Document:

Exhibit

As amended
effective January 1, 2017

NORTHWEST NATURAL GAS COMPANY
EXECUTIVE ANNUAL INCENTIVE PLAN

This amended Executive Annual Incentive Plan (the “Plan”) is executed by Northwest Natural Gas Company, an Oregon corporation (the “Company”), effective January 1, 2017.

PURPOSE OF PLAN

The success of 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 plan is to advance the interests of the Company and its shareholders through an incentive compensation program that will attract and retain key executives and motivate them to achieve performance goals.

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 executive officers of the company and any other highly compensated employees as designated by the Company’s Organization and Executive Compensation Committee (the “Committee”) are eligible to receive awards (“Awards”) under the Executive Annual Incentive Plan.

At the beginning of each Program Term, the Committee shall determine eligibility for Awards and establish for each participant, the target incentive level as a percentage of year-end annualized based salary (“Target Award”). This information will be set forth in Exhibit I of the Plan document for the Program Term. Each such participating employee shall be referred to as a “Participant.”

To be eligible for payout of an Award the Participant must have a minimum of three months of service during the Program Term. If the Participant is a new employee or is newly eligible to participate in the Plan, that Participant must be in an eligible position on or before September 30 of the Program Term and will receive a prorated Award. In addition, the Participant must be employed on December 31 of the Program Term to be eligible for payout of the Award for the Program Term unless the Participant is eligible for a prorated Award as provided in the next sentence. Eligibility for a prorated Award occurs when a Participant has three or more months of participation in the Program Term but the Participant’s employment is terminated prior to December 31 of the Program Term due to one of the following: Retirement (unless such Retirement results from a termination of the Participant’s employment by the Company for Cause), disability and death. Prorated Awards will be determined by prorating the Participant’s final Award by the number of days employed during the Program Term.

“Retirement” shall mean termination of employment after Participant is (a) age 62 with at least five years of service as an employee of the Company, or (b) age 55 with age plus years of service (including fractions) as an employee of the Company 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.

In the event of a change in job position during the Program Term, the Committee may, in its discretion, increase or decrease the amount of a Participant’s Award to reflect such change.

INCENTIVE FORMULA

The formula for calculating Awards for each Program Term is as follows:

	
										
	Target Award
	X
	Company Performance Factor (CPF)
	X
	CPF Factor Weight
	+
	Priority/Individual Performance Factor (IPF)
	X
	P/IPF Factor Weight
	= 
Participant Award

COMPANY PERFORMANCE FACTOR    

The Company performance goals in the Plan are intended to align the interest of Participants with those of the shareholders. The goals and the formula for determining the Company Performance Factor will be established by the Committee 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 Committee retains discretion to modify the goals and formula, including by adjusting the calculation of any financial or other goal to eliminate the effects of significant extraordinary, non-recurring or unplanned items such as changes in law or accounting principles.

PRIORITY/INDIVIDUAL PERFORMANCE FACTOR

The P/IPF weight used in calculating the Priority/Individual Performance Factor will be established for each Participant by the Committee at the beginning of the Program Term and set forth as part of Exhibit I. Also included in Exhibit I will be the CPF Factor Weight for the Company Performance Factor. Priority/Individual goals for each Participant will be established at the beginning of each Program Term and performance against these goals will be assessed by the Participant’s superior and approved by the C.E.O. at the end of the Program Term. This assessment will result in a rating on a scale of 0% to 150%. This rating is called the Priority/Individual Performance Factor. The Participant will not receive a payout under the Priority/Individual Performance component of an Award if the Priority/Individual Performance Factor is less than 50%.

ADMINISTRATION

Award payouts will be calculated and paid no later than the March 15 following the end of the Program Term. Award payouts are subject to tax withholding unless the Participant made a prior election to defer the Award payout under the terms of the Deferred Compensation Plan for Directors and Executives (“DCP”).

All Award payouts shall be audited by the Internal Audit department and approved by the Committee prior to payment.

The Plan shall be administered by the Committee. The Committee shall have the exclusive authority and responsibility for all matters in connection with the operation and administration of the Plan. Decisions by the Committee shall be final and binding upon all parties affected by the Plan, including the beneficiaries of Participants.

The Committee may rely on information and recommendations provided by management. The Committee 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 Committee’s reserved right to review such decisions or actions and modify them when necessary or appropriate under the circumstances.  The Committee shall not allow any employee to obtain control over decisions or actions that affect that employee’s Plan benefits.

RECOUPMENT ON EARNINGS RESTATEMENT

If at any time before a Change in Control and within three years after the payout of Awards for a Program Term, the Company’s financial statements for that Program Term are the subject of a restatement due to the Misconduct of any person, each Participant who received an Award payout for that Program Term (whether or not such Participant was personally involved in such Misconduct) shall repay to the Company the Excess Bonus Compensation (as defined below).  For purposes of the Plan, “Excess Bonus Compensation” for any Participant means the positive difference, if any, between (i) the Participant’s Award payout as originally calculated, and (ii) the Participant’s Award payout as recalculated with the results for Company performance goals being based on the Company’s financial statements as restated.  Excess Bonus Compensation shall not include any amounts in respect of any individual performance goals or in respect of Company 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 Bonus Compensation to be repaid by any Participant to take into account the tax consequences of such repayment for the Participant.

