Document:

Exhibit

 

ANNUAL INCENTIVE PLAN
NW Natural Gas Storage LLC
(“company”, or “the company”)

PURPOSE
The purpose of the Annual Incentive Plan is to recognize and reward employees who have performed well and contributed to successful company performance as measured by key performance indicators. 

PROGRAM TERM
This Plan is an annual incentive plan and each new calendar year commences a new Program Term. Each Program Term will begin on January 1 and conclude on December 31. 

PARTICIPATION
All regular employees of the company are eligible to participate in the Annual Incentive Plan. For all purposes of this AIP, a person who is an employee of Northwest Natural Gas Company (NW Natural) on full-time assignment to the company and designated by the Company Board of Directors (BOD) shall be considered to be a regular employee of the company during the period of that full-time assignment.  In these situations, a designated participant in this AIP shall not be eligible for incentive compensation from NW Natural. 

NW Natural Oversight
If the President of NWNGS is considered by NW Natural to be an executive officer of NW Natural for purposes of public disclosure, any decision of the BOD under this AIP that affects an award to the President shall be subject to and conditioned upon the approval of that decision by the Board of Directors of NW Natural or as delegated by the Board of Directors of NW Natural to the Organization and Executive Compensation Committee.

To be eligible for an award the Participant must have been employed by the company for at least one month during the Program Term. In addition, the Participant must be employed on the date of the plan payout to be 

eligible for any award for the Program Term unless the Participants’ employment is terminated prior to the payout date of the Program Term due to one of the following: retirement(*), disability or death.  Prorated awards will be determined by prorating the Participant’s final award by the number of days employed during the Program Term.  Employees who transfer to or from employment or full-time assignment to Northwest Natural or another subsidiary will be eligible for a prorated award based upon the number of days they were eligible to participate in the EAIP.

 (*)  Retirement is defined as a minimum of 5 years of service (with the company or with an affiliate company) and age and service equals 70.

INCENTIVE TARGETS 

Target incentive award opportunities will be established by salary grade for each Plan Year and approved by the Board of Directors. The target incentive levels for each salary grade are shown in Exhibit I to the Plan document for the Plan Year. The target incentive opportunity is assigned by salary grade and calculated by multiplying the Target Incentive percentage times the following for each employee category:

Salary Paid/Exempt - Annual Base Salary as of December 31st of the plan year

Hourly Paid/Non-Exempt - Actual eligible earnings, including regular pay, overtime pay, & lump sum merit payments

INCENTIVE FORMULA
The formula for calculating the incentive award for the Program Term is as follows:

Participant Award =
Target  Award  X  ((CPF X CPF Factor Weight) + (IPF  X IPF Factor Weight))

COMPANY PERFORMANCE FACTOR (CPF)
The company performance goals in the Plan are intended to align the interest of Participants with those of the company. The goals and the formula for determining the Company Performance Factor will be established by the NW Natural Gas Storage, LLC Board of Directors (the “Board of Directors”) at the start of each Program Term and set forth as Exhibit II.  After the goals and formula are established for a Program Term, the Board of Directors retains discretion to modify the goals and formula, including adjusting the calculation of any financial or other goal to eliminate the effects of significant extraordinary, non-recurring or unplanned 

items. 

INDIVIDUAL PERFORMANCE FACTOR (IPF)
The IPF weight used in calculating the Individual Performance Factor will be established for each Participant by the President, subject to the approval of the Board of Directors at the beginning of the Program Term.  Individual goals for each Participant will be established by the Participant’s leader (subject to the approval of the President, and for the President subject to the approval of the Board of Directors) at the beginning of each Program Term.  Performance against these goals will be assessed by the Participant’s leader at the end of the Program Term (subject to the approval of the President, and for the President subject to the approval of the Board of Directors). This assessment will result in a rating on a scale of 0 to 1.5 (the “Individual Performance Factor”). The Participant will not receive an award if the Individual Performance Factor is less than 0.5.  

ADMINISTRATION
Awards will be calculated and paid no later than March 15 following the end of the Program Term. Awards are subject to tax withholding unless the Participant made a prior election to defer the Award under the terms of the NW Natural Gas Company Deferred Compensation Plan for Directors and Executives if they are eligible for this plan.  All awards shall be audited and approved by the Board of Directors prior to payment.

