HomeMy WebLinkAbout20180221Exhibit 2.pdfN
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EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
between
NORTI{WEST NATTTRAL GAS COMPANY,
IYW NATURAL WATER COMPANY, LLC,
I,WC MERGER SUB,INC.
FALLS WATER CO.,INC.
and
BRENT JOHNSON, TIrE SOLE SHAREHOLDER OF FALLS WATER CO.,INC.
dated as of
December 1.1,2017
Exhibit No. 2
9.1652083. r 0 0055570-{10408
J. Palfteyman, NW Natural
TABLE OF CONTENTS
Page
SECTION I THE MERGER.....
1.01 Merger.......
1.02 Effective Time of the Merger
1.03 Articles of Incorporation; Bylaws
1.04 Directors;Officers
1.05 Effect of the Merger on Capital Stock
1.06 MergerConsideration Adjustment.
1.07 ExchangeProcedures.
1.08 LostCertificates..........
1.09 Withholding Tax.........
l.l0 Closing......
SECTION 2 REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
AND TTIE COMPANY
Authority; Enforceability..............
Regulated Utility; Organization, Authority and Qualification; No
Subsidiaries.........
2.03 Company Capitalization.......
No Conflicts; Consents
Financial Statements; Undisclosed Liability
Absence of Certain Changes, Events and Conditions
Material Contracts
Title to Assets; Real and Personal Property; Easements....
Intellectual Property......... l3
lnsurance... ............ 13
LegalProceedings; Governmental Orders. ......-............. 14
Compliance with Laws; Permits; Water Quality................... l4
............. l5Environmental Matters .......
Employee Benefit Matters
I
2
2
2
2
2
3
5
6
6
6
6
62.Ot
2.02
2.U
2.05
2.06
2.07
2.08
2.09
2.t0
2.tl
2.t2
2.13
2.14
2.15
2.t6
2.t7
2.t8
7
7
7
I
8
9
ll
Employment Matters
l6
l8
l9
2l
22
Brokers...............
Accredited Investor Status ........
Exhibit No. 2
J. Palfreyman, NW Ndural
2
9,16520E3. I 0 0055570'fiXO8 I
TABLE OF CONTENTS
(continued)
Employee Matters ......
Further Assurances
CONDITIONS TO CLOSING
Conditions to Obligations of NW Natural
Conditions to Obligations of Shareholder .........
TAX MATTERS ..........
Tax Covenants
Tax Indemnifi cation,...-.......
Straddle Period........
Page
SECTION 3
3.01
3.02
3.03
1.04
SECTION 4
4.01
4.02
4.03
4.M
4.05
4.06
4.W
4.08
4.09
4.10
4.n
4.12
SECTION 5
5.01
5.02
5.03
5.04
s.05
SECTION 6
6.01
6.02
SECTION 7
7.01
7.02
7.03
REPRESENTATIONS AND WARRANTIES OF NW NATURAL
Organization and Authority of NW Natural
Brokers......
Legal Proceedings........
COVENANTS OF THE COMPANY AND SHAREHOLDER
Conduct of Business Prior to the Closing
Access to Information.............
No Solicitation of Other Bids
Notice of Certain Events........
Confidentiality .......................
Non-Competition ; Non-Solicitation ..........
Governmental Approvals and Consents
Delivery of Shareholder's Disclosure Schedules
Closing Conditions
Public Announcements ............
Further Assurances ........31
COVENANTS OF NW NATURAL 3l
Governmental Approvals and Consents ............. 3 I
Closing Conditions .......
22
22
23
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25
27
28
28
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3l
3l
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........ 33
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Exhibit No. 2
J. Palfreyman, NW Natural
3
9,r6s20r3. l 0 0055570-@t08 ll
AGREEMENT AND PLAN OF MERGER
Dated: DecemberI.l,2OlT
Between: Northwest Natural Gas Company, an Oregon
corporation
220 N.W. Second Avenue
Portland, Oregon 972W
Attn: Justin Palfreyman
And:NW Natural Water Company, LLC,, an Oregon
limited liability company
c/o Northwest Natural Gas Company
220 N.W. Second Avenue
Portland, Oregon 972W
Attn: Justin Palfreyman
"Signing Date"
"NW Natural"
"lVater Platform"
And:FWC Merger Sub, Inc. an Idaho corporation
c/o Northwest Naturd Gas Company
220 N.W. Second Avenue
Portland, Oregon 97209
Attn: Justin Palfreyman "Merger Sub"
And:Falls Water Co., Inc., an Idaho corporation
2180 N. Deborah Drive
Idaho Falls,ID 838401
Attn: Brent Johnson "Company"
And:Brent Johnson
I 1030 kdge Stone Drive
McGregor, TX76657
"Shareholder"
Terms used in this Agreement and Plan of Merger (as amended modified or restated from
time to time, "Agreemenf') are defined where they are first used or in Appendix I.
A. The Company owns and operates water supply and distribution systems in
Bonneville County, Idaho.