If any portion of an Award payout was deferred under the DCP, any Excess Bonus Compensation to be repaid with respect to that Award shall first be recovered by canceling all or a portion of the amount so deferred under the DCP and any interest credited under the DCP with respect to such cancelled amount.  The Company may seek direct repayment from the Participant of any Excess Bonus Compensation not so recovered and may, to the extent permitted by applicable law, offset such Excess Bonus Compensation against any compensation or other amounts owed by the Company to the Participant.  In particular, Excess Bonus Compensation may be recovered by offset against the after-tax proceeds of deferred compensation payouts under the DCP, the Company’s Executive Supplemental Retirement Income Plan or the Company’s Supplemental Executive Retirement Plan at the times such deferred compensation payouts occur under the terms of those plans.  Excess Bonus Compensation that remains unpaid for more than 60 days after demand by the Company 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.
“Change in Control” of the Company shall mean the occurrence of any of the following events:
(a)    The consummation of:
(i)    any consolidation, merger or plan of share exchange involving the Company (a “Merger”) as a result of which the holders of outstanding securities of the Company ordinarily having the right to vote for the election of directors (“Voting Securities”) immediately prior to the 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 Merger, disregarding 

any Voting Securities issued to or retained by such holders in respect of securities of any other party to the Merger; or
(ii)    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;
(b)    At any time during a period of two consecutive years, individuals who at the beginning of such period constituted the Company’s Board of Directors (“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
(c)    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) shall, as a result of a tender or exchange offer, open market purchases or privately negotiated purchases from anyone other than the Company, 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.
AMENDMENTS AND TERMINATION

The Board 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.

IN WITNESS WHEREOF this Plan was duly amended on the 23rd day of February 2017, effective January 1, 2017.

NORTHWEST NATURAL GAS COMPANY

By: /s/    David H. Anderson                     
David H. Anderson
President and Chief Executive Officer

Exhibit I
Effective January 1, 2017

Participants, Target Awards and Individual Performance
Program Term:  January 1, 2017 - December 31, 2017

Exhibit II

Company Performance Factor
Program Term:  January 1, 2017 - December 31, 2017

Company Performance Factor Formula:

	
							
	Net Income Component
	X 50%
	+
	Operations Component 
	X 20%
	=
	Company
Performance Factor

Net Income Component:

The Net Income (NI) Component will be determined using the formula in Note 1 below. The table shows values rounded. 

	
		
	2017 NI Results
	EPS Performance Component

	 
	0%

	 
	100%

	 
	150%

Notes on NI Component:
		
	1)
	Values between those shown above will be interpolated using the formula shown below:

Regression Interpolation Line for NI between $___ and $___  is y = _x - _ where x is the NI results for the year.

		
	2)
	Final NI Number will be rounded to two places to the right of the decimal.  This will be the same number as reported to shareholders before any approved exceptions.

Operations Component:

The Operations Component (previously called Expanded Key Goals which aligns with BU and NBU incentive goals) for 2017 will be determined using the following formula and table: 

	
						
	Sum of
	Goal Performance Rating
	X
	Goal Weight
	=
	Oper. Component Factor(1)

2017 Operational Goals
	
			
	Goals
	Goal Performance Rating
	Goal Weight

	Customer Satisfaction  
(Overall)
	Cust.Sat.  Rating
%               0%
%               100%
%                200%
	16.667%

	Customer Satisfaction               (Employee/Customer Interaction)     
          
	Cust.Sat.  Rating
%               0%
%               100%
%               200%
	16.667%

	Market Share & Growth
(Total New Meter Sets) 
	Total New           Rating
Meter Sets   
                               0%
                                               100%
                               200%
	16.667%

	Manage Costs in Serving Customers
(O&M Expense Per Customer)
	Expense Per   Rating
                $                      0%
                $                     100%
$                      200%
	16.667%

	Health and Safety-Damages
(Damages: % of calls w/ response less than 60 minutes)
	% Call Rsp       Rating
%                     0%
%                     100%
%                      200%
	16.667%

	Health and Safety-Odor Resp.
(% Calls w/response time less than 60 minutes)
	% Call Rsp       Rating
%                      0%
%                      100%
%                      200%
	16.667%

	 
	100%

Notes on Operations Goals:     

		
	1)
	Goal ratings will be interpolated between amounts shown.  

		
	2)
	The Goal Performance Rating for each goal is limited to 200%. 

		
	3)
	The Operations Component is limited to 200% and the aggregate performance from this component for use in the EAIP is limited to 150%. 

Final Notes on Company Performance Factor and General:

		
	1)
	Final EAIP Participant Awards to participants will be rounded up to the nearest $1,000.

