certificate dated June 12, 1991 creating Series A of the Company's Unsecured Medium-Term Notes (incorporated herein by reference to Exhibit (4e.) to Form 10-K for 1993, File No. 0-994). *(4f.) Officers' Certificate dated June 18, 1993 creating Series B of the Company's Unsecured Medium-Term Notes (incorporated herein by reference to Exhibit (4f.) to Form 10-K for 1993, File No. 0-994). *(10j.) Transportation Agreement, dated June 29, 1990, between the Company and Northwest Pipeline Corporation (incorporated herein by reference to Exhibit (10j.) to Form 10-K for 1993, File No. 0-994). *(10j.(1)) Replacement Firm Transportation Agreement, dated July 31, 1991, between the Company and Northwest Pipeline Corporation (incorporated herein by reference to Exhibit (10j.(2)) to Form 10-K for 1992, File No. 0-994). *(10j.(2)) Firm Transportation Service Agreement, dated November 10, 1993, between the Company and Pacific Gas Transmission Company (incorporated herein by reference to Exhibit (10j.(2)) to Form 10-K for 1993, File No. 0-994). (10j.(3)) Service Agreement, dated June 17, 1993, between Northwest Pipeline Corporation and the Company. (10j.(4)) Firm Transportation Service Agreement, dated October 22, 1993, between Pacific Gas Transmission Company and the Company. (10j.(5)) Letter Agreement, dated May 11, 1994, between Pacific Gas and Electric Company and the Company. (10j.(6)) Service Agreement, dated January 20, 1995 between Nova Corporation and the Company. (10j.(7)) Service Agreement, dated June 12, 1991, between Alberta Natural Gas Company Ltd. and the Company. (10j.(8)) Service Agreement, dated November 9, 1994, applicable to firm transportation service under Rate Schedule FS-1 between Alberta Natural Gas Company Ltd. and the Company. (11) Statement re computation of fully- diluted per share earnings. (12) Statement re computation of ratios. (23) Independent Auditors' Consent. (27) Financial Data Schedule. Executive Compensation Plans and Arrangements: ---------------------------------------------- *(10a.) Employment agreement, dated October 27, 1983, between the Company and an executive officer (incorporated herein by reference to Exhibit (10a.) to Form 10-K for 1989, File No. 0-994). (10b.) Executive Supplemental Retirement Income Plan, 1995 Restatement. (10c.) 1985 Stock Option Plan, as amended effective February 23, 1995. *(10e.) Executive Deferred Compensation Plan, 1990 Restatement, effective January 1, 1990 (incorporated herein by reference to Exhibit (10e.) to Form 10-K for 1990, File No. 0-994). *(10e.-1) Amendment No. 1 to Executive Deferred Compensation Plan (incorporated by reference to Exhibit (10e.-1) to Form 10-K for 1991, File No. 0-994). (10e.-2) Amendment No. 2 to Executive Deferred Compensation Plan. *(10f.) Directors Deferred Compensation Plan, 1988 Restatement, effective January 1, 1988 (incorporated herein by reference to Exhibit (10g.) to Form 10-K for 1987, File No. 0-994). (10f.-1) Amendment No. 1 to Directors Deferred Compensation Plan. *(10g.) Form of Indemnity Agreement as entered into between the Company and each director and executive officer (incorporated herein by reference to Exhibit (10g.) to Form 10-K for 1988, File No. 0-994). *(10i.) Non-Employee Directors Stock Compensation Plan, as amended effective July 1, 1991 (incorporated herein by reference to Exhibit (10i.) to Form 10-K for 1991, File No. 0-994). *(10k.) Executive Annual Incentive Plan, effective March 1, 1990, as amended effective January 1, 1992 (incorporated herein by reference to Exhibit (10k.) to Form 10-K for 1991, File No. 0-994). *(10l.) Employment agreement dated November 27, 1989, between the Company and an executive officer (incorporated herein by reference to Exhibit (10l.) to Form 10-K for 1991, File No. 0-994). (10m.) Agreement dated September 22, 1994, between the Company and an executive officer. The Company agrees to furnish the Commission, upon request, a copy of certain instruments defining rights of holders of long-term debt of the Company or its consolidated subsidiaries which authorize securities thereunder in amounts which do not exceed 10% of the total assets of the Company. (b) Reports on Form 8-K. No Current Reports on Form 8-K were filed during the quarter ended December 31, 1994. ___________________________________ *Incorporated herein by reference as indicated. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NORTHWEST NATURAL GAS COMPANY Date: March 23, 1995 By /s/ Robert L. Ridgley ------------------ ----------------------------- Robert L. Ridgley, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert L. Ridgley Principal Executive ------------------------- Officer and Director March 23, 1995 Robert L. Ridgley President and Chief Executive Officer /s/ Bruce R. DeBolt Principal Financial ------------------------- Officer March 23, 1995 Bruce R. DeBolt Senior Vice President, Finance, and Chief Financial Officer /s/ D. James Wilson Principal Accounting ------------------------ Officer March 23, 1995 D. James Wilson Treasurer and Controller /s/ Mary Arnstad Director ) ------------------------ ) Mary Arnstad ) ) /s/ Thomas E. Dewey, Jr. Director ) ------------------------ ) Thomas E. Dewey, Jr. ) ) Director ) ------------------------ ) Tod R. Hamachek ) ) /s/ Richard B. Keller Director ) ------------------------ ) Richard B. Keller ) ) /s/ Wayne D. Kuni Director ) ------------------------ ) Wayne D. Kuni ) ) /s/ Dwight A. Sangrey Director ) March 23, 1995 ------------------------ ) Dwight A. Sangrey ) ) /s/ Melody C. Teppola Director ) ------------------------ ) Melody C. Teppola ) ) /s/ Russell F. Tromley Director ) ------------------------ ) Russell F. Tromley ) ) /s/ Benjamin R. Whiteley Director ) ------------------------ ) Benjamin R. Whiteley ) ) Director ) ------------------------ ) William R. Wiley ) ) /s/ Carlton Woodard Director ) ------------------------ ) Carlton Woodard ) NORTHWEST NATURAL GAS COMPANY EXHIBIT INDEX To Annual Report on Form 10-K For Fiscal Year Ended December 31, 1994 Exhibit Document Number -------- ------ Restated Articles of Incorporation, as filed June 24, 1988 and amended December 8, 1992, December 1, 1993 and May 27, 1994 (3a.) Bylaws as amended effective February 24, 1995 (3b.) * Mortgage and Deed of Trust, dated as of July 1, 1946, as supplemented by Supplemental Indenture Nos. 1 through 20 (4a.) * Indenture, dated as of July 1, 1991, between the Company and Bankers Trust Company (4d.) * Officers' Certificate dated June 12, 1991 creating Unsecured Medium-Term Notes Series A (4e.) * Officers' Certificate dated June 18, 1993 creating Unsecured Medium-Term Notes Series B (4f.) * Transportation Agreement, dated June 29, 1990, between the Company and Northwest Pipeline Corporation (10j.) * Replacement Firm Transportation Agreement, dated July 31, 1991, between the Company and Northwest Pipeline Corporation (10j.(1)) * Firm Transportation Service Agreement dated November 10, 1993, between the Company and Pacific Gas Transmission Company (10j.(2)) Service Agreement, dated June 17, 1993, between Northwest Pipeline Corporation and the Company (10j.(3)) Firm Transportation Service Agreement, dated October 22, 1993, between Pacific Gas Transmission Company and the Company (10j.(4)) Letter Agreement, dated May 11, 1994, between Pacific Gas and Electric Company and the Company (10j.(5)) Service Agreement, dated January 20, 1995 between Nova Corporation and the Company (10j.(6)) Service Agreement, dated June 12, 1991, between Alberta Natural Gas Company Ltd. and the Company (10j.(7)) Service Agreement, dated November 9, 1994, applicable to firm transportation service under Rate Schedule FS-1 between Alberta Natural Gas Company Ltd. and the Company (10j.(8)) Statement re computation of fully-diluted per share earnings (11) Statement re computation of ratios (12) Independent Auditors' Consent (23) Financial Data Schedule (27) Executive Compensation Plans and Arrangements --------------------------------------------- * Employment Agreement, dated October 27, 1983, between the Company and an executive officer (10a.) Executive Supplemental Retirement Income Plan, 1995 Restatement (10b.) 1985 Stock Option Plan as amended effective February 23, 1995 (10c.) * Executive Deferred Compensation Plan, 1990 Restatement, effective January 1, 1990 (10e.) * Amendment No. 1 to Executive Deferred Compensation Plan (10e.-1) Amendment No. 2 to Executive Deferred Compensation Plan (10e.-2) * Directors Deferred Compensation Plan, 1988 Restatement, effective January 1, 1988 (10f.) Amendment No. 1 to Directors Deferred Compensation Plan (10f.-1) * Form of Indemnity Agreement entered into between the Company and each director and executive officer (10g.) * Non-Employee Directors Stock Compensation Plan, as amended effective July 1, 1991 (10i.) * Executive Annual Incentive Plan, effective March 1, 1990, as amended effective January 1, 1992 (10k.) * Employment agreement dated November 27, 1989 between the Company and an executive officer (10l.) Agreement dated September 22, 1994 between the Company and an executive officer (10m.) -------------------------- * Incorporated by reference ex-index EX-3 2 RESTATED ARTICLES OF INCORPORATION Exhibit (3a.) RESTATED ARTICLES OF INCORPORATION of NORTHWEST NATURAL GAS COMPANY as Filed and Effective June 24, 1988 STATE OF OREGON CORPORATION DIVISION 158 12th Street N.E. Salem, OR 97310 Registry Number: 014302-14 RESTATED ARTICLES OF INCORPORATION Business Corporation 1. The name of the corporation is Northwest Natural Gas Company. 2. A copy of the Restated Articles of Incorporation is attached. 3. The Restated Articles of Incorporation do not contain amendments which require shareholder approval. These Restated Articles were duly adopted by the Board of Directors. Execution: Robert L. Ridgley Robert L. Ridgley President Signature Printed Name Title Person to contact about this filing: C. J. Rue (503) 220-2411 Name Daytime Phone RESTATED ARTICLES OF INCORPORATION OF NORTHWEST NATURAL GAS COMPANY (These Restated Articles of Incorporation of Northwest Natural Gas Company supersede its theretofore existing Restated Articles of Incorporation and all amendments thereto.) ARTICLE I A. The name of this corporation is NORTHWEST NATURAL GAS COMPANY, and its duration shall be perpetual. ARTICLE II A. The purposes of the corporation are to engage in any lawful activity for which corporations may be organized under the Oregon Business Corporation Act. ARTICLE III A. The aggregate number of shares of capital stock which the corporation shall have authority to issue is 33,500,000 shares, divided into 1,500,000 shares of Preferred Stock without par value, issuable in series as hereinafter provided, 2,000,000 shares of Preference Stock without par value, issuable in series as hereinafter provided, and 30,000,000 shares of Common Stock of the par value of $3-1/6 per share. B. Each certificate for shares of Common Stock of a par value other than $3-1/6 per share, so long as it remains outstanding, shall evidence and represent an equal number of shares of Common Stock of $3-1/6 par value. Each certificate for shares of the 4.68% Series, 4.75% Series, 6.875% Series or 8% Series of the Preferred Stock of the par value of $100 per share, so long as it remains outstanding, shall evidence and represent, respectively, an equal number of shares of the $4.68 Series, $4.75 Series, $6.875 Series or $8 Series of the Preferred Stock, without par value. C. A statement of the preferences, limitations and relative rights of each class of capital stock of the corporation, namely, the Preferred Stock, the Preference Stock and the Common Stock, of the variations in the relative rights and preferences as between series of the Preferred Stock and as between series of the Preference Stock, insofar as the same are fixed by these Restated Articles of Incorporation, and of the authority vested in the board of directors of the corporation to establish series of Preferred Stock and series of Preference Stock and to fix and determine the variations in the relative rights and preferences as between series insofar as the same are not fixed by these Restated Articles of Incorporation, is as follows: Preferred Stock 1. The shares of the Preferred Stock may be divided into and issued in series. Each series shall be so designated as to distinguish the shares thereof from the shares of all other series of the Preferred Stock and all other classes of capital stock of the corporation. To the extent that these Restated Articles of Incorporation shall not have established series of the Preferred Stock and fixed and determined the variations in the relative rights and preferences as between series, the board of directors shall have authority, and is hereby expressly vested with authority, to divide the Preferred Stock into series and, within the limitations set forth in these Restated Articles of Incorporation and such limitations as may be provided by law, to fix and determine the relative rights and preferences of any series of the Preferred Stock so established. Such action by the board of directors shall be expressed in a resolution or resolutions adopted by it prior to the issuance of shares of each series, which resolution or resolutions shall also set forth the distinguishing designation of the particular series of the Preferred Stock - 1 - established thereby. Without limiting the generality of the foregoing, authority is hereby expressly vested in the board of directors so to fix and determine with respect to any series of the Preferred Stock: (a) The rate of dividend; (b) The price at which and the terms and conditions on which shares may be redeemed; (c) The amount payable upon shares in the event of voluntary and involuntary liquidation; (d) Sinking fund provisions, if any, for the redemption or purchase of shares; and (e) The terms and conditions, if any, on which shares may be converted if the shares of any series are issued with the privilege of conversion. All shares of the Preferred Stock of the same series shall be identical except that shares of the same series issued at different times may vary as to the dates from which dividends thereon shall be cumulative; and all shares of the Preferred Stock, irrespective of series, shall constitute one and the same class of stock, shall be of equal rank, and shall be identical except as to the designation thereof, the date or dates from which dividends on shares thereof shall be cumulative, and the relative rights and preferences set forth above in clauses (a) through (e) of this subdivision, as to which there may be variations between different series. Except as otherwise may be provided by law, by subdivision III.C.7., or by the resolutions establishing any series of Preferred Stock in accordance with the foregoing provisions of this subdivision, whenever the written consent, affirmative vote, or other action on the part of the holders of the Preferred Stock may be required for any purpose, such consent, vote or other action shall be taken by the holders of the Preferred Stock as a single class irrespective of series and not by different series. 2. The holders of shares of the Preferred Stock of each series shall be entitled to receive dividends, when and as declared by the board of directors, out of any funds legally available for the payment of dividends, at the annual rate fixed and determined with respect to each series either by these Restated Articles of Incorporation or in accordance with subdivision III.C.1., and no more, payable quarterly on the 15th day of February, May, August and November in each year or on such other date or dates as the board of directors shall determine in the resolutions establishing such series. Such dividends shall be cumulative in the case of shares of each series either from the date of issuance of shares of such series or from the first day of the current dividend period within which shares of such series shall be issued, as the board of directors shall determine, so that if dividends on all outstanding shares of each particular series of the Preferred Stock, at the annual dividend rates fixed and determined by the board of directors for the respective series, shall not have been paid or declared and set apart for payment for all past dividend periods and for the then current dividend periods, the deficiency shall be fully paid or dividends equal thereto declared and set apart for payment at said rates before any dividends on the Preference Stock or the Common Stock shall be paid or declared and set apart for payment. In the event more than one series of the Preferred Stock shall be outstanding, the corporation, in making any dividend payment on the Preferred Stock, shall make payments ratably upon all outstanding shares of the Preferred Stock in proportion to the amount of dividends accumulated thereon to the date of such dividend payment. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments which may be in arrears. 3. In the event of any dissolution, liquidation or winding up of the corporation, before any distribution or payment shall be made to the holders of the Preference Stock or the Common Stock, the holders of the Preferred Stock of each series then outstanding shall be entitled to be paid out of the net assets of the corporation available for distribution to its shareholders the respective amounts per share fixed and determined with respect to each series either by these Restated Articles of Incorporation or in accordance with subdivision III.C.1., and no more. If upon dissolution, liquidation or winding up of the - 2 - corporation, whether voluntary or involuntary, the net assets of the corporation available for distribution to its shareholders shall be insufficient to pay the holders of all outstanding shares of Preferred Stock of all series the full amounts to which they shall be respectively entitled as aforesaid, the entire net assets of the corporation available for distribution shall be distributed ratably to the holders of all outstanding shares of Preferred Stock of all series in proportion to the amounts to which they shall be respectively so entitled. For the purposes of this subdivision, any dissolution, liquidation or winding up which may arise out of or result from the condemnation or purchase of all or a major portion of the properties of the corporation by (i) the United States Government or any authority, agency or instrumentality thereof, (ii) a State of the United States or any political subdivision, authority, agency or instrumentality thereof, or (iii) a district, cooperative or other association or entity not organized for profit, shall be deemed to be an involuntary dissolution, liquidation or winding up; and a consolidation, merger or amalgamation of the corporation with or into any other corporation or corporations shall not be deemed to be a dissolution, liquidation or winding up of the corporation, whether voluntary or involuntary. 4. (a) Subject to the limitations set forth in subdivision III.C.9. or fixed and determined in accordance with subdivision III.C.1., the Preferred Stock of all series, or of any series thereof, or any part of any series thereof, at any time outstanding, may be redeemed by the corporation, at its election expressed by resolution of the board of directors, at any time or from time to time, at the then applicable redemption price fixed and determined with respect to each series either by these Restated Articles of Incorporation or in accordance with subdivision III.C.1. If less than all of the shares of any series are to be redeemed, the redemption shall be made either pro rata or by lot in such manner as the board of directors shall determine. (b) In the event the corporation shall so elect to redeem shares of the Preferred Stock, notice of the intention of the corporation to do so and of the date and place fixed for redemption shall be mailed not less than thirty days before the date fixed for redemption to each holder of shares of the Preferred Stock to be redeemed at his address at it shall appear on the books of the corporation, and on and after the date fixed for redemption and specified in such notice (unless the corporation shall default in making payment of the redemption price), such holders shall cease to be shareholders of the corporation with respect to such shares and shall have no interest in or claim against the corporation with respect to such shares, excepting only the right to receive the redemption price therefor from the corporation on the date fixed for redemption, without interest, upon endorsement, if required, and surrender of their certificates for such shares. (c) Contemporaneously with the mailing of notice of redemption of any shares of the Preferred Stock as aforesaid or at any time thereafter on or before the date fixed for redemption, the corporation may, if it so elects, deposit the aggregate redemption price of the shares to be redeemed with any bank or trust company doing business in The City of New York, New York, or Portland, Oregon, having a capital and surplus of at least $25,000,000, named in such notice, payable on the date fixed for redemption in the proper amounts to the respective holders of the shares to be redeemed, upon endorsement, if required, and surrender of their certificates for such shares, and on and after the making of such deposit such holders shall cease to be shareholders of the corporation with respect to such shares and shall have no interest in or claim against the corporation with respect to such shares, excepting only the right to exercise such redemption, conversion or exchange rights, if any, on or before the date fixed for redemption as may have been provided with respect to such shares or the right to receive the redemption price of their shares from such bank or trust company on the date fixed for redemption, without interest, upon endorsement, if required, and surrender of their certificates for such shares. (d) If the corporation shall have elected to deposit the redemption moneys with a bank or trust company as permitted by subdivision (c) above, any moneys so deposited which shall remain unclaimed at the - 3 - end of six years after the redemption date shall be repaid to the corporation, and upon such repayment holders of Preferred Stock who shall not have made claim against such moneys prior to such repayment shall be deemed to be unsecured creditors of the corporation for an amount, without interest, equal to the amount they would theretofore have been entitled to receive from such bank or trust company. Any redemption moneys so deposited which shall not be required for such redemption because of the exercise, after the date of such deposit, of any right of redemption, conversion or exchange or otherwise, shall be returned to the corporation forthwith. The corporation shall be entitled to receive any interest allowed by any bank or trust company on any moneys deposited with such bank or trust company as herein provided, and the holders of any shares called for redemption shall have no claim against any such interest. (e) Nothing herein contained shall limit any legal right of the corporation to purchase or otherwise acquire any shares of the Preferred Stock. 5. The holders of shares of the Preferred Stock shall have no right to vote in the election of directors or for any other purpose, except as may be otherwise provided by law or by subdivisions III.C.6, 7 and 8. Holders of Preferred Stock shall be entitled to notice of each meeting of shareholders at which they shall have any right to vote, but shall not be entitled to notice of any other meeting of shareholders. 6. (a) If at any time dividends payable on any share or shares of Preferred Stock shall be in arrears in an amount equal to four full quarterly dividends or more per share, a default in preferred dividends for the purpose of this subdivision shall be deemed to have occurred, and having so occurred, such default shall be deemed to exist thereafter until, but only until, all unpaid accumulated dividends on all shares of Preferred Stock shall have been paid to the last preceding dividend period. If and whenever a default in preferred dividends shall occur, a special meeting of shareholders of the corporation shall be held for the purpose of electing directors upon the written request of the holders of at least 10% of the total number of shares of Preferred Stock then outstanding. Such meeting shall be called by the secretary of the corporation upon such written request and shall be held at the earliest practicable date upon like notice as that required for the annual meeting of shareholders of the corporation and at the place for the holding of such annual meeting. If notice of such special meeting shall not be mailed by the secretary within thirty days after personal service of such written request upon the secretary of the corporation or within thirty days of mailing the same in the United States of America by registered mail addressed to the secretary at the principal office of the corporation, then the holders of at least 10% of the total number of shares of Preferred Stock then outstanding may designate in writing one of their number to call such meeting and the person so designated may call such meeting upon like notice as that required for the annual meeting of shareholders and to be held at the place for the holding of such annual meeting. Any holder of Preferred Stock so designated shall have access to the stock books of the corporation for the purpose of causing a meeting of shareholders to be called pursuant to the foregoing provisions of this subdivision. (b) At any such special meeting, or at the next annual meeting of shareholders of the corporation for the election of directors and at each other meeting, annual or special, for the election of directors held thereafter (unless at the time of any such meeting such default in preferred dividends shall no longer exist), the holders of the outstanding shares of Preferred Stock, voting separately as a class irrespective of series, shall have the right to elect the smallest number of directors which shall constitute at least one-fourth of the total number of directors of the corporation, or two directors, whichever shall be the greater, and the holders of the outstanding shares of Common Stock, voting as a class, shall have the right to elect all other members of the board of directors, - 4 - anything herein or in the bylaws of the corporation to the contrary notwithstanding. The terms of office, as directors, of all persons who may be directors of the corporation at any time when such special right to elect directors shall become vested in the holders of the Preferred Stock shall terminate upon the election of any new directors to succeed them as aforesaid. (c) At any meeting, annual or special, of the corporation, at which the holders of Preferred Stock shall have the special right to elect directors as aforesaid, the presence in person or by proxy of the holders of a majority of the total number of shares of Preferred Stock then outstanding shall be required to constitute a quorum of such class for the election of directors, and the presence in person or by proxy of the holders of a majority of the total number of shares of Common Stock then outstanding shall be required to constitute a quorum of such class for the election of directors; provided, however, that the absence of a quorum of the holders of shares of any such class shall not prevent the election at any such meeting or adjournment thereof of directors by the other class, if the necessary quorum of the holders of such other class shall be present at such meeting or any adjournment thereof; and provided further, that in the absence of a quorum of holders of shares of any class, a majority of the holders of the shares of such class who are present in person or by proxy shall have power to adjourn the election of the directors to be elected by such class from time to time, without notice other than announcement at the meeting, until the requisite quorum of holders of such class shall be present in person or by proxy, but no such adjournment shall be made to a date beyond the date for the mailing of the notice of the next annual meeting of shareholders of the corporation or special meeting in lieu thereof. (d) So long as a default in preferred dividends shall exist, any vacancy in the office of a director elected by the holders of the Preferred Stock may be filled at any meeting of shareholders, annual or special, for the election of directors held thereafter, and a special meeting of shareholders, or of the holders of shares of the Preferred Stock, may be called for the purpose of filling any such vacancy. So long as a default in preferred dividends shall exist, any vacancy in the office of a director elected by the holders of the Common Stock may be filled by a majority vote of the remaining directors elected by the holders of Common Stock. (e) If and when the default in preferred dividends which permitted the election of directors by the holders of the Preferred Stock shall cease to exist, the holders of the Preferred Stock shall be divested of any special right with respect to the election of directors, and the voting power of the holders of the Preferred Stock and of the holders of the Common Stock shall revert to the status existing before the first dividend payment date on which dividends on the Preferred Stock were not paid in full, subject to revesting in the event of each and every subsequent like default in preferred dividends. Upon the termination of any such special right, the terms of office of all persons who may have been elected directors by vote of the holders of the Preferred Stock pursuant to such special right shall forthwith terminate, and the resulting vacancies shall be filled by the majority vote of the remaining directors. 7. So long as any shares of the Preferred Stock shall be outstanding, the corporation shall not, without the written consent or affirmative vote of the holders of at least two-thirds of the total number of shares of the Preferred Stock then outstanding, (i) create or authorize any new class of stock ranking prior to the Preferred Stock as to dividends or upon dissolution, liquidation or winding up, or (ii) amend, alter or repeal any of the express terms of the Preferred Stock then outstanding in a manner substantially prejudicial to the holders thereof. Notwithstanding the foregoing provisions of this subdivision, if any proposed amendment, alteration or repeal of any of the express terms of any outstanding shares of the Preferred Stock would be substantially prejudicial to the holders of shares of one or more, but not all, of the series of the Preferred Stock, only the written consent or affirmative vote of the holders of at least two-thirds of the total number of outstanding shares - 5 - of all series so affected shall be required. Any affirmative vote of the holders of the Preferred Stock, or of any one or more series thereof, which may be required in accordance with the foregoing provisions of this subdivision, upon a proposal to create or authorize any class of stock ranking prior to the Preferred Stock or to amend, alter or repeal the express terms of outstanding shares of the Preferred Stock or of any one or more series thereof in a manner substantially prejudicial to the holders thereof may be taken at a special meeting of the holders of the Preferred Stock or of the holders of one or more series thereof called for the purpose, notice of the time, place and purposes of which shall have been given to the holders of the shares of the Preferred Stock entitled to vote upon any such proposal, or at any meeting, annual or special, of the shareholders of the corporation, notice of the time, place and purposes of which shall have been given to holders of shares of the Preferred Stock entitled to vote on such a proposal. 8. So long as any shares of the Preferred Stock shall be outstanding, the corporation shall not, without the written consent or affirmative vote of the holders of at least a majority of the total number of shares of Preferred Stock then outstanding: (a) issue any shares of the Preferred Stock, or of any other class of stock ranking prior to or on a parity with the Preferred Stock as to dividends or upon dissolution, liquidation or winding up, unless (i) the net income of the corporation available for the payment of dividends for a period of twelve consecutive calendar months within the fifteen calendar months immediately preceding the issuance of such shares (including, in any case in which such shares are to be issued in connection with the acquisition of new property, the net income of the property so to be acquired, computed on the same basis as the net income of the corporation) is at least equal to two times the annual dividend requirements on all shares of the Preferred Stock, and on all shares of all other classes of stock ranking prior to or on a parity with the Preferred Stock as to dividends or upon dissolution, liquidation or winding up, which will be outstanding immediately after the issuance of such shares, including the shares proposed to be issued, and (ii) the gross income of the corporation available for the payment of interest for a period of twelve consecutive calendar months within the fifteen calendar months immediately preceding the issuance of such shares (including, in any case in which such shares are to be issued in connection with the acquisition of new property, the gross income of the property so to be acquired, computed on the same basis as the gross income of the corporation) is at least equal to one and one-half times the aggregate of the annual interest requirements on all securities evidencing indebtedness of the corporation, and the annual dividend requirements on all shares of the Preferred Stock and on all shares of all other classes of stock ranking prior to or on a parity with the Preferred Stock as to dividends or upon dissolution, liquidation or winding up, which will be outstanding immediately after the issuance of such shares, including the shares proposed to be issued; or (b) issue any shares of the Preferred Stock, or of any other class of stock ranking prior to or on a parity with the Preferred Stock as to dividends or upon dissolution, liquidation or winding up, unless the aggregate of the capital of the corporation applicable to the Common Stock and the surplus of the corporation (paid-in, earned or other, if any) shall be not less than the aggregate amount payable on the involuntary dissolution, liquidation or winding up of the corporation on all shares of the Preferred Stock, and on all shares of all other classes of stock ranking prior to or on a parity with the Preferred Stock as to dividends or upon dissolution, liquidation or winding up, which will be outstanding immediately after the issuance of such shares, including the shares proposed to be issued; provided, however, that if, for the purposes of meeting the requirements of this subdivision, it shall become necessary to take into consideration any surplus of the corporation the corporation shall not thereafter pay any dividends on shares of the Preference Stock or the Common Stock which would result in reducing the aggregate of the capital of the corporation applicable to the Common Stock and the surplus of the corporation to an amount less than the - 6 - aggregate amount payable, on involuntary dissolution, liquidation or winding up of the corporation, on all shares of the Preferred Stock and of any stock ranking prior to or on a parity with the Preferred Stock, as to dividends or upon dissolution, liquidation or winding up, at the time outstanding. In any case where it would be appropriate, under generally accepted accounting principles, to combine or consolidate the financial statements of any predecessor or subsidiary of the corporation with those of the corporation, the foregoing computations may be made on the basis of such combined or consolidated financial statements. Any affirmative vote of the holders of the Preferred Stock, which may be required in accordance with the foregoing provisions of this subdivision, may be taken at a special meeting of the holders of the Preferred Stock called for the purpose, notice of the time, place and purposes of which shall have been given to the holders of the outstanding shares of the Preferred Stock, or at any meeting, regular or special, of the shareholders of the corporation, notice of the time, place and purposes of which shall have been given to the holders of the outstanding shares of the Preferred Stock. 