The Plan shall be administered by the Board of Directors. Except to the extent provided under “NW Natural Oversight” above. The Board of Directors shall have the exclusive authority and responsibility for all matters in connection with the operation and administration of the Plan. Except to the extent provided under “NW Natural Oversight: above. Decisions by the Board of Directors shall be final and binding upon all parties affected by the Plan, including the beneficiaries of Participants.

The Board of Directors may rely on information and recommendations provided by management. The Board of Directors may delegate to management the responsibility for decisions that it may make or actions that it may take under the terms of the Plan, subject to the Board of Directors reserved right to review such decisions or actions and modify them when necessary or appropriate under the circumstances. The Board of Directors shall not allow any employee to obtain control over decisions or actions that affect that employee’s Plan benefits.

AMENDMENTS AND TERMINATION
The Board of Directors has the power to terminate this Plan at any time or to amend this Plan at any time and in any manner that it may deem advisable.

Exhibit I
Effective January 1, 2016- December 31, 2016

Target Awards & Goal Weights
 by Salary Grade

NWNGS- Portland Employees

	
				
	Salary Grade
	Target Incentive Percentage
	Company Goal Weight
	Individual Goal Weight

	2-3
	10%
	60%
	40%

	4-5
	15%
	60%
	40%

	6-7
	20%
	70%
	30%

	8-9
	25%
	70%
	30%

	10-11
	30%
	75%
	25%

	President
	40%
	75%
	25%

NWNGS - California Employees

	
				
	Salary Grade
	Target Incentive Percentage
	Company Goal Weight
	Individual Goal Weight

	1-8
	10%
	50%
	50%

	9-10
	20%
	50%
	50%

Exhibit II

Company Goals and Goal Weights for the Program Term:
January 1, 2016 - December 31, 2016
On Company defined goals, the board will evaluate performance at the end of the program term and assign a Company Performance Rating of 0-1.50, where a rating of 1.0 represents the goal was met as defined.

	
						
	Goal #
	Goal
	Goal Weight
	Threshold (25%)
	Target (100%)
	Exceptional (150%)

Exhibit  IIIExhibit

NW Natural Gas Storage, LLC
Long Term Incentive Plan

Purpose
The success of NW Natural Gas Storage, LLC (NWNGS or the Company) is dependent upon its ability to attract and retain the services of key executives of the highest competence and to provide incentives for superior performance. The purpose of the Long-Term Incentive Plan (LTIP) is to motivate participants to achieve long-term performance goals for the business and provide rewards for successful achievement. 

Eligibility
NWNGS executives and other key employees (Participants) designated by the NWNGS Board of Directors (BOD) are eligible to participate in this LTIP.  For all purposes of this LTIP, a person who is an employee of Northwest Natural Gas Company (NW Natural) on full-time assignment to NWNGS shall be considered to be employed by NWNGS during the period of that full-time assignment.

NW Natural Oversight
If the President of NWNGS is considered by NW Natural to be an executive officer of NW Natural for purposes of public disclosure, any decision of the BOD under this LTIP that affects an award to the President shall be subject to and conditioned upon the approval of that decision by the Organization and Executive Compensation Committee of the Board of Directors of NW Natural.

Award Cycles
A new Award Cycle will begin on January 1 of each year and continue to December 31, three years hence.  

As soon as practical following the beginning of each Award Cycle, Exhibits A and B will be approved by the BOD for that cycle.  Exhibit A will identify the Participants and their Target LTIP Awards for the Award Cycle and Exhibit B will describe the performance criteria used to determine the LTIP Performance Factor for the Award Cycle.  New Participants may be added after the initial designation of Participants for an Award Cycle if approved by the BOD. Participants in these situations would be eligible for pro-rated award amounts.

LTIP Payout Formula
The amount to be paid to each Participant pursuant to this LTIP for each Award Cycle shall be calculated as follows:

	
					
	LTIP Performance Factor
	X
	Participant’s Target LTIP Award
	=
	LTIP Award Payout

LTIP Award Payouts shall not exceed 200% of the Participant’s Target LTIP Award.