		
	2)
	Final NI results for 2017 will be adjusted to neutralize the impact from any one-time earnings charges due to regulatory disallowances; gain/loss on disposition of a business; impairment of a business; __.Exhibit

PERFORMANCE SHARE LONG TERM INCENTIVE AGREEMENT 
This Agreement is entered into as of February 22, 2017, between Northwest Natural Gas Company, an Oregon corporation (the “Company”), and ____________ (“Recipient”).  
On February 22, 2017, the Organization and Executive Compensation Committee (the “Committee”) of the Company’s Board of Directors (the “Board”) authorized a performance-based award (the “Award”) to Recipient pursuant to Section 8 of the Company’s Long Term Incentive Plan (the “Plan”).  Compensation paid pursuant to the Award is intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986 (the “Code”).  Recipient desires to accept the Award subject to the terms and conditions of this Agreement.  
NOW, THEREFORE, the parties agree as follows:  
1.Award.  Subject to the terms and conditions of this Agreement, the Company shall issue or otherwise deliver to the Recipient the number of shares of Common Stock of the Company (the “Performance Shares”) determined under this Agreement based on (a) the performance of the Company during the three-year period from January 1, 2017 to December 31, 2019 (the “Award Period”) as described in Section 2 and (b) Recipient’s continued employment during the Award Period as described in Section 3.  If the Company issues or otherwise delivers Performance Shares to Recipient, the Company shall also pay to Recipient the amount of cash determined under Section 4 (the “Dividend Equivalent Cash Award”).  Recipient’s “Target Share Amount” for purposes of this Agreement is __________ shares.  

2.Performance Conditions.  

2.1         Payout Factor.  Subject to possible reduction under Section 3, the number of Performance Shares to be issued or otherwise delivered to Recipient shall be determined by multiplying the Payout Factor (as defined below) by the Target Share Amount.  The “Payout Factor” shall be equal to (a) the TSR Modifier as determined under Section 2.2, multiplied by (b) the Growth Modifier as determined under Section 2.3, multiplied by the sum of (c) 50% of the EPS Payout Factor as determined under Section 2.4 below, plus (d) 50% of the ROIC Payout Factor as determined under Section 2.5 below; provided, however, that the Payout Factor shall not be greater than 200% or less than 25% unless it is 0%.  Notwithstanding the foregoing, if a Change in Control (as defined in Section 3.7) occurs before the last day of the Award Period, the Payout Factor shall be 100%.
    
2.2        TSR Modifier.

(a)The “TSR Modifier” shall be determined under the table below based on the TSR Percentile Rank (as defined below) of the Company; provided, however, that if the Company’s TSR (as defined below) is less than 0%, the actual TSR Payout Factor shall be equal to 75% of the TSR Payout Factor determined under the table below:
	
		
	TSR Percentile Rank
	TSR Modifier

	 
	 

	less than 25%
	75%

	25% to 75%
	100%

	more than 75%
	125%

(b)To determine the Company’s “TSR Percentile Rank,” the TSR of the Company and each of the Peer Group Companies (as defined below) shall be calculated, and the Peer Group Companies shall be ranked based on their respective TSR’s from lowest to highest.  If the Company’s TSR is equal to the TSR of any other Peer Group Company, the Company’s TSR Percentile Rank shall be equal to the number of Peer Group Companies with a lower TSR divided by the number that is one less than the total number of Peer Group Companies, with the resulting amount expressed as a percentage and rounded to the nearest tenth of a percentage point.  If the Company’s TSR is between the TSRs of any two Peer Group Companies, the TSR Percentile Ranks of those two Peer Group Companies shall be determined as set forth in the preceding sentence, and the Company’s TSR Percentile Rank shall be interpolated as follows.  The excess of the Company’s TSR over the TSR of the lower Peer Group Company shall be divided by the excess of the TSR of the higher Peer Group Company over the TSR of the lower Peer Group Company.  The resulting fraction shall be multiplied by the difference between the TSR Percentile Ranks of the two Peer Group Companies.  The product of that calculation shall be added to the TSR Percentile Rank of the lower Peer Group Company, and the resulting sum (rounded to the nearest tenth of a percentage point) shall be the Company’s TSR Percentile Rank.  The intent of this definition of TSR Percentile Rank is to produce the same result as calculated using the PERCENTRANK function in Microsoft Excel to determine the rank of the Company’s TSR within the array consisting of the TSRs of the Peer Group Companies.

(c)The “Peer Group Companies” consist of those companies that were components of the Russell 2500 Utilities Index on October 1, 2016 and that continue to be components of the Russell 2500 Utilities Index through December 31, 2019.  If the Russell 2500 Utilities Index ceases to be published prior to December 31, 2019, the Peer Group Companies shall consist of those companies that were components of the Russell 2500 Utilities Index on October 1, 2016 and that continued to have publicly-traded common stock through December 31, 2019.

(d)The “TSR” for the Company and each Peer Group Company shall be calculated by (1) assuming that $100 is invested in the common stock of the company at a price equal to the average of the closing market prices of the stock for the period from October 1, 2016 to December 31, 2016, (2) assuming that for each dividend paid on the stock during the Award Period, the amount equal to the dividend paid on the assumed number of shares held is reinvested in additional shares at a price equal to the closing market price of the stock on the ex-dividend date for the dividend, and (3) determining the final dollar value of the total assumed number of shares based on the average of the closing market prices of the stock for the period from October 1, 2019 to December 31, 2019.  The “TSR” shall then equal the amount determined by subtracting $100 from the foregoing final dollar value, dividing the result by 100 and expressing the resulting fraction as a percentage.