9. The series of Preferred Stock heretofore established and outstanding on the date of the adoption of these Restated Articles of Incorporation, together with a statement of the rights and preferences of each series, are as follows: $4.68 Series (a) The Preferred Stock $4.68 Series, of which 18,600 shares were outstanding at the time of the adoption of these Restated Articles of Incorporation, shall have the following rights and preferences: (i) the rate of dividend of shares of said Series shall be $4.68 per annum; the dividend payment dates shall be the 15th days of February, May, August and November in each year except that the date of payment of the first dividend shall be November 15, 1963; and dividends shall be cumulative from the date of issue; (ii) the price at which shares of said Series may be redeemed shall be $105 per share if the date of redemption is on or prior to July 31, 1968; $103 per share if the date of redemption is after July 31, 1968 and on or prior to July 31, 1971; $101 per share if the date of redemption is after July 31, 1971 and on or prior to July 31, 1974; and $100 per share if the date of redemption is after July 31, 1974; in each case plus unpaid accumulated dividends, if any, to the date of redemption; provided, however, that no shares of said Series may be redeemed on or prior to July 31, 1968, in whole or in part by the use, directly or indirectly, of the proceeds from the issuance of any class or series of Preferred Stock of the corporation bearing an effective dividend rate (calculated in accordance with acceptable financial practice) that is less than $4.68 per annum; (iii) the amount payable upon shares of said Series in the event of involuntary liquidation shall be $100 per share and in the event of voluntary liquidation shall be an amount equal to the then applicable redemption price of shares of said Series plus unpaid accumulated dividends, if any, to the date of payment; (iv) shares of said Series shall not be, by their terms, convertible; (v) shares of said Series shall be entitled to the benefits of a purchase fund as follows: (1) The corporation (unless such action, in the opinion of counsel for the corporation, would be contrary to any applicable law or to any rule or regulation of any governmental authority having jurisdiction in the premises) will each year, beginning in 1966, so long as any shares of said Series are outstanding, make an offer, in the manner hereinafter specified, to the holders of shares of said Series, to purchase on June 15 - 7 - in each such year, 1,800 shares of said Series at $100 per share and accumulated dividends up to such June 15 (hereinafter called "$4.68 Series Purchase Offer"); provided, however, that (i) if in any year the net income of the corporation for the preceding calendar year (which net income shall be determined in accordance with the requirements of the regulatory authority of the State of Oregon having jurisdiction of the corporation and after deducting from such net income one year's dividend requirement on any Preferred Stock of the corporation outstanding at the end of such preceding calendar year whether or not declared or paid) shall be less than half the sum of $180,000 plus the maximum obligation, expressed in dollars, due during the year in which such $4.68 Series Purchase Offer is to be made, for sinking funds, purchase funds, or other analogous devices, if any, for the retirement of any other Preferred Stock of the corporation, then the corporation's obligation, expressed in dollars, to offer to purchase shares of said Series in such year shall be limited to such amount as it shall in its sole discretion determine; and (ii) if in any year the amount of such net income of the corporation for the preceding calendar year (after deducting from such net income one year's dividend requirement on any Preferred Stock of the corporation outstanding at the end of such preceding calendar year whether or not declared or paid) shall be not less than half, and not equal to, the sum of $180,000 plus the maximum obligation, expressed in dollars, due during the year in which such $4.68 Series Purchase Offer is to be made, for sinking funds, purchase funds, or other analogous devices, if any, for the retirement of any other Preferred Stock of the corporation, then the corporation's obligation, expressed in dollars, to offer to purchase shares of said Series in such year shall be the proportion of said amount so determined which $180,000 bears to the maximum aggregate of all sinking funds, purchase funds, or other analogous devices, if any, for the retirement of any Preferred Stock of the corporation. The total number of shares to be purchased and the number of shares to be purchased from any holder shall be adjusted to the nearest full share so that fractional shares need not be purchased. The obligation of the corporation to make annually the $4.68 Series Purchase Offer and to purchase shares of said Series tendered for sale in accordance with the terms thereof, hereinafter is referred to as the "$4.68 Series Purchase Fund Obligation" and is subject to the terms and conditions hereinafter set forth. (2) Beginning on or prior to April 30, 1966, and on or prior to April 30 in each year thereafter, the corporation shall deliver to the Transfer Agent for said Series a certificate signed by the president or a vice president or the treasurer or an assistant treasurer of the corporation stating (i)(a) whether or not the corporation's obligation, expressed in dollars, to offer to purchase shares of said Series is limited by reason of subdivision (1)(ii) above, and if so, the amount of such obligation as so limited, and (b) the number of shares of said Series for which a $4.68 Series Purchase Offer is to be made by the corporation in such year, or (ii) that the net income of the corporation for the preceding calendar year was such that the corporation has no $4.68 Series Purchase Fund Obligation in the current year, or (iii) that the making of a $4.68 Series Purchase Offer by the corporation, in the opinion of counsel for the corporation accompanying such certificate, would be contrary to an applicable law or to a rule or regulation of a governmental authority having jurisdiction in the premises; provided, however, that if, on April 1 of any year, there are not funds legally available, in the opinions of the signer of such certificate and of counsel for the corporation accompanying such certificate, for the payment of the current $4.68 Series Purchase Fund Obligation, the corporation may presume for the purposes hereof that the making of a $4.68 Series Purchase Offer would be contrary to an applicable law. (3) If the certificate filed in any such year shall state that a $4.68 Series Purchase Offer is to be made in such year, the Transfer Agent for said Series with whom such certificate is filed shall, on or prior to - 8 - May 15 of such year, cause to be mailed to the holders of record of the shares of said Series at the close of business on the May 1 preceding such mailing (or, if the board of directors of the corporation has declared a dividend on the shares of said Series, payable on May 15, to the holders receiving such dividend payment at the time of mailing such dividend payment checks), a notice, in the name of the corporation, that the corporation will on June 15 of such year accept tenders of shares required to satisfy the $4.68 Series Purchase Fund Obligation then due at $100 per share and accumulated dividends to such June 15; provided, however, that such tender must be received by the Transfer Agent not later than the close of business on the fifth full business day preceding such June 15 and that such tender must be irrevocable until the close of business on June 16 of such year. Tenders may be accepted regardless of whether the holder so tendering held shares of said Series at the time notice was given. The corporation may require, and in such event said notice shall specify, that each offer to sell shares of said Series shall be accompanied by the certificate or certificates for the shares so offered, the signature of the holder thereof to be guaranteed by a bank or trust company (not a savings bank) or by a firm having membership in the New York Stock Exchange, together with evidence satisfactory to the Transfer Agent of the right of the holder of such shares to so sell the same to the corporation. The decision of counsel for the corporation as to the right of the holder of such shares to sell the same to the corporation shall control and be conclusive. Any offer to sell shall be subject to acceptance in whole or in part. (4) In any year in which a $4.68 Series Purchase Offer is made, the Transfer Agent for said Series shall on June 15 of such year, on behalf of the corporation, accept tenders to sell shares of said Series received by it up to the full number of shares covered by the $4.68 Series Purchase Offer subject to the limitations on expenditures set forth in the certificate delivered to the Transfer Agent. If more shares are properly tendered pursuant to any annual $4.68 Series Purchase Offer than are to be purchased, the Transfer Agent shall accept the tender of such number of shares of each tendering shareholder as will bear the same ratio to the total number of shares to be purchased, as the number of shares of said Series held of record by such tendering shareholder bears to the aggregate number of shares of said Series held of record by all tendering shareholders. If one or more holders tender less than their proportionate share so that any of the number of shares to be purchased remain unallocated after apportionment among tendering shareholders on the foregoing basis the shares then remaining unallocated shall be again apportioned on the same basis among any excess tenders and such process shall be repeated until tenders have been accepted for the full number of shares to be purchased. (5) On or prior to June 15 in each year in which a $4.68 Series Purchase Offer shall have been made, the corporation shall deposit with the Transfer Agent for said Series cash sufficient to purchase those shares of said Series, if any, accepted for purchase pursuant to the $4.68 Series Purchase Offer made in such year. The Transfer Agent shall, on or before the next succeeding June 20, return to the corporation any funds deposited with it and not used or required to purchase shares of said Series, pursuant to the $4.68 Series Purchase Offer for such year. The $4.68 Series Purchase Fund Obligation in any year shall be deemed to be fully satisfied if the corporation shall have complied with these provisions notwithstanding that the total number of shares purchased by it shall be less than the total number of shares covered by the $4.68 Series Purchase Offer for that year because insufficient offers to sell were received by it. The $4.68 Series Purchase Fund Obligation shall not be cumulative. (6) Shares of said Series, purchased pursuant to any $4.68 Series Purchase Offer, shall be - 9 - cancelled, shall not be reissued as shares of said Series, and shall be restored to the status of authorized but unissued shares of the Preferred Stock of the corporation. (7) Unless otherwise provided by law, nothing herein contained shall prevent or in any manner restrict the board of directors or the corporation from authorizing and issuing any other series of Preferred Stock entitled to a purchase fund, sinking fund or other analogous device for the benefit of the holders of such other series of Preferred Stock of the corporation, whether or not the provisions therefor shall correspond with the provisions for said Series; provided that the dates on which such other fund or device shall operate in any particular year shall correspond with the dates applicable to said Series and in the event there is a deficiency in funds legally available to meet the total obligation due on any date for said Series and any other series of Preferred Stock of the corporation, the funds actually available, if any, or the total number of shares of said Series which the corporation may offer to purchase, shall be prorated between said Series and such other series of Preferred Stock so that the percentage allocated to any particular preferred stock shall correspond with its portion of the total amount due. (8) After June 15, 1966, so long as any shares of said Series shall be outstanding, no dividends on the Preference Stock or the Common Stock of the corporation shall, without the written consent or affirmative vote of the holders of at least a majority of the total number of shares of Preferred Stock then outstanding, be declared and set apart for payment unless the $4.68 Series Purchase Fund Obligation applicable to the June 15 immediately preceding the declaration of such dividend shall have been fully met, in that the corporation has offered to purchase 1,800 shares of said Series and has purchased or has available funds to purchase, pursuant to such $4.68 Series Purchase Offer, such 1,800 shares at $100 per share plus accumulated dividends to such June 15. (9) Whenever any of the dates mentioned with respect to the $4.68 Series Purchase Offer or $4.68 Series Purchase Fund Obligation shall not be a full business day in the City of Portland, Oregon, then any action to be taken on said date may be taken on the next succeeding full business day. $4.75 Series (b) The Preferred Stock $4.75 Series, of which 20,485 shares were outstanding at the time of the adoption of these Restated Articles of Incorporation, shall have the following rights and preferences: (i) the rate of dividend of shares of said Series shall be $4.75 per annum of the par value thereof; the dividend payment dates shall be the 15th days of February, May, August and November in each year except that the date of payment of the first dividend shall be May 15, 1964; and dividends shall be cumulative from the date of issue; (ii) the price at which shares of said Series may be redeemed shall be $105 per share if the date of redemption is on or prior to January 31, 1969; $103 per share if the date of redemption is after January 31, 1969 and on or prior to January 31, 1972; $101 per share if the date of redemption is after January 31, 1972 and on or prior to January 31, 1975; and $100 per share if the date of redemption is after January 31, 1975; in each case plus unpaid accumulated dividends, if any, to the date of redemption; provided, however, that no shares of said Series may be redeemed on or prior to January 31, 1969; in whole or in part by the use, directly or indirectly, of the proceeds from the issuance of any class or series of Preferred Stock of the corporation bearing an effective dividend rate (calculated in accordance with acceptable financial practice) that is less than $4.75 per annum; - 10 - (iii) the amount payable upon shares of said Series in the event of involuntary liquidation shall be $100 per share and in the event of voluntary liquidation shall be an amount equal to the then applicable redemption price of shares of said Series plus unpaid accumulated dividends, if any, to the date of payment; (iv) shares of said Series shall not be, by their terms, convertible; (v) shares of said Series shall be entitled to the benefits of a purchase fund as follows: (1) The corporation (unless such action, in the opinion of counsel for the corporation, would be contrary to any applicable law or to any rule or regulation of any governmental authority having jurisdiction in the premises) will each year, beginning in 1967, so long as any shares of said Series are outstanding, make an offer, in the manner hereinafter specified, to the holders of shares of said Series, to purchase on June 15 in each such year, 1,800 shares (less that number of shares, if any, surrendered in accordance with the provisions of the following subdivision) of said Series at prices up to but not exceeding $100 per share and accumulated dividends up to such June 15 (hereinafter called "$4.75 Series Purchase Offer"); provided, however, that (i) if in any year the net income of the corporation for the preceding calendar year (which net income shall be determined in accordance with the requirements of the regulatory authority of the State of Oregon having jurisdiction of the corporation and after deducting from such net income one year's dividend requirement on any Preferred Stock of the corporation outstanding at the end of such preceding calendar year whether or not declared or paid) shall be less than half the sum of $180,000 plus the maximum obligation, expressed in dollars, due during the year in which such $4.75 Series Purchase Offer is to be made, for sinking funds, purchase funds, or other analogous devices, if any, for the retirement of any other Preferred Stock of the corporation, then the corporation's obligation, expressed in dollars, to offer to purchase shares of said Series in such year shall be limited to such amount as it shall in its sole discretion determine; and (ii) if in any year the amount of such net income of the corporation for the preceding calendar year (after deducting from such net income one year's dividend requirement on any Preferred Stock of the corporation outstanding at the end of such preceding calendar year whether or not declared or paid) shall be not less than half, and not equal to, the sum of $180,000 plus the maximum obligation, expressed in dollars, due during the year in which such $4.75 Series Purchase Offer is to be made, for sinking funds, purchase funds, or other analogous devices, if any, for the retirement of any other Preferred Stock of the corporation, then the corporation's obligation, expressed in dollars, to offer to purchase shares of said Series in such year shall be the proportion of said amount so determined which $180,000 bears to the maximum aggregate of all sinking funds, purchase funds, or other analogous devices, if any, for the retirement of any Preferred Stock of the corporation. The total number of shares to be purchased and the number of shares to be purchased from any holder shall be adjusted to the nearest full share so that fractional shares need not be purchased. The obligation of the corporation to make annually the $4.75 Series Purchase Offer and to purchase shares of said Series tendered for sale in accordance with the terms thereof, is hereinafter referred to as the "$4.75 Series Purchase Fund Obligation" and is subject to the terms and conditions hereinafter set forth. (2) In addition to or in lieu of making a $4.75 Series Purchase Offer, the $4.75 Series Purchase Fund Obligation may also be satisfied in whole or in part by the surrender by the corporation for cancellation to the Transfer Agent for said Series, on or before June 15 of the year as to which the $4.75 Series Purchase Fund Obligation being met with such surrender is applicable, of shares of said Series theretofore acquired by the corporation; shares so surrendered in excess of 1,800 shares shall be - 11 - credited to the $4.75 Series Purchase Fund Obligation of the next succeeding year or years. Such surrender, however, shall not reduce the corporation's obligation expressed in dollars to offer to purchase said Series pursuant to subdivision (1)(ii) above, but the number of shares of said Series which the corporation shall offer to purchase shall be reduced to the difference between 1,800 shares and the number of shares so surrendered. (3) Beginning on or prior to April 30, 1967, and on or prior to April 30 in each year thereafter, the corporation shall deliver to the Transfer Agent for said Series a certificate signed by the president or a vice president or the treasurer or an assistant treasurer of the corporation stating (i)(a) whether or not the corporation's obligation, expressed in dollars, to offer to purchase shares of said Series is limited by reason of subdivision (1)(ii) above, and if so, the amount of such obligation as so limited, (b) the number of shares of said Series, if any, to be surrendered by the corporation for cancellation on or prior to June 15 in such year, and (c) the number of shares of said Series for which a $4.75 Series Purchase Offer is to be made by the corporation in such year, or (ii) that the net income of the corporation for the preceding calendar year was such that the corporation has no $4.75 Series Purchase Fund Obligation in the current year, or (iii) that the making of a $4.75 Series Purchase Offer by the corporation, in the opinion of counsel for the corporation accompanying such certificate, would be contrary to an applicable law or to a rule or regulation of a government authority having jurisdiction in the premises; provided, however, that if, on April 1 of any year, there are not funds legally available, in the opinions of the signer of such certificate and of counsel for the corporation accompanying such certificate, for the payment of the current $4.75 Series Purchase Fund Obligation, the corporation may presume for the purposes hereof that the making of a $4.75 Series Purchase Offer would be contrary to an applicable law. (4) If the certificate filed in any such year shall state that a $4.75 Series Purchase Offer is to be made in such year, the Transfer Agent for said Series with whom such certificate is filed shall, on or prior to May 15 of such year, cause to be mailed to the holders of record of the shares of said Series at the close of business on the May 1 preceding such mailing (or, if the board of directors of the corporation has declared a dividend on the shares of said Series, payable on May 15, to the holders receiving such dividend payment at the time of mailing such dividend payment checks), a notice, in the name of the corporation, that the corporation will on June 15 of such year accept tenders of shares required to satisfy the $4.75 Series Purchase Fund Obligation then due at prices not exceeding $100 per share and accumulated dividends to such June 15; provided, however, that such tender must be received by the Transfer Agent not later than the close of business on the fifth full business day preceding such June 15 and that such tender must be irrevocable until the close of business on June 16 of such year. Tenders may be accepted regardless of whether the holder so tendering held shares of said Series at the time notice was given. The corporation may require, and in such event said notice shall specify, that each offer to sell shares of said Series shall be accompanied by the certificate or certificates for the shares so offered, the signature of the holder thereof to be guaranteed by a bank or trust company ( not a savings bank) or by a firm having membership in the New York Stock Exchange, together with evidence satisfactory to the Transfer Agent of the right of the holder of such shares to so sell the same to the corporation. The decision of counsel for the corporation as to the right of the holder of such shares to sell the same to the corporation shall control and be conclusive. Any offer to sell shall be subject to acceptance in whole or in part. (5) In any year in which a $4.75 Series Purchase Offer is made, the Transfer Agent for said Series shall on June 15 of such year, on behalf of the corporation, accept tenders to sell shares of said Series received by it up to the full number of shares covered by the $4.75 Series Purchase - 12 - Offer subject to the limitations on expenditures set forth in the certificate delivered to the Transfer Agent upon such basis as will result in the lowest aggregate cost to the corporation. The Transfer Agent shall to the extent necessary select among tenders made at the same price by lot in such manner as it may determine. (6) On or prior to June 15 in each year in which a $4.75 Series Purchase Offer shall have been made, the corporation shall surrender to the Transfer Agent for said Series, for cancellation, certificates for the number of shares of said Series, if any, specified in the certificate for such year to be surrendered by the corporation to the Transfer Agent and deposit with the Transfer Agent cash sufficient to purchase shares of said Series, if any, accepted for purchase pursuant to the $4.75 Series Purchase Offer made in such year. The Transfer Agent shall, on or before the next succeeding June 20, return to the corporation any funds deposited with it and not used or required to purchase shares of said Series, pursuant to the $4.75 Series Purchase Offer for such year. The $4.75 Series Purchase Fund Obligation in any year shall be deemed to be fully satisfied if the corporation shall have complied with these provisions notwithstanding that the total number of shares purchased by it shall be less than the total number of shares covered by the $4.75 Series Purchase Offer for that year because insufficient offers to sell were received by it. The $4.75 Series Purchase Fund Obligation shall not be cumulative. (7) Shares of said Series, purchased pursuant to any $4.75 Series Purchase Offer, or surrendered in whole or partial satisfaction of the $4.75 Series Purchase Fund Obligation in any year, shall be cancelled, shall not be reissued as shares of said Series, and shall be restored to the status of authorized but unissued shares of the Preferred Stock of the corporation. (8) Unless otherwise provided by law, nothing herein contained shall prevent or in any manner restrict the board of directors or the corporation from authorizing and issuing any other series of Preferred Stock entitled to a purchase fund, sinking fund or other analogous device for the benefit of the holders of such other series of Preferred Stock of the corporation, whether or not the provisions therefor shall correspond with the provisions for said Series; provided that the dates on which such other fund or device shall operate in any particular year shall correspond with the dates applicable to said Series and in the event there is a deficiency in funds legally available to meet the total obligation due on any date for said Series and any other series of Preferred Stock of the corporation, the funds actually available, if any, or the total number of shares of said Series which the corporation may offer to purchase, shall be prorated between said Series and such other series of Preferred Stock so that the percentage allocated to any particular Preferred Stock shall correspond with its portion of the total amount due. (9) After June 15, 1967, so long as any shares of said Series shall be outstanding, no dividends on the Preference Stock or the Common Stock of the corporation shall, without the written consent or affirmative vote of the holders of at least a majority of the total number of shares of Preferred Stock then outstanding, be declared and set apart for payment unless the $4.75 Series Purchase Fund Obligation applicable to the June 15 immediately preceding the declaration of such dividend shall have been fully met by one of the following: (a) the surrender by the corporation to the Transfer Agent for cancellation of 1,800 shares of said Series therefore acquired by it, or (b) the corporation has offered to purchase 1,800 shares of said Series and has purchased or has available funds to purchase, pursuant to such $4.75 Series Purchase Offer, such 1,800 shares at prices not exceeding $100 per share plus accumulated dividends to such June 15, or (c) the corporation offered to purchase that number of shares of said Series and has - 13 - purchased or has funds available for the purchase thereof pursuant to such $4.75 Series Purchase Offer at $100 per share plus accumulated dividends to such June 15 which when added to the number of shares of said Series, if any, theretofore acquired by and surrendered for cancellation to the Transfer Agent by the corporation shall aggregate 1,800 shares of said Series. (10) Whenever any of the dates mentioned with respect to the $4.75 Series Purchase Offer or $4.75 Series Purchase Fund Obligation shall not be a full business day in the City of Portland, Oregon, then any action to be taken on said date may be taken on the next succeeding full business day. $6.875 Series (c) The Preferred Stock $6.875 Series, of which 28,000 shares were outstanding at the time of the adoption of these Restated Articles of Incorporation, shall have the following rights and preferences: (i) the rate of dividend of shares of said Series shall be $6.875 per annum of the par value thereof; the dividend payment dates shall be the 15th days of February, May, August and November in each year; and dividends shall be cumulative from the date of original issue; (ii) the price at which shares of said Series may be redeemed shall be $110 per share if the date of redemption is on or prior to December 31, 1977; $106 per share if the date of redemption is after December 31, 1977 and on or prior to December 31, 1980; $103 per share if the date of redemption is after December 31, 1980 and on or prior to December 31, 1983; and $100 per share if the date of redemption is after December 31, 1983; in each case plus unpaid accumulated dividends, if any, to the date of redemption, provided, however, that no shares of said Series may be redeemed (otherwise than by operation of the sinking fund provided for in subdivision (v) below) prior to December 31, 1974, directly or indirectly from the proceeds of or in anticipation of any refunding operation involving the incurring of indebtedness, or the issuance of stock, the holder of which will have a preference to the holders of the Common Stock with respect to the payment of dividends, having an effective interest rate, dividend rate or cost (calculated in accordance with acceptable financial practice) of less than the annual dividend rate borne by the shares of said Series; (iii) the amount payable upon shares of said Series in the event of involuntary liquidation shall be $100 per share and in the event in voluntary liquidation shall be an amount equal to the then applicable redemption price of shares of said Series plus unpaid accumulated dividends, if any, to the date of payment; (iv) shares of said Series shall not be, by their terms, convertible; (v) shares of said Series shall be entitled to the benefits of a sinking fund as follows: (1) The corporation (unless such action, in the opinion of counsel for the corporation, would be contrary to any applicable law or to any rule or regulation of any governmental authority having jurisdiction in the premises) shall, as a sinking fund for the retirement of shares of said Series, redeem, in the manner herein provided, 2,100 shares of said Series on June 15, 1969 and 2,100 shares of said Series on the 15th day of June of each year thereafter so long as any shares of said Series shall remain outstanding, in each case at the par value thereof per share plus accrued dividends to the date fixed for redemption; provided, however, that (i) if in any year the net income of the corporation for the preceding calendar year (which net income shall be determined in accordance with the requirements of the regulatory authority of the State of Oregon having jurisdiction of the corporation and after deducting from such net income one year's dividend requirement on any Preferred Stock of the corporation outstanding at the end of such preceding - 14 - calendar year whether or not declared or paid) shall be less than half the sum of $210,000 plus the maximum obligation, expressed in dollars, due during the year in which said Series sinking fund redemption is to be made, for sinking funds, purchase funds, or other analogous devices, if any, for the retirement of any other Preferred Stock of the corporation, then the corporation's obligation, expressed in dollars, to redeem shares of said Series for sinking fund purposes in such year shall be limited to such amount, if any, as it shall in its sole discretion determine; and (ii) if in any year the amount of such net income of the corporation for the preceding calendar year (determined as aforesaid and after deducting from such net income one year's dividend requirement on any Preferred Stock of the corporation outstanding at the end of such preceding calendar year whether or not declared or paid) shall be not less than half, and not equal to, the sum of $210,000 plus the maximum obligation, expressed in dollars, due during the year in which said Series sinking fund redemption is to be made, for sinking funds, purchase funds or other analogous devices, if any, for the retirement of any other Preferred Stock of the corporation, then the corporation's obligation, expressed in dollars, to redeem shares of said Series for sinking fund purposes in such year shall be the proportion of said amount so determined which $210,000 bears to the maximum aggregate of all sinking funds, purchase funds, or other analogous devices, if any, for the retirement of any Preferred Stock of the corporation in such year. The total number of shares to be redeemed and the number of shares to be redeemed from any holder shall be adjusted to the nearest full share so that fractional shares need not be redeemed. The corporation may, on any redemption date as above provided and at its option, credit against its sinking fund obligation such number of shares of said Series theretofore redeemed by the corporation otherwise than for the account of its sinking fund obligation or such number of shares of said Series theretofore purchased by the corporation at a price per share not in excess of $100 plus accrued dividends and in either case not theretofore applied as a credit on its sinking fund obligation. The sinking fund for said Series shall not be cumulative. Notice of redemption for each sinking fund shall be given, and deposit of the aggregate redemption price may be made, subject to the general terms and provisions for redemption of the Preferred Stock set forth in subdivision III.C.4. (2) Shares of said Series redeemed pursuant to the provisions of the sinking fund or credited thereto shall be cancelled, shall not be reissued as shares of said Series, and shall be restored to the status of authorized but unissued shares of the Preferred Stock of the corporation. (3) Unless otherwise provided by law, nothing herein contained shall prevent or in any manner restrict the board of directors of the corporation from authorizing and issuing any other series of Preferred Stock entitled to a purchase fund, sinking fund or other analogous device for the benefit of the holders of such other series of Preferred Stock of the corporation, whether or not the provisions therefor shall correspond with the provisions for said Series; provided that the dates on which such other fund or device shall operate in any particular year shall correspond with the dates applicable to said Series and in the event there is a deficiency in the funds available in any particular year for the fulfillment of the maximum requirements of the purchase funds, sinking funds or other analogous devices of all outstanding series of Preferred Stock of the corporation in accordance with the terms thereof, such funds as are available in accordance with such terms for such purpose shall be prorated among all such series so that the percentage allocated to any particular Preferred Stock shall correspond with its portion of the total amount due. (4) After June 15, 1969, so long as any shares of said Series shall be outstanding, no dividends on the Preference Stock or the Common Stock of the corporation shall, without the written consent or affirmative vote of the holders of at least a majority of the total number of shares of Preferred Stock then outstanding, be declared and set apart - 15 - for payment unless the corporation, on the June 15th immediately preceding the declaration of such dividend, shall have redeemed 2,100 shares of said Series at $100 per share plus accumulated dividends to such June 15th or in accordance with the terms hereof shall have taken credits against the shares of said Series sinking fund which, with shares redeemed pursuant to such fund obligation, aggregate 2,100 shares of said Series. (5) Whenever any of the dates mentioned with respect to said Series shall not be a full business day in the City of Portland, Oregon, then any action to be taken on said date may be taken on the next succeeding full business day. $8.00 Series (d) The Preferred Stock $8.00 Series, of which 36,296 shares were outstanding at the time of the adoption of these Restated Articles of Incorporation, shall have the following rights and preferences: (i) the rate of dividend of shares of said Series shall be $8.00 per annum; the dividend payment dates shall be the 15th days of February, May, August and November in each year; provided, however, that the initial dividend payment date shall be August 15, 1971; and dividends shall be cumulative from the date of original issue; (ii) the price at which shares of said Series may be redeemed shall be $110 per share if the date of redemption is on or prior to April 30, 1981; $106 per share if the date of redemption is after April 30, 1981 and on or prior to April 30, 1984; $103 per share if the date of redemption is after April 30, 1984 and on or prior to April 30, 1987; and $100 per share if the date of redemption is after April 30, 1987; in each case plus unpaid accumulated dividends, if any, to the date of redemption; provided, however, that no shares of said Series may be redeemed (otherwise than by operation of the sinking fund provided for in subdivision (v) below) prior to April 30, 1981, directly or indirectly from the proceeds