B. Pursuant to this Agreement, Merger Sub will merge into the Company, the
Company will survive the Merger and the outstanding shares of the Company will convert into
the right to receive shares of NW Natural common stock. For U.S. federal income Tax purposes,
it is intended that the Merger qualify as a "reorganization" within the meaning of Section 368(a)
of the Code, and the regulations promulgated thereunder, that this Agreement will constitute a
"plan of reorganization" for purposes of Sections 354 and 361 of the Code.
Exhibit No. 2
J. Palfteyman, NW Natural
1
I94652083. I 0 @55570-0040E
- This page allegedly contains trade secrets or
confidential material and is separately filed. -
Exhibit No. 2
J. Palfreyman, NW Natural
5
represented shares of Company common stock (each, a *Book-Entry Share") will cease to have
any rights with respect thereto, except the right to receive the Merger Consideration and any
dividends or other distributions to which the holder thereof becomes entitled to upon the
surrender of such shares of Company common stock.
(c) Conversion of Merger Sub Capital Stock. Each share of common stock of
Merger Sub will converted into one fully paid, and non-assessable share of common stock of the
Surviving Corporation with the same rights, powers, and privileges as the shares so converted
and shall constitute the only outstanding shares of capital stock of the Surviving Corporation.
1.06 Merger Consideration Adjustment.
(a) Within 90 days after the Closing Date, NW Natural shall prepare and deliver to
Shareholder a statement (the "Closing Statemenf') setting forth its calculation, as of the Closing
Date, of Closing Working Capital, Indebtedness ("Closing Indebtedness") and Transaction
Expenses, which statement shall contain an unaudited balance sheet of the Company as of the
Closing Date (without giving effect to the transactions contemplated herein) prepared in
accordance with GAAP applied using the same accounting methods, practices, principles,
policies and procedures, with consistent classifications, judgments and valuation and estimation
methodologies, that were used in the preparation of the Annual Financial Statements for the most
recent fiscal year end as if such Closing Statement was being prepared as of a fiscal year end.
(b) The 'Closing Adjustmenf is an amount equal to the sum of (i) Target Working
Capital minus Closing Working Capital, (ii) Target Indebtedness minus Closing lndebtedness,
and (iii) $20,000 (which was paid by NW Natural upon signing this Agreement) minus
Transaction Expenses. If the Closing Adjustment is a positive number, the Merger Consideration
will be increased by a cash amount equal to the Closing Adjustrnent. If the Closing Adjustment
is a negative number, the Merger Consideration will be decreased by a number of shares of NW
Natural equal to the (A) Closing Adjustment divided by (B) the last reported sale price of NW
Natural corlmon stock on the NYSE on the last complete trading day prior to the Effective Time
the Closing Adjustment. No fractional shares of NW Natural common stock will be issued or
transfered as part of the Closing Adjustment. NW Natural Shares will be rounded up to the
nearest whole share.
(c) Examination and Review
(i) Examination After receipt of the Closing Statement, Shareholder will
have 30 days (the "Review Period") to review the Closing Statement. During the Review Period,
Shareholder and Shareholder's accountants shall have full access to the books and rccords of the
Company, the personnel of, and work papers prepared by, NW Natural or IrI\M Natural's
accountants to the extent that they relate to the Closing Statement and to such historical financial
information (to the extent in NW Natural's possession) relating to the Closing Statement as
Shareholder may reasonably request for the pulpose of reviewing the Closing Statement and to
prepare a Statement of Objections (defined below),provided, tlnt such access must be in a
manner that does not interfere with the normal business operations of NW Natural or the
Company.
Exhibit No. 2
J. Palfreyman, Nw Natural
6
39,16520E3. I 0 0055570.fiX08
(ii) Objection. On or prior to the last day of the Review Period, Shareholder
may object to the Closing Statement by delivering to NW Natural a written statement setting
forth Shareholder's objections in reasonable detail, indicating each disputed item or amount and
the basis for Shareholder's disagreement therewith (the "Statement of Objections"). If
Shareholder fails to deliver the Statement of Objections before the expiration of the Review
Period, the Closing Statement and the Closing Adjustment, as the case may be, reflected in the
Closing Statement will be deemed to have been accepted by Shareholder. If Shareholder delivem
the Statement of Objections before the expiration of the Review Period, NW Natural and
Shareholder shall negotiate in good faith to resolve such objections within 30 days after the
delivery of the Statement of Objections (the "Resolution Perfurd"), and, if the objections are
resolved within the Resolution Period, the Closing Adjustment and the Closing Statement with
the changes agreed in writing by NlV Natural and Shareholder, will be final and binding.
(iii) Resolution of Disputes. If Sharcholder and NW Natural do not resolve all
of the matters set forth in the Statement'of Objections before expiration of the Resolution Period,
any amounts remaining in dispute ("Disputed Amounts" ) shall be submitted for resolution to
PricewaterhouseCoopers LLP or, if PricewaterhouseCoopers LLP is unable to serve, NW
Natural and Shareholder shall appoint by mutual agreement the office of an impartial nationally
recognized firm of independent certified public accountants (the "Independent Accountanf')
who, acting as experts and not arbitrators, shall resolve the Disputed Amounts only and make
any adjustments to the Closing Adjustment and the Closing Statement. The parties agree that all
adjustmens shall be made without regard to materiality. The Independent Accountant will
decide only the specific items under dispute by the parties and their decision for each Disputed
Amount must be within the range of values assigned to each such item in the Closing Statement
and the Statement of Objections, respectively.