(e)If during the Award Period any Peer Group Company enters into an agreement pursuant to which all or substantially all of the stock or assets of the Peer Group Company will be acquired by a third party (a “Signed Acquisition”), and if the Signed Acquisition is not completed by the end of the Award Period, then that company shall not be a Peer Group Company.  If a Signed Acquisition of a Peer Group Company is terminated (other than in connection with the execution of another Signed Acquisition) before the end of the Award Period, then that company shall remain a Peer Group Company, and the TSR for that Peer Group Company shall be calculated as provided in Section 2.2(d), except that if the announcement of the termination of the Signed Acquisition occurs during the last three months of the Award Period, for purposes of determining the final dollar value under clause (3) of Section 2.2(d), the three-month period for which closing market prices are averaged shall be shortened to exclude any trading days preceding the announcement of the termination of the Signed Acquisition.

2.3 Growth Modifier. 

(a) If the Cumulative Acquisition EBITDA (as defined below) achieved by the Company for the Award Period is at least ______, the “Growth Modifier” shall be 110%.  If the Cumulative Acquisition EBITDA achieved by the Company for the Award Period is less than ______, the “Growth Modifier” shall be 100%.

(b) The Company’s “Cumulative Acquisition EBITDA” for the Award Period shall equal the sum of the Company’s Acquisition EBITDA (as defined below) for each of the three years in the Award Period.  Subject to adjustment in accordance with Section 2.6 below, the Company’s “Acquisition EBITDA” for any year shall be equal to the earnings before interest, taxes, depreciation and amortization generated by the Company during the year from _______ during the Award Period.  For this purpose, earnings shall be _______.

2.4 EPS Payout Factor.

(a) The “EPS Payout Factor” shall be determined under the table below based on the Cumulative EPS (as defined below) achieved by the Company for the Award Period:
	
		
	Cumulative EPS
	EPS Payout Factor

	 
	 

	 
	0%

	 
	25%

	 
	100%

	 
	200%

If the Company’s Cumulative EPS is between any two data points set forth in the first column of the above table, the EPS Payout Factor shall be interpolated as follows.  The excess of the Company’s Cumulative EPS over the Cumulative EPS of the lower data point shall be divided by the excess of the Cumulative EPS of the higher data point over the Cumulative EPS of the lower data point.  The resulting fraction shall be multiplied by the difference between the EPS Payout Factors in the above table corresponding to the two data points.  The product of that calculation shall be rounded to the nearest hundredth of a percentage point and then added to the EPS Payout Factor in the above table corresponding to the lower data point, and the resulting sum shall be the EPS Payout Factor.
(b) The Company’s “Cumulative EPS” for the Award Period shall equal the sum of the Company’s diluted earnings per share of common stock (“EPS”) for each of the three years in the Award Period.  Subject to adjustment in accordance with Section 2.6 below, the Company’s diluted earnings per share of common stock for any year shall be as set forth in the audited consolidated financial statements of the Company and its subsidiaries for that year.  After giving effect to any adjustments required by Section 2.6, the EPS for each year shall be rounded to the nearest penny.

2.5 ROIC Payout Factor.

(a) The “ROIC Payout Factor” shall be determined under the table below based on the Average ROIC (as defined below) achieved by the Company for the Award Period:

	
		
	Average ROIC
	ROIC Payout Factor

	 
	 

	 
	0%

	 
	25%

	 
	100%

	 
	200%

If the Company’s Average ROIC is between any two data points set forth in the first column of the above table, the ROIC Payout Factor shall be interpolated as follows.  The excess of the Company’s Average ROIC over the Average ROIC of the lower data point shall be divided by the excess of the Average ROIC of the higher data point over the Average ROIC of the lower data point.  The resulting fraction shall be multiplied by the difference between the ROIC Payout Factors in the above table corresponding to the two data points.  The product of that calculation shall be rounded to the nearest hundredth of a percentage point and then added to the ROIC Payout Factor in the above table corresponding to the lower data point, and the resulting sum shall be the ROIC Payout Factor.
(b) The Company’s “Average ROIC” for the Award Period shall equal the simple average of the Company’s ROIC (as defined below) for each of the three years in the Award Period, rounded to the nearest hundredth of a percentage point.  The Company’s “ROIC” for any year shall be calculated by dividing the Company’s Adjusted Net Income (as defined below) for the year by the Company’s Average Long Term Capital (as defined below) for the year, and rounding the result to the nearest hundredth of a percentage point.  Subject to adjustment in accordance with Section 2.6 below, the Company’s “Adjusted Net Income” for any year shall be equal to the Company’s net income for the year, increased by the Company’s interest expense, net for the year and reduced by the Company’s interest income (including net interest on deferred regulatory accounts) for the year, in each case as set forth in the Company’s Annual Report on Form 10-K for that year.  “Average Long Term Capital” for any year shall mean the average of the Company’s Long Term Capital (as defined below) as of the last day of the year and the Company’s Long Term Capital as of the last day of the prior year.  Subject to adjustment in accordance with Section 2.6 below, “Long Term Capital” as of any date shall equal the sum of the Company’s total shareholders’ equity as of that date and the Company’s long-term debt (including current maturities) as of that date, in each case as set forth on the audited consolidated balance sheet of the Company as of that date.