of or in anticipation of any refunding operation involving the incurring of indebtedness, or the issuance of stock, the holder of which will have a preference to the holders of the Common Stock with respect to the payment of dividends, having an effective interest rate, dividend rate or cost (calculated in accordance with acceptable financial practice) of less than the annual dividend rate borne by the shares of said Series; (iii) the amount payable upon shares of said Series in the event of involuntary liquidation shall be $100 per share and in the event of voluntary liquidation shall be an amount equal to the then applicable redemption price of shares of said Series plus unpaid accumulated dividends, if any, to the date of payment; (iv) shares of said Series shall not be, by their terms, convertible; (v) shares of said Series shall be entitled to the benefits of a sinking fund as follows: (1) The corporation (unless such action, in the opinion of counsel for the corporation, would be contrary to any applicable law or to any rule or regulation of any governmental authority having jurisdiction in the premises) shall, as a sinking fund for the retirement of shares of said Series, redeem, in the manner herein provided, 2,100 shares of said Series on June 15, 1974 and 2,100 shares of said Series on the 15th day of June of each year thereafter so long as any shares of said Series shall remain outstanding, in each case at the par value thereof per share plus accrued dividends to the date fixed for redemption; provided, however, that (i) if in any year the net income of the corporation for the preceding calendar year (which net income shall be determined in accordance with the requirements of the regulatory authority of the State of Oregon having jurisdiction of the corporation and after deducting from such net income one year's dividend requirement - 16 - on any Preferred Stock of the corporation outstanding at the end of such preceding calendar year whether or not declared or paid) shall be less than half the sum of $210,000 plus the maximum obligation, expressed in dollars, due during the year in which said Series sinking fund redemption is to be made, for sinking funds, purchase funds, or other analogous devices, if any, for the retirement of any other Preferred Stock of the corporation, then the corporation's obligation, expressed in dollars, to redeem shares of said Series for sinking fund purposes in such year shall be limited to such amount, if any, as it shall in its sole discretion determine; and (ii) if in any year the amount of such net income of the corporation for the preceding calendar year (determined as aforesaid and after deducting from such net income one year's dividend requirement on any Preferred Stock of the corporation outstanding at the end of such preceding calendar year whether or not declared or paid) shall be not less than half, and not equal to, the sum of $210,000 plus the maximum obligation, expressed in dollars, due during the year in which said Series sinking fund redemption is to be made, for sinking funds, purchase funds, or other analogous devices, if any, for the retirement of any other Preferred Stock of the corporation, then the corporation's obligation, expressed in dollars, to redeem shares of said Series for sinking fund purposes in such year shall be the proportion of said amount so determined which $210,000 bears to the maximum aggregate of all sinking funds, purchase funds, or other analogous devices, if any, for the retirement of any Preferred Stock of the corporation in such year. The total number of shares to be redeemed and the number of shares to be redeemed from any holder shall be adjusted to the nearest full share so that fractional shares need not be redeemed. The corporation may, on any redemption date as above provided and at its option, credit against its sinking fund obligation such number of shares of said Series theretofore redeemed by the corporation otherwise than for the account of its sinking fund obligation or such number of shares of said Series theretofore purchased by the corporation at a price per share not in excess of $100 plus accrued dividends and in either case not theretofore applied as a credit on its sinking fund obligation. The sinking fund for said Series shall not be cumulative. Notice of redemption for each sinking fund shall be given, and deposit of the aggregate redemption price may be made, subject to the general terms and provisions for redemption of the Preferred Stock set forth in subdivision III.C.4. (2) Shares of said Series redeemed pursuant to the provisions of the sinking fund or credited thereto shall be cancelled, shall not be reissued as shares of said Series, and shall be restored to the status of authorized but unissued shares of the Preferred Stock of the corporation. (3) Unless otherwise provided by law, nothing herein contained shall prevent or in any manner restrict the board of directors of the corporation from authorizing and issuing any other series of Preferred Stock entitled to a purchase fund, sinking fund or other analogous device for the benefit of the holders of such other series of Preferred Stock of the corporation, whether or not the provisions therefor shall correspond with the provisions for said Series; provided that the dates on which such other fund or device shall operate in any particular year shall correspond with the dates applicable to said Series and in the event there is a deficiency in the funds available in any particular year for the fulfillment of the maximum requirements of the purchase funds, sinking funds or other analogous devices of all outstanding series of Preferred Stock of the corporation in accordance with the terms thereof, such funds as are available in accordance with such terms for such purpose shall be prorated among all such series so that the percentage allocated to any particular Preferred Stock shall correspond with its portion of the total amount due. (4) After June 15, 1974, so long as any shares of said Series shall be outstanding, no dividends on the Preference Stock or the Common Stock of the corporation shall, - 17 - without the written consent or affirmative vote of the holders of at least a majority of the total number of shares of Preferred Stock then outstanding, be declared and set apart for payment unless the corporation, on the June 15th immediately preceding the declaration of such dividend, shall have redeemed 2,100 shares of said Series at $100 per share plus accumulated dividends to such June 15th or in accordance with the terms hereof shall have taken credits against the shares of said Series sinking fund which, with shares redeemed pursuant to such fund obligation, aggregate 2,100 shares of said Series. (5) Whenever any of the dates mentioned with respect to said Series shall not be a full business day in the City of Portland, Oregon, then any action to be taken on said date may be taken on the next succeeding full business day. $2.42 Series (e) The Preferred Stock $2.42 Series, of which 300,000 shares were outstanding at the time of adoption of these Restated Articles of Incorporation, shall have the following rights and preferences: (i) the rate of dividend of shares of said Series shall be $2.42 per annum; the dividend payment dates shall be the 15th days of February, May, August and November in each year; provided, however, that the initial dividend payment date shall be May 15, 1978; and dividends shall be cumulative from the date of original issue; (ii) the price at which shares of said Series may be redeemed shall be $29.10 per share if the date of redemption is prior to January 1, 1988; $28.30 per share if the date of redemption is after December 31, 1987 and prior to January 1, 1993; and $27.50 per share if the date of redemption is after December 31, 1992; in each case plus unpaid accumulated dividends, if any, to the date of redemption; provided, however, that no shares of said Series may be redeemed prior to January 1, 1983; (iii) the amount payable upon shares of said Series in the event of involuntary liquidation shall be $25 per share and in the event of voluntary liquidation shall be an amount equal to the then applicable redemption price of shares of said Series plus unpaid accumulated dividends, if any, to the date of payment; (iv) shares of said Series shall not be, by their terms, convertible; (v) shares of said Series shall be entitled to the benefits of a sinking fund as follows: (1) The corporation (unless such action, in the opinion of counsel for the corporation, would be contrary to any applicable law or to any rule or regulation of any governmental authority having jurisdiction in the premises) as a sinking fund for the retirement of shares of said Series, (a) shall redeem, in the manner herein provided, 20,000 shares of said Series on June 15, 1984 and 20,000 shares of said Series on the 15th day of June of each year thereafter so long as any shares of said Series shall remain outstanding, and (b) at its option, may redeem, in the manner herein provided, not to exceed 20,000 additional shares of said Series on June 15, 1984 and not to exceed 20,000 additional shares of said Series on the 15th day of June of each year thereafter so long as any shares of said Series shall remain outstanding, in each case at $27.50 per share plus accrued dividends to the date fixed for redemption; provided, however, that (i) if in any year the net income of the corporation for the preceding calendar year (which net income shall be determined in accordance with the requirements of the regulatory authority of the State of Oregon having jurisdiction of the corporation and after deducting from such net income one year's dividend requirement on any Preferred Stock of the corporation outstanding at the end of such preceding calendar year whether or not declared or paid) shall be less than half the sum - 18 - of $550,000 plus the maximum obligation, expressed in dollars, due during the year in which said Series sinking fund redemption is to be made, for sinking funds, purchase funds, or other analogous devices, if any, for the retirement of any other Preferred Stock of the corporation, then the corporation's obligation, expressed in dollars, to redeem shares of said Series for sinking fund purposes in such year shall be limited to such amount, if any, as it shall in its sole discretion determine; and (ii) if in any year the amount of such net income of the corporation for the preceding calendar year (determined as aforesaid and after deducting from such net income one year's dividend requirement on any Preferred Stock of the corporation outstanding at the end of such preceding calendar year whether or not declared or paid) shall be not less than half, and not equal to, the sum of $550,000 plus the maximum obligation, expressed in dollars, due during the year in which said Series sinking fund redemption is to be made, for sinking funds, purchase funds, or other analogous devices, if any, for the retirement of any other Preferred Stock of the corporation, then the corporation's obligation, expressed in dollars, to redeem shares of said Series for sinking fund purposes in such year shall be the proportion of said amount so determined which $550,000 bears to the maximum aggregate of all sinking funds, purchase funds, or other analogous devices, if any, for the retirement of any preferred stock of the corporation in such year. The total number of shares to be redeemed and the number of shares to be redeemed from any holder shall be adjusted to the nearest full share so that fractional shares need not be redeemed. The corporation may, on any redemption date as above provided and at its option, credit against its sinking fund obligation such number of shares of said Series theretofore redeemed by the corporation, otherwise than for the account of its sinking fund obligation or optional right, or such number of shares of said Series theretofore purchased by the corporation at a price per share not in excess of $27.50 plus accrued dividends, and in either case not theretofore applied as a credit on its sinking fund obligation. The sinking fund for said Series shall not be cumulative. Notice of redemption for each sinking fund shall be given, and deposit of the aggregate redemption price may be made, subject to the general terms and provisions for redemption of the Preferred Stock set forth in subdivision III.C.4. (2) Shares of said Series redeemed pursuant to the provisions of the sinking fund or credited thereto shall be cancelled, shall not be reissued as shares of said Series, and shall be restored to the status of authorized but unissued shares of the Preferred Stock of the corporation. (3) Unless otherwise provided by law, nothing herein contained shall prevent or in any manner restrict the Board of Directors of the corporation from authorizing and issuing any other series of Preferred Stock entitled to a purchase fund, sinking fund or other analogous device for the benefit of the holders of such other series of Preferred Stock of the corporation, whether or not the provisions therefor shall correspond with the provisions for said Series; provided that the dates on which such other fund or device shall operate in any particular year shall correspond with the dates applicable to said Series and in the event there is a deficiency in the funds available in any particular year for the fulfillment of the maximum requirements of the purchase funds, sinking funds or other analogous devices of all outstanding series of Preferred Stock of the corporation in accordance with the terms thereof, such funds as are available in accordance with such terms for such purpose shall be prorated among all such series so that the percentage allocated to any particular series of Preferred Stock shall correspond with its portion of the total amount due. (4) After June 15, 1984, so long as any shares of said Series shall be outstanding, no dividends on the Preference Stock or the Common Stock of the corporation shall, without the written consent or affirmative vote of the holders of at least a majority of the total number of shares of Preferred Stock then outstanding, be declared and set apart - 19 - for payment unless the corporation, on the June 15th immediately preceding the declaration of such dividend, shall have redeemed 20,000 shares of said Series at $27.50 per share plus accumulated dividends to such June 15th or in accordance with the terms hereof shall have taken credits against the shares of said Series sinking fund which, with shares redeemed pursuant to such fund obligation, aggregate 20,000 shares of said Series. (vi) Whenever any of the dates mentioned with respect to said Series shall not be a full business day in the City of Portland, Oregon, then any action to be taken on said date may be taken on the next succeeding full business day. $8.75 Series (f) The Preferred Stock $8.75 Series, of which 150,000 shares were outstanding at the time of the adoption of these Restated Articles of Incorporation, shall have the following rights and preferences: (i) (1) the rate of dividend of shares of said Series shall be $8.75 per annum plus that amount, if any, which will maintain each holder's after Federal income tax dividend yield on each dividend with respect to which any legislative enactment, administrative action, judicial decision or other change in law shall reduce or eliminate the dividends received deduction of 70% provided by Section 243(a)(1) of the Internal Revenue Code of 1986, as amended, as in effect on April 1, 1988 (the "Dividends Received Deduction"), at the level at which such yield would have been if such dividend had been paid to such holder on April 1, 1988 (each holder's after Federal income tax dividend yield on April 1, 1988 being calculated on the bases of (i) a cost per share of $100, (ii) the Dividends Received Deduction, and (iii) an assumed Federal income tax rate of 34%; and, thereafter, such holder's after Federal income tax dividend yield being calculated on the bases of (i) and (iii) and any reduced dividends received deduction at the time then in effect); provided, however, that any such increased dividend shall be payable only (A) on shares of said Series in respect of which the holder shall have delivered to the corporation no later than 360 days after the effective date of any such reduction or elimination of the Dividends Received Deduction a written notice (I) stating that such holder is entitled to an increased dividend as a result of such reduction or elimination, (II) specifying the amount per share of such increase, and (III) specifying the total number of shares of said Series held by such holder, and (B) in respect of dividends payable after the date of receipt of such notice by the corporation; (2) the dividend payment dates shall be the 15th days of February, May, August and November in each year, commencing on August 15, 1988; and (3) dividends shall be cumulative from the date of original issue; (ii) (1) other than as provided in subdivision (2) below, shares of said Series shall not be redeemable at the election of the corporation prior to May 1, 1993. On and after May 1, 1993, the shares of said Series may be redeemed, at the election of the corporation, at the following redemption prices:
If Redeemed If Redeemed During 12 Months Redemption During 12 Months Redemption Period Ending Price Period Ending Price April 30 Per Share April 30 Per Share -------------- ---------- -------------- ----------- 1994 $108.75 2001 $104.69 1995 $108.17 2002 $104.11 1996 $107.59 2003 $103.53 1997 $107.01 2004 $102.95 1998 $106.43 2005 $102.37 1999 $105.85 2006 $101.79 2000 $105.27 2007 $101.21 2008 $100.63
- 20 - and thereafter $100 per share, plus an amount in each case equal to accrued unpaid dividends, if any, to the date of redemption; and (2) all but not less than all of the shares of said Series held by any holder which shall have given notice that such holder will be entitled to an increased dividend in accordance with subdivision (i)(1) above may be redeemed, at the election of the corporation, at the redemption price of $100 per share, plus an amount equal to accrued unpaid dividends to the date of redemption, within the period of 360 days commencing on the date of receipt by the corporation of such notice. (iii) the amount payable upon shares of said Series in the event of involuntary liquidation shall be $100 per share and in the event of voluntary liquidation occurring prior to May 1, 1994, shall be $108.75, and occurring on or after May 1, 1994, shall be an amount equal to the then applicable redemption price of shares of said Series, plus in each case accrued unpaid dividends, if any, to the date of payment; (iv) shares of said Series shall not be, by their terms, convertible; (v) shares of said Series shall be entitled to the benefits of a sinking fund as follows: (1) The corporation (unless such action, in the opinion of counsel for the corporation, would be contrary to any applicable law or to any rule or regulation of any governmental authority having jurisdiction in the premises) as a sinking fund for the retirement of shares of said Series, shall redeem, in the manner herein provided, 7,500 shares of said Series on June 15, 1994 and 7,500 shares of said Series on the 15th day of June of each year thereafter so long as any shares of said Series shall remain outstanding, at $100.00 per share plus accrued unpaid dividends to the date fixed for redemption. The total number of shares to be redeemed and the number of shares to be redeemed from any holder shall be adjusted to the nearest full share so that fractional shares need not be redeemed. The corporation may, on any redemption date as above provided and at its option, credit against its sinking fund obligation such number of shares of said Series theretofore redeemed by the corporation, otherwise than for the account of its sinking fund obligation, or such number of shares of said Series theretofore purchased by the corporation at a price per share not in excess of $100.00 plus accrued dividends, and in either case not theretofore applied as a credit on its sinking fund obligation. The sinking fund for said Series shall not be cumulative. Notice of redemption for each sinking fund shall be given, and deposit of the aggregate redemption price may be made, subject to the general terms and provisions for redemption of the Preferred Stock set forth in subdivision III.C.4 of these Restated Articles of Incorporation. (2) Shares of said Series redeemed pursuant to the provisions of the sinking fund or credited thereto shall be cancelled, shall not be reissued as shares of said Series, and shall be restored to the status of authorized but unissued shares of the Preferred Stock of the corporation. (3) Unless otherwise provided by law, nothing herein contained shall prevent or in any manner restrict the Board of Directors of the corporation from authorizing and issuing any other series of preferred stock entitled to a purchase fund, sinking fund or other analogous device for the benefit of the holders of such other series of preferred stock of the corporation, whether or not the provisions therefor shall correspond with the provisions for said Series; provided that the dates on which such other fund or device shall operate in any particular year shall correspond with the date applicable to said Series and in the event there is a deficiency in the funds available in any particular year for the fulfillment of the maximum requirements of the purchase funds, sinking funds or other analogous devices of all - 21 - outstanding series of preferred stock of the corporation in accordance with the terms thereof, such funds as are available in accordance with such terms for such purpose shall be prorated among all such series so that the percentage allocated to any particular series of preferred stock shall correspond with its portion of the total amount due. (4) After June 15, 1994, so long as any shares of said Series shall be outstanding, no dividends on the Common Stock or the Preference Stock of the corporation shall, without the written consent or affirmative vote of the holders of at least a majority of the total number of shares of said Series of Preferred Stock then outstanding, be declared and set apart for payment unless the corporation, on the June 15th immediately preceding the declaration of such dividend, shall have redeemed 7,500 shares of said Series at $100.00 per share plus accrued unpaid dividends to such June 15th or in accordance with the terms hereof shall have taken credits against the shares of said Series sinking fund which, with shares redeemed pursuant to such fund obligation, aggregate 7,500 shares of said Series. (vi) whenever any of the dates mentioned with respect to said Series shall not be a full business day in the City of Portland, Oregon, then any action to be taken on said date may be taken on the next succeeding full business day. Preference Stock 10. The shares of the Preference Stock may be divided into and issued in series. Each series shall be so designated as to distinguish the shares thereof from the shares of all other series of the Preference Stock and all other classes of capital stock of the corporation. To the extent that these Restated Articles of Incorporation shall not have established series of the Preference Stock and fixed and determined the variations in the relative rights and preferences as between series, the board of directors shall have authority, and is hereby expressly vested with authority, to divide the Preference Stock into series and, within the limitations set forth in these Restated Articles of Incorporation and such limitations as may be provided by law, to fix and determine the relative rights and preferences of any series of the Preference Stock so established. Such action by the board of directors shall be expressed in a resolution or resolutions adopted by it prior to the issuance of shares of each series, which resolution or resolutions shall also set forth the distinguishing designation of the particular series of the Preference Stock established thereby. Without limiting the generality of the foregoing, authority is hereby expressly vested in the board of directors so to fix and determine with respect to any series of the Preference Stock: (a) The rate of dividend; (b) The price at which and the terms and conditions on which shares may be redeemed; (c) The amount payable upon shares in the event of voluntary and involuntary liquidation; (d) Sinking fund provisions, if any, for the redemption or purchase of shares; (e) The terms and conditions, if any, on which shares may be converted if the shares of any series are issued with the privilege of conversion; and (f) Any other relative right or preference as permitted by law. All shares of the Preference Stock of the same series shall be identical except that shares of the same series issued at different times may vary as to the dates from which dividends thereon shall be cumulative; and all shares of the Preference Stock, irrespective of series, shall constitute one and the same class of stock, shall be of equal rank, and shall be identical except as to the designation thereof, the date or dates from which dividends on shares thereof shall be cumulative, and the relative rights and preferences set forth above in clauses (a) through (f) of this subdivision, as to which there may be variations between different series. Except as otherwise may be provided by law or by the resolutions - 22 - establishing any series of Preference Stock in accordance with the foregoing provisions of this subdivision, whenever the written consent, affirmative vote, or other action on the part of the holders of the Preference Stock may be required for any purpose, such consent, vote or other action shall be taken by the holders of the Preference Stock as a single class irrespective of series and not by different series. 11. The payment of dividends on the shares of the Preference Stock shall be subordinate to the dividend and other distributive rights of the holders of the Preferred Stock. No dividend shall be paid on the Preference Stock, unless (i) dividends on all outstanding shares of each particular series of the Preferred Stock, at the annual dividend rates fixed and determined either by these Restated Articles of Incorporation or in accordance with subdivision III.C.1., shall have been paid or declared and set apart for payment for all past dividend periods and for the then current dividend periods, and (ii) all amounts due and payable to the holders of the Preferred Stock, by virtue of purchase funds, sinking funds, or other analogous devices for the retirement of the Preferred Stock, or by virtue of dissolution, liquidation or winding up of the corporation, shall have been paid or funds for the payment thereof shall have been set apart for payment. Subject to the foregoing, the holders of shares of the Preference Stock of each series shall be entitled to receive dividends, when and as declared by the board of directors, out of any funds legally available for the payment of dividends, at the annual rate fixed and determined with respect to each series either by these Restated Articles of Incorporation or in accordance with subdivision III.C.10., and no more, payable quarterly on the 15th day of February, May, August and November in each year or on such other date or dates as the board of directors shall determine in the resolutions establishing such series. Such dividends shall be cumulative in the case of shares of each series either from the date of issuance of shares of such series or from the first day of the current dividend period within which shares of such series shall be issued, as the board of directors shall determine, so that if dividends on all outstanding shares of each particular series of the Preference Stock, at the annual dividend rates fixed and determined either by these Restated Articles of Incorporation or in accordance with subdivision III.C.10., shall not have been paid or declared and set apart for payment for all past dividend periods and for the then current dividend periods, the deficiency shall be fully paid or dividends equal thereto declared and set apart for payment at said rates before any dividends on the Common Stock shall be paid or declared and set apart for payment. In the event more than one series of the Preference Stock shall be outstanding, the corporation, in making any dividend payment on the Preference Stock, shall make payments ratably upon all outstanding shares of the Preference Stock in proportion to the amount of dividends accumulated thereon to the date of such dividend payment. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments which may be in arrears. 12. Distribution or payment upon dissolution, liquidation or winding up of the corporation to the holders of the Preference Stock shall be subordinate to the dividend and other distributive rights of the holders of the Preferred Stock. No such distribution or payment shall be made on the Preference Stock, unless all amounts due by virtue of the dissolution, liquidation or winding up of the corporation to the holders of all outstanding shares of the Preferred Stock of all series shall have been paid or funds for the payment thereof set apart for payment. Subject to the foregoing, in the event of any dissolution, liquidation or winding up of the corporation, before any distribution or payment shall be made to the holders of the Common Stock, the holders of the Preference Stock of each series then outstanding shall be entitled to be paid out of the net assets of the corporation available for distribution to its shareholders the respective amounts per share fixed and determined with respect to each series either by these Restated Articles of Incorporation or in accordance with subdivision III.C.10., and no more. If upon dissolution, liquidation or winding up of the corporation, whether voluntary or involuntary, the net assets of the corporation available for distribution to - 23 - its shareholders (after all amounts due by virtue of the dissolution, liquidation or winding up of the corporation to the holders of all outstanding shares of the Preferred Stock of all series shall have been paid or funds for the payment thereof set apart for payment) shall be insufficient to pay the holders of all outstanding shares of Preference Stock of all series the full amounts to which they shall be respectively entitled as aforesaid, the net assets of the corporation so available for distribution shall be distributed ratably to the holders of all outstanding shares of Preference Stock of all series in proportion to the amounts to which they shall be respectively so entitled. For the purposes of this subdivision, any dissolution, liquidation or winding up which may arise out of or result from the condemnation or purchase of all or a major portion of the properties of the corporation by (i) the United States Government or any authority, agency or instrumentality thereof (ii) a State of the United States or any political subdivision, authority, agency or instrumentality thereof, or (iii) a district, cooperative or other association or entity not organized for profit, shall be deemed to be an involuntary dissolution, liquidation or winding up; and a consolidation, merger or amalgamation of the corporation with or into any other corporation or corporations shall not be deemed to be a dissolution, liquidation or winding up of the corporation, whether voluntary or involuntary. 13. (a) Subject to the limitations set forth in subdivision III.C.15., or fixed and determined in accordance with subdivision III.C.10., the Preference Stock of all series, or of any series thereof, or any part of any series thereof, at any time outstanding, may be redeemed by the corporation, at its election expressed by resolution of the board of directors, at any time or from time to time, at the then applicable redemption price fixed and determined with respect to each series either by these Restated Articles of Incorporation or in accordance with subdivision III.C.10. If less than all of the shares of any series are to be redeemed, the redemption shall be made either pro rata or by lot in such manner as the board of directors shall determine. (b) In the event the corporation shall so elect to redeem shares of the Preference Stock, notice of the intention of the corporation to do so and of the date and place fixed for redemption shall be mailed not less than thirty days before the date fixed for redemption to each holder of shares of the Preference Stock to be redeemed at his address as it shall appear on the books of the corporation, and on and after the date fixed for redemption and specified in such notice (unless the corporation shall default in making payment of the redemption price), such holders shall cease to be shareholders of the corporation with respect to such shares and shall have no interest in or claim against the corporation with respect to such shares, excepting only the right to receive the redemption price therefor from the corporation on the date fixed for redemption, without interest, upon endorsement, if required, and surrender of their certificates for such shares. (c) Contemporaneously with the mailing of notice of redemption of any shares of the Preference Stock as aforesaid or at any time thereafter on or before the date fixed for redemption, the corporation may, if it so elects, deposit the aggregate redemption price of the shares to be redeemed with any bank or trust company doing business in The City of New York, New York, or Portland, Oregon, having a capital and surplus of at least $25,000,000, named in such notice, payable on the date fixed for redemption in the proper amounts to the respective holders of the shares to be redeemed, upon endorsement, if required, and surrender of their certificates for such shares, and on and after the making of such deposit such holders shall cease to be shareholders of the corporation with respect to such shares and shall have no interest in or claim against the corporation with respect to such shares, excepting only the right to exercise such redemption, conversion or exchange rights, if any, on or before the date fixed for redemption as may have been provided with respect to such shares or the right to receive the redemption price of their shares from such bank or trust company on the date fixed for redemption, without interest, upon endorsement, if required, and surrender of their certificates for such shares. - 24 - (d) If the corporation shall have elected to deposit the redemption moneys with a bank or trust company as permitted by subdivision (c) above, any moneys so deposited which shall remain unclaimed at the end of six years after the redemption date shall be repaid to the corporation, and upon such repayment holders of Preference Stock who shall not have made claim against such moneys prior to such repayment shall be deemed to be unsecured creditors of the corporation for an amount, without interest, equal to the amount they would theretofore have been entitled to receive from such bank or trust company. Any redemption moneys so deposited which shall not be required for such redemption because of the exercise, after the date of such deposit, of any right of redemption, conversion or exchange or otherwise, shall be returned to the corporation forthwith. The corporation shall be entitled to receive any interest allowed by any bank or trust company on any moneys deposited with such bank or trust company as herein provided, and the holders of any shares called for redemption shall have no claim against any such interest. (e) Nothing herein contained shall limit any legal right of the corporation to purchase or otherwise acquire any shares of the Preference Stock. 14. The holders of shares of the Preference Stock shall have no right to vote in the election of directors or for any other purpose, except as may be otherwise provided by law or by resolutions establishing any series of Preference Stock in accordance with subdivision III.C.10. Holders of Preference Stock shall be entitled to notice of each meeting of shareholders at which they shall have any right to vote, but shall not be entitled to notice of any other meeting of shareholders. 15. The series of Preference Stock heretofore established and outstanding on the date of the adoption of these Restated Articles of Incorporation, together with a statement of the rights and preferences of each series, are as follows: $2.375 Series (a) The Convertible Preference Stock $2.375 Series, of which 126,397 shares were outstanding at the time of the adoption of these Restated Articles of Incorporation, shall have the following rights and preferences: (i) the rate of dividend of shares of said Series shall be $2.375 per annum; the dividend payment dates shall be the 15th days of February, May, August and November in each year; provided, however, that the initial dividend payment date shall be November 15, 1980; and dividends shall be cumulative from the date of original issue; (ii) the prices at which shares of said Series may be redeemed shall be as follows:
