Exhibit 10.3

 

FORM OF

NON-STATUTORY STOCK OPTION AGREEMENT

 

RESTATED STOCK OPTION PLAN

 

THIS AGREEMENT is made as of the «date», between Northwest Natural Gas Company,
an Oregon corporation (the “Company”), and «FirstName» «LastName» (the
“Optionee”).

 

Pursuant to the Company’s Restated Stock Option Plan (the “Plan”), the
Organization and Executive Compensation Committee of the Board of Directors (the
“Committee”) has voted to grant the Optionee an option to purchase common stock
of the Company (“Common Stock”) in the amount indicated below. In consideration
of the promises and mutual covenants herein contained, the Company and the
Optionee agree as follows:

 

1. Option Grant. The Company grants to the Optionee on the terms and conditions
stated below the right and option (the “Option”) to purchase an aggregate of
«Shares» shares of the Company’s authorized but unissued or reacquired Common
Stock at a price of «price» per share. The Option is a Non-Statutory Stock
Option as defined in the Plan.

 

2. Terms. The Option is granted on the following terms:

 

2.1 Duration of Option. Subject to reductions in the Option period as provided
in section 2.5, the Option shall continue in effect for 10 years and seven days
from the date hereof.

 

2.2 Vesting. Except as provided in section 2.5, the Option shall not be
exercisable for any shares in the first year after the date hereof and
thereafter may be exercised from time to time in the amounts as set forth on
attached Schedule A.

 

2.3 Limitations on Rights to Exercise. Except as provided in section 2.5, the
Option may not be exercised unless when exercised the Optionee is employed by
the Company and shall have been so employed continuously since the Option was
granted. For purposes of this Agreement, the Optionee is considered to be
employed by the Company if the Optionee is employed by any parent or subsidiary
of the Company. Absence on leave or on account of illness or disability under
rules established by the Committee shall not be deemed an interruption of
employment for this purpose. Vesting of the Option as set forth on Schedule A
shall continue during a medical, family or military leave of absence, whether
paid or unpaid, and vesting of the Option shall be suspended during any other
unpaid leave of absence.

 

2.4 Nonassignability. The Option is 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 it is
exercisable during the Optionee’s lifetime only by the Optionee.

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2.5 Termination of Employment.

 

(a) General Rule. If employment of the Optionee by the Company is terminated for
any reason other than in the circumstances specified in subsection (b) below,
the Option 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.

 

(b) Termination because of Retirement, Death or Total Disability. If the
Optionee’s employment by the Company is terminated because of retirement (as
defined in the Company’s Retirement Plan for Non-Bargaining Unit Employees), the
Option may be exercised for all remaining shares subject thereto, free of 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 36 months
after the date of termination, whichever is the shorter period. If the
Optionee’s employment by the Company is terminated because of death or total
disability (as defined below), the Option may be exercised for all remaining
shares subject thereto, free of 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 12 months after the date of termination, whichever is
the shorter period. If the Optionee’s employment is terminated by death, the
Option shall be exercisable only by the person or persons to whom the Optionee’s
rights under the Option shall 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. The term “total disability” means a medically determinable
mental or physical impairment that is expected to result in death or has lasted
or is expected to last for a continuous period of 12 months or more and that, in
the opinion of the Company and two independent physicians, causes the Optionee
to be unable to perform duties as an employee, director, or officer of the
Company and unable to be engaged in any substantial gainful activity. Total
disability shall be deemed to have occurred on the first day after the two
independent physicians have furnished their written opinion of total disability
to the Company and the Company has reached an opinion of total disability.

 

(c) Failure to Exercise Option. In the event of the termination of employment of
the Optionee, to the extent the Option 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.

 

2.6 Purchase of Shares. Shares may be purchased or acquired pursuant to the
Option only by notice in writing from the Optionee to the Company of the
Optionee’s binding commitment to exercise the Option, specifying the number of
shares the Optionee will purchase and the date on which the Optionee will
complete the transaction, which may not be more than 30 days after delivery of
the notice. On or before the date specified for completion of the purchase, the
Optionee must pay the Company the full purchase price in cash (or by check), in
shares of Common Stock previously acquired by the Optionee and held for at least
six months, valued at fair market value, or in any combination of cash (or
check) and shares of Common Stock. Payment in shares of Common Stock may be made
by delivery to the Company of (a) certificate(s) representing the shares or
(b) an attestation in a form acceptable to the Company regarding shares that are
deemed delivered to the Company. For purposes of this paragraph, the fair market
value shall be deemed to be the closing price for the Common Stock as reported
on

 

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the New York Stock Exchange and published in the Wall Street Journal for the day
preceding the date specified for completion of the purchase, or such other fair
market value of the Common Stock as determined by the Committee. The Optionee
shall, on notification of the amount due, if any, and prior to or concurrently
with delivery of the certificates representing the shares purchased, 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. In the absence of such payment, the
Company may withhold such amount from any funds owed by the Company to the
Optionee.