2.6 EPS and ROIC Adjustments.

(a) Change in Accounting Principle.  If the Company implements a change in accounting principle during the Award Period either as a result of the issuance of new accounting standards or otherwise, and the effect of the accounting change was not reflected in the Company’s business plan at the time of approval of the Award, then Cumulative EPS and Average ROIC shall be adjusted to eliminate the impact of the change in accounting principle.

(b) Gain or Loss on Sale of Business.  EPS and Adjusted Net Income for each year during the Award Period shall be adjusted to eliminate any gain or loss on the disposition of any subsidiary, division or business during the year, as set forth in the audited consolidated financial statements of the Company and its subsidiaries for that year.

(c) Impairments.  EPS and Adjusted Net Income for each year during the Award Period shall be adjusted to eliminate any charges taken by the Company during the year for impairment of assets (excluding utility plant assets), that exceed $500,000 for any single impaired asset.

(d) Dilutive Acquisitions.  If the Company acquires a business during the Award Period, Cumulative EPS and Average ROIC for the Award Period shall be adjusted to eliminate any cumulative net negative impact of the business acquisition.  For the avoidance of doubt, if the cumulative net impact on Cumulative EPS or Average ROIC of a business acquisition is positive, the cumulative net positive impact shall not be eliminated.

(e) Tax Impacts.  All adjustments for the items listed in Sections 2.6(a) to 2.6(d) in any year shall be net of income taxes based on the Company’s consolidated effective tax rate for the year.

(f) Tax Changes.  EPS and Adjusted Net Income for each year during the Award Period shall be adjusted to eliminate any positive or negative impacts on earnings resulting from changes to federal, state or local income tax rates or the imposition of a new tax during the Award Period and any resulting impact on deferred tax account balances.

3.Employment Condition.  

3.1 Except as provided in Sections 3.2, 3.3 or 7.2, in order to receive a payout of Performance Shares, Recipient must be employed by the Company on the last day of the Award Period.  

3.2 If Recipient’s employment by the Company is terminated at any time prior to the end of the Award Period because of death, physical disability (within the meaning of Section 22(e)(3) of the Code), or Retirement (unless such Retirement results from a termination of Recipient’s employment by the Company for Cause), Recipient shall be entitled to receive a pro-rated award.  The number of Performance Shares to be issued or otherwise delivered as a pro-rated award under this Section 3.2 shall be determined by multiplying the number of Performance Shares determined under Section 2 by a fraction, the numerator of which is the number of days Recipient was employed by the Company during the Award Period and the denominator of which is the number of days in the Award Period.  If Recipient’s employment by the Company terminates because of Retirement, death or physical disability and a Change in Control subsequently occurs before the end of the Award Period, the number of Performance Shares determined under Section 3.3 shall immediately be paid to Recipient.  If a Change in Control occurs and Recipient’s employment by the Company subsequently terminates before the end of the Award Period because of Retirement, death or physical disability, the number of Performance Shares determined under Section 3.3 shall immediately be paid to Recipient.

3.3 CIC Acceleration.

(a)If Recipient is a party to a Change in Control Severance Agreement with the Company, Recipient shall immediately be paid a pro-rated award if Recipient becomes entitled to a Change in Control Severance Benefit (as defined below).  The number of Performance Shares to be issued or otherwise delivered as a pro-rated award under this Section 3.3 shall be determined by multiplying the Target Share Amount by a fraction, the numerator of which is the number of days Recipient was employed by the Company during the Award Period and the denominator of which is the number of days in the Award Period.  A “Change in Control Severance Benefit” means the severance benefit provided for in Recipient’s Change in Control Severance Agreement with the Company; provided, however, that such severance benefit is a “Change in Control Severance Benefit” for purposes of this Agreement only if, 

under the terms of Recipient’s Change in Control Severance Agreement, Recipient becomes entitled to the severance benefit (i) after a change in control of the Company has occurred, (ii) because Recipient’s employment with the Company has been terminated by Recipient for good reason in accordance with the terms and conditions of the Change in Control Severance Agreement or by the Company other than for cause, and (iii) because Recipient has satisfied any other conditions or requirements specified in the Change in Control Severance Agreement and necessary for Recipient to become entitled to receive the severance benefit.  For purposes of this Section 3.3(a), the terms “change in control,” “good reason,” “cause” and “disability” shall have the meanings set forth in Recipient’s Change in Control Severance Agreement.
(b)If Recipient is not a party to a Change in Control Severance Agreement with the Company, Recipient shall immediately be paid a pro-rated award in the amount stated in Section 3.3(a) if a Change in Control (as defined in Section 3.7 above) occurs and at any time after the earlier of Shareholder Approval (as defined in Section 3.8 below), if any, or the Change in Control and on or before the second anniversary of the Change in Control, (i) Recipient’s employment is terminated by the Company (or its successor) without Cause (as defined in Section 3.6 below), or (b) Recipient’s employment is terminated by Recipient for Good Reason (as defined in Section 3.9 below).