12 Month 12 Month period ending Redemption period ending Redemption June 30, price June 30, price ------------- ---------- ----------- ----------- 1981 $27.38 1986 $26.19 1982 27.14 1987 25.95 1983 26.90 1988 25.71 1984 26.66 1989 25.48 1985 26.43 1990 25.24
and thereafter $25, in each case, plus unpaid accumulated dividends, if any, to the date of redemption; (iii) the amount payable upon shares of said Series in the event of involuntary liquidation shall be $25 per share and in the event of voluntary liquidation shall be an amount equal to the then applicable redemption price of shares of said Series, in each case, plus unpaid accumulated dividends, if any, to the date of payment; - 25 - (iv) shares of said Series shall be convertible as follows: (1) Subject to the provisions for adjustment hereinafter set forth, each share of said Series shall be convertible, at the option of the holder thereof, upon surrender to any Transfer Agent for said Series, or to the corporation if no such Transfer Agent shall exist, of the certificate for the share to be converted, into shares of the common stock at the rate of 1.6502 shares of the common stock for each share of said Series. The right to convert shares of said Series called for redemption shall terminate at the close of business on the 15th day preceding the date fixed for redemption, unless the corporation shall default in the payment of the redemption price. Upon conversion of any shares of said Series, no allowance or adjustment shall be made for dividends on either class of shares, but conversion shall not relieve the corporation from its obligation to pay any dividends which shall have been declared and shall be payable to holders of shares of said Series of record as of a date prior to the date of such conversion even though the payment date for such dividend is subsequent to the date of conversion. (2) The number of shares of the common stock into which each share of said Series shall be convertible shall be subject to adjustment from time to time as follows: (A) Upon the (i) payment of a dividend on the common stock in shares of the common stock, (ii) subdivision of the outstanding common stock, (iii) combination of the outstanding common stock into a smaller number of shares, or (iv) issuance by reclassification of the common stock (whether pursuant to a merger or consolidation or otherwise) of any shares of the corporation, each holder of shares of said Series shall be entitled to receive, for each share converted after the record date for any of these events, the number of shares of the corporation which he would have held after the happening of such event had such share been converted on the record date therefor. The conversion rate shall be adjusted whenever any of these events shall occur, effective as of the date following the record date therefor. (B) Upon the issuance of rights or warrants to the holders of the common stock, as such, entitling them to subscribe for or purchase shares of the common stock at a price per share less than the Market Price (as defined in subdivision (D) below) on the record date for the determination of shareholders entitled to receive such rights or warrants, the number of shares of the common stock into which each share of said Series shall be convertible shall be adjusted, effective as of the date following such record date, by multiplying the number of shares of the common stock into which such share would have been convertible on such record date by a fraction, of which the numerator shall be the number of shares of the common stock outstanding on such record date plus the number of additional shares of the common stock offered for subscription or purchase, and of which the denominator shall be the number of shares of the common stock outstanding on such record date plus the number of shares of the common stock which the aggregate offering price of the shares of the common stock so offered would have purchased at such Market Price. For the purpose of this subdivision (B), (i) the issuance of rights or warrants to subscribe for or purchase shares or securities convertible into shares of the common stock shall be deemed to be the issuance of rights or warrants to subscribe for or purchase shares of the common stock; (ii) the sum of the aggregate offering price of such shares or securities plus the minimum aggregate amount, if any, payable upon conversion of such shares or securities into shares of the common stock divided by the total number of shares of the common stock into which such shares or securities could be converted at their earliest conversion date shall be deemed to be the price per share at which the shares of the common stock may be subscribed for or purchased; - 26 - (iii) the minimum number of shares of the common stock into which such shares or securities could be converted at their earliest conversion date shall be deemed to be the number of additional shares of the common stock offered for subscription or purchase; (iv) the number of shares of the common stock which the aggregate offering price of such shares or securities plus the minimum aggregate amount, if any, payable upon conversion of such shares or securities into shares of the common stock would have purchased at the Market Price on the record date for the determination of shareholders entitled to receive such rights or warrants shall be deemed to be the number of shares of the common stock which the aggregate offering price of the shares so offered would have purchased at such Market Price; and (v) the right of the holders of the common stock to invest in additional shares of the common stock pursuant to the Company's Dividend Reinvestment and Stock Purchase Plan, as it may be amended from time to time, shall not be deemed to be a right or warrant. (C) Upon the distribution to the holders of the common stock, as such (whether pursuant to a merger or consolidation or otherwise), of evidences of its indebtedness, investments in subsidiaries, or other assets (excluding distributions after December 31, 1979, not exceeding in net value as reflected on the books of the corporation the aggregate net income available for common stock of the corporation after such date plus $12,000,000, all determined in accordance with generally accepted accounting principles) or rights to subscribe to the same (excluding those referred to in subdivision (B) above), the number of shares of the common stock into which each share of said Series shall be convertible shall be adjusted, effective as of the date following the record date for the determination of shareholders entitled to receive such distribution or rights, by multiplying the number of shares of the common stock into which such share would have been convertible on such record date by a fraction, of which the numerator shall be the Market Price of the common stock (as defined in subdivision (D) below) on such record date, and of which the denominator shall be such Market Price less such net value of the portion of the evidences of indebtedness, investments in subsidiaries, or other assets or rights so distributed allocable to such share of the common stock. (D) For the purposes of any computation under subdivisions (B) and (C) above, the Market Price of the common stock on any date shall be deemed to be the average of the daily closing prices for the 30 consecutive full business days commencing 45 full business days before the day in question. The closing price for each day shall be the average of the closing bid and asked prices, regular way, (i) as officially quoted by the National Association of Securities Dealers, Inc., or (ii) as quoted on the principal United States stock exchange or market for the common stock as determined by the board of directors of the corporation, or (iii) if in the reasonable judgment of the board of directors of the corporation, there exists no principal United States stock exchange or market for the common stock, as reasonably determined by the board of directors of the corporation. (E) No adjustment in the conversion rate shall be required unless such adjustment, plus any adjustments not previously made by reason of this subdivision (E), would require an increase or decrease of at least 1% in the number of shares of common stock into which each share of said Series then shall be convertible; provided, however, that any adjustments which by reason of this subdivision (E) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this subdivision (E) shall be made to the nearest ten thousandth of a share. (F) Whenever any adjustment is required in the rate at which each share of said Series shall be convertible, the corporation shall (i) file with each - 27 - Transfer Agent for the shares of said Series a statement setting forth the adjusted rate of conversion, describing the adjustment and the method of calculation used, and stating the effective date of the adjustment, and (ii) cause a copy of such statement to be mailed to the holders of record of the shares of said Series. (3) No fractional shares or scrip representing fractional shares shall be issued upon the conversion of shares of said Series. If any such conversion would otherwise require the issuance of a fractional share, an amount equal to such fraction multiplied by the Market Price of the common stock (determined as provided in subdivision (D) above) on the day of conversion shall be paid to the holder in cash by the corporation. (4) Shares of said Series shall be deemed to have been converted and the holder converting the same to have become the holder of record of shares of the common stock for all purposes whatever as of the date on which the certificate or certificates for such shares shall have been surrendered as aforesaid. The corporation shall not be required to make any conversion, and no surrender of the certificate or certificates for shares of said Series shall be effective for such purpose, while the transfer books for the shares of either said Series or the common stock shall be closed for any purpose, but the surrender of a certificate or certificates for shares of said Series for conversion during any period in which either transfer book shall be closed shall become effective for all purposes of conversion immediately upon the reopening of such books. (5) The corporation shall reserve for the conversion of said Series that number of shares of its authorized but unissued common stock into which all shares of said Series from time to time outstanding may be converted. (v) All shares of said Series redeemed by the corporation or surrendered to it for conversion into shares of the common stock shall be cancelled and thereupon restored to the status of authorized but unissued Preference Stock of the corporation, undesignated as to series. (vi) Whenever any of the dates mentioned with respect to said Series shall not be a full business day in the City of Portland, Oregon, any action to be taken on such date may be taken on the next succeeding full business day. Common Stock 16. Subject to the limitations set forth in subdivisions III.C.2. and 11. (and subject to the rights of any class of stock hereafter authorized), dividends may be paid upon the Common Stock when and as declared by the board of directors of the corporation out of any funds legally available for the payment of dividends. 17. Subject to the limitations set forth in subdivisions III.C.3. and 12. (and subject to the rights of any other class of stock hereafter authorized), upon any dissolution, liquidation or winding up of the corporation, whether voluntary or involuntary, the net assets of the corporation shall be distributed ratably to the holders of the Common Stock. 18. Subject to the limitations set forth in subdivisions III.C.6, 7, 8, 9 and 15. (and subject to the rights of any class of stock hereafter created), and except as may be otherwise provided by law or by the resolutions establishing any series of Preference Stock in accordance with subdivision III.C.10., the holders of the Common Stock shall have the exclusive right to vote for the election of directors and for all other purposes. In the election of directors of the corporation, every holder of record of any share or shares of the Common Stock of the corporation shall have the right to cast as many votes for one candidate as shall equal the number of such shares multiplied by the number of directors to be elected, or to distribute such number of votes among any two or more candidates for such election. - 28 - 19. Upon the issuance for money or other consideration of any shares of capital stock of the corporation, or of any security convertible into capital stock of the corporation, no holder of shares of the capital stock, irrespective of the class or kind thereof, shall have any preemptive or other right to subscribe for, purchase or receive any proportionate or other amount of such shares of capital stock, or such security convertible into capital stock, proposed to be issued; and the board of directors may cause the corporation to dispose of all or any of such shares of capital stock, or of any such security convertible into capital stock, as and when said board may determine, free of any such right, either by offering the same to the corporation's then shareholders or by otherwise selling or disposing of such shares of other securities, as the board of directors may deem advisable. ARTICLE IV A. The business and affairs of the corporation shall be managed by a board of directors. Except as provided in subdivision B. below, the number of members of the board, their classifications and terms of office, and the manner of their election and removal shall be as follows: 1. The number of directors shall be that number, not less than nine or more than thirteen, determined from time to time by resolution adopted by affirmative vote of a majority of the entire board of directors. The directors shall be divided into three classes, designated Class I, Class II, and Class III. Each class shall consist, as nearly as possible, of one- third of the total number of directors. At the 1984 annual meeting of shareholders, Class I directors shall be elected for a one-year term, Class II directors for a two-year term, and Class III directors for a three- year term. At each succeeding annual meeting of shareholders, successors to directors whose terms expire at that annual meeting shall be of the same class as the directors they succeed, and shall be elected for three-year terms. If the number of directors should be changed by resolution of the board of directors, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, but in no case shall a decrease in the number of directors shorten the term of any incumbent director. 2. A director shall hold office until the annual meeting for the year in which his or her term shall expire and until his or her successor shall have been elected and qualified, subject, however, to prior death, resignation, retirement or removal from office. Any newly created directorship resulting from an increase in the number of directors and any other vacancy on the board of directors, however caused, may be filled by the affirmative vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. The term of a director elected to fill a newly created directorship or any other vacancy shall expire at the same time as the terms of the other directors of the class in which that vacancy occurred. 3. One or more of the directors may be removed with or without cause by the affirmative vote of the holders of not less than two-thirds of the shares entitled to vote thereon at a meeting of the shareholders called expressly for that purpose; provided, however, that for as long as the corporation shall have cumulative voting, if fewer than all the directors should be candidates for removal, no one of them shall be removed if the votes cast against his or her removal would be sufficient to elect him or her if then cumulatively voted at an election of the class of directors of which he or she shall be a part. 4. No person, except those persons 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 shall be received from a shareholder of record entitled to vote at such election by the secretary of the corporation not later than the latter of (a) the thirtieth day prior to the date fixed for the meeting, or (b) the tenth day after the mailing of notice of that meeting, together with the written consent of the nominee to serve as a director. - 29 - B. Notwithstanding the provisions of subdivision A. above, whenever the holders of any one or more classes of the capital stock of the corporation shall have the right, voting separately as a class or classes, to elect directors at an annual or special meeting of shareholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the provisions of these Restated Articles of Incorporation applicable thereto. Directors so elected shall not be divided into classes unless expressly provided by such provisions, and during their prescribed terms of office, the board of directors shall consist of such directors in addition to the directors determined as provided in subdivision A. above. C. This Article IV may not be repealed or amended in any respect unless such action shall be approved by the affirmative vote of the holders of not less than two-thirds of the shares entitled to vote at an election of directors determined as provided in subdivision A. above, at a meeting of the shareholders called expressly for that purpose. ARTICLE V A. For purposes of this Article V: 1. The term "Affiliate", as used to indicate a relationship with a specified "Person" (as hereinafter defined), shall mean a Person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified. 2. The term "Associate", as used to indicate a relationship with a specified Person, shall mean (a) any Person (other than the corporation) of which such specified Person is a director, officer, partner, trustee, guardian, fiduciary or official or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities or any beneficial interest, (b) any Person who is a director, officer, partner, trustee, guardian, fiduciary or official or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities or any beneficial interest of or in such specified Person (other than the corporation), and (c) any relative or spouse of such specified Person, or any relative of such spouse who has the same home as such specified Person. 3. The term "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on April 9, 1984; provided, however, that, notwithstanding the provisions of such Rule, a Person shall be deemed to be the Beneficial Owner of any share of the capital stock of the corporation that such Person shall have the right to acquire at any time pursuant to any agreement, contract, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise, and any such share of capital stock shall be deemed to be outstanding for purposes of subdivision V.A.9. 4. The term "Business Transaction" shall include, without limitation, (a) any merger, consolidation or plan of exchange of the corporation, or any Person controlled by or under common control with the corporation, with or into any "Related Person" (as hereinafter defined), (b) any merger, consolidation or plan of exchange of a Related Person with or into the corporation or any Person controlled by or under common control with the corporation, (c) any sale, lease, exchange, transfer or other disposition (in one transaction or a series of transactions) including without limitation a mortgage or any other security device, of all or any "Substantial Part" (as hereinafter defined) of the property and assets of the corporation, or any Person controlled by or under common control with the corporation, to or with a Related Person, (d) any purchase, lease, exchange, transfer or other acquisition (in one transaction or a series of transactions), including without limitation a mortgage or any other security device, of all or any - 30 - Substantial Part of the property and assets of a Related Person, by or with the corporation or any Person controlled by or under common control with the corporation, (e) any recapitalization of the corporation that would have the effect of increasing the voting power of a Related Person, (f) the issuance, sale, exchange or other disposition of any securities of the corporation, or of any Person controlled by or under common control with the corporation, by the corporation or by any Person controlled by or under common control with the corporation, (g) any liquidation, spinoff, splitoff, splitup or dissolution of the corporation, and (h) any agreement, contract or other arrangement providing for any of the transactions described in this subdivision. 5. The term "Continuing Director" shall mean a director who was a director of the corporation on April 9, 1984 and a director who shall become a director subsequent thereto whose election, or whose nomination for election by the shareholders, shall have been approved by a vote of a majority of the then Continuing Directors. 6. The term "Highest Purchase Price" shall mean, with respect to the shares of any class or series of the capital stock of the corporation, the highest amount of consideration paid by a Related Person for a share of the same class and series at any time regardless of whether the share was acquired before or after such Related Person became a Related Person; provided, however, that the Highest Purchase Price shall be appropriately adjusted to reflect the occurrence of any reclassification, recapitalization, stock split, reverse stock split or other readjustment in the number of outstanding shares of that class or series, or the declaration of a stock dividend thereon. The Highest Purchase Price shall include any brokerage commissions, transfer taxes and soliciting dealers' fees paid by such Related Person with respect to any shares of the capital stock acquired by such Related Person. 7. The term "Other Consideration" shall include, without limitation, capital stock to be retained by the shareholders of the corporation in a Business Transaction in which the corporation shall be the survivor. 8. The term "Person" shall mean any natural person, corporation, partnership, trust, firm, association, government , governmental agency or any other entity whether acting in an individual, fiduciary or other capacity. 9. The term "Related Person" shall mean (a) any Person which, together with its Affiliates and Associates, shall be the Beneficial Owner in the aggregate of 10 percent or more of the capital stock of the corporation, and (b) any Affiliate or Associate (other than the corporation or a wholly owned subsidiary of the corporation) of any such Person. Two or more Persons acting in concert for the purpose of acquiring, holding or disposing of the capital stock of the corporation shall be deemed to be a "Related Person". A Related Person shall be deemed to have acquired a share of capital stock at the time when such Related Person became the Beneficial Owner thereof. With respect to the shares of the capital stock of the corporation owned by any Related Person, if the price paid for such shares cannot be determined by a majority of the Continuing Directors, the price so paid shall be deemed to be the market price of the shares in question at the time when such Related Person became the Beneficial Owner thereof. 10. The term "Substantial Part" shall mean 10% or more of the fair market value of the total assets of a Person, as reflected on the most recent balance sheet of such Person available to the Continuing Directors on the date of mailing of the notice of the meeting of shareholders called for the purpose of voting with respect to a Business Transaction involving the assets constituting any such Substantial Part. B. The corporation shall not enter into any Business Transaction with a Related Person or in which a Related Person shall have an interest (except proportionately as a shareholder of the corporation) without first obtaining both (1) the affirmative vote of the holders of not less than two-thirds of the outstanding shares of the capital stock of the corporation not held by such Related Person, and (2) the - 31 - determination of a majority of the Continuing Directors that the cash or fair market value of the property, securities or Other Consideration to be received per share by the holders, other than such Related Person, of the shares of each class or series of the capital stock of the corporation in such Business Transaction shall not be less than the Highest Purchase Price paid by such Related Person in acquiring any of its holdings of shares of the same class or series, unless the Continuing Directors by a majority vote shall either (a) have expressly approved the acquisition of the shares of the capital stock of the corporation that caused such Related Person to become a Related Person, or (b) have expressly approved such Business Transaction. C. For the purposes of this Article V, a majority of the Continuing Directors shall have the power to make a good faith determination, on the basis of information known to them, of: (1) the number of shares of capital stock of the corporation of which any Person shall be the Beneficial Owner, (2) whether a Person is an Affiliate or Associate of another Person, (3) whether a Person has an agreement, contract, arrangement or understanding with another Person as to the matters referred to in subdivision V.A.3. or clause (h) of subdivision V.A.4., (4) the Highest Purchase Price paid by a Related Person for shares of any class or series of the capital stock, (5) whether the assets subject to any Business Transaction constitute a Substantial Part, (6) whether any Business Transaction is one in which a Related Person has an interest (except proportionately as a shareholder of the corporation), and (7) such other matters with respect to which a determination may be required under this Article V. D. In determining whether to give their approval as provided in subdivision V.B., the Continuing Directors shall give due consideration to all relevant factors involved, including, without limitation, (1) the value of the corporation in a freely negotiated transaction and its future value as an independent entity, (2) the recognition of gain or loss to the corporation for tax purposes or the postponement of such recognition in a tax-free transaction, (3) the anticipated developments of the business of the corporation not yet reflected in the price of its shares, and (4) the impact on employees, customers, suppliers and the public generally within the geographical area it serves. E. This Article V may not be repealed or amended in any respect unless such action shall be approved by the affirmative vote of the holders of not less than two-thirds of the capital stock of the corporation not held by a Related Person at a meeting of the shareholders called expressly for that purpose. ARTICLE VI No director of the corporation shall be personally liable to the corporation or its shareholders for monetary damages for conduct as a director; provided that this Article VI shall not eliminate the liability of a director for any act or omission for which such elimination of liability is not permitted under the Oregon Business Corporation Act. No amendment to the Oregon Business Corporation Act that further limits the acts or omissions for which elimination of liability is permitted shall affect the liability of a director for any act or omission which occurs prior to the effective date of such amendment. ARTICLE VII The corporation shall indemnify to the fullest extent then permitted by law any person who is made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, investigative or otherwise (including an action, suit or proceeding by or in the right of the corporation) by reason of the fact that the person is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against all judgments, amounts paid in settlement, fines and such expenses - 32 - (including attorneys' fees), actually and reasonably incurred in connection therewith. This Article shall not be deemed exclusive of any other provisions for indemnification of directors and officers that may be included in any statute, bylaw, agreement, vote of shareholders or directors or otherwise, both as to action in any official capacity and as to action in another capacity while holding an office. ARTICLE VIII A. The amount of the corporation's stated capital at the time of the adoption of these Restated Articles of Incorporation is $69,376,264.89. - 33 - ARTICLES OF AMENDMENT (PREFERENCE STOCK $6.95 SERIES DESIGNATION CERTIFICATE) of NORTHWEST NATURAL GAS COMPANY 1. The name of the corporation is NORTHWEST NATURAL GAS COMPANY. 2. The following resolution was duly adopted by the Board of Directors of the corporation on December 8, 1992 as an Amendment to the Restated Articles of Incorporation and does not require shareholder action: RESOLVED, that, pursuant to authority expressly vested in the Board of Directors by the Restated Articles of Incorporation of the corporation, there hereby is established a series of the Preference Stock of the corporation, consisting of 250,000 shares, designated as "Preference Stock $6.95 Series", the shares of which shall be identical with the shares of all other series of the Preference Stock, except for the preferences, limitations and relative rights fixed and determined hereafter: (i) The rate of dividend of shares of said Series shall be $6.95 per annum; the dividend payment dates shall be the 15th days of February, May, August and November in each year, commencing on February 15, 1993; and dividends shall be cumulative from the date of original issue; (ii) The shares of said Series shall not be redeemable prior to December 31, 2002; and on such date, all of the outstanding shares of said Series shall be subject to mandatory redemption (unless such action, in the opinion of counsel for the corporation, would be contrary to any applicable law or to any rule or regulation of any governmental authority having jurisdiction in the premises) at the mandatory redemption price of $100 per share, plus unpaid accumulated dividends; provided, however, that the payment of such mandatory redemption price shall be subordinate to the dividend and other distributive rights of the Preferred Stock, so that such redemption price shall not be paid and the shares of said Series shall not be redeemed unless (i) dividends on all outstanding shares of each particular series of the Preferred Stock, at the annual dividend rates fixed and determined either by these Restated Articles of Incorporation or in accordance with subdivision III.C.1 thereof, shall have been paid or declared and set apart for payment for all past dividend periods and for the then current dividend periods, and (ii) all amounts due and payable to the holders of Preferred Stock, by virtue of purchase funds, sinking funds, or other analogous devices for the retirement of the Preferred Stock, or by virtue of dissolution, liquidation or winding up of the corporation, shall have been paid or funds for the payment thereof shall have been set apart for payment; (iii) The amount payable upon shares of said Series in the event of either involuntary or voluntary liquidation shall be $100 per share, plus unpaid accumulated dividends, if any, to the date of payment; (iv) All shares of said Series redeemed by the corporation shall be cancelled and thereupon restored to the status of authorized but unissued Preference Stock of the corporation, undesignated as to series; and (v) Whenever any of the dates mentioned with respect to said Series shall not be a full business day in the City of Portland, Oregon, then any action to be taken on said date may be taken on the next succeeding full business day. Dated: December 8, 1992 NORTHWEST NATURAL GAS COMPANY (Corporate Seal) By Bruce R. DeBolt Its Senior Vice President ARTICLES OF AMENDMENT (PREFERRED STOCK $7.125 SERIES DESIGNATION CERTIFICATE) of NORTHWEST NATURAL GAS COMPANY 1. The name of the corporation is NORTHWEST NATURAL GAS COMPANY. 2. The following resolution was duly adopted by the Board of Directors of the corporation on November 18, 1993 as an Amendment to the Restated Articles of Incorporation and does not require shareholder action: RESOLVED, that pursuant to authority expressly vested in the Board of Directors by the Restated Articles of Incorporation, as amended, of the corporation there hereby is established a series of the Preferred Stock of the corporation, consisting of 150,000 shares, designated as "Preferred Stock $7.125 Series", the shares of which shall be identical with the shares of all other series of the Preferred Stock except for the preferences, limitations and relative rights fixed and determined hereafter: (i)(1) the rate of dividend of shares of said Series shall be $7.125 per annum plus that amount, if any, which will maintain each holder's after Federal income tax dividend yield on each dividend with respect to which any legislative enactment, administrative action, judicial decision or other change in law shall reduce or eliminate the dividends received deduction of 70% provided by Section 243(a)(1) of the Internal Revenue Code of 1986, as amended, as in effect on April 1, 1988 (the "Dividends Received Deduction"), at the level at which such yield would have been if such dividend had been paid to such holder on April 1, 1988 (each holder's after Federal income tax dividend yield on April 1, 1988 being calculated on the bases of (i) a cost per share of $100, (ii) the Dividends Received Deduction, and (iii) an assumed Federal income tax rate of 34%; and, thereafter, such holder's after Federal income tax dividend yield being calculated on the bases of (i) and (iii) and any reduced dividends received deduction at the time then in effect); provided, however, that any such increased dividend shall be payable only (A) on shares of said Series in respect of which the holder shall have delivered to the corporation no later than 360 days after the effective date of any such reduction or elimination of the Dividends Received Deduction a written notice (I) stating that such holder is entitled to an increased dividend as a result of such reduction or elimination, (II) specifying the amount per share of such increase, and (III) specifying the total number of shares of said Series held by such holder, and (B) in respect of dividends payable after the date of receipt of such notice by the corporation; (2) the dividend payment dates shall be the 15th days of February, May, August and November in each year, commencing on February 15, 1994; and (3) dividends shall be cumulative from December 1, 1993; (ii)(1) Other than as provided in subdivision (2) below, shares of said Series shall not be redeemable at the election of the corporation prior to May 1, 1998. On and after May 1, 1998, the shares of said Series may be redeemed, at the election of the corporation, at the following redemption prices:
If Redeemed If Redeemed During 12-Months Redemption During 12-Months Redemption Period Ending Price Period Ending Price April 30 Per Share April 30 Per Share ------------------ ---------- --------------- --------- 1999 . . . . . . . $104.750 2004. . . . . . . .$102.375 2000 . . . . . . . $104.275 2005. . . . . . . .$101.900 2001 . . . . . . . $103.800 2006. . . . . . . .$101.425 2002 . . . . . . . $103.325 2007. . . . . . . .$100.950 2003 . . . . . . . $102.850 2008. . . . . . . .$100.475