 

2.7 Changes in Capital Structure.

 

(a) Stock Splits, Stock Dividends. If the outstanding Common Stock of the
Company is hereafter increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company by reason
of any stock split, combination of shares, dividend payable in shares,
recapitalization or reclassification, appropriate adjustment shall be made by
the Company in (i) the number and kind of shares subject to the Option, or the
unexercised portion thereof, and (ii) the Option price per share, so that the
Optionee’s proportionate interest before and after the occurrence of the event
is maintained. Notwithstanding the foregoing, the Company shall have no
obligation to effect any adjustment that would or might result in the issuance
of fractional shares, and any fractional shares resulting from any adjustment
may be disregarded or provided for in any manner determined by the Company.
Any such adjustments made by the Company shall be conclusive.

 

(b) Mergers, Reorganizations, Etc. In the event of a merger, consolidation, plan
of exchange, acquisition of property or stock, split-up, split-off, spin-off,
reorganization or liquidation to which the Company is a party or any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company (each,
a “Transaction”), the Company shall, in its sole discretion and to the extent
possible under the structure of the Transaction, select one of the following
alternatives for treating the Option:

 

(i) The Option shall remain in effect in accordance with its terms.

 

(ii) The Option shall be converted into an option to purchase stock in one or
more of the corporations, including the Company, that are the surviving or
acquiring corporations in the Transaction. The amount, type of securities
subject thereto and exercise price of the converted Options shall be determined
by the Company, taking into account the relative values of the companies
involved in the Transaction and the exchange rate, if any, used in determining
shares of the surviving corporation(s) to be held by holders of shares of the
Company following the Transaction. The converted Option shall be vested only to
the extent that the vesting requirements relating to the Option have been
satisfied.

 

(iii) The Company shall provide a period of 30 days or less before the
completion of the Transaction during which the Option may be exercised in full

 

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notwithstanding section 2.2, and upon the expiration of that period, the Option
shall immediately terminate.

 

(c) Dissolution. In the event of the dissolution of the Company, the Company
shall provide a period of 30 days or less before the dissolution of the Company
during which the Option may be exercised in full notwithstanding section 2.2,
and upon the expiration of that period, the Option shall immediately terminate.

 

3. Conditions on Obligations. The obligations of the Company under this
Agreement are expressly made subject to the approval of the Oregon Public
Utility Commission, the Washington Utilities and Transportation Commission, and
other state or 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 issuance or sale of any shares purchased
on the exercise of the Option. The foregoing notwithstanding, the Company shall
not be obligated to issue or deliver shares of Common Stock 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 the Option under the Securities Act of 1933.

 

4. No Right to Employment. Nothing in the Plan or this Agreement shall confer on
the Optionee any right to be continued in the employment of the Company, or
shall interfere in any way with the right of the Company to terminate the
Optionee’s employment at any time, for any reason, with or without cause.

 

5. Successors of the Company. This Agreement shall be binding upon and shall
inure to the benefit of any successor or successors of the Company but except as
hereinabove provided the Option granted shall not be assigned or otherwise
disposed of by the Optionee.

 

6. Notices. Any notices under this Agreement must be in writing and will be
effective when actually delivered or, if mailed, three days after deposit into
the United States mail by registered or certified mail, postage prepaid. Notices
shall be directed to the Company, Attention: Corporate Secretary, at its
principal executive offices or to the Optionee at the address of the Optionee in
the Company’s records, or to such other address as a party may designate by 10
days’ advance notice to the other party.

 

7. Rights as a Shareholder. The Optionee shall have no rights as a shareholder
with respect to any shares of Common Stock until the date the Optionee becomes
the holder of record of those shares. No adjustment shall be made for dividends
or other rights for which the record date occurs before the date the Optionee
becomes the holder of record.

 

8. Amendments. The Company may at any time amend this Agreement if the amendment
does not adversely affect the Optionee. Otherwise, this Agreement may not be
amended without the written consent of the Optionee and the Company.

 

9. Governing Law. This Agreement shall be governed by the laws of the state of
Oregon, without regard to conflicts of law provisions.

 

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10. Complete Agreement. This Agreement constitutes the entire agreement between
the Optionee and the Company, both oral and written concerning the matters
addressed herein, and all prior agreements or representations concerning the
matters addressed herein, whether written or oral, express or implied, are
terminated and of no further effect.

 

IN WITNESS WHEREOF, the parties have executed this Non-Statutory Stock Option
Agreement in duplicate as of the day and year first written above.

 

NORTHWEST NATURAL GAS COMPANY By:  

 

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    President & CEO

 

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Optionee

 

Schedule A omitted

 

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