LTIP Award Payouts will be paid in cash no later than the March 15 following the end of the Award Cycle. 

Employment Condition
A Participant must be employed by NWNGS on the last day of an Award Cycle in order to 

receive an LTIP Award Payout for that Award Cycle unless the Participant is eligible for a prorated LTIP Award Payout. Eligibility for a prorated LTIP Award Payout occurs when a Participant has been employed by NWNGS for at least 6 months of an Award Cycle but the Participant’s employment is terminated prior to the end of the Award Cycle due to one of the following: Retirement (unless such Retirement results from a termination of the Participant’s employment for Cause), disability, transfer of employment or full-time assignment to Northwest Natural or another subsidiary of NW Natural, or death. Prorated awards will be determined by prorating the Participant’s LTIP Award Payout by the number of days employed by NWNGS during the Award Cycle. 

“Retirement” shall mean termination of employment with NWNGS after Participant is (a) age 62 with at least five years of service as an employee of NW Natural and its subsidiaries, including NWNGS, or (b) age 55 with age plus years of service (including fractions) as an employee of NW Natural and its subsidiaries, including NWNGS, totaling at least 70.

“Cause” shall mean (a) the willful and continued failure by a Participant to perform substantially the Participant’s assigned duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness) after a demand for substantial performance is delivered to the Participant by the Company which specifically identifies the manner in which the Participant has not substantially performed such duties, (b) willful commission by a Participant of an act of fraud or dishonesty resulting in economic or financial injury to the Company, (c) willful misconduct by a Participant that substantially impairs the Company’s business or reputation, or (d) willful gross negligence by a Participant in the performance of his or her duties.

Tax Withholding
The LTIP Award Payouts are considered ordinary income and therefore subject to withholding for taxes at the time of distribution.

Change-in-Control
If a Change in Control occurs, the LTIP Performance Factor for all unfinished Award Cycles shall be deemed to be 100%, and Participants in each of those Award Cycles shall within 5 business days after the Change in Control receive prorated LTIP Award Payouts determined by prorating based on the portion of the Award Cycle that elapsed up to the date of the Change in Control. 

“Change in Control” shall mean the occurrence of any of the following events:
(a)    The consummation of:
		
	(1)
	any consolidation, merger or plan of share exchange involving the Company (a “Merger”) as a result of which NW Natural or a subsidiary of NW Natural does not continue to hold at least 50% of the combined voting power of the outstanding securities ordinarily having the right to vote for the election of directors (“Voting Securities”) of the surviving corporation immediately after the Merger; or

		
	(2)
	any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, the assets of the Company; or

		
	(b)
	Any person (as such term is used in Section 14(d) of the Securities Exchange Act of 1934, other than the Company or any employee benefit plan sponsored by the Company) other than NW Natural or a subsidiary of NW Natural (a “Person”) shall have become the beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of Voting Securities representing more than fifty percent (50%) of the combined voting power of the then outstanding Voting Securities of the Company.

With respect to awards under this Plan to the President of the Company (and not to any other Participant), a “Change in Control” shall also include the following events:
(c)    The consummation of:
		
	(1)
	any consolidation, merger or plan of share exchange involving NW Natural (an “NWN Merger”) as a result of which the holders of outstanding Voting Securities of NW Natural immediately prior to the NWN Merger do not continue to hold at least 50% of the combined voting power of the outstanding Voting Securities of the surviving corporation or a parent corporation of the surviving corporation immediately after the NWN Merger, disregarding any Voting Securities issued to or retained by such holders in respect of securities of any other party to the NWN Merger; or

		
	(2) 
	any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, the assets of NW Natural; 

		
	(d)
	At any time during a period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of NW Natural (“Incumbent Directors”) shall cease for any reason to constitute at least a majority thereof; provided, however, that the term “Incumbent Director” shall also include each new director elected during such two-year period whose nomination or election was approved by two-thirds of the Incumbent Directors then in office; or 

		
	(e)
	Any Person shall, as a result of a tender or exchange offer, open market purchases or privately negotiated purchases from anyone other than NW Natural, have become the beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of Voting Securities representing twenty percent (20%) or more of the combined voting power of the then outstanding Voting Securities of NW Natural.