and thereafter $100 per share, plus an amount in each case equal to accrued unpaid dividends, if any, to the date of redemption; and (2) all but not less than all of the shares of said Series held by any holder which shall have given notice that such holder will be entitled to an increased dividend in accordance with subdivision (i)(l) above may be redeemed, at the election of the corporation, at the redemption price of $100 per share, plus an amount equal to accrued unpaid dividends, if any, to the date of redemption, within the period of 360 days commencing on the date of receipt by the corporation of such notice; (iii) the amount payable upon shares of said Series in the event of involuntary liquidation shall be $100 per share and in the event of voluntary liquidation (1) occurring prior to May 1, 1994, shall be $107.125 per share, (2) occurring during the 12-months periods ending April 30, 1995, 1996, 1997 and 1998, shall be, respectively, $106.650, $106.175, $105.700 and $105.225 per share and (3) occurring on or after May 1, 1998, shall be an amount equal to the then applicable redemption price of shares of said Series, plus in each case, an amount equal to accrued unpaid dividends, if any, to the date of payment; (iv) shares of said Series shall not be, by their terms, convertible; (v) shares of said Series shall be entitled to the benefits of a sinking fund as follows: (1) The corporation (unless such action, in the opinion of counsel for the corporation, would be contrary to any applicable law or to any rule or regulation of any governmental authority having jurisdiction in the premises) as a sinking fund for the retirement of shares of said Series, shall redeem, in the manner herein provided, 7,500 shares of said Series on June 15, 1994 and 7,500 shares of said Series on the 15th day of June of each year thereafter so long as any shares of said Series shall remain outstanding, at $100.00 per share plus accrued unpaid dividends to the date fixed for redemption. The total number of shares to be redeemed and the number of shares to be redeemed from any holder shall be adjusted to the nearest full share so that fractional shares need not be redeemed. The corporation may, on any redemption date as above provided and at its option, credit against its sinking fund obligation such number of shares of said Series theretofore redeemed by the corporation, otherwise than for the account of its sinking fund obligation, or such number of shares of said Series theretofore purchased by the corporation at a price per share not in excess of $100.00 plus accrued unpaid dividends, and in either case not theretofore applied as a credit on its sinking fund obligation. The sinking fund for said Series shall not be cumulative. Notice of redemption for each sinking fund shall be given, and deposit of the aggregate redemption price may be made, subject to the general terms and provisions for redemption of the Preferred Stock set forth in subdivision III.C.4 of the Restated Articles of Incorporation; (2) Shares of said Series redeemed pursuant to the provisions of the sinking fund or credited thereto shall be cancelled, shall not be reissued as shares of said Series, and shall be restored to the status of authorized but unissued shares of the Preferred Stock of the corporation; (3) Unless otherwise provided by law, nothing herein contained shall prevent or in any manner restrict the Board of Directors of the corporation from authorizing and issuing any other series of Preferred Stock entitled to a purchase fund, sinking fund or other analogous device for the benefit of the holders of such other series of Preferred Stock of the corporation, whether or not the provisions therefor shall correspond with the provisions for said Series; provided that the dates on which such other fund or device shall operate in any particular year shall correspond with the date applicable to said Series and in the event there is a deficiency in the funds available in any particular year for the fulfillment of the maximum requirements of the purchase funds, sinking funds or other analogous devices of all outstanding series of Preferred Stock of the corporation in accordance with the terms thereof, such funds as are available in accordance with such terms for such purpose shall be prorated among all such series so that the percentage allocated to any particular series of Preferred Stock shall correspond with its portion of the total amount due; and (4) After June 15, 1994, so long as any shares of said Series shall be outstanding, no dividends on the Common Stock or the Preference Stock of the corporation shall, without the written consent or affirmative vote of the holders of at least a majority of the total number of shares of said Series then outstanding, be declared and set apart for payment, unless the corporation, on the June 15th immediately preceding the declaration of such dividend, shall have redeemed 7,500 shares of said Series at $100.00 per share plus accrued unpaid dividends to such June 15th or in accordance with the terms hereof shall have taken credits against the shares of said Series sinking fund which, with shares redeemed pursuant to such fund obligation, aggregate 7,500 shares of said Series; and (vi) Whenever any of the dates mentioned with respect to said Series shall not be a full business day in the City of Portland, Oregon, then any action to be taken on said date may be taken on the next succeeding full business day. Dated: December 1, 1993 NORTHWEST NATURAL GAS COMPANY By Dwayne L. Foley ------------------------- Its Senior Vice President (Corporate Seal) ARTICLES OF AMENDMENT TO RESTATED ARTICLES OF INCORPORATION OF NORTHWEST NATURAL GAS COMPANY 1. The name of the corporation is Northwest Natural Gas Company. 2. Subdivision A of Article III of the Restated Articles of Incorporation is amended to read as follows: "The aggregate number of shares of capital stock which the corporation shall have authority to issue is 63,500,000 shares, divided into 1,500,000 shares of Preferred Stock without par value, issuable in series as hereinafter provided, 2,000,000 shares of Preference Stock without par value, issuable in series as hereinafter provided, and 60,000,000 shares of Common Stock of the par value of $3-1/6 per share." 3. The amendment was adopted by the shareholders of the corporation on May 26, 1994. 4. 13,244,529 shares of Common Stock were outstanding and entitled to vote on the amendment. 5. 9,981,213 shares of Common Stock were voted for the amendment and 1,060,991 shares of Common Stock were voted against the amendment. DATED: May 27, 1994 NORTHWEST NATURAL GAS COMPANY BY /s/ Bruce R. DeBolt ------------------------ Bruce R. DeBolt Senior Vice President SAK|EX3A EX-3 3 BYLAWS EXHIBIT (3b.) BYLAWS of NORTHWEST NATURAL GAS COMPANY As Adopted by the Board of Directors July 17, 1975 Amended April 19, 1979 December 18, 1980 October 15, 1981 February 16, 1984 May 17, 1984 October 18, 1984 December 20, 1984, effective January 1, 1985 May 23, 1985 May 26, 1988 February 22, 1990 May 23, 1991 November 21, 1991 January 28, 1993, effective January 1, 1993 February 25, 1993 March 25, 1993 December 16, 1993 February 23, 1995, effective February 24, 1995 CONTENTS ARTICLE I. OFFICES: Page Section 1. Office . . . . . . . . . . . . . . . . . . . 1 Section 2. Registered Office. . . . . . . . . . . . . . 1 ARTICLE II. MEETINGS OF SHAREHOLDERS: Section 1. Annual Meeting . . . . . . . . . . . . . . . 1 Section 2. Special Meetings . . . . . . . . . . . . . . 1 Section 3. Notice . . . . . . . . . . . . . . . . . . . 1 Section 4. Fixing Record Date . . . . . . . . . . . . . 1 Section 5. Record of Shareholders . . . . . . . . . . . 2 Section 6. Quorum . . . . . . . . . . . . . . . . . . . 2 Section 7. Voting . . . . . . . . . . . . . . . . . . . 2 Section 8. Conduct of Meetings . . . . . . . . . . . . 2 ARTICLE III. BOARD OF DIRECTORS: Section 1. Directors . . . . . . . . . . . . . . . . . 2 Section 2. Chairman of the Board . . . . . . . . . . . 2 Section 3. Lead Director. . . . . . . . . . . . . . . . 3 Section 4. Retired Directors . . . . . . . . . . . . . 3 Section 5. Compensation . . . . . . . . . . . . . . . . 3 ARTICLE IV. MEETINGS OF THE BOARD OF DIRECTORS: Section 1. Regular Meetings . . . . . . . . . . . . . . 3 Section 2. Special Meetings . . . . . . . . . . . . . . 3 Section 3. Waiver of Notice . . . . . . . . . . . . . . 3 Section 4. Quorum . . . . . . . . . . . . . . . . . . . 3 Section 5. Manner of Acting . . . . . . . . . . . . . . 3 Section 6. Action Without a Meeting . . . . . . . . . . 4 ARTICLE V. COMMITTEES OF THE BOARD: Section 1. Executive Committee. . . . . . . . . . . . . 4 Section 2. Audit Committee. . . . . . . . . . . . . . . 4 Section 3. Retirement Committee . . . . . . . . . . . . 4 Section 4. Pension Committee. . . . . . . . . . . . . . 4 Section 5. Organization and Executive Compensation . . Committee . . . . . . . . . . . . . . . . . 4 Section 6. Nominating Committee . . . . . . . . . . . . 4 Section 7. Environmental Policy Committee . . . . . . . 4 Section 8. Finance Committee. . . . . . . . . . . . . . 5 Section 9. Other Committees . . . . . . . . . . . . . . 5 Section 10. Changes of Size and Function . . . . . . . . 5 Section 11. Conduct of Meetings. . . . . . . . . . . . . 5 Section 12. Compensation . . . . . . . . . . . . . . . . 5 ARTICLE VI. NOTICES: Page Section 1. Form and Manner . . . . . . . . . . . . . . 5 Section 2. Waiver . . . . . . . . . . . . . . . . . . . 5 ARTICLE VII. OFFICERS: Section 1. Election . . . . . . . . . . . . . . . . . . 6 Section 2. Compensation . . . . . . . . . . . . . . . . 6 Section 3. Term . . . . . . . . . . . . . . . . . . . . 6 Section 4. Removal. . . . . . . . . . . . . . . . . . . 6 Section 5. President. . . . . . . . . . . . . . . . . . 6 Section 6. Vice Presidents. . . . . . . . . . . . . . . 6 Section 7. Secretary. . . . . . . . . . . . . . . . . . 6 Section 8. Treasurer. . . . . . . . . . . . . . . . . . 6 ARTICLE VIII. CONTRACTS, LOANS, CHECKS AND DEPOSITS: Section 1. Contracts. . . . . . . . . . . . . . . . . . 7 Section 2. Loans. . . . . . . . . . . . . . . . . . . . 7 Section 3. Checks and Drafts. . . . . . . . . . . . . . 7 Section 4. Deposits . . . . . . . . . . . . . . . . . . 7 ARTICLE IX. CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 1. Certificates for Shares. . . . . . . . . . . 7 Section 2. Transfer . . . . . . . . . . . . . . . . . . 7 Section 3. Owner of Record. . . . . . . . . . . . . . . 7 ARTICLE X. INDEMNIFICATION AND INSURANCE: Section 1. Indemnification. . . . . . . . . . . . . . . 8 Section 2. Insurance. . . . . . . . . . . . . . . . . . 8 ARTICLE XI. SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE XII. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 8 The following Bylaws were adopted by Northwest Natural Gas Company on July 17, 1975 superseding amended Bylaws originally adopted in conformity with an order of the District Court of the United States for the District of Oregon enforcing a plan for rearrangement of the Company's capital structure effective December 31, 1951, and subsequently amended by the stockholders on May 17, 1954, May 20, 1957, May 21, 1973, and May 20, 1974. BYLAWS OF NORTHWEST NATURAL GAS COMPANY ARTICLE I. OFFICES SECTION 1. OFFICE. The principal office of the company shall be located in the City of Portland, Oregon. The company also may have offices at such other places both within and without the State of Oregon as the board of directors from time to time may determine. SECTION 2. REGISTERED OFFICE. The registered office of the company required by law to be maintained in the state shall be at the same location as the principal office unless otherwise designated by resolution of the board of directors. ARTICLE II. MEETINGS OF SHAREHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of shareholders of the company for the election of directors and for the transaction of other business shall be held at the company's office in the City of Portland, Oregon, or such other place in that City as shall be determined by the board of directors, on the fourth Thursday of May in each year, unless such day shall be a legal holiday, in which event such meeting shall be held on the next business day. If such meeting shall not be held on such day in any year, it shall be held within 60 days thereafter on such day as shall be fixed by the board of directors and be specified in the notice of the meeting. Every such meeting shall be held at the hour of two o'clock p.m., or at such other hour as shall be fixed by the board and specified in such notice. SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders of the company may be called by the board of directors or the holders of not less than one-tenth of all shares entitled to vote at the meeting. Each special meeting shall be held for such purposes, at such place in the City of Portland, Oregon, and at such time as shall be specified in the notice thereof. SECTION 3. NOTICE. Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than 10 nor more than 50 days before the date of the meeting, either personally or by mail, by or at the direction of the board of directors or the persons calling the meeting, to each shareholder of record entitled to vote at such meeting. SECTION 4. FIXING RECORD DATE. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than 50 days and, in the case of a meeting of shareholders, not less than 10 days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the board declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof. SECTION 5. RECORD OF SHAREHOLDERS. The officer or agent having charge of the transfer books for shares of the company shall make, at least 10 days before each meeting of shareholders, a complete record of the shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order with the address of and the number of shares held by each, which record, for a period of 10 days prior to such meeting, shall be kept on file at the registered office of the company and shall be subject to inspection by any shareholder at any time during usual business hours. Such record also shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original transfer books for shares shall be prima facie evidence as to who are the shareholders entitled to examine such record or transfer books or to vote at any meeting of the shareholders. SECTION 6. QUORUM. A majority of the shares of the company entitled to vote, represented in person or by proxy, shall constitute a quorum at all meetings of shareholders. If a quorum is present, in person or by proxy, the affirmative vote of a majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the shareholders, unless the vote of a greater number, or voting by classes, is required by law or the Restated Articles of Incorporation. If a quorum shall not be represented at any meeting of shareholders, the shareholders represented may adjourn the meeting from time to time without further notice. At such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. The shareholders represented at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. SECTION 7. VOTING. Each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders, except to the extent that the voting rights of the shares of any class or classes are limited or denied by law or the Restated Articles of Incorporation. At each election of directors holders of shares of common stock have the right to cumulative voting as provided for in the Restated Articles of Incorporation. A shareholder may vote either in person or by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. Such proxy shall be filed with the secretary of the company before or at the time of the meeting. SECTION 8. CONDUCT OF MEETINGS. Every meeting of shareholders shall be presided over by the chairman of the board, in his absence by the president, in their absence by a vice president or, if none be present, by a chairman appointed by the shareholders present at the meeting. The minutes of such meeting shall be recorded by the secretary or an assistant secretary but, if neither be present, by a secretary appointed for that purpose by the chairman of the meeting. ARTICLE III. BOARD OF DIRECTORS SECTION 1. DIRECTORS. The business and affairs of the Company shall be managed by its board of directors. The number of members of the board, their classification and terms of office, and the manner of their election and removal shall be determined as provided by the Restated Articles of Incorporation. Directors need not be residents of the State of Oregon or shareholders of the Company. No person who has reached the age of 72 years shall be eligible to be elected a director, but a director may serve until the next annual meeting of shareholders after reaching that age. SECTION 2. CHAIRMAN OF THE BOARD. The board of directors may elect one of its members as chairman of the board. The chairman of the board, if that position be filled, shall preside at all meetings of the shareholders and the board of directors and shall have such other duties and responsibilities as may be prescribed by the board of directors. If there shall be no chairman of the board, or in his absence or disability, the president also shall exercise the duties and responsibilities of that position. SECTION 3. LEAD DIRECTOR. The board of directors shall elect one of its members as lead director. The lead director shall, in the absence of the chairman of the board, preside at meetings of the board of directors and shall preside at all meetings of the executive committee. The lead director shall have such other duties and responsibilities as may be prescribed by the board of directors. SECTION 4. RETIRED DIRECTORS. Any person who, upon retirement as a director after reaching age 72, shall have served as a director of the company for ten or more years shall be appointed a retired director of the company for life. Any other person who shall have served as a director of the company may be elected by the board as a retired director of the company for one or more terms of one year or less. A retired director may attend meetings of the board but shall not have the right to vote at such meetings. SECTION 5. COMPENSATION. Directors shall receive such reasonable compensation for their services as may be fixed from time to time by resolution of the board of directors, and shall be reimbursed for their expenses properly incurred in the performance of their duties as directors. No such payment shall preclude any director from serving the company in any other capacity and receiving such reasonable compensation for such services as may be fixed by resolution of the board. Retired directors shall receive such compensation as from time to time may be fixed by resolution of the board of directors as the annual retainer for members of the board of directors. ARTICLE IV. MEETINGS OF THE BOARD OF DIRECTORS SECTION 1. REGULAR MEETINGS. Regular meetings of the board of directors shall be held on the fourth Thursday of February, April, May, July and September, and on the second Thursday of November and the third Thursday of December, at such hour and place as shall be specified in the notice of meeting. The date, time and place for holding regular meetings of the board of directors may be changed upon the giving of notice to all directors by or at the request of the chairman of the board or the president. The board may provide by resolution the time and place either within or without the State of Oregon for holding of meetings or may omit the holding of any meeting without other notice than such resolution. SECTION 2. SPECIAL MEETINGS. Special meetings of the board of directors may be called by or at the request of the chairman of the board, the lead director, the president or any two directors. The person or persons authorized to call special meetings of the board may fix any place, either within or without the State of Oregon, as the place for holding any special meeting of the board called by them. Notice of the time and place of special meetings shall be given to each director at least one day in advance by the secretary or other officer performing his duties. SECTION 3. WAIVER OF NOTICE. Any director may waive notice of any meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Except as otherwise provided by law or the Restated Articles of Incorporation, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. SECTION 4. QUORUM. A majority of the number of directors at any time fixed by resolution adopted by the affirmative vote of a majority of the entire board of directors shall constitute a quorum for the transaction of business. If a quorum shall not be present at any meeting of directors, the directors present may adjourn the meeting from time to time without further notice until a quorum shall be present. SECTION 5. MANNER OF ACTING. Except as otherwise provided by law or the Restated Articles of Incorporation, the act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors. SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to be taken at a meeting of the board of directors may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors entitled to vote with respect to the subject matter thereof. ARTICLE V. COMMITTEES OF THE BOARD SECTION 1. EXECUTIVE COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, may appoint an executive committee composed of the chairman of the board, the lead director, and such other number of directors as the board may from time to time determine. The lead director, or in his absence, the chairman of the board, shall act as chairman. The committee shall have and may exercise all of the authority of the board of directors in the management of the company, except with respect to matters upon which by law only the board of directors may act. SECTION 2. AUDIT COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, may appoint an audit committee composed of three or more directors, none of whom shall be an officer of the company. The board shall designate one member of the committee as chairman. The duties of the committee shall be to discuss and review with the company's independent auditors the annual audit of the company, including the scope of the audit, and report the results of this review to the board; to meet with the independent auditors at such other times as the committee shall deem to be advisable; and to perform such other functions as the board by resolution from time to time may direct. SECTION 3. RETIREMENT COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, shall appoint a retirement committee composed of three or more directors, none of whom shall be members under the company's Non-Bargaining Unit Employees Retirement Plan established by the board. The duties of the committee shall be to monitor the general administration of the company's Non- Bargaining Unit Employees Retirement Plan and the committee shall be responsible for monitoring the carrying out of its provisions as more fully set forth under the terms of the Plan. SECTION 4. PENSION COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, shall appoint three or more directors to serve on the pension committee provided for in the company's Bargaining Unit Employees Retirement Plan established by the board. The duties of the committee shall be to monitor the general administration of the Bargaining Unit Employees Retirement Plan and the committee shall be responsible for monitoring the carrying out of its provisions as more fully set forth under the terms of the Plan. SECTION 5. ORGANIZATION AND EXECUTIVE COMPENSATION COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, may appoint an organization and executive compensation committee composed of three or more directors, none of whom shall be an officer of the company. The board shall designate one member of the committee as chairman. The duties of the committee shall be to discuss and review the management of the affairs of the company relating to its organization and to executive personnel and their compensation, and to perform such other functions as the board by resolution from time to time may direct. SECTION 6. NOMINATING COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, may appoint a nominating committee composed of three or more directors, none of whom shall be an officer of the company. The board shall designate one member of the committee as chairman. The duties of the committee shall be to recommend to the board nominees for election as a director and to perform such other functions as the board by resolution from time to time may direct. SECTION 7. ENVIRONMENTAL POLICY COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, may appoint an environmental policy committee composed of three or more directors, none of whom shall be an officer of the company. The board shall designate one member of the committee as chairman. The duties of the committee shall be to develop and recommend to the board appropriate environmental policies and to perform such other functions as the board by resolution from time to time may direct. SECTION 8. FINANCE COMMITTEE. The board of directors at any time, by resolution adopted by a majority of the board of directors, may appoint a finance committee composed of three or more directors, none of whom shall be an officer of the Company. The board shall designate one member of the committee as chairman. The duties of the committee shall be to discuss and review the management of the affairs of the company relating to financing, including the development of long-range financial planning goals and financial policy, and to perform such other functions as the board by resolution from time to time may direct. SECTION 9. OTHER COMMITTEES. The board of directors at any time, by resolution adopted by a majority of the board of directors, may appoint from among its members such other committees and the chairmen thereof as it may deem to be advisable. Each such committee shall have such powers and authority as are set forth in the resolutions pertaining thereto from time to time adopted by the board. SECTION 10. CHANGES OF SIZE AND FUNCTION. Subject to the provisions of law, the board of directors shall have the power at any time to increase or decrease the number of members of any committee, to fill vacancies thereon, to change any members thereof and to change the functions and terminate the existence thereof. SECTION 11. CONDUCT OF MEETINGS. Each committee shall conduct its meetings in accordance with the applicable provisions of these bylaws relating to the conduct of meetings of the board of directors. Each committee shall adopt such further rules and regulations regarding its conduct, keep such minutes and other records and appoint such subcommittees and assistants as it shall deem to be appropriate. SECTION 12. COMPENSATION. Persons serving on any committee shall receive such reasonable compensation for their services on such committee as may be fixed by resolution of the board of directors, provided that no person shall receive compensation for his services on any committee while serving as an officer of the company. ARTICLE VI. NOTICES SECTION 1. FORM AND MANNER. Whenever, under the provisions of law or the Restated Articles of Incorporation, notice is required to be given to any director or shareholder, unless otherwise specified, it shall be given in writing by mail addressed to such director or shareholder at his or her address as it appears on the stock transfer books or other records of the company, with postage thereon prepaid, and such notice shall be deemed to be delivered when deposited in the United States Mail. Notice to directors also may be given by telephone or in any other manner which is reasonably calculated to give adequate notice. SECTION 2. WAIVER. Whenever any notice whatever is required to be given under the provisions of law, the Restated Articles of Incorporation or these bylaws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE VII. OFFICERS SECTION 1. ELECTION. The board of directors, at its first meeting following the annual meeting of shareholders each year, shall elect one of its members as president and shall elect a secretary. At such meeting, or at any other time it shall deem appropriate, the board may elect one or more vice presidents and a treasurer. The board also may elect or appoint such other officers and agents as it may deem necessary. Any two or more offices may be held by the same person, except the offices of president and secretary. SECTION 2. COMPENSATION. The officers of the company shall receive such reasonable compensation for their services as from time to time may be fixed by resolution of the board of directors. SECTION 3. TERM. The term of office of all officers shall commence upon their election or appointment and shall continue until the first meeting of the board of directors following the annual meeting of shareholders and thereafter until their successors shall be elected or until their resignation or removal. A vacancy occurring in any office of the company for whatever reason may be filled by the board. SECTION 4. REMOVAL. Any officer or agent elected or appointed by the board of directors may be removed by the board whenever in its judgment the best interests of the company will be served thereby but such removal shall be without prejudice to the contract rights, if any, of the officer or agent so removed. SECTION 5. PRESIDENT. The president shall be the chief executive officer of the company and, subject to the control of the board of directors, shall be responsible for the general administration and operation of the company. He shall have such other duties and responsibilities as may pertain to such office or be prescribed by the board of directors. In the absence or disability of the president, an officer designated by the board shall exercise the duties and responsibilities of the president. SECTION 6. VICE PRESIDENTS. Each vice president shall have such duties and responsibilities as may be prescribed by the board of directors and the president. The board or the president may confer a special title upon a vice president. SECTION 7. SECRETARY. The secretary shall record and keep the minutes of the shareholders in one or more books provided for that purpose; see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; and perform such other duties as may be prescribed by the board or the president. The secretary shall have custody of the corporate seal of the company and shall affix the seal to any instrument requiring it and attest the same by his signature. The assistant secretaries shall have such duties as may be prescribed from time to time by the board, the president or the secretary. In the absence or disability of the secretary, his duties shall be performed by an assistant secretary. SECTION 8. TREASURER. The treasurer shall have charge and custody and be responsible for all funds and securities of the company; deposit all moneys and other valuable effects in the name and to the credit of the company in such depositories as may be designated by the board of directors; and disburse the funds of the company as may be authorized by the board and take proper vouchers for such disbursements. The treasurer shall have such other duties as may be prescribed from time to time by the board or the president. In the absence or disability of the treasurer, his duties shall be performed by an assistant treasurer. ARTICLE VIII. CONTRACTS, LOANS, CHECKS AND DEPOSITS SECTION 1. CONTRACTS. The board of directors by resolution may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the company, and such authority may be general or confined to specific instances. SECTION 2. LOANS. No loans shall be contracted on behalf of the company and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances. SECTION 3. CHECKS AND DRAFTS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the company shall be signed by such officer or officers, agent or agents of the company and in such manner as shall from time to time be determined by resolution of the board of directors. SECTION 4. DEPOSITS. All funds of the company not otherwise employed shall be deposited from time to time to the credit of the company in such banks, trust companies or other depositories as the board of directors or officers of the company designated by the board may select, or be invested as authorized by the board. ARTICLE IX. CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of the company shall be issued only for whole numbers of shares and shall be in such form as the board of directors may, from time to time, prescribe in accordance with the laws of the State of Oregon. Such certificates shall be signed by the president or a vice president and by the secretary or an assistant secretary and sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles thereof. In case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the company as the board may authorize. SECTION 2. TRANSFER. Shares of stock of the company shall be transferable on the books of the company by the holder of record thereof, or by his legal representative who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by duly executed power of attorney, and on surrender for cancellation of the certificates for such shares. The board of directors may appoint one or more transfer agents and registrars of stock of the company. SECTION 3. OWNER OF RECORD. The company shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. ARTICLE X. INDEMNIFICATION AND INSURANCE SECTION 1. INDEMNIFICATION. The company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was director, officer, employee or agent of the company, or is or was serving at the request of the company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise or any employee benefit plan, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the defense or settlement of such action, suit or proceeding to the fullest extent permissible under the Oregon Business Corporation Act or the indemnification provisions of any successor Act. The foregoing rights of indemnification shall not be exclusive of any other rights to which any such person so indemnified may be entitled, under any agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office; shall continue as to a person who has ceased to be a director, officer, employee or agent; and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 2. INSURANCE. The company may purchase and maintain insurance (and pay the entire premium therefor) on behalf of any person who is or was a director, officer, employee or agent of the company, or is or was serving at the request of the company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the company would have the power to indemnify him against such liability under the provisions of the Oregon Business Corporation Act or any successor Act; and on behalf of any person who is or was a fiduciary under the Employee Retirement Income Security Act of 1974 with regard to an employee benefit plan of the company against any liability asserted against him and incurred by him in his fiduciary capacity. ARTICLE XI. SEAL The corporate seal of the company shall be circular in form and shall bear an inscription containing the name of the company, the year of its organization, the state of its incorporation and the words "Corporate Seal." ARTICLE XII. AMENDMENTS These bylaws, or any of them, may be altered, amended or repealed, or new bylaws adopted, by resolution of a majority of the board of directors, subject to repeal or change by action of the shareholders. EX-10 4 SERVICE AGREEMENT Exhibit (10j.(3)) SERVICE AGREEMENT THIS AGREEMENT is made and entered into this 17th day of June, 1993, by and between NORTHWEST PIPELINE CORPORATION, hereinafter referred to as "Transporter", and NORTHWEST NATURAL GAS COMPANY, hereinafter referred to as "Shipper". RECITALS: A. Whereas, Shipper is a local distributor of natural gas. B. Whereas, Shipper owns certain supplies of natural gas which it desires Transporter to transport for Shipper's account pursuant to Part 284 of the regulations of the Federal Energy Regulatory Commission ("FERC"). C. Whereas, Shipper requested an expansion of Transporter's pipeline system for firm transportation service. D. Whereas, Shipper and Transporter agreed to such expansion under that certain Letter Agreement dated April 7, 1993 for the transportation service described herein. E. Whereas, Transporter has committed to file and support an application with the FERC requesting certificate authority to construct and operate the facilities necessary to provide the transportation service under this Agreement (the "Facilities") as soon as practicable after execution of this Agreement. AGREEMENT: NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, the parties agree as follows: ARTICLE I - GAS DELIVERIES AND REDELIVERIES 1.1 Subject to the terms, conditions and limitations hereof, Transporter agrees to receive from Shipper at the Receipt Point(s) specified in Exhibit A herein, transport and deliver to Shipper at the Delivery Point(s) specified in Exhibit B herein, the following quantities of natural gas, known as Transportation Contract Demand: Up to 102,000 MMBtu's/day, provided that Transporter's receipt of gas at any receipt point for Shipper's account hereunder on any day shall not exceed the maximum daily quantity set forth for such receipt point on Exhibit "A" hereto, and provided that Transporter's daily obligation to deliver gas to Shipper at any delivery point under this Agreement shall not exceed the Maximum Daily Delivery Obligation ("MDDO") set forth for such delivery point in Exhibit "B" of this Agreement. 1.2 Pursuant to the General Terms and Conditions of Transporter's FERC Gas Tariff applicable to this Agreement per Section 2.2 herein, Shipper shall furnish fuel and lost or unaccounted for gas volumes in-kind. Transporter may receive volumes of gas in excess of the maximum daily quantity set forth in Section 1.1 when necessary to cover such fuel gas reimbursement while making full delivery of such Maximum Daily Quantity or to cover certain balancing receipts agreed to by the parties. 