3.4  If Recipient’s employment by the Company is terminated at any time prior to the end of the Award Period and Section 3.2, 3.3 or 7.2 does not apply to such termination, Recipient shall not be entitled to receive any Performance Shares.  

3.5 “Retirement” shall mean termination of employment (a) on or after the first anniversary of the date of this Agreement, and (b) after Recipient is (1) age 62 with at least five years of service as an employee of the Company, or (2) age 60 with age plus years of service (including fractions) as an employee of the Company totaling at least 70.

3.6 “Cause” shall mean (a) the willful and continued failure by Recipient to perform substantially Recipient’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 Recipient by the Company which specifically identifies the manner in which Recipient has not substantially performed such duties, (b) willful commission by Recipient of an act of fraud or dishonesty resulting in economic or financial injury to the Company, (c) willful misconduct by Recipient that substantially impairs the Company’s business or reputation, or (d) willful gross negligence by Recipient in the performance of his or her duties.

3.7 For purposes of this Agreement, a “Change in Control” of the Company 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 the holders of outstanding securities of the Company ordinarily having the right to vote for the election of directors (“Voting Securities”) immediately prior to the 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 Merger, disregarding any Voting Securities issued to or retained by such holders in respect of securities of any other party to 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; 
(b) At any time during a period of two consecutive years, individuals who at the beginning of such period constituted the Board (“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 

(c) 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) shall, as a result of a tender or exchange offer, open market purchases or privately negotiated purchases from anyone other than the Company, 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.  

3.8 For purposes of this Agreement, “Shareholder Approval” shall be deemed to have occurred if the shareholders of the Company approve an agreement entered into by the Company, the consummation of which would result in the occurrence of a Change in Control.

3.9 For purposes of this Agreement, “Good Reason” shall mean the occurrence after Shareholder Approval, if applicable, or the Change in Control, of any of the following circumstances, but only if (x) Recipient gives notice to the Company of Recipient’s intent to terminate employment for Good Reason within 30 days after the later of (1) notice to Recipient of such circumstances, or (2) the Change in Control, and (y) such circumstances are not fully corrected by the Company within 90 days after Recipient’s notice:

(a) the assignment to Recipient of a different title, job or responsibilities that results in a decrease in the level of Recipient’s responsibility; provided that Good Reason shall not exist if Recipient continues to have the same or a greater general level of responsibility for the former Company operations after the Change in Control as Recipient had prior to the Change in Control even though such responsibilities have necessarily changed due to the former Company operations becoming a subsidiary or division of the surviving company;

(b) a reduction by the Company in Recipient’s base salary as in effect immediately prior to the earlier of Shareholder Approval, if applicable, or the Change in Control;

(c) the failure by the Company to continue in effect any employee benefit or incentive plan in which Recipient is participating immediately prior to the earlier of Shareholder Approval, if applicable, or the Change in Control (or plans providing Recipient with at least substantially similar benefits) other than as a result of the normal expiration of any such plan in accordance with its terms as in effect immediately prior to the earlier of Shareholder Approval, if applicable, or the Change in Control, or the taking of any action, or the failure to act, by the Company which would adversely affect Recipient’s continued participation in any of such plans on at least as favorable a basis to Recipient as is the case immediately prior to the earlier of Shareholder Approval, if applicable, or the Change in Control or which would materially reduce Recipient’s benefits in the future under any of such plans or deprive Recipient of any material benefit enjoyed by Recipient immediately prior to the earlier of Shareholder Approval, if applicable, or the Change in Control;

(d)the failure by the Company to provide and credit Recipient with the number of paid vacation days to which Recipient is then entitled in accordance with the Company’s normal vacation policy as in effect immediately prior to the earlier of Shareholder Approval, if applicable, or the Change in Control; or
(e) the Company’s requiring Recipient to be based more than 30 miles from where Recipient’s office is located immediately prior to the earlier of Shareholder Approval, if applicable, or the Change in Control except for required travel on the Company’s business to an extent substantially consistent with the business travel obligations which Recipient undertook on behalf of the Company prior to the earlier of Shareholder Approval, if applicable, or the Change in Control.

4.Dividend Equivalent Cash Award.  The amount of the Dividend Equivalent Cash Award shall be determined by multiplying the number of Performance Shares deliverable to Recipient as determined under Sections 2 and 3 by the total amount of dividends paid per share of the Company’s Common Stock for which the dividend record date occurred after the beginning of the Award Period and before the date of delivery of the Performance Shares.  