Administration
The Plan shall be administered by the BOD. Except to the extent provided under “NW Natural Oversight” above, the BOD shall have the exclusive authority and responsibility for all matters in connection with the operation and administration of the Plan. Except to the extent provided under “NW Natural Oversight” above, decisions by the BOD shall be final and binding upon all parties affected by the Plan, including the beneficiaries of Participants.

The BOD may rely on information and recommendations provided by management. The BOD may delegate to management the responsibility for decisions that it may make or actions that it may take under the terms of the Plan, subject to the BOD’s reserved right to review such decisions or actions and modify them when necessary or appropriate under the circumstances.  

The BOD shall not allow any employee to obtain control over decisions or actions that affect that employee’s Plan benefits.

The LTIP performance goals in the Plan are intended to align the interest of Participants with those of the company. The goals and the formula for determining the LTIP Performance Factor will be established by the BOD at the start of each Program Term and set forth as Exhibit B.  After the goals and formula are established for a Program Term, the BOD retains discretion to modify the goals and formula, including adjusting the calculation of any financial or other goal to eliminate the effects of significant extraordinary, non-recurring or unplanned items. 

Recoupment on Earnings Restatement
If at any time before a Change in Control and within three years after the payment of LTIP Award Payouts for an Award Cycle that included performance goals measured by reported financial results, NWNGS’s financial statements for any year in the Award Cycle are the subject of a restatement due to the Misconduct of any person, each Participant who received an LTIP Award Payout for that Award Cycle (whether or not such Participant was personally involved in such Misconduct) shall repay to the Company the Excess LTIP Award Compensation (as defined below).  For purposes of this LTIP, “Excess LTIP Award Compensation” for any Participant means the positive difference, if any, between (i) the Participant’s LTIP Award Payout as originally calculated, and (ii) the Participant’s LTIP Award Payout as recalculated with the results for the NWNGS performance goals being based on NWNGS’s financial statements as restated.  Excess LTIP Award Compensation shall not include any amounts in respect of NWNGS performance goals that are not measured in whole or in part on financial results reported in the Company’s financial statements.  The Committee may, in its sole discretion, reduce the amount of Excess LTIP Award Compensation to be repaid by any Participant to take into account the tax consequences of such repayment for the Participant.

NWNGS may seek direct repayment from the Participant of the Excess LTIP Award Compensation and may, to the extent permitted by applicable law, offset such Excess LTIP Award Compensation against any compensation or other amounts owed by NWNGS to the Participant.  In particular, Excess LTIP Award Compensation may be recovered by offset against the after-tax proceeds of deferred compensation payouts under NW Natural’s Deferred Compensation Plan for Directors and Executives (DCP). Excess LTIP Award Compensation that remains unpaid for more than 60 days after demand by NWNGS shall accrue interest at the rate used from time to time for crediting interest under the DCP.

“Misconduct” shall mean (a) willful commission by any person of an act of fraud or dishonesty or (b) willful gross negligence by any person in the performance of his or her duties.
Amendments and Termination
The BOD has the power to terminate this Plan at any time or to amend this Plan at any time and in any manner that it may deem advisable.

EXHIBIT B

NW Natural Gas Storage, LLC
LTIP Performance Criteria
For 3-Year Cycle From
January 1, 2016 - December 31, 2018

LTIP Performance Factor
The LTIP Performance Factor shall be a percentage between 0% and 200% determined by the BOD after the Award Cycle based on the BOD’s assessment of the extent to which the Company has achieved the following goals during the Award Cycle:

The LTIP Performance Factor shall be the same percentage for all participants.  Although each goal set forth above has a goal weight, such goal weights may be changed by the BOD at any time in its sole discretion.  In determining the LTIP Performance Factor, the BOD in its discretion generally will assign a percentage of 100% for satisfactory achievement of all goals, a higher percentage for exceeding expectations and a lower percentage if goals are not achieved.

Note:  Final EBITDA and ROIC results for the 2016-2018 cycle, will be adjusted to neutralize the impact from any write-down if pre-approved by the BOD.

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