1.3 Such transportation shall be on a firm basis as defined in the TF-l Rate Schedule of Transporter's FERC Gas Tariff, First Revised Volume No. l-A, or any superseding Rate Schedule. ARTICLE II - TRANSPORTATION RATES AND CHARGES 2.1 (a) Shipper agrees to pay Transporter for all natural gas transportation service rendered under the terms of this Agreement in accordance with Transporter's Rate Schedule TF-l, as filed with the FERC, and as such rate schedule may be amended or superseded from time to time or any other rate schedule the FERC may deem applicable to the subject transportation service. (b) Payment of applicable reservation charges under this Agreement will commence the date that Transporter has in place the facilities necessary to provide the transportation service but no sooner than November 1 ,1995. Transporter shall provide Shipper written notice fifteen (15) days prior to commencement of said reservation charges. (c) Shipper will have a continuing option to terminate any portion of the Contract Demand attributable to this Agreement, if the Facilities are consolidated for rate treatment with: (i) Transporter's Expansion II application to the FERC for a certificate of public convenience and necessity to construct expansion facilities; or (ii) Transporter's Expansion I facilities and services if treated on an incremental basis. If, as determined by Transporter, any FERC order indicates that rate treatment for the Facilities to be installed pursuant to this Agreement will be consolidated with Transporter's Expansion I or Expansion II Project, Transporter will provide notice to Shipper within 15 days following the issuance of such order or rule of the right to exercise a option to terminate any portion of the Contract Demand attributable to this Agreement, and shall specify the costs for which Shipper will be responsible as discussed in this subsection. Shipper may exercise this option no later than fifteen (15) days from the date of Transporter's notice to Shipper. This option to terminate will be extinguished upon Transporter's commencement of the construction of the Facilities needed to accommodate the services described in this Agreement. In the event that Shipper elects to exercise the termination rights provided for above, Shipper will be responsible to Transporter for any expansion design costs, environmental impact study expenses, engineering costs, right of way expenses or other similar costs spent prior to the notice date to the extent that such studies or design work cannot be utilized for the Expansion II Project. (d) In the event that Shipper does not elect to exercise the termination rights outlined in (c) above prior to Transporter commencing construction of the Facilities, Shipper will have no subsequent right to terminate this Agreement regardless of the rate treatment ultimately approved by the FERC except as provided for in Section 4.2 below. 2.2. This Agreement shall be subject to the provisions of Transporter's TF-l Rate Schedule or any applicable superseding Rate Schedule and the General Terms and Conditions applicable thereto and effective from time to time, which by this reference are incorporated herein and made a part hereof. ARTICLE I II - GOVERNMENTAL REQUIREMENTS 3.1 Shipper shall reimburse Transporter for any and all filing fees incurred by Transporter in seeking governmental authorization for the initiation, extension or termination of service under this Agreement. 3.2 The transportation service contemplated herein shall be provided by Transporter pursuant to Section 284.223 of the FERC's regulations. 3.3 Upon termination, this Agreement shall cease to have any force or effect, save as to any unsatisfied obligations or liabilities of either party arising hereunder prior to the date of such termination, or arising thereafter as a result of such termination; provided, however, that this provision shall not supersede any abandonment authorization which may be required. 3.4 (This Section 3.4 shall be applicable only for the transportation of imported natural gas.) Shipper hereby acknowledges and agrees that either it or its buyer or seller is the "importer of record" and it will comply with all requirements for reporting and submitting payment of duties, fees, and taxes to the United States or agencies thereof to be made on imported natural gas and for making the declaration of entry pursuant to 19 CFR Section 141.19. Shipper agrees to indemnify and hold Transporter harmless from any and all claims of damage or violation of any applicable laws, ordinances and statutes which pertain to the importation of the gas transported hereunder and which require reporting and/or filing of fees in connection with said import. ARTICLE IV - TERM 4.1 This Agreement becomes effective on the date hereof and shall remain in full force and effect for a period of fifteen (15) years commencing on the date Transporter places in service the Facilities necessary to provide the transportation service, and year to year thereafter at Shipper's sole option. Shipper may terminate all or any portion of service under this Agreement either at the expiration of the primary term, or upon any anniversary thereafter, by giving written notice to Transporter so stating at least twelve (12) months in advance. Shipper also shall have the sole option to enter into a new Agreement containing the same provisions as this Agreement, for all or any portion of the service under this Agreement at or after the end of the primary term of this Agreement. It is Transporter's and Shipper's intent that this term provision provide Shipper with a "contractual right to continue such service" and to provide Transporter with concurrent pregranted abandonment of any volume that Shipper terminates within the meaning of 18 CFR Section 284.221(d)(2)(i) as promulgated by Order No. 636 on May 8, 1992. 4.2 In the event Shipper desires to terminate this Agreement at any time prior to or after the in-service date of the Facilities and there is a party identified by Transporter who is willing to contract for comparable capacity under terms and conditions acceptable to Transporter, Transporter will allow Shipper to terminate this Agreement upon execution of a service agreement with the new party. ARTICLE V - WARRANTY OF ELIGIBILITY FOR TRANSPORTATION Shipper, pursuant to the Rate Schedule specified in Section 2.1(a) herein warrants for itself, its successors and assigns, that all gas delivered to Transporter for transportation hereunder shall be eligible for transportation in interstate commerce under applicable rules, regulations or orders of the FERC. Shipper will indemnify Transporter and save it harmless from all suits, actions, damages, costs, losses, expenses (including reasonable attorney fees) and regulatory proceedings, arising from breach of this warranty. ARTIC LE VI - NOTICES Unless herein provided to the contrary, any notice called for in this Agreement shall be in writing and shall be considered as having been given if delivered personally, or by mail or telegraph with all postage and charges prepaid to either Shipper or Transporter at the place designated below. Routine communications shall be considered as duly delivered when mailed by ordinary mail. Normal operating instructions can be made by telephone. Unless changed, the addresses of the parties are as follows: NORTHWEST PIPELINE CORPORATION P. O. BOX 58900 SALT LAKE CITY, UTAH 84158-0900 Statements: Attention: T&E Accounting (MS-10496) Payments: Attention: Cash Control (MS-10491) Contractual Notices: Attention: Transportation (MS-10336) Other Notices: Attention: Nominations (MS-10322) Notices & Statements: Northwest Natural Gas Company 220 N.W. Second Avenue Portland, Oregon 97209 Attention: Gas Supply ARTICLE VII - OTHER OPERATING PROVISIONS Pursuant to Section 5.3 of the General Terms and Conditions of Transporter's FERC Gas Tariff, First Revised Volume No. l-A, or relevant superseding tariff provision, Shipper shall make payments to Transporter hereunder by wire transfer of immediately available funds by the due date set forth therein. Such funds shall be wire transferred to the First Interstate Bank of Utah located in Salt Lake City, Utah for Transporter's Account No. 02-07358-3. ARTICLE VIII - ADJUSTMENTS TO GENERAL TERMS AND CONDITIONS Certain of the General Terms and Conditions are to be adjusted for the purpose of this Agreement, as specified below: None. ARTICLE IX - CANCELLATION OF PRIOR AGREEMENT(S) When this Agreement takes effect, it supersedes, cancels and terminates the following agreements(s): None. ARTICLE X - SUCCESSORS AND ASSIGNS 10.1 This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. No assignment or transfer by either party hereunder shall be made without written approval of the other party. Such approval shall not be unreasonably withheld. As between the parties hereto, such assignment shall become effective on the first day of the month following written notice that such assignment has been effectuated. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above set forth. NORTHWEST NATURAL GAS COMPANY NORTHWEST PIPELINE CORPORATION (Shipper) (Transporter) By: /s/ Dwayne L. Foley By: /s/ Matt J. Gillis Name: Dwayne L. Foley Name: Matt J. Gillis Title: Senior Vice President Title: Vice President Marketing Attest: Attest: EXHIBIT "A" to the SERVICE AGREEMENT DATED June 17, 1993 between NORTHWEST PIPELINE CORPORATION and NORTHWEST NATURAL GAS COMPANY RECEIPT POINTS Receipt Point Maximum Daily Quantity For Each Receipt Point (MMBtus) Stanfield 102,000 TOTAL MDQ MUST EQUAL TOTAL TRANSPORTATION CONTRACT DEMAND EXHIBIT "B" to the SERVICE AGREEMENT DATED June 17, 1993 between NORTHWEST PIPELINE CORPORATION and NORTHWEST NATURAL GAS COMPANY Maximum Daily Delivery Obligation ("MDDO") Delivery Delivery Point For Each Delivery Point Pressure (MMBtus) (psig) --------------- ----------------------- -------- Molalla 46,500 575 Albany 10,000 400 Portland SE 10,100 400 Portland NE 6,200 400 Johnson Creek 4,000 400 Oregon City 400 150 Monitor 200 150 Turner 4,000 400 Jefferson/Scio 600 400 Brownsville/Halsey 8,900 400 South Eugene 5,000 400 North Eugene 5,000 400 Creswell 300 150 Cottage Grove 800 400 TOTAL MDDO MUST EQUAL TOTAL TRANSPORTATION CONTRACT DEMAND EX-10 5 SERVICE AGREEMENT Exhibit (10j.(4)) FIRM TRANSPORTATION SERVICE AGREEMENT THIS AGREEMENT is made and entered into this 22nd day of October, 1993, by and between PACIFIC GAS TRANSMISSION COMPANY, a California corporation (hereinafter referred to as "PGT"), and NORTHWEST NATURAL GAS COMPANY, a corporation existing under the laws of the State of Oregon (hereinafter referred to as "Shipper"). WHEREAS, PGT owns and operates a natural gas interstate pipeline transmission system which extends from a point of interconnection with the pipeline facilities of Alberta Natural Gas Company Ltd. (ANG) at the International Boundary near Kingsgate, British Columbia, through the states of Idaho, Washington and Oregon to a point of interconnection with Pacific Gas and Electric Company at the Oregon-California border near Malin, Oregon; and WHEREAS, Shipper desires PGT, on a firm basis, to transport certain quantities of natural gas from the International Boundary in the vicinity of Kingsgate, British Columbia and/or from Stanfield, Oregon (receipt points) to various delivery points as specified in Exhibit A of this Agreement; and WHEREAS, since July 15, 1981, PGT has provided firm transportation service to the Northwest Pipeline Corporation ("Northwest") under the terms and conditions of a firm transportation service agreement between PGT and Northwest and PGT's Rate Schedule T-1; and WHEREAS, the Federal Energy Regulatory Commission ("FERC") has authorized Northwest in Docket No. CP92-79 to, among other things, convert its gas sales service to Shipper on Northwest's interstate pipeline transmission system to firm transportation service; and WHEREAS, the FERC has authorized PGT in Docket No. G-17350- 012 to assign to Shipper a portion of Northwest's firm transportation service on PGT formerly provided under Rate Schedule T-1 and to provide such service to Shipper under Part 284 of the FERC's regulations; and WHEREAS, Shipper desires to accept said assignment of Northwest firm transportation services on PGT; and WHEREAS, PGT is willing to transport certain quantities of natural gas for Shipper, on a firm basis, utilizing its pipeline facilities, NOW, THEREFORE, the parties agree as follows: I. GOVERNMENTAL AUTHORITY 1.1 This Firm Transportation Service Agreement ("Agreement") is made pursuant to the regulations of the Federal Energy Regulatory Commission (FERC) contained in 18 CFR Part 284, as amended from time to time. 1.2 This Agreement is subject to all valid legislation with respect to the subject matters hereof, either state or federal, and to all valid present and future decisions, orders, rules, regulations and ordinances of all duly constituted governmental authorities having jurisdiction. II. QUANTITY OF GAS 2.1 The Maximum Daily Quantity of gas, as defined in Paragraph 1 of the Transportation General Terms and Conditions of PGT's FERC Gas Tariff First Revised Volume No. 1-A, which is the maximum quantity of gas that PGT is required to deliver for Shipper's account to Shipper's point(s) of delivery is set forth in Exhibit A, attached hereto and made a part hereof. 2.2 The maximum quantity of gas which Shipper has a right to deliver to PGT at Shipper's point(s) of receipt, as identified in Exhibit A, equals the Maximum Daily Quantity plus an amount for fuel and line losses as set forth in PGT's Rate Schedule FTS- 1 of PGT's FERC Gas Tariff First Revised Volume No. 1-A. 2.3 PGT's obligation to deliver Shipper's gas from the Shipper's point(s) of receipt to the Shipper's point(s) of delivery is limited to the actual quantity of gas received by PGT for Shipper's account at Shipper's point(s) of receipt less Shipper's requirement to provide fuel and line losses, as set forth in PGT's Rate Schedule FTS-1, up to Shipper's Maximum Daily Quantity. III. TERMS OF AGREEMENT 3.1 This Agreement shall become effective on November 1, 1993 (Effective Date) and shall continue in full force and effect until thirty (30) years from the Effective Date (Initial Term). Thereafter, this Agreement shall continue in effect from year to year (Subsequent Term), or a longer term if agreed to by PGT, unless Shipper gives PGT twelve (12) months prior written notice of Shipper's desire to terminate this Agreement. 3.2 Neither party may terminate this Agreement during the Initial Term. IV. POINTS OF RECEIPT AND DELIVERY 4.1 The point(s) of receipt of gas deliveries to PGT is/are as designated in Exhibit A, attached hereto. 4.2 The point(s) of delivery of gas is/are as designated in Exhibit A, attached hereto. 4.3 The delivery pressure, actual average atmospheric pressure, and other pertinent factors applicable to the points of receipt and delivery are also set forth in Exhibit A. V. OPERATING PROCEDURES 5.1 Shipper shall conform to all of the operating procedures set forth in the Transportation General Terms and Conditions of PGT's FERC Gas Tariff First Revised Volume No. l-A. 5.2 Shipper shall furnish gas for compressor fuel and line loss as set forth in PGT's Rate Schedule FTS-l. VI. RATES(S) 6.1 Shipper shall pay PGT each month all rates applicable to services rendered pursuant to this Agreement in accordance with PGT's Rate Schedule FTS-l, or superseding rate schedule(s), and PGT's current Statement of Effective Rates and Charges in PGT's FERC Gas Tariff First Revised Volume No. l-A, on file with and subject to the jurisdiction of the FERC. This Agreement in all respects shall be and remains subject to the applicable provisions of PGT's Rate Schedule FTS-1, or superseding rate schedule(s), and of the Transportation General Terms and Conditions of PGT's FERC Gas Tariff First Revised Volume No. l-A on file with the FERC, all of which are by this reference made a part hereof. 6.2 PGT shall have the right from time to time to propose, file and cause to be made effective with the FERC such changes in the rates and charges or service obligations applicable to transportation services pursuant to this Agreement, the rate schedule under which this service is hereunder provided, or any provisions of PGT's Transportation General Terms and Conditions applicable to such services. Shipper shall have the right to protest any such changes proposed by PGT and to exercise any other rights that Shipper may have with respect thereto. VII. MISCELLANEOUS 7.1 This Agreement shall be interpreted according to the laws of the state of California. 7.2 Unless herein provided to the contrary, any notice called for in this Agreement and/or PGT's Transportation General Terms and Conditions shall be in writing and shall be considered as having been given if delivered by facsimile or registered mail, with all postage or charges prepaid, to either PGT or Shipper at the place designated below. Routine communications, including monthly statements and payment, shall be considered as duly delivered when received by ordinary mail or facsimile. Shipper's daily nominations shall be considered as duly delivered when received by electronic data interchange. Unless changed, the addresses of the parties are as follows: "PGT" PACIFIC GAS TRANSMISSION COMPANY 160 Spear Street Room 1900 San Francisco, California 94105-1570 Attention: President & CEO "SHIPPER" NORTHWEST NATURAL GAS COMPANY 220 N.W. Second Avenue Portland, Oregon 97209 Attention: Senior Vice President, Operations 7.3 Prior to initiation of service, Shipper shall provide PGT with any information required by the FERC, as well as all information identified in PGT's Transportation General Terms and Conditions applicable to service under PGT's Rate Schedule FTS-1 and this Agreement. 7.4 A waiver by either party of any one or more defaults by the other hereunder shall not operate as a waiver of any future default or defaults, whether of a like or of a different character. 7.5 Nothing in this Agreement shall be deemed to create any rights or obligations between the parties hereto after the expiration of the Initial or Subsequent Term(s) set forth herein, except that expiration of this Agreement shall not relieve either party of the obligation to correct any quantity imbalances or Shipper of the obligation to pay any amounts due to PGT to the date of expiration. 7.6 Shipper warrants for itself, its successors and assigns, that it will have at the time of delivery of the gas to PGT hereunder good title to such gas and that all gas delivered to PGT for transportation hereunder is eligible for all requested transportation in interstate commerce under applicable rules, regulations or orders of the FERC, or other agency having jurisdiction. Shipper will indemnify PGT and save and hold it harmless from all suits, action, damages (including reasonable attorneys' fees) and costs connected with regulatory or legal proceedings, arising from the breach of this warranty. VII. MISCELLANEOUS 7.7 This Agreement constitutes the full agreement between Shipper and PGT and any subsequent changes to this Agreement must be made in writing by an amendment to this Agreement. This Agreement may only be amended by an instrument in writing executed by both parties hereto. IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed as of the day and year first above written. PACIFIC TRANSMISSION COMPANY By: /s/ Stephen P. Reynolds Name: Stephen P. Reynolds Title: President & CEO NORTHWEST NATURAL GAS COMPANY By: /s/ Dwayne L. Foley Name: Dwayne L. Foley Title: Senior Vice President, Operations EXHIBIT A To the FIRM TRANSPORTATION SERVICE AGREEMENT Dated Between PACIFIC GAS TRANSMISSION COMPANY And NORTHWEST NATURAL GAS COMPANY RECEIPT Receipt Maximum Received Quantity Point(s) (2) (MMBtu/d) (1) Interconnection of PGT's system with 3,616 the system of Alberta Natural Gas Company Ltd. at the International Boundary in the vicinity of Kingsgate, British Columbia DELIVERY Delivery Maximum Daily Quantity Points(s) (MMBtu/D) Spokane NPC, WA 3,616 TOTAL 3,616 [FN] (1) The total quantity of gas received by PGT from Shipper at receipt points shall not exceed 3,616 MMBtu per day plus the quantities of gas to be furnished by Shipper for fuel and line loss in accordance with PGT's Rate Schedule FTS-1 and the Statement of Effective Rates and Charges of PGT's FERC Gas Tariff First Revised Volume 1-A for service under Rate Schedule FTS-1. (2) Pursuant to Paragraph 29 of PGT's Transportation General Terms and Conditions of its FERC Gas Tariff First Revised Volume No. 1-A, Shipper may designate other receipt points as "secondary receipt points" such as Stanfield, Oregon, the interconnection of PGT's system with the system of Northwest Pipeline Corporation. EX-10 6 LETTER AGREEMENT EXHIBIT (10j.(5)) Pacific Gas and Electric Company 444 Market Street, Sixth Floor Mail Code T6B P. O. Box 770000 San Francisco CA 94177 415/973-6262 Jack F. Jenkins-Stark Senior Vice President and General Manager Gas Supply Business Unit May 11, 1994 Mr. Dwayne L. Foley Senior Vice President Operations and Information Services Northwest Natural Gas Company 220 N. W. Second Avenue Portland OR 97209 Dear Mr. Foley: This letter reflects discussions between Northwest Natural Gas Company (NNG) and Pacific Gas and Electric Company (PG&E) subsequent to PG&E's May 6, 1994 counter offer for a pre-arranged release of capacity on the PGT system by PG&E for acquisition by NNG or its designee. OFFER PG&E hereby offers to release the firm transportation rights on the PGT system described herein for acquisition by NNG, as a prearranged release under the capacity release provisions of the FERC Gas Tariff, Volume No. 1-A, of Pacific Gas Transmission Company (PGT). This release shall be packaged with corresponding upstream capacity assigned to NNG by A&S. 1. The PGT capacity to be released is held currently by PG&E under a Firm Transportation Service Agreement (FTSA) with PGT, and service is provided pursuant to PGT's Rate Schedule FTS-1. Such service agreement is incorporated herein by reference. 2. The Maximum Daily Quantity (MDQ, which is a defined term in the applicable PGT tariff) offered for release is 56,000 MMBtu/day. 3. PG&E will release, as a permanent release, this 56,000 MMBtu/day of capacity from Kingsgate, B. C. to Malin, Oregon (the full distance of PG&E's current PGT capacity). This permanent release will be effective November 1, 1995 and remain in effect through October 31, 2005. 4. The rate for the capacity permanently released shall be one hundred percent of the applicable as-billed rate for service under Rate Schedule FTS-1 Reservation Charge. NNG shall be responsible for all volumetric charges. 5. The points of receipt and delivery for this released capacity shall be: Primary Receipt Point Kingsgate, B. C. Primary Delivery Point Malin, Oregon Conditions: This offer and NNG's acceptance of same are subject to the following conditions being satisfied by the relevant party or waived by the party for whose benefit the condition is included on or before May 23, 1994. The sole remedy available to the parties if one or more of the following conditions is not satisfied shall be termination of this offer. The receipt by PG&E and NNG of all regulatory approvals deemed necessary by each, on terms acceptable to both PG&E and NNG. NNG meeting the creditworthiness standards of ANG, NOVA and PGT. The release procedures specified in PGT's FERC Gas Tariff. NNG's receipt of the necessary release from PGT, ANG, and NOVA for 1995 Expansion capacity. Confirmation from NOVA, ANG and PGT as to NNG's evergreen rights beyond the end of the primary term on their respective systems. For PGT, this also means continuation for the segmented Kingsgate-to-Stanfield portion of the FTSA with Stanfield as the primary delivery point for NNG. NNG obtaining from A&S, as a permanent assignment, corresponding upstream capacity on the Alberta Natural Gas and NOVA Pipeline Systems for the remaining terms of the service held by A&S -- through October 31, 2001 on the NOVA system, and through October 31, 2005 on the ANG system -- at one hundred percent of the applicable as-billed rates. The NOVA assignment shall be for delivery capacity at the Alberta/British Columbia border, and the ANG capacity shall cover the entire length of its system. The approval of NNG's management. The approval of PG&E's management. Indemnity: PG&E shall indemnify and hold harmless NNG from all Gas Supply Restructuring (GSR) direct bills that may be invoiced by PGT to NNG by virtue of NNG accepting assignment of PGT capacity formerly held by PG&E. Such indemnification shall be limited to the GSR direct bills recovered by PGT pursuant to the Transition Cost Recovery Mechanism ("TCRM") approved by the FERC in PGT's Order No. 636 restructuring proceeding in Docket No. RS92-46. Customer shall be responsible for, and there shall be no indemnity or any payment of or responsibility or liability on PG&E for volumetric surcharges on such capacity arising from Gas Supply Restructuring costs. Recall and Reassignment Rights: Upon 12 months notice, PG&E will have the right to recall up to the total 56,000 MMBtu/day of assigned capacity from Stanfield, Oregon to Malin, Oregon (the Stanfield-to-Malin segment). Any capacity so recalled by PG&E shall remain with PG&E or its assignees) until midnight on October 31, 2005. Such recall may be exercised by PG&E without posting of the capacity, applicable regulations and tariff provisions permitting. The rate PG&E will pay for this recalled capacity shall be 100% of the as-billed rate applicable to this capacity segment under Rate Schedule FTS-1. PG&E's rights to and obligations relating to any recalled capacity shall terminate at midnight on October 31, 2005, and PG&E shall have no liability or responsibility for such capacity thereafter. At any time prior to October 31, 2005, NNG will have the right, at such time as PGT's rate design makes the total cost of holding "vintage capacity" (i.e., capacity on "original" PGT facilities) from Kingsgate to Malin more expensive than holding expansion capacity on the Kingsgate-to-Stanfield segment, to reassign up to the total MDQ (56,000 MMBtu/day) of capacity on the Stanfield-to- Malin segment to PG&E for the remaining term of the permanent release described above. PG&E's rights to and obligations relating to any capacity so reassigned by NNG shall terminate at midnight on October 31, 2005, and PG&E shall have no liability or responsibility for such capacity thereafter. PG&E shall accept this reassignment at the 100% of then-current as-billed rate. Short-Term Release: For the period from the effective date of this agreement until November 1, 1995, PG&E shall post a pre- arranged capacity release with NNG with the following terms: 56,000 MMBtu/day of FTS-1 vintage capacity from Kingsgate to Malin. 100% of the applicable as-billed rate for service under Rate Schedule FTS-1 Reservation Charge, the variable component thereof, and any applicable surcharges, to be paid on a volumetric basis. No minimum flow requirements. A right to PG&E to an unlimited number of recalls from and reassignments to NNG of this released capacity or any portion thereof; provided that, PG&E's recall rights are limited to the extent the above capacity was not nominated by NNG on the preceding day and may be made only with notice to NNG at least 2 hours prior to PGT's normal nomination deadline. To the extent PGT capacity is unutilized by PG&E, it shall be reassigned to NNG with notice at least 2 hours prior to PGT's normal nomination deadline, up to 56,000 MMBtu/day of capacity referenced above. ACCEPTANCE If NNG is in agreement with the business terms of this offer, please execute this letter where provided below and return it to the undersigned by the close of business May 20, 1994. PG&E will then prepare a complete formal agreement for the Release. Any contract arising out of this offer becomes binding only upon its execution by both PG&E and NNG. Sincerely, /s/ Jack Jenkins-Stark JACK JENKINS-STARK Senior Vice President and General Manager Gas Supply Business Unit JKH:pdl cc: Randy Friedman For Northwest Natural Gas Co. By: /s/ Dwayne L. Foley Legal Department Name: Dwayne L. Foley Approved As To Form This Date /s/ SKA Date: 5/18/94 By 5/18/94 Contact designation for offeree for purposes of questions and notices: Name: Jann Huie King Gerry Malin Title: Associate Area Director Vice President, Gas Company: Pacific Gas and Electric Co. Services 2950341 Canada Ltd. [AltaGas Services, Inc.] (Agent for Alberta & Southern Gas Co., Ltd.) Address: Mail Code T4B 2700, 240 - 4th Avenue, P. O. Box 770000 S. W. San Francisco, CA 94177 Calgary, Alberta CANADA T2P 4L7 Phone: (415) 973-3739 (403) 691-7518 Facsimile: (415) 973-0881 (403) 691-7576 EX-10 7 SERVICE AGREEMENT Exhibit (10j.(6)) SERVICE AGREEMENT RATE SCHEDULE FS BETWEEN: NOVA Gas Transmission Ltd., a body corporate having an office in the City of Calgary, in the Province of Alberta (hereinafter referred to as "Company") -and- Northwest Natural Gas Company, a body corporate having an office in the City of Portland, in the State of Oregon (hereinafter referred to as "Customer") IN CONSIDERATION of the premises and the covenants and agreements herein contained, the parties hereto covenant and agree as follows: 1. Customer acknowledges receipt of a current copy of Company's Gas Transportation Tariff (the "Tariff"). 2. The terms used herein shall have the same meanings as are ascribed to corresponding terms in the General Terms and Conditions contained in the Tariff, unless otherwise defined herein. 3. Customer hereby requests, and Company agrees to provide, Service pursuant to Rate Schedule FS in accordance with the attached Schedules of Service, such Service to commence on the Billing Commencement Date and to terminate, subject to the provisions hereof, on the Service Termination Date. Company shall include on Customer's Index of Service for Rate Schedule FS the Service to be provided hereunder and Customer agrees to acknowledge such Index of Service from time to time at Company's request. 4. Customer agrees to pay to Company each Billing Month, for all Service rendered under this Service Agreement, an amount equal to the aggregate charge for Service described in paragraph 4.5 of Rate Schedule FS. 5. Customer shall: (a) provide such assurances and information as Company may reasonably require respecting any Service to be provided pursuant to this Rate Schedule FS including, without limiting the generality of the foregoing, an assurance that necessary arrangements have been made among Customer, producers of gas for Customer, purchasers of gas from Customer and any other Person relating to such Service, including all gas purchase, gas sale, operating, processing and common stream arrangements; and (b) at Company's request provide Company with an assurance that Customer has provided the Person operating facilities upstream of any Receipt Point in respect of which Customer has the right to receive Service with all authorizations necessary to enable such Person to provide Company with all data and information reasonably requested by Company for the purpose of allocating volumes of gas delivered to Company among Company's Customers and to bind Customer in respect of all such data and information provided. If Customer fails to provide such assurances and information forthwith following request by Company, from time to time, Company may at its option, to be exercised by notice to Customer, suspend the Service to which such assurances and information relate until such time as Customer provides the assurances and information requested, provided however that any such suspension of Service shall not relieve Customer from any obligation to pay any rate, toll, charge or other amount payable to Company. 6. Customer acknowledges that the Facilities have been designed to provide for the transportation of the aggregate gas supply that is forecast to be received at Receipt Points on the NOVA system, as described each year in NOVA's Annual Plan, and that interruption and curtailment of Service may occur if the aggregate gas supply actually received at such Receipt Points is greater than forecast. 7. Every notice, request, demand, statement or bill provided for in Rate Schedule FS, this Service Agreement and the General Terms and Conditions, or any notice which either Company or Customer may desire to give to the other, shall be in writing and each of them and every payment provided for shall be directed to the Person to whom given, made or delivered at such Person's address as follows: Customer: Northwest Natural Gas Company 220 N.W. Second Avenue Portland, Oregon U.S.A. 97209 Attention: Mr. Randolph S. Friedman, Manager Gas Supply or Attention: (as above) Fax: (503) 721-2475 Company: NOVA Gas Transmission Ltd. P.O. Box 2535, Station "M" 801 Seventh Avenue S.W. Calgary, Alberta T2P 2N6 Attention: Vice President for Customer Fax: (403) 290-6370 Any notice may be given by personal delivery or by mailing the same, postage pre-paid, in an envelope properly addressed to the Person to whom the notice is to be given and shall be deemed to be given four (4) business days after the mailing thereof, Saturdays, Sundays and statutory holiday excepted. Any notice may also be given by pre-paid telegram, fax, or other telecommunication addressed to the Person to whom such notice is to be given at such Person's address for notice as set forth above, and any notice so given shall be deemed to have been given twenty-four (24) hours after transmission of same, Saturdays, Sundays and statutory holidays excepted. Any notice may also be given by telephone followed immediately by letter, fax, telegram or other telecommunication and any notice so given shall be deemed to have been given as of the date and time of the telephone notice. In the event of disruption of regular mail every payment shall be personally delivered and every notice, request, demand, statement or bill shall be given by one of the alternative means set out herein. 8. The terms and conditions of Rate Schedule FS and the General Terms and Conditions are by this reference incorporated into and made a part of this Service Agreement. Notwithstanding anything contained herein, the terms and conditions hereof shall be subject to the terms and conditions contained in Rate Schedule FS and the provisions of the General Terms and Conditions. IN WITNESS WHEREOF the parties hereto have executed this Service Agreement by their proper signing officers duly authorized in that behalf all as of the 20th day of January, 1995. Northwest Natural Gas Company NOVA Gas Transmission Ltd. Per: Per: Dwayne L. Foley, Sr. VP Per: SCHEDULE OF SERVICE RATE SCHEDULE FS TRANSPORTATION SERVICES ORIGINATED 3/11/94 SCHEDULE NO: 93-21379-0 CUSTOMER: Northwest Natural Gas Company 220 N.W. Second Avenue Portland, Oregon U.S.A. 97209 PLANT LOCATION: n/a PLANT CAPACITY: n/a 103m3/d COMMON STREAM OPERATOR: n/a RECEIPT STATION NAME: n/a RECEIPT STATION NO: n/a RECEIPT STATION LOCATION: n/a MAXIMUM DAILY RECEIPT VOLUME: n/a 103m3/d MAXIMUM RECEIPT PRESSURE: n/a kPa DELIVERY STATION NAME: Alberta B.C. border DELIVERY STATION NO: 2001 DELIVERY STATION LOCATION: NW 11-008-05 W5M MAXIMUM DAILY DELIVERY VOLUME: 1611.8 103m3/d MAXIMUM DELIVERY PRESSURE: n/a kPa SURCHARGE: n/a SERVICE TERMINATION DATE: This Schedule of Service shall terminate and be of no further force or effect on the day that is fifteen years from the Billing Commencement Date for the Service described herein. ADDITIONAL CONDITIONS: The terms and conditions in Appendix "A" attached hereto are incorporated into and made part of this Schedule of Service. THIS SCHEDULE FORMS PART OF THE SERVICE AGREEMENT DATED November 1, 1993 AND SHALL BE DEEMED TO BE ATTACHED THERETO. Northwest Natural Gas Company NOVA Corporation of Alberta Per: Per: Dwayne L. Foley, Sr. VP Per: Legal Dept. approved to Per: form as of March 18, 1994 by SKA APPENDIX "A" ADDITIONAL CONDITIONS TO SCHEDULES OF SERVICE 1. This Schedule becomes a binding obligation on Company only upon and not prior to Company delivering notice to Customer of the Billing Commencement Date for the Service described herein. 2. Notwithstanding anything contained in any other agreement between Customer and Company, Customer acknowledges and agrees that this Schedule of Service becomes a binding obligation on Company only upon and not prior to Company delivering notice to Customer of the Billing Commencement Date for the Service described herein. In addition, Company has the right to cancel this Schedule upon final regulatory approval of all NOVA and related downstream facilities applications. ex-10.6 EX-10 8 SERVICE AGREEMENT Exhibit (10j.