5.Certification and Payment.  At the regularly scheduled meeting of the Committee held in February of the year immediately following the final year of the Award Period (the “Certification Meeting”), the Committee shall review the Company’s results for the Award Period.  Prior to the Certification Meeting, the Company shall calculate the number of Performance Shares deliverable and the amount of the Dividend Equivalent Cash Award payable to Recipient, and shall submit these calculations to the Committee.  At or prior to the Certification Meeting, the Committee shall certify in writing (which may consist of approved minutes of the Certification Meeting) the levels of TSR attained by the Company and the Peer Group Companies, the levels of Cumulative Acquisition EBITDA, Cumulative EPS and Average ROIC attained by the Company, the number of Performance Shares deliverable to Recipient and the amount of the Dividend Equivalent Cash Award payable to Recipient.  Subject to applicable tax withholding, the amounts so certified shall be delivered or paid (as applicable) on a date (the “Payment Date”) that is the later of March 1, 2020 or five business days following the Certification Meeting, and no amounts shall be delivered or paid prior to certification.  No fractional shares shall be delivered and the number of Performance Shares deliverable shall be rounded to the nearest whole share.  Notwithstanding the foregoing, if Recipient shall have made a valid election to defer receipt of Performance Shares or the Dividend Equivalent Cash Award pursuant to the terms of the Company’s Deferred Compensation Plan for Directors and Executives (the “DCP”), payment of the award shall be made in accordance with that election.  

6.Tax Withholding.  Recipient acknowledges that, on the Payment Date when the Performance Shares are issued or otherwise delivered to Recipient, the Value (as defined below) on that date of the Performance Shares (as well as the amount of the Dividend Equivalent Cash Award) will be treated as ordinary compensation income for federal and state income and FICA tax purposes, and that the Company will be required to withhold taxes on these income amounts.  To satisfy the required withholding amount, the Company shall first withhold all or part of the Dividend Equivalent Cash Award, and if that is insufficient, the Company shall withhold the number of Performance Shares having a Value equal to the remaining withholding amount.  For purposes of this Section 6, the “Value” of a Performance Share shall be equal to the closing market price for Company Common Stock on the last trading day preceding the Payment Date.  Notwithstanding the foregoing, Recipient may elect not to have Performance Shares withheld to cover taxes by giving notice to the Company in writing prior to the Payment Date, in which case the Performance Shares shall be issued or acquired in the Recipient’s name on the Payment Date thereby triggering the tax consequences, but the Company shall retain the certificate 

for the Performance Shares as security until Recipient shall have paid to the Company in cash any required tax withholding not covered by withholding of the Dividend Equivalent Cash Award.  

7.Sale of the Company.  If there shall occur before the Payment Date a merger, consolidation or plan of exchange involving the Company pursuant to which the outstanding shares of Common Stock of the Company are converted into cash or other stock, securities or property, or a 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 (either, a “Company Sale”), then either:

7.1 the unvested Performance Shares shall be converted into restricted stock units for stock of the surviving or acquiring corporation in the applicable transaction, with the amount and type of shares subject thereto to be conclusively determined by the Committee, taking into account the relative values of the companies involved in the applicable transaction and the exchange rate, if any, used in determining shares of the surviving corporation to be held by the former holders of the Company’s Common Stock following the applicable transaction, and disregarding fractional shares; or

7.2 a pro-rated number of Performance Shares and the related dividend equivalent cash payment shall be delivered simultaneously with the closing of the applicable transaction such that Recipient will participate as a shareholder in receiving proceeds from such transaction with respect to those shares.  The number of Performance Shares to be delivered as a pro-rated award under this Section 7.2 shall be determined by multiplying the Target Share Amount by a fraction, the numerator of which is the number of days of the Award Period elapsed prior to the closing of the transaction and the denominator of which is the number of days in the Award Period.

8.Changes in Capital Structure.

8.1 If the outstanding Common Stock of the Company is hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of any stock split, combination of shares or dividend payable in shares, recapitalization or reclassification, appropriate adjustment shall be made by the Committee in the number and kind of shares subject to this Agreement so that the Recipient’s proportionate interest before and after the occurrence of the event is maintained.

8.2 If the outstanding Common Stock of the Company is hereafter converted into or exchanged for all of the outstanding Common Stock of a corporation (the “Parent Successor”) as part of a transaction (the “Transaction”) in which the Company becomes a wholly-owned subsidiary of Parent Successor, then (a) the obligations under this Agreement shall be assumed by Parent Successor and references in this Agreement to the Company shall thereafter generally be deemed to refer to Parent Successor, (b) Common Stock of Parent Successor shall be issued in lieu of Common Stock of the Company under this Agreement, (c) the performance measured pursuant to Section 2 of this Agreement shall be the continuous performance of the Company prior to the Transaction and Parent Successor after the Transaction, (d) employment by the Company for purposes of Section 3 of this Agreement shall include employment by either the Company or Parent Successor, and (e) the Dividend Equivalent Cash Award under Section 4 of this Agreement shall be based on dividends paid on the Common Stock of the Company prior to the Transaction and Parent Successor after the Transaction.

9.Recoupment On Misconduct.