(7)) SERVICE AGREEMENT APPLICABLE TO FIRM TRANSPORTATION SERVICE UNDER RATE SCHEDULE FS-1 THIS AGREEMENT is made and entered into this 12th day of June, 1991, by and between: ALBERTA NATURAL GAS COMPANY LTD, a body corporate, having an office and carrying on business in the City of Calgary, in the Province of Alberta, (hereinafter referred to as "Company"), -and- NORTHWEST NATURAL GAS COMPANY, a body corporate, having an office and carrying on business in the City of Portland, in the State of Oregon (hereinafter referred to as "Shipper") WHEREAS, Company's Facilities extend from a point of interconnection with the pipeline facilities of NOVA Corporation of Alberta at the Alberta-British Columbia border near Coleman, Alberta, through southeast British Columbia to a point of interconnection with the pipeline facilities of Pacific Gas Transmission Company at the international border near Kingsgate, British Columbia; AND WHEREAS Company and Foothills Pipe Lines (South B.C.) Ltd. have entered into an agreement respecting an expansion of their respective systems ("Expansion") whereby the Company will build, design and operate the Expansion and own the compression facilities associated therewith and Foothills Pipe Lines (South B.C.) Ltd. will own the pipeline sections associated with the Expansion; AND WHEREAS to enable the Company to move natural gas through the Expansion, Company must contract for service with Foothills Pipe Lines Ltd. and Foothills Pipe Lines Ltd. must in turn contract for service with Company; AND WHEREAS, Shipper desires Company, on a firm basis, to transport certain volumes of natural gas through Company's Facilities from the Alberta/British Columbia border near Coleman, Alberta to the British Columbia/U.S. international border near Kingsgate, British Columbia; AND WHEREAS, Company is willing to transport certain volumes of natural gas for Shipper, on a firm basis; NOW, THEREFORE, the parties agree as follows: 1. This agreement is subject to all valid legislation with respect to the subject matters hereof, either provincial or federal, and to all valid present and future decisions, orders, rules, and regulations of all duly constituted governmental authorities having jurisdiction. 2. Shipper acknowledges receipt of a current copy of Company's Gas Transportation Service Documents and Company agrees to provide Shipper with any amendments thereto. 3. The terms used herein shall have the same meanings as are ascribed to corresponding terms in the General Terms and Conditions contained in the Gas Transportation Service Documents. 4. Shipper hereby requests, and Company agrees to provide Service pursuant to Service Schedule FS-1 in accordance with the attached Schedule A which is incorporated into and forms part of this Agreement, such Service to commence on the Service Availability Date and to terminate, subject to the provisions hereof, on the Service Termination Date. 5. Shipper agrees to make gas available for Shipper's share of Company Use Gas, or pay for such gas, pursuant to Article V of the General Terms and Conditions. 6. Company undertakes to redeliver to Shipper, and Shipper agrees to accept, at the Delivery Point, a volume of gas equivalent in heat content to the volume received by Company from Shipper, at the Receipt Point, after deducting gas volumes, if any, provided by Shipper for Company Use Gas. 7. In providing service to its existing or new Shippers, Company will use the priority of service specified in Article XI of Company's General Terms and Conditions. 8. Prior to the Service Availability Date, Shipper shall provide Company with all information identified in Company's Request for Transportation Form. 9. Shipper agrees to pay, during the period commencing from the Service Availability Date, and in accordance with Schedule FS-1, the General Terms and Conditions, the Statement of Effective Rates and Charges and Schedule "A" attached hereto (all as may be amended from time to time), the rates, tolls and charges fixed by Company from time to time, in respect of each month, and portion thereof that this Service Agreement and any renewal thereof is in effect. In the event that the Service Availability Date occurs on any day other than the first day of a month, then the demand charge payable for such month under section 3.1 of Service Schedule FS-1 shall be the product resulting from multiplying the demand charge otherwise payable for such month by a fraction, the numerator of which shall be the number of days in such month subsequent to and including the Service Availability Date and the denominator of which is the total number of days in such month. 10. Shipper covenants that it will make timely arrangements for upstream and downstream transportation, gas supply and markets and all necessary governmental authorizations and that it will advise the upstream and downstream transporters of the receipt and delivery points under this Agreement. Shipper acknowledges and agrees with Company that Company is relying upon the covenant contained in this clause and agrees that if any such arrangements or authorizations are not in place prior to the Service Availability Date, such will not affect the Shipper's obligation to pay any demand charge, surcharge, or any other amount payable to Company. 11. If Shipper elects to exercise its option to terminate this Service Agreement as provided for in Clause 9. of Service Schedule FS-1, it shall execute and serve upon Company a termination notice not less than twelve months prior to the Service Termination Date as such date may be extended from time to time. 12. Shipper agrees not to make demand or bring action against Company for Company's refusal to transport as hereunder in the event that any upstream or downstream transporter fails to receive or deliver gas as contemplated by this agreement provided that such failure was not directly caused by the negligence of Company. 13. Every notice, request, demand, statement or bill provided for by the Service Schedules, the Service Agreements and the General Terms and Conditions, or any notice which either Shipper or Company may wish to give to the other, shall be in writing and shall be directed as follows: Shipper: Northwest Natural Gas Company 220 N.W. Second Avenue Portland, Oregon 97209 Attention: Vice President, Operations Company: ALBERTA NATURAL GAS COMPANY LTD 2400, 425 - First Street S.W. Calgary, Alberta, Canada T2P 3L8 Attention: Mr. Ken Peake Any notice may be given by personal delivery, by telecopier or by mail and shall be deemed to be given on the day of delivery, if by personal delivery or by telecopier, and four (4) business days after mailing if by mail. Any notice may also be given by telephone followed immediately by telecopier, or other telecommunication agreed to by both parties, and any notice so given shall be deemed to be given as of the date of the confirming telecommunication. 14. The terms and conditions of Service Schedule FS-1 and the General Terms and Conditions are by this reference incorporated into and made part of this Service Agreement. 15. A waiver by either party of one or more defaults by the other hereunder shall not operate as a waiver of any future default or defaults, whether of a like or different character. 16. This agreement may be amended only by an instrument in writing executed by both parties hereto. 17. Nothing in this agreement shall be deemed to create any rights or obligations between the parties hereto after the expiration of the terms hereof as same may be extended from time to time except that termination of this agreement shall not relieve either party of the obligation to correct any gas volume imbalances or of the obligation to pay any amounts due hereunder. IN WITNESS WHEREOF the parties hereto have caused this agreement to be executed as of the day and year first written above. ALBERTA NATURAL GAS COMPANY LTD By: /s/ David Sharp Name: David Sharp Title: Sr. Vice President Shipper: NORTHWEST NATURAL GAS COMPANY BY: /s/ Michael S. McCoy Name: Michael S. McCoy Title: Vice President, Operations Legal Department approved as to form 5/10/91 by SKA. SCHEDULE A to the Firm Service Agreement Dated June 12, 1991, between ALBERTA NATURAL GAS COMPANY LTD AND NORTHWEST NATURAL GAS COMPANY (Shipper) 1. Receipt Point: Alberta/British Columbia border near Coleman, Alberta Minimum Pressure Available 4200 kPa 2. Delivery Point: British Columbia/U.S. international border near Kingsgate, B.C. Maximum Pressure Available 5500 kPa 3. Shipper's Haul Distance - Pipeline 170.7 Km 4. Shipper's Haul Distance - Compressor 170.7 Km 5. Maximum Day Delivery Quantity (Winter) 1.3153 106m3/d (Summer) 0.8477 106m3/d 6. Service Availability Date November 1, 1993 7. Service Terminate Date October 31, 2008 8. Surcharge Amount: For Special Facilities n/a Dollars/Month For Other n/a Dollars/Month Total Surcharge n/a Dollars/Month SHIPPER COMPANY NORTHWEST NATURAL GAS COMPANY ALBERTA NATURAL GAS COMPANY LTD Michael S. McCoy David Sharp Vice President, Operations Sr. Vice President Legal Department approved as to form 5/10/91 by SKA ex-10.7 EX-10 9 SERVICE AGREEMENT Exhibit (10j.(8)) SERVICE AGREEMENT APPLICABLE TO FIRM TRANSPORTATION SERVICE UNDER RATE SCHEDULE FS-1 THIS AGREEMENT is made and entered into this 9th day of November 1994,by and between: ALBERTA NATURAL GAS COMPANY LTD, a body corporate, having an office and carrying on business in the City of Calgary, in the Province of Alberta, (hereinafter referred to as "Company"), - and - NORTHWEST NATURAL GAS COMPANY, a body corporate having an office in the City of Portland, in the State of Oregon, (hereinafter referred to as "Shipper") WHEREAS, Company's Facilities extend from a point of interconnection with the pipeline facilities of NOVA Corporation of Alberta at the Alberta-British Columbia border near Coleman, Alberta, through southeast British Columbia to a point of interconnection with the pipeline facilities of Pacific Gas Transmission Company at the international border near Kingsgate, British Columbia; and WHEREAS, Shipper desires Company, on a firm basis, to transport certain volumes of natural gas through Company's Facilities from Alberta/British Columbia border near Coleman, Alberta to British Columbia/U.S. international border near Kingsgate, B.C.; and WHEREAS, Company is willing to transport certain volumes of natural gas for Shipper, on a firm basis; NOW, THEREFORE, the parties agree as follows: 1. This Agreement is subject to all valid legislation with respect to the subject matters hereof, either provincial or federal, and to all valid present and future decisions, orders, rules, and regulations of all duly constituted governmental authorities having jurisdiction. 2. Shipper acknowledges receipt of a current copy of Company's Gas Transportation Service Documents and Company agrees to provide Shipper with any amendments thereto. 3. The terms used herein shall have the same meanings as are ascribed to corresponding terms in the General Terms and Conditions contained in the Gas Transportation Service Documents. 4. Shipper hereby requests, and Company agrees to provide Service pursuant to Service Schedule FS-1 in accordance with the attached Schedule A which is incorporated into and forms part of this Agreement, such Service to commence on the Service Availability Date and to terminate, subject to the provisions hereof, on the Service Termination Date. 5. Shipper agrees to make gas available for Shipper's share of Company Use Gas, or pay for such gas, pursuant to Article V of the General Terms and Conditions. 6. Company undertakes to redeliver to Shipper, and Shipper agrees to accept, at the Delivery Point, a volume of gas equivalent in heat content to the volume received by Company from Shipper, at the Receipt Point, after deducting gas volumes, if any, provided by Shipper for Company Use Gas. 7. In providing service to its existing or new Shippers, Company will use the priority of service specified in Article Xl of Company's General Terms and Conditions. 8. Prior to the Service Availability Date, Shipper shall provide Company with all information identified in Company's Request for Transportation Form. 9. Shipper agrees to pay, during the period commencing from the Service Availability Date, and in accordance with Schedule FS-1, the General Terms and Conditions, the Statement of Effective Rates and Charges and Schedule "A" attached hereto (all as may be amended from time to time), the rates, tolls and charges fixed by Company from time to time, in respect of each month, and portion thereof that this Service Agreement and any renewal thereof is in effect. In the event that the Service Availability Date occurs on any day other than the first day of a month, then the demand charge payable for such month under section 3.1 of Service Schedule FS-1 shall be the product resulting from multiplying the demand charge otherwise payable for such month by a fraction, the numerator of which shall be the number of days in such month subsequent to and including the Service Availability Date and the denominator of which is the total number of days in such month. 10. Shipper covenants that it will make timely arrangements for upstream and downstream transportation, gas supply and markets and all necessary governmental authorizations and that it will advise the upstream and downstream transporters of the receipt and delivery points under this Agreement. Shipper acknowledges and agrees with Company that Company is relying upon the covenant contained in this clause and agrees that if any such arrangements or authorizations are not in place prior to the Service Availability Date, such will not affect the Shipper's obligation to pay any demand charge, surcharge, or any other amount payable to Company. 11. If Shipper elects to exercise its option to terminate this Service Agreement as provided for in Clause 9. of Service Schedule FS-1, it shall execute and serve upon Company a termination notice not less than twelve months prior to the Service Termination Date as such date may be extended from time to time. 12. Shipper agrees not to make demand or bring action against Company for Company's refusal to transport gas hereunder in the event that any upstream or downstream transporter fails to receive or deliver gas as contemplated by this agreement provided that such failure was not directly caused by the negligence of Company. 13. Every notice, request, demand, statement or bill provided for by the Service Schedules, the Service Agreements and the General Terms and Conditions, or any notice which either Shipper or Company may wish to give to the other, shall be in writing and shall be directed as follows: Shipper: NORTHWEST NATURAL GAS COMPANY 220 N.W. Second Avenue Portland, Oregon 97209 Attention: Sr. Vice President, Operations and Information Services Company: ALBERTA NATURAL GAS COMPANY LTD 2900, 240 - Fourth Avenue S.W. Calgary, Alberta, Canada T2P 4L7 Attention: Manager, Customer Services Any notice may be given by personal delivery, by telecopier or by mail and shall be deemed to be given on the day of delivery, if by personal delivery or by telecopier, and four (4) business days after mailing if by mail. Any notice may also be given bytelephone followed immediately by telecopier, or other telecommunication agreed to by both parties, and any notice so given shall be deemed to be given as of the date of the confirming telecommunication. 14. The terms and conditions of Service Schedule FS-1 and the General Terms and Conditions are by this reference incorporated into and made part of this Service Agreement. 15. A waiver by either party of one or more defaults by the other hereunder shall not operate as a waiver of any future default or defaults, whether of a like or different character. 16. This agreement may be amended only by an instrument in writing executed by both parties hereto. 17. Nothing in this agreement shall be deemed to create any rights or obligations between the parties hereto after the expiration of the term hereof as same may be extended from time to time except that termination of this agreement shall not relieve either party of the obligation to correct any gas volume imbalances or of the obligation to pay any amounts due hereunder. IN WITNESS WHEREOF the parties hereto have caused this agreement to be executed as of the day and year first written above. ALBERTA NATURAL GAS COMPANY LTD BY: /s/ Jerry Smith Name: Jerry Smith Title: Vice President Operations By: /s/ B. A. Stevenson Name: B. A. Stevenson Title: Corporate Secretary NORTHWEST NATURAL GAS COMPANY By: /s/ Dwayne L. Foley Name: Dwayne L. Foley Title: Senior Vice President By: Name: Title: Legal Department Approved As To Form This Date 10/10/94 By: SKA SCHEDULE A to the Flrm Service Agreement Dated November 9, 1994 Between ALBERTA NATURAL GAS COMPANY LTD AND NORTHWEST NATURAL GAS COMPANY (Shipper) 1. Receipt Point: Alberta/British Columbia Border near Coleman, Alberta Minimum Pressure Available 4200 kPa 2. Delivery Point: British Columbia/U.S. international border near Kingsgate, B.C. Maximum Pressure Available 5500 kPa 3. Shipper's Haul Distance 170.7 Km 4. Shipper's Compression Utilization 170.7 Km 5. Maximum Day Delivery Quantity (Winter) 1586.4 103m3/d (Summer) 1586.4 103m3/d 6. Service Availability Date November 1, 1995 7. Service Termination Date October 31, 2005 8. Surcharge Amount: For Special Facilities N/A Dollars/Month For Other N/A Dollars/Month Total Surcharge N/A Dollars/Month SHIPPER COMPANY NORTHWEST NATURAL GAS COMPANY ALBERTA NATURAL GAS COMPANY LTD (By) /s/ Dwayne L. Foley (By) /s/ Jerry Smith Dwayne L. Foley, Senior Vice Jerry Smith, Vice President President, Operations Operations (By) (By) /s/ B. A. Stevenson B. A. Stevenson, Corp. Secty. (Name/Title) (Name/Title) Legal Department Approved As to Form This Date 10/10/94 By SKA ex-10.8 EX-10 10 ESRIP EXHIBIT (10b.) NORTHWEST NATURAL GAS COMPANY EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME PLAN (1995 Restatement) This January 1, 1995, Republication continues and republishes the currently effective provisions of the Plan as it has evolved from the following: January 1, 1981 Initial Plan October 18, 1984 Amendment (2.4(a)) January 1, 1985 Republication March 26, 1987 Amendment (1.5, 5.2) April 1, 1987 Republication September 17, 1987 Amendment (1.5, 2.1) November 19, 1987 Amendment (1.5, 2.1, 2.2) November 17, 1988 Amendment (3.1, 3.2) January 1, 1989 Republication September 21, 1994 Amendments (1.2, 1.5, 2.7(c), 2.8 3.1(b), 3.1(c), 1994 Appendix) Lane Powell Spears Lubersky 520 SW Yamhill Street, Suite 800 Portland, Oregon 97204-1383 Telephone: (503) 226-6151 Facsimile: (503) 224-0388 NORTHWEST NATURAL GAS COMPANY EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME PLAN (1995 RESTATEMENT) TABLE OF CONTENTS ----------------- PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE I. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 1 1.01 "Board of Directors" . . . . . . . . . . . . . . . . . . . . . 1 1.02 "Committee". . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.03 "Company". . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.04 "Effective date" . . . . . . . . . . . . . . . . . . . . . . . 1 1.05 "Final annual compensation". . . . . . . . . . . . . . . . . . 1 1.06 "Lump sum" . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.07 "Normal retirement date" . . . . . . . . . . . . . . . . . . . 2 1.08 "Participant". . . . . . . . . . . . . . . . . . . . . . . . . 2 1.09 "Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.10 "Retirement Plan". . . . . . . . . . . . . . . . . . . . . . . 2 1.11 "Service". . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.12 "Surviving beneficiary". . . . . . . . . . . . . . . . . . . . 2 1.13 "Total and permanent disability" . . . . . . . . . . . . . . . 2 ARTICLE II. RIGHT TO RECEIVE BENEFITS . . . . . . . . . . . . . . . . . 3 2.01 Normal Retirement Supplemental Income. . . . . . . . . . . . . 3 2.02 Early Retirement Supplemental Income . . . . . . . . . . . . . 4 2.03 Disability Retirement Supplemental Income. . . . . . . . . . . 4 2.04 Death Benefits . . . . . . . . . . . . . . . . . . . . . . . . 5 2.05 Vested Benefits. . . . . . . . . . . . . . . . . . . . . . . . 6 2.06 Post-Retirement Change in Retirement Plan Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.07 Forfeiture or Suspension of Benefits . . . . . . . . . . . . . 6 2.08 1995 Special Benefit Increase. . . . . . . . . . . . . . . . . 7 ARTICLE III. PAYMENT OF BENEFITS. . . . . . . . . . . . . . . . . . . . 7 3.01 Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.02 Source . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.03 Key Man Insurance. . . . . . . . . . . . . . . . . . . . . . . 8 3.04 Physical Examination . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE IV. ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . 9 4.01 Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.02 Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 i ARTICLE V. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . 9 5.01 No Effect on Employment. . . . . . . . . . . . . . . . . . . . 9 5.02 Legally Binding. . . . . . . . . . . . . . . . . . . . . . . . 9 5.03 No Transfer of Benefits. . . . . . . . . . . . . . . . . . . . 10 5.04 Disclosure to Participants . . . . . . . . . . . . . . . . . . 10 5.05 Adoption . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1994 APPENDIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ii NORTHWEST NATURAL GAS COMPANY EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME PLAN (1995 RESTATEMENT) PURPOSE ------- This Executive Supplemental Retirement Income Plan is established effective January 1, 1981, and as later amended, to promote the best interests of the Company by enabling the Company (a) to attract to its key management positions persons of outstanding ability, and (b) to retain in its employ those persons of outstanding competence who occupy key executive positions and who in the past contributed and who continue in the future to contribute materially to the success of the business by their ability, ingenuity and industry. ARTICLE I. DEFINITIONS ----------- The following words and phrases as used herein shall, for the purpose of this Plan and any subsequent amendment thereof, have the following meanings, unless a different meaning is plainly required by the content: 1.01 "Board of Directors" means the Board of Directors of the Company as constituted from time to time. 1.02 "Committee" means the Organization and Executive Compensation Committee of the Board of Directors. 1.03 "Company" means Northwest Natural Gas Company and its subsidiaries. 1.04 "Effective date" means January 1, 1981, subject to any later effective date of any specific section provided in any amendment hereto. 1.05 "Final annual compensation" means: 1.05-1 The annual salary of the Participant last approved by the Committee and being paid by the Company at the date of retirement under this Plan; 1.05-2 Plus (effective on or after January 1, 1987) the following credit reflecting the Participant's yearly compensation award (if any) based on performance which is paid to the Participant during the period prior to retirement specified below: (a) For retirements starting before March 1, 1988, the credit shall be the performance award (if any) paid on the March 1, 1987, award payment date; - 1 - (b) For retirements starting from March 1, 1988, to February 29, 1989, the credit shall be the annual average award determined by taking the sum of the awards (if any) paid on the March 1, 1987, and March 1, 1988, award payment dates divided by two (2); (c) For retirements starting on or after March 1, 1989, the credit shall be the annual average award determined by taking the sum of the awards (if any) paid on the three (3) consecutive March 1 award payment dates which immediately precede the second day of retirement (thereby including a March 1 award if retirement starts on that day) divided by three (3); 1.05-3 Without reduction under 1.05-1 or 1.05-2 for any such amounts which are subject to a payment deferral election under the Company's Executive Deferred Compensation Plan (effective January 1, 1987) or Retirement K Savings Plan. 1.06 "Lump sum" means a single payment representing all unpaid installments discounted to the present value at eight percent (8%) per annum. 1.07 "Normal retirement date" means the first day of the month next following the Participant's 65th birthday. 1.08 "Participant" means an employee specifically designated by the Committee to be covered under this Plan and who continues to fulfill all requirements for participation. The initial designation of Participants shall be all executive officers of the corporation elected by the Board of Directors (not including "assistant" officer positions). 1.09 "Plan" means the Executive Supplemental Retirement Income Plan herein set forth, as amended from time to time. 1.10 "Retirement Plan" means the Company's Retirement Plan for Non-Bargaining Unit Employees, as amended from time to time. 1.11 "Service" means all accredited years of service with the Company credited under the Retirement Plan. 1.12 "Surviving beneficiary" means the beneficiary or beneficiaries designated by the Participant on the form provided by the Company. Such beneficiary designation may be changed by the Participant at any time by written notice to the Committee. 1.13 "Total and permanent disability" means that the Participant is eligible to receive disability benefits under the Retirement Plan. - 2 - ARTICLE II. RIGHT TO RECEIVE BENEFITS ------------------------- Each qualified Participant or his beneficiary shall have the right to receive, and the Company shall pay, supplemental benefits as provided in this Article II, in the form provided in Article III: 2.01 NORMAL RETIREMENT SUPPLEMENTAL INCOME. Upon normal retirement at or after completing at least fifteen (15) years of service and at or after his normal retirement date, a retired Participant shall receive during his lifetime monthly supplemental retirement payments determined as follows: 2.01-1 NORMAL RETIREMENT INCOME TARGET. First, the total of his annual retirement pay from the Retirement Plan plus his total annual pay from Social Security (as defined in 2.01-2(b)(2)) plus the annual supplemental retirement benefit (if any) payable under the Executive Deferred Compensation Plan plus the annual retirement pay from this Plan (all calculated as a single life annuity starting at his normal retirement date) shall be: (a) Seventy percent (70%) of his final annual compensation if he has completed at least twenty-five (25) years of service; or (b) Sixty-five percent (65%) of his final annual compensation if he has completed at least fifteen (15) but less than twenty-five (25) years of service. 2.01-2 SUPPLEMENT UNDER THIS PLAN. Second, the monthly supplemental payment under this Plan shall be determined as follows: (a) The total monthly retirement pay, which is one-twelfth of the annual amount determined under 2.01-1 above; MINUS (b) The sum of (1) plus (2) plus (3): (1) One-twelfth of his normal retirement allowance under the Retirement Plan; PLUS (2) One-twelfth of his annual primary Social Security benefit determined in the same manner and based on the same earnings as are used to compute the actual Social Security benefit (including, if appropriate, all compensation deferred by the executive under any plan as though it had been "paid" to or "received" by the executive in the year when the deferral was made). PLUS - 3 - (3) One-twelfth of his annual supplemental retirement benefit under the Executive Deferred Compensation Plan determined as a supplement to the normal annual retirement allowance under 2.01-2(b)(1). 2.01-3 DEFERRED RETIREMENT. Payment shall be deferred to actual retirement if the Participant works for the Company after his normal retirement date. The supplemental benefit shall be based on his final annual compensation at date of actual retirement. 2.02 EARLY RETIREMENT SUPPLEMENTAL INCOME. Upon retirement at or after age fifty-five (55) with at least fifteen (15) years of service which qualifies for early retirement benefits under the Retirement Plan, a retired Participant shall receive reduced monthly supplemental retirement payments determined as follows: 2.02-1 First, the total annual retirement pay at normal retirement date shall be determined under 2.01-1 using the Participant's final annual compensation and service at the time employment by the Company ends. 2.02-2 Second, the monthly supplemental payment under this Plan starting at normal retirement date shall be determined under 2.01-2 using the Participant's early annual retirement allowance payable at his normal retirement date (under Retirement Plan 7.02-1) and projected annual primary Social Security benefit under the Retirement Plan. 2.02-3 Third, if supplemental payments start before the Participant's normal retirement date, to achieve the necessary reduction of the target benefit under 2.01-1 and 2.02-1, the monthly amount under 2.02-2 shall be reduced to the same percentage applicable to an early retirement benefit under the Retirement Plan starting on the same date. The reduction percentages are set forth in the attached Appendix. 2.03 DISABILITY RETIREMENT SUPPLEMENTAL INCOME. Upon total and permanent disability after at least fifteen (15) years of service which qualifies for disability retirement benefits under the Retirement Plan, a retired disabled Participant shall receive monthly supplemental retirement payments determined as follows: 2.03-1 First, the total annual retirement pay at normal retirement date shall be determined under 2.01-1 using the Participant's final annual compensation and service at date of disability. 2.03-2 Second, the monthly supplemental payment under this Plan starting at normal retirement date shall be determined under 2.01-2 using the Participant's disability annual retirement allowance and projected primary Social Security benefit under the Retirement Plan, and that monthly supplemental amount shall be further reduced by subtracting the monthly value of any disability benefits payable after the Participant's 65th birthday under any other Company sponsored disability income plan or under any workers' compensation law. - 4 - 2.03-3 Third, if supplemental payments start before the Participant's normal retirement date, the monthly amount under 2.03-2 shall be reduced to the same percentage applicable to a disability retirement benefit under the Retirement Plan starting on the same date (see attached Appendix), and that monthly supplemental amount shall be further reduced by subtracting the monthly value of any payments received by the Participant to his 65th birthday under any other Company sponsored disability income plan or under any workers' compensation law. 2.04 DEATH BENEFITS. A death benefit shall be paid if an eligible Participant should die during employment or before the first one hundred twenty (120) monthly payments have been made under this Plan on account of such Participant, as follows: 2.04-1 ENTITLEMENT. To qualify: (a) For regular death benefit payments determined under 2.01, 2.02, 2.03 or 2.05, as applicable, the death of the Participant must occur after the Participant has, during active employment of at least fifteen (15) years by the Company, satisfied the age and service requirements to receive normal, early or disability retirement payments under the Retirement Plan (whether the Participant was working or retired at date of death) and prior to the 120th monthly payment. (b) For special death benefit payments where 2.04-1(a) does not apply, the death of the Participant can occur at any age while actively employed by the Company on or after October 18, 1984. The amount of such special death benefit shall be one hundred twenty (120) monthly payments equal to 1/12th of twenty-five percent (25%) (or 2.08333%) of the Participant's final annual compensation, payable to the Participant's designated beneficiary. (c) Under no circumstances shall any supplemental payment be made after the later of the 120th monthly payment or the Participant's death. 2.04-2 RECIPIENT. The recipient of death benefits shall be Participant's designated death beneficiary or estate, as determined under the following (a), (b) or (c): (a) On the death of the Participant before the 120th monthly payment, his surviving designated beneficiary(ies) shall receive the balance of the one hundred twenty (120) payments, in monthly or annual payments or in a single lump sum payment, as determined by the Committee in its discretion. (b) If no designated beneficiary survives the Participant, the unpaid balance of the one hundred twenty (120) payments shall be paid lump sum to the Participant's estate. - 5 - (c) If the last surviving designated beneficiary should die before the last of the one hundred twenty (120) payments, the unpaid balance shall be paid lump sum to the estate of such last survivor. 2.04-3 OTHER DEATH BENEFITS. This supplemental death benefit shall be in addition to any death benefit provided by any other Company sponsored plan or insurance program. 2.05 VESTED BENEFITS. A Participant shall have a vested and nonforfeitable right to receive supplemental benefits under this Plan if his employment with the Company should terminate before retirement, disability or death, provided that, at such date of termination, he is age fifty-five (55) or older, has completed at least fifteen (15) years of service, and is eligible for early retirement under the Retirement Plan, subject to the following: 2.05-1 The Committee shall have discretion to start the supplemental payments at any time up to the later of the Participant's 65th birthday or the date the Participant starts to receive retirement benefits under the Retirement Plan. 2.05-2 The amount of the supplemental payment shall be determined under the form of benefit applicable to the Participant under 2.01, 2.02, 2.03 or 2.04. 2.05-3 The Committee may, in its discretion, waive the minimum service requirement for a specified Participant and make any appropriate adjustment of the benefit payment under this Plan. 2.06 POST-RETIREMENT CHANGE IN RETIREMENT PLAN BENEFITS. 2.06-1 CHANGE IN BENEFIT FORMULA. If, after supplemental payments start under this Plan, the benefit payable to a retired Participant should be increased under the Retirement Plan by a change in the Retirement Plan benefit formula or its components, the supplemental payment under this Plan shall be reduced to reflect such increase, effective for and after the first month when such increase is paid. The supplemental benefit shall be recalculated under the benefit formula (2.01, 2.02, 2.03, 2.04 or 2.05) applicable to the retiree using such increased Retirement Plan benefit, with all other components of the formula to remain unchanged. 2.06-2 COLA SUPPLEMENT. However, supplemental payments shall not be changed for any post-retirement addition which might be made to the Retirement Plan benefit (without change of the formula or components), such as a cost of living supplement for retirees. 2.07 FORFEITURE OR SUSPENSION OF BENEFITS. Notwithstanding any other provision of this Plan to the contrary, supplemental benefits shall be forfeited or suspended as follows: - 6 - 2.07-1 DISCHARGE FOR CAUSE. No supplemental benefits shall be paid if the Participant is discharged from the Company for cause involving illegal or fraudulent acts. 2.07-2 SUICIDE. No supplemental benefits shall be paid if the Participant commits suicide, while sane or insane, within one (1) year from the date he is enrolled under the Plan. 2.07-3 SUSPENDED PAYMENT. Supplemental benefit payments shall be suspended during any period of reemployment by the Company or other period when payments under the Retirement Plan are suspended. If a rehired retiree elects to stop receiving Retirement Plan payments during reemployment under Retirement Plan 6.11, upon later re-retirement the supplemental benefits under this Plan will be recalculated to take into account any applicable change under Plan 2.01-2.06. 2.07-4 AGREEMENT NOT TO COMPETE. Supplemental benefits shall be withheld pending receipt by the Company of Participant's written agreement not to compete with the Company or its subsidiaries during the period of supplemental payments, and shall be suspended or forfeited, as the Committee shall decide, for any breach of such agreement not to compete. 2.08 1995 SPECIAL BENEFIT INCREASE. For all retirees and beneficiaries entitled to receive benefits on January 1, 1995, based on a retirement date which occurred on or before January 1, 1985, the monthly amount payable on and after January 1, 1995, shall be determined as follows: 2.08-1 The sum of the benefit amounts payable on December 1, 1994, under this Plan and the Retirement Plan, multiplied by one hundred five percent (105%); 2.08-2 Less the benefit amount payable under the Retirement Plan on January 1, 1995, including the amount of the 1995 special benefit increase provided under the Retirement Plan. ARTICLE III. PAYMENT OF BENEFITS ------------------- 3.01 FORM. Payments to a Participant shall be made monthly in one of the forms under 3.01-1, 3.01-2 or 3.01-3: 3.01-1 LIFE ANNUITY WITH ONE HUNDRED TWENTY (120) GUARANTEED PAYMENTS. If the Participant is not married at retirement, or, if married, either (1) the Participant and his spouse reject the surviving spouse joint and survivor annuity forms under the Retirement Plan or (2) the Participant, with notarized consent of his spouse, does not elect the benefit form under 3.01-2 or 3.01-3, the payments shall be made for the Participant's lifetime. If the Participant should die before receiving one hundred twenty (120) monthly payments, the balance of the one hundred twenty (120) payments shall be made monthly to the beneficiary - 7 - designated by the Participant, unless the Committee decides to pay annual or lump sum amounts to the beneficiary. 3.01-2 HALF (50%) JOINT AND SURVIVOR ANNUITY. If the Participant is married at retirement, and is to receive either the half (50%) or full (100%) joint and survivor annuity form under the Retirement Plan, the Participant may, without spouse consent, elect to receive payment in the form of a half (50%) joint and survivor annuity. Such annuity shall be the actuarial equivalent (as determined by the Plan's actuary) of the benefit under 3.01-1 and shall pay a reduced amount to the Participant for his life and, if such spouse survives his death, fifty percent (50%) of such reduced amount to such spouse for the life of the spouse. The monthly Plan benefit shall be recalculated as a single life annuity following the death of Participant's spouse if the "pop-up" annuity is in effect under the Retirement Plan. 3.01-3 FULL (100%) JOINT AND SURVIVOR ANNUITY. If the Participant is married at retirement, and is to receive the full (100%) joint and survivor annuity form under the Retirement Plan, the Participant may, without spouse consent, elect to receive payment in the form of a full (100%) joint and survivor annuity. Such annuity shall be the actuarial equivalent (as determined by the Plan's actuary) of the benefit under 3.01-1 and shall pay a reduced amount to the Participant for his life and, if such spouse survives his death, the same amount to such spouse for the life of the spouse. The monthly Plan benefit shall be recalculated as a single life annuity following the death of Participant's spouse if the "pop-up" annuity is in effect under the Retirement Plan. 3.02 SOURCE. The commitment of the Company to pay supplemental retirement benefits under this Plan is an unsecured promise of the Company to make the payments. There is no asset or trust fund set aside for payment of benefits hereunder, except to the extent held under the Company's Umbrella Trust, which is subject to the claims of the Company's creditors under conditions specified therein. 3.03 KEY MAN INSURANCE. The Company shall purchase and own such key man life insurance as it chooses on the life of any Participant. No Participant, nor his beneficiaries, heirs, assigns, personal representative or estate, shall have any right to or interest in any such policy or the proceeds payable thereunder on his death. On death of the Participant, the proceeds shall be paid to the Company. It is contemplated that the Company will purchase such insurance in amounts sufficient to cover all essential costs of the Plan (including imputed interest on corporate funds advanced to meet such costs). 3.04 PHYSICAL EXAMINATION. As a condition of becoming covered under this Plan, each Participant, as requested by the Company, shall take a physical examination by a physician approved by the insurance carrier. The cost of the examination shall not be borne by the Participant. The report of such examination shall be transmitted directly from the physician to the insurance carrier designated by the Company to establish certain costs associated with providing benefits under this Plan. Such examination shall remain confidential among the Participant, the physician, the insurance carrier and the Company. - 8 - ARTICLE IV. ADMINISTRATION -------------- 4.01 COMMITTEE. The Committee shall have full power and authority to interpret, construe and administer this Plan, to adopt appropriate procedures, and to make all decisions necessary or proper to carry out the terms of the Plan. The Committee's interpretation and construction hereof, and actions hereunder, including any determination of benefit amount or designation of the person to receive supplemental payments, shall be binding and conclusive on all persons for all purposes. The timetable and procedure for notice of denial of benefit claims and for hearing on review of such denial shall be as set forth in Article XII of the Retirement Plan, and the Committee shall make such final review and decision. The Company's corporate secretary shall act as the Committee's agent in administering this Plan. Neither the Company, nor its officers, employees, directors or Committee, nor any member thereof, shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan. 4.02 COMPANY. The Company, by action of the Board of Directors, reserves the exclusive right to amend, modify, or terminate this Plan in whole or in part without notice to any Participant. Any such termination, modification or amendment shall not terminate nor diminish any rights or benefits accrued by any Participant or surviving beneficiary prior thereto. ARTICLE V. GENERAL PROVISIONS ------------------ 5.01 NO EFFECT ON EMPLOYMENT. This Plan shall not be deemed to give any Participant or other person in the employ of the Company any right to be retained in the employment of the Company, or to interfere with the right of the Company to terminate any Participant or such other person at any time and to treat him without regard to the effect which such treatment might have upon him as a Participant in the Plan. 5.02 LEGALLY BINDING. The rights, privileges, benefits and obligations under this Plan are intended to be legal obligations of the Company and binding upon the Company, its successors and assigns. The Company agrees it will not be a party to any merger, consolidation or reorganization, unless and until its obligations hereunder shall be expressly assumed by its successor or successors. Notwithstanding any of the provisions of the Plan to the contrary, upon a change of control each Participant shall be entitled to receive any Plan benefits, as determined in accordance with the terms and conditions of payment set forth in Articles II and III. For purposes of this 5.02, a "change of control" shall mean a change of control of the Board of Directors or a change in the power to effect such a change of control as a result of: (a) a contest for the control of the Company, (b) the consolidation of the Company with, or merger of the Company into, another company, without the consent of the Board, (c) the acquisition of the Company, a controlling interest in the Company or all or substantially all of the assets of the Company by another company without the consent of the Board, or (d) the cessation of the corporate existence of the Company or failure to continue such existence in full force and effect as a result of any circumstances or event. - 9 - 5.03 NO TRANSFER OF BENEFITS. The interest of any Participant or beneficiary under this Plan shall not be transferred or transferrable, voluntarily or by operation of law, by assignment, anticipation, hypothecation, pledge or other encumbrance, or by garnishment, attachment, levy, seizure or other execution, or by insolvency, receivership, bankruptcy or other debtor proceeding. 5.04 DISCLOSURE TO PARTICIPANTS. Each Participant shall receive a copy of this Plan, a copy of any written procedures for administering the Plan, any amendments to the Plan or procedures, and an annual statement of benefits over the signature of the president. 5.05 ADOPTION. This Plan was approved by resolution of the Board of Directors at a regular meeting on April 16, 1981, to be effective as of January 1, 1981. Amendments shall take effect as specified in the implementing Board resolution. - 10 - 1994 APPENDIX TO NORTHWEST NATURAL GAS COMPANY EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME PLAN (Effective January 1, 1981)* *As Republished: January 1, 1994 1. EARLY RETIREMENT REDUCTION PERCENTAGE. The reduction percentage for early retirement supplemental payments under Plan 2.02-3 shall be: Percentage of Normal Retirement Supplement Payable -------------------------------------------- (a) (b) 1986 Schedule 1994 Schedule ----------------- ------------------ For termination of For termination of Age When Early employment from employment on or Payments Start 1/1/86 to 12/30/93 after 12/31/93 -------------- ------------------ ------------------ 55 52% 67% 56 60% 72% 57 68% 77% 58 76% 82% 59 84% 87% 60 90% 92% 61 96% 96% 62-64 100% 100% 2. DISABILITY RETIREMENT REDUCTION PERCENTAGE. For disability retirement supplemental payments starting from age fifty-five (55) to sixty-four (64), the reduction shall be the percentage for the applicable starting age under the early retirement table in 1 above. For disability retirement supplemental payments starting before age fifty-five (55), the reduction shall be: (a) the percentage determined by reducing the percent at age fifty-five (55) by eight percent (8%) for each year of age less than fifty-five (55), until the percentage for the starting age is derived; or (b) the percentage used to determine the actuarial equivalent of the early retirement allowance under the Retirement Plan if the Retirement Plan benefit is calculated by that method under Retirement Plan 8.03-2. 3. FUTURE CHANGES IN RETIREMENT PLAN 7.02-2 OR 8.03. The foregoing is based on Retirement Plan 7.02-2 and 8.03 as in effect on January 1, 1994, including deletion from - 11 - 7.02-2 of the prior "Born After 1954" provisional schedule (b) (which never has been used) retroactive to January 1, 1989. If the reduction factors for either section of the Retirement Plan should be changed, this Plan shall be deemed amended to incorporate by reference the changed reduction factors under the Retirement Plan, without further amendment to this Plan. - 12 - sak|ex-10b.wpd EX-10 11 SOP EXHIBIT (10c.) NORTHWEST NATURAL GAS COMPANY 1985 STOCK OPTION PLAN (as amended as of February 23, 1995) 1. PURPOSE. The purpose of this 1985 Stock Option Plan (the "Plan") is to enable Northwest Natural Gas Company (the "Company") to attract and retain experienced and able employees and to provide additional incentive to these employees to exert their best efforts for the Company and its shareholders. 2. SHARES SUBJECT TO THE PLAN. Except as provided in paragraph 15, the total number of shares of the Company's Common Stock, $3-1/6 par value per share ("Common Stock"), covered by all options granted under the Plan shall not exceed 300,000 authorized but unissued or reacquired shares. If any option under the Plan expires or is cancelled or terminated and is unexercised in whole or in part, the shares allocable to the unexercised portion shall again become available for options under the Plan. 3. DURATION OF THE PLAN. The Plan shall continue until options have been granted and exercised with respect to all of the shares available for the Plan under paragraph 2 (subject to any adjustments under paragraph 15), provided, however, that unless sooner terminated by action of the Board of Directors, the Plan shall terminate on, and no option shall be granted under the Plan after, March 27, 1995. The Board of Directors has the right to suspend or terminate the Plan at any time except with respect to then outstanding options. 4. ADMINISTRATION. 4.1 The Plan shall be administered by the Board of Directors, which shall determine and designate from time to time the employees to whom options shall be granted and the number of shares, option price, the period of each option, and the time or times at which options may be exercised. Subject to the provisions of the Plan, the Board of Directors may from time to time adopt rules and regulations relating to administration of the Plan, and the interpretation and construction of the provisions of the Plan by the Board of Directors shall be final and conclusive. No director who holds or is eligible to hold an option under the Plan may vote on any action taken by the Board of Directors involving such matter, and such action may only be taken if both a majority of the Board of Directors and a majority of directors voting on the action are not eligible and have not at any time within one year prior thereto been eligible to receive an option pursuant to the Plan or any other stock plan of the Company or an affiliate of the Company. 4.2 The Board of Directors may delegate to a committee of the Board of Directors consisting of three or more members (the "Committee") any or all authority for administration of the Plan. No person may be appointed to the Committee if within one year prior thereto he or she was eligible to receive an option pursuant to the Plan or any other stock plan of the Company or an affiliate of the Company. Members of the Committee are not eligible to receive an option pursuant to the Plan or any other stock plan of the Company or an affiliate of the Company while on the Committee. If a Committee is appointed, all references to the Board of Directors in the Plan shall mean and relate to the Committee unless the context requires otherwise. 5. ELIGIBILITY; GRANTS. 5.1 Options may be granted under the Plan only to officers and other key employees of the Company (including employees who are directors) who, in the judgment of the Board of Directors, will perform services of special importance to the Company in the management, operation, and development of its business. 5.2 Options granted under the Plan may be Incentive Stock Options as defined in Section 422 of the Internal Revenue Code of 1986, as amended ("IRC"), or Non-Statutory Stock Options. A Non-Statutory Stock Option means an option other than an Incentive Stock Option. The Board of Directors has the sole discretion to determine which options shall be Incentive Stock Options and which options shall be Non-Statutory Stock Options, and, at the time of grant, it shall specifically designate each option granted under the Plan as an Incentive Stock Option or a Non-Statutory Stock Option. 6. LIMITATION ON AMOUNT OF GRANTS. The aggregate fair market value (determined for each Incentive Stock Option when it is granted) of shares for which Incentive Stock Options are exercisable for the first time by an optionee in any calendar year under the Plan and under any other incentive stock option plan (within the meaning of IRC Section 422) of the Company or any parent or subsidiary of the Company shall not exceed $100,000. 7. OPTION PRICE. The option price per share under each option granted under the Plan shall be determined by the Board of Directors, but except as provided in paragraph 9, the option price for an Incentive Stock Option and a Non-Statutory Stock Option shall be not less than 100 percent of the fair market value of the shares covered by the option on the date the option is granted. Except as otherwise expressly provided, for purposes of the Plan, the fair market value shall be deemed to be the closing sales price for the Common Stock as reported by the Nasdaq Stock Market and published in the Wall Street Journal for the day preceding the date of grant, or such other fair market value of the Common Stock as determined by the Board of Directors of the Company. 8. DURATION OF OPTIONS. Subject to paragraphs 9 and 13, each option granted under the Plan shall continue in effect for the period fixed by the Board of Directors, except that no Incentive Stock Option shall be exercisable after the expiration of 10 years from the date it is granted and no Non-Statutory Stock Option shall be exercisable after the expiration of 10 years plus seven days from the date it is granted. 9. LIMITATIONS ON GRANTS TO 10 PERCENT SHAREHOLDERS. An Incentive Stock Option may be granted under the Plan to an employee possessing more than 10 percent of the total combined voting power of all classes of stock of the Company, or of any parent or subsidiary of the Company, only if the option price is at least 110 percent of the fair market value of the stock subject to the option on the date it is granted, as described in paragraph 7, and the option by its terms is not exercisable after the expiration of five years from the date it is granted. 10. EXERCISE OF OPTIONS. Except as provided in paragraphs 13 and 15, no option when granted under the Plan may by its terms be exercisable during the first year following the date it is granted. Thereafter, options may be exercised over the period stated in each option in amounts and at times prescribed by the Board of Directors and stated in the option. If the optionee does not exercise an option in any period with respect to the full number of shares to which the optionee is entitled in that period, the optionee's rights shall be cumulative and the optionee may purchase those shares in any subsequent period during the term of the option. 11. LIMITATIONS ON RIGHTS TO EXERCISE. Except as provided in paragraph 13, no option granted under the Plan may be exercised unless when exercised the optionee is employed by the Company and shall have been so employed continuously since the option was granted. Absence on leave or on account of illness or disability under rules established by the Board of Directors shall not, however, be deemed an interruption of employment for this purpose. 12. NONASSIGNABILITY. Each option granted under the Plan by its terms shall be nonassignable and nontransferable by the optionee except by will or by the laws of descent and distribution of the state or country of the optionee's domicile at the time of death, and each option by its terms shall be exercisable during the optionee's lifetime only by the optionee. 13. TERMINATION OF EMPLOYMENT. 13.1 If employment of an optionee by the Company is terminated by retirement or for any reason other than in the circumstances specified in 13.2 below, any option held by the optionee may be exercised at any time prior to its expiration date or the expiration of three months after the date of termination of employment, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option on the date of termination. 13.2 If an optionee's employment by the Company is terminated because of death or physical disability (within the meaning of IRC Section 22(e)(3)), any option held by the optionee may be exercised for all remaining shares subject thereto, free of any restriction on exercise of the option during the first year after the date of grant or any limitation on the number of shares for which the option may be exercised in any period, at any time prior to its expiration date or the expiration of one year after the date of termination, whichever is the shorter period. If an optionee's employment is terminated by death, any option held by the optionee shall be exercisable only by the person or persons to whom the optionee's rights under the option pass by the optionee's will or by the laws of descent and distribution of the state or country of the optionee's domicile at the time of death. 13.3 To the extent an option held by any deceased optionee or by any optionee whose employment is terminated is not exercised within the limited periods provided above, all further rights to purchase shares pursuant to the option shall terminate at the expiration of such periods. 14. PURCHASE OF SHARES. Shares may be purchased or acquired pursuant to an option granted under the Plan only on receipt by the Company of notice in writing from the optionee of the optionee's intention to exercise, specifying the number of shares the optionee desires to purchase and the date on which the optionee desires to complete the transaction, which may not be more than 30 days after receipt of the notice, and, unless in the opinion of counsel for the Company such a representation is not required to comply with the Securities Act of 1933, containing a representation that it is the optionee's intention to acquire the shares for investment and not with a view to distribution. On or before the date specified for completion of the purchase, the optionee must have paid the Company the full purchase price in cash, in shares of Common Stock previously acquired by the optionee and held for at least one year, valued at fair market value as defined in paragraph 7, or in any combination of cash and shares of Common Stock. No shares shall be issued until full payment therefor has been made, and an optionee shall have no rights as a shareholder until a certificate for shares is issued to the optionee. Each optionee who has exercised an option shall, on notification of the amount due, if any, and prior to or concurrently with delivery of the certificates representing the shares for which the option was exercised, pay to the Company amounts necessary to satisfy any applicable federal, state, and local withholding tax requirements. If additional withholding becomes required beyond any amount deposited before delivery of the certificates, the optionee shall pay such amount to the Company on demand. If the employee fails to pay the amount demanded, the Company shall have the right to withhold that amount from other amounts payable by the Company to the optionee, including salary, subject to applicable law. 15. CHANGES IN CAPITAL STRUCTURE. If the outstanding shares of Common Stock are increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, by reason of any reorganization, merger, consolidation, plan of exchange, recapitalization, reclassification, stock split-up, combination of shares, or dividend payable in shares, appropriate adjustment shall be made by the Board of Directors in the number and kind of shares for the purchase of which options may be granted under the Plan. In addition, the Board of Directors shall make appropriate adjustments in the number and kind of shares as to which outstanding options, or portions thereof then unexercised, shall be exercisable, to the end that each optionee's proportionate interest shall be maintained as before the occurrence of such event. Adjustments in outstanding options shall be made without change in the total price applicable to the unexercised portion of any option and with a corresponding adjustment in the option price per share. Any such adjustment made by the Board of Directors shall be conclusive. In the event of dissolution or liquidation of the Company or a merger, consolidation, or plan of exchange affecting the Company, in lieu of providing for options as provided above in this paragraph 15, the Board of Directors may, in its sole discretion, provide a 30-day period prior to such event during which optionees shall have the right to exercise options in whole or in part without any limitation on exercisability and upon the expiration of such 30-day period all unexercised options shall immediately terminate. 16. AMENDMENT OF PLAN. The Board of Directors may at any time and from time to time modify or amend the Plan in such respects as it deems advisable because of changes in the law while the Plan is in effect or for any other reason. After the Plan has been approved by the shareholders and except as provided in paragraph 15, however, no change in an option already granted to an employee shall be made without the written consent of such employee. Furthermore, unless approved at an annual meeting or a special meeting by a vote of shareholders in accordance with Oregon law, no amendment or change shall be made in the Plan (a) increasing the total number of shares which may be purchased under the Plan, (b) changing the minimum purchase price specified in the Plan, (c) increasing the maximum option period, or (d) materially modifying the requirements for eligibility for participation in the Plan. 17. APPROVALS. The obligations of the Company under the Plan are subject to the approval of the Oregon Public Utility Commission, the Washington Utilities and Transportation Commission, and such other state and federal authorities or agencies with jurisdiction in the matter. The Company will use its best efforts to take steps required by state or federal law or applicable regulations, including rules and regulations of the Securities and Exchange Commission and any stock exchange on which the Company's shares may then be listed, in connection with the granting of any option under the Plan, the issuance or sale of any shares purchased on exercise of any option under the Plan, or the listing of such shares on said exchange. The foregoing notwithstanding, the Company shall not be obligated to issue or deliver shares of Common Stock under the Plan if the Company is advised by its legal counsel that such issuance or delivery would violate applicable state or federal laws. The Company shall not be obligated to register shares issuable on exercise of options under the Securities Act of 1933. 18. EMPLOYMENT RIGHTS. Nothing in the Plan or any option granted pursuant to the Plan shall confer on any optionee any right to be continued in the employment of the Company or to interfere in any way with the right of the Company by whom such optionee is employed to terminate such optionee's employment at any time, with or without cause. SAK|EX-10C EX-10 12 AMENDMENT 2 EXHIBIT (10e.-2) AMENDMENT NO. 2 TO THE NORTHWEST NATURAL GAS COMPANY EXECUTIVE DEFERRED COMPENSATION PLAN 1990 RESTATEMENT This Amendment No. 2 to the Northwest Natural Gas Company Executive Deferred Compensation Plan, 1990 Restatement (the "Plan"), is effective as of February 23, 1995 and has been executed as of this 27th day of February 1995. The Plan is hereby amended as follows: FIRST: Section 5.2(a) is amended to read as follows: 5.2 COMMENCEMENT OF PAYMENTS. (a) Except in the event of a Change in Control, payment of any Deferred Compensation Account benefits under the Plan shall commence as of the earlier of: (i) A date elected by the Executive as specified in the applicable Participation Agreement between the Corporation and the Executive; or (ii) The first business day of January following the year of the Executive's Retirement, total Disability or other termination of employment. In the event of a Change in Control, any lump sum payment or the first annual payment, as elected by the Executive in the Participation Agreement, shall be made immediately, with early withdrawals paid as specified in the Participation Agreement, and with any subsequent annual payments to be made on an annual basis thereafter for the duration elected by the Executive in the Participation Agreement. SECOND: Except as provided herein, all other Plan provisions shall remain in full force and effect. IN WITNESS WHEREOF, Northwest Natural Gas Company has caused this Amendment No. 2 to be executed as of the date first written above. NORTHWEST NATURAL GAS COMPANY By: /s/ Robert L. Ridgley ----------------------- Robert L. Ridgley Its: President and CEO EX-10 13 AMENDMENT 1 EXHIBIT (10f.-1) AMENDMENT NO. 1 TO THE NORTHWEST NATURAL GAS COMPANY DIRECTORS DEFERRED COMPENSATION PLAN EFFECTIVE JUNE 1, 1981 RESTATED AS OF JANUARY 1, 1988 This Amendment No. 1 to the Northwest Natural Gas Company Directors Deferred Compensation Plan, effective June 1, 1981, restated as of January 1, 1988 (the "Plan"), is effective as of February 23, 1995 and has been executed as of this 27th day of February 1995. The Plan is hereby amended as follows: FIRST: Section 8 is amended to read as follows: 8. CHANGE IN CONTROL. "Change in Control" means a change in control of the Board of Directors or a change in the power to effect such a change in control as a result of (i) a contest for the control of the Corporation, (ii) the consolidation of the Corporation with, or merger of the Corporation into, another company, without the consent of the Board, (iii) the acquisition of the Corporation, a controlling interest in the Corporation of all or substantially all of the assets of the Corporation by another company without the consent of the Board, or (iv) the cessation of the corporation existence in full force and effect as a result of any circumstances or event. In the event of a Change in Control, any lump sum payment or the first annual payment, as elected by the Director in Section 5(b) above, shall be made immediately, with any subsequent annual payments to be made on an annual basis thereafter for the duration elected by the Director in the participation agreement. SECOND: Except as provided herein, all other Plan provisions shall remain in full force and effect. IN WITNESS WHEREOF, Northwest Natural Gas Company has caused this Amendment No. 1 to be executed as of the date first written above. NORTHWEST NATURAL GAS COMPANY By: /s/ Robert L. Ridgley ------------------------ Its: President and CEO EX-10 14 AGREEMENT WITH CEO EXHIBIT (10m.) Northwest Natural Gas INTEROFFICE MEMORANDUM TO: Northwest Natural Gas Compensation Committee FROM: Robert L. Ridgley DATE: September 16, 1994 SUBJECT: Proposed Agreement as to Retirement of CEO At your suggestion, this memorandum addresses those aspects of the executive succession planning process which will impact me personally as the Chief Executive Officer. You have suggested that I make a specific proposal concerning my plans, so that there may be an understanding between the Board of Directors and me as we proceed down the road to the selection of a new CEO. If acceptable to the Compensation Committee and the Board of Directors, I would be delighted to look forward to the following transition: 1) During an Executive Session of the Board, the Board of Directors would elect a "Lead Director." This should be done at the earliest agreed to date. Forthwith and to that end, Cart Woodard, Chairman of the Board's Nominating Committee, has been asked to chair a selection process at the pleasure of the Board. 2) The "Lead Director" would preside over all board meetings when the Chairman is not present. At least twice per fiscal year, the "Lead Director" should chair a meeting of only the Board's "outside" directors to review the company's affairs and any other subject the outside directors deem necessary. No "inside director" nor corporate employee should be present at these meetings. 3) In addition to his or her formal duties, the Lead Director will provide a constructive conduit for individual directors to express views or requests for informal discussion between the Lead Director and CEO. 4) It is my intention to retire as an employee and as President and CEO during February, 1997, just prior to my 63rd birthday. At that time, my tenure as CEO will have been twelve years. 5) With the support of all of the directors, I would be honored and pleased to serve as Chairman of the Board of Directors for a period of two (2) years, commencing on March 1, 1997. During my tenure as Chairman, I would look forward to working closely with the Lead Director and all other directors to insure that the Board of Directors, its subsidiary boards and the Board committees provide a coherent and effective governance structure for the company. 6) In addition to my duties on behalf of the Board of Directors, I would be pleased to make myself available at the call of the newly selected President and CEO. This would include consultation on business issues on which the CEO deems my counsel to be constructive and appropriate. It may also include acting as a liaison for the Company with community organizations and trade associations when such activity would be in the interest of the Company and is requested by the CEO. 7) If during my two year tenure the Board of Directors wishes to replace me with a new chairman, it shall retain that prerogative at all times. However, should it elect to do so, my business consultancy and consulting fee as outlined below in Item Number 9, would continue for the agreed-to Two (2) year term commencing 1 March 1997 and expiring 28 February, 1999. Further, in case of my disability or death, this agreement will continue for my surviving spouse to the termination of this agreement on 28 February, 1999. 8) At the conclusion of my term on February 28, 1999, I would automatically step down as Chairman of the Board of Directors. The Board may elect my successor as deems appropriate. 9) In consideration of the commitments which I shall undertake, the Company shall pay me a consulting fee of $10,000 per month for twenty-four months commencing with 1 March, 1997. During that period, I would also have the continued use of my executive vehicle, in accordance with company policy and would be reimbursed for reasonable expenses necessarily incurred in the performance of my duties. 10) In addition to the aforementioned compensation, I will also receive the customary retainer and meeting fees paid to nonmanagement directors commencing with my relinquishment of the CEO title on March 1, 1997. 11) Following my retirement as President and CEO in February, 1997, I shall vacate my personal office space, which shall be made available to my successor. I would expect to have the continued use of an office with secretarial support and receive reimbursement of monthly dues and assessments (excluding all personal expenses) for the Arlington Club and Waverley Country Club until age 72 or retirement from the Board whichever occurs first. If this proposal meets with the pleasure of the Compensation Committee and the Board of Directors, I would very much appreciate a resolution to that effect by the Board on September 22, 1994. DATE: SEPTEMBER 22, 1994 AGREED TO IN BEHALF OF NORTHWEST NATURAL GAS COMPANY AND ROBERT L. RIDGLEY, PURSUANT TO THE RESOLUTION OF THE BOARD OF DIRECTORS ADOPTED ON SEPTEMBER 22, 1994: NORTHWEST NATURAL GAS COMPANY ROBERT L. RIDGLEY BY /S/ Tod R. Hamachek /S/ Robert L. Ridgley -------------------------- --------------------- TOD R. HAMACHEK, CHAIRMAN ROBERT L. RIDGLEY COMPENSATION COMMITTEE EX-11 15 COMPUTATION OF PER SHARE EXHIBIT 11 NORTHWEST NATURAL GAS COMPANY Statement Re: Computation of Per Share Earnings (Thousands, except per share amounts) (Unaudited)
12 Months Ended December 31 --------------------------- 1994 1993 1992 ---- ---- ---- Earnings Applicable to Common Stock $32,478 $34,159 $13,215 Preference Stock Dividends 119 155 168 Debenture Interest Less Taxes 534 572 598 ------- ------- ------- Net Income Available for Fully-Diluted Common Stock $33,131 $34,886 $13,981 ======= ======= ======= Average Common Shares Outstanding 13,295 13,074 11,909 Stock Options 18 24 25 Convertible Preference Stock 83 108 116 Convertible Debentures 405 433 446 ------- ------ ------ Fully-Diluted Common Shares 13,801 13,639 12,496 ======= ====== ====== Fully-Diluted Earnings Per Share of Common Stock $2.40 $2.56 $1.12 ===== ===== =====
Note: Primary earnings per share are computed on the weighted daily average number of common shares outstanding each year. Outstanding stock options are common stock equivalents but are excluded from primary earnings per share computations due to immateriality. EX-12 16 COMPUTATION OF RATIO EXHIBIT 12 Northwest Natural Gas Company Computation of Ratio of Earnings to Fixed Charges January 1, 1990 - December 31, 1994 ($000)
------------Year Ended December 31---------- 1990 1991 1992 1993 1994 ---- ---- ---- ---- ---- Fixed Charges, as defined: Interest on Long-Term Debt $22,244 $21,977 $23,001 $22,578 $21,921 Other Interest 2,853 4,266 3,223 1,906 2,473 Amortization of Debt Discount and Expense 363 348 511 775 850 Interest Portion of Rentals 1,546 1,485 1,439 1,701 1,697 ------- ------- ------- ------- ------- Total Fixed Charges, as defined $27,006 $28,076 $28,174 $26,960 $26,941 ======= ======= ======= ======= ======= Earnings, as defined: Net Income $30,724 $14,377 $15,775 $37,647 $35,461 Taxes on Income 13,629 2,321 6,951 22,096 20,473 Fixed Charges, as above 27,006 28,076 28,174 26,960 26,941 ------- ------- ------- ------- ------- Total Earnings, as defined $71,359 $44,774 $50,900 $86,703 $82,875 ======= ======= ======= ======= ======= Ratio of Earnings to Fixed Charges 2.64 1.59 1.81 3.22 3.08 ==== ==== ==== ==== ====
EX-23 17 IND. AUDITORS CONSENT EXHIBIT 23 DELOITTE & TOUCHE LLP ----------------------------------------------------------------- 3900 US Bancorp Tower Telephone: (503) 222-1341 111 SW Fifth Avenue Facsimile: (503) 224-2172 Portland, Oregon 97204-3698 INDEPENDENT AUDITORS' CONSENT ----------------------------- We consent to the incorporation by reference in Registration Statement No. 33-34724, Post-Effective Amendment No. 1 to Registration Statement No. 2-76276, and Post-Effective Amendments No. 2 to Registration Statement Nos. 2-77195 and 33-19354 on Form S-8 and in Registration Statements No. 33-44827, 33-64014, 33-51271, and 33-53795, and Post-Effective Amendments No. 1 to Registration Statements Nos. 33-1304 and 33-20384 on Form S-3 of our report dated February 22, 1995 (which expresses an unqualified opinion and includes an explanatory paragraph relating to the change in the Company's method of accounting for income taxes and postretirement benefits) appearing in this Annual Report on Form 10-K of Northwest Natural Gas Company for the year ended December 31, 1994. DELOITTE & TOUCHE LLP March 23, 1995 EX-27 18 FDS
UT THIS SECTION OF THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1994 DEC-31-1994 PER-BOOK 629,126 62,227 95,539 41,982 60,430 889,304 42,492 134,641 97,275 274,408 39,888 1,252 291,076 0 0 53,654 1,000 1,062 0 0 226,964 889,304 368,261 20,473 295,990 316,463 51,798 8,582 60,380 24,919 35,461 2,983 32,478 23,365 17,549 110,024 2.44 2.40