9.1 If at any time before a Change in Control and within three years after the Payment Date, the Committee determines that Recipient engaged in any Misconduct (as defined below) during the Award Period that contributed to an obligation to restate the Company’s financial statements for any quarter or year in the Award Period or that otherwise has had (or will have when publicly disclosed) an adverse impact on the Company’s common stock price, Recipient shall repay to the Company the Excess LTIP Compensation (as defined below).  The term “Excess LTIP Compensation” means the excess of (a) the number of Performance Shares and the amount of the Dividend Equivalent Cash Award as originally calculated and certified under Section 5 of this Agreement, over (b) the number of Performance Shares and the amount of the Dividend Equivalent Cash Award as recalculated (1) for the TSR Modifier, assuming that the average of the closing market prices of the Company’s common stock for the period from October 1, 2019 to December 31, 2019 was an amount determined appropriate by the Committee in its discretion to reflect what the Company’s common stock price would have been if the restatement had occurred or other Misconduct had been disclosed prior to October 1, 2019, and (2) for the Growth Modifier, the EPS Payout Factor and the ROIC Payout Factor, based on the Company’s financial statements for all years of the Award Period as restated.  The Committee may, in its sole discretion, reduce the amount of Excess LTIP Compensation to be repaid by Recipient to take into account the tax consequences of such repayment or any other factors.  If any Performance Shares included in the Excess LTIP Compensation are sold by Recipient prior to the Company’s demand for repayment (including any shares withheld for taxes under Section 6 of this Agreement), Recipient shall repay to the Company 100% of the proceeds of such sale or sales.  The return of Excess LTIP Compensation is in addition to and separate from any other relief available to the Company due to Recipient’s Misconduct.

9.2 “Misconduct” shall mean (a) willful commission by Recipient of an act of fraud or dishonesty resulting in economic or financial injury to the Company, (b) willful misconduct by Recipient that substantially impairs the Company’s business or reputation, or (c) willful gross negligence by Recipient in the performance of his or her duties.

9.3 If any portion of the Performance Shares or the Dividend Equivalent Cash Award was deferred under the DCP, the Excess LTIP Compensation shall first be recovered by canceling all or a portion of the amounts so deferred under the DCP and any dividends or other earnings credited under the DCP with respect to such cancelled amounts.  The Company may seek direct repayment from Recipient of any Excess LTIP Compensation not so recovered and may, to the extent permitted by applicable law, offset such Excess LTIP Compensation against any compensation or other amounts owed by the Company to Recipient.  In particular, Excess LTIP Compensation may be recovered by offset against the after-tax proceeds of deferred compensation payouts under the DCP, the Company’s Executive Supplemental Retirement Income Plan or the Company’s Supplemental Executive Retirement Plan at the times such deferred compensation payouts occur under the terms of those plans.  Excess LTIP Compensation that remains unpaid for more than 60 days after demand by the Company shall accrue interest at the rate used from time to time for crediting interest under the DCP.

10.Approvals.  The issuance by the Company of authorized and unissued shares or reacquired shares under this Agreement is subject to the approval of the Oregon Public Utility Commission and the Washington Utilities and Transportation Commission, but no such approvals shall be required for the purchase of shares on the open market for delivery to Recipient in satisfaction of its obligations under this Agreement.  The obligations of the Company under this Agreement are otherwise subject to the approval of 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 award under this Agreement.  The foregoing notwithstanding, the Company shall not be obligated to issue or deliver Common Stock under this Agreement if such issuance or delivery would violate applicable state or federal law.  

11.No Right to Employment.  Nothing contained in this Agreement shall confer upon Recipient any right to be employed by the Company or to continue to provide services to the Company or to interfere in any way with the right of the Company to terminate Recipient’s services at any time for any reason, with or without cause.  

12.Miscellaneous.

12.1 Entire Agreement; Amendment.  This Agreement constitutes the entire agreement of the parties with regard to the subjects hereof and may be amended only by written agreement between the Company and Recipient.  

12.2 Notices.  Any notice required or permitted under this Agreement shall be in writing and shall be deemed sufficient when delivered personally to the party to whom it is addressed or when deposited into the United States Mail as registered or certified mail, return receipt requested, postage prepaid, addressed to the Company, Attention:  Corporate Secretary, at its principal executive offices or to Recipient at the address of Recipient in the Company’s records, or at such other address as such party may designate by ten (10) days’ advance written notice to the other party.  

12.3 Assignment; Rights and Benefits.  Recipient shall not assign this Agreement or any rights hereunder to any other party or parties without the prior written consent of the Company.  The rights and benefits of this Agreement shall inure to the benefit of and be enforceable by the Company’s successors and assigns and, subject to the foregoing restriction on assignment, be binding upon Recipient’s heirs, executors, administrators, successors and assigns.  

12.4 Further Action.  The parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement.  

12.5 Applicable Law; Attorneys’ Fees.  The terms and conditions of this Agreement shall be governed by the laws of the State of Oregon.  In the event either party institutes litigation hereunder, the prevailing party shall be entitled to reasonable attorneys’ fees to be set by the trial court and, upon any appeal, the appellate court. 
 
12.6 Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.  
NORTHWEST NATURAL GAS COMPANY 

By        

Title    SVP and Chief Administrative Officer    

RECIPIENT

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