(iv) Fees ofthe Independent Accountanr. The fees and expenses ofthe
lndependent Accountant shall be paid by Shareholder, on the one hand, and by NW Natural, on
the other hand, based upon the percentage that the amount actually contested but not awarded to
Shareholder or NW Natural, respectively, bears to the aggregate amount actually contested by
Shareholder and NW Natural.
(v) Determination by Independent Accountant. The Independent Accountant
shall make a determination as soon as practicable within 30 days (or such other time as the
parties hereto shall agree in writing) after their engagement, and their resolution of the Disputed
Amounts and their adjustments to the Closing Statement and the Closing Adjustment shall be
conclusive and binding upon the parties hereto.
(vi) Issuance or Transfer of Shares of NW Natural Common Stock based on
Closing Adjustment Except as otherwise provided herein, the Closing Adjustment shall (A) be
made (x) within five Business Days of acceptance of the applicable Closing Statement or (y) if
there are Disputed Amounts, then within five Business Days of the resolution described in clause
(v) above; and (B) be made by delivery to Shareholder of a certificate representing the shares of
NW Natural common stock (or appropriate alternative iurangemens if uncertificated shares of
NW Natural common stock represented by book-entry shares will be issued or transferred) or by
the transfer to NW Natural of all or a portion of the Withheld Shares or other shares of NW
Natural common stock issued or transferred to Shareholder at the Closing, as the case may be.
Exhibit No. 2
J, Palfreyman, NW Natural
7
94652083. I 0 0055570-0040E 4
(d) Changes in Capital Structure of NW Natural.lf , before payment of the Merger
Consideration, the outstanding NW Natural common stock is increased or decreased or changed
into or exchanged for a different number or kind of shares or other securities of NW Natural or
any parent or successor of NW Natural by reason of any stock split, combination of sharcs or
dividend payable in shares, recapitalization, reorganization or reclassification, appropriate
adjustment shall be made in the number and kind of shares that constitute the Merger
Consideration.
(e) Adjustmentsfor Tax Purposes. Any payments made pursuant to Section 1.06 shall
be treated as an adjustment to the Merger Consideration by the parties for Tax purposes, unless
otherwise required by Law.
1.07 ExchangeProcedures.
(a) Exchange; \Mithheld Shares. At or promptly following the Effective Time, NW
Natural shall issue to Shareholder (or Water Platform shall transfer to Shareholder) two
certificates representing the shares of NW Natural common stock to be issued or transferred as
Merger Consideration (or make appropriate alternative arrangemens if uncertificated shares of
NW Natural common stock reprcsented by book-entry shares will be issued or transferred) as
follows: (x) 5,000 shares, which shares will be delivered to IrI\M Natural along with a stock
power signed by Shareholder to secure indemnity claims (the "Withheld Shares") and (y) the
remaining shares to Shareholder. The Withheld Shares will secure payment to NW Natural of
any Closing Adjustment and any l.osses based on indemnity claims against Shareholder. On the
six-month anniversary of the Closing Date (the "V[ithheld Shares Release Date"), NW Natural
will release to Shareholder the number of Withheld Shares then held by NW Natural minus a
number of shares equal to (A) the estimated loss rclated to all NW Natural claims against
Shareholder under this Agreement divided by (B) the last reported sale price of NW Natural
common stock on the NYSE on the last complete trading day prior to the Withheld Shares
Release Date.
(b) Surrender of Company Shares. Shareholder is entitled to receive the Merger
Consideration into which such shares of Company common stock have been converted pursuant
to Section 1.05(b) in respect of the Company common stock represented by a Certificate or
Book-Entry Share, any cash in lieu of fractional shares which the holder has the right to receive
pursuant to upon: (i) surrender to Water Platform or NW Natural of a Certificate; or (ii) such
other evidence, if any, of transfer as NW Natural may reasonably request) in the case of Book-
Entry Shares; in each case, together with such other documents its may reasonably be requested
by NW Natural. No interest shall be paid or accrued upon the surrender or transfer of any
Certificate or Book-Entry Share. Upon payment of the Merger Consideration pursuant to the
provisions of this Section 1, each Certificate or Certificates or Book-Entry Share or Book-Entry
Shares so surrendered or transferred, as the case may be, shall immediately be cancelled.
(c) Full Satisfaction. All Merger Consideration paid upon the surrender of
Certificates or transfer of Book-Entry Shares in accordance with the terms hereof shall be
deemed to have been paid in full satisfaction of all rights pertaining to the shares of Company
common stock formerly represented by such Certificate or Book-Entry Shares, and from and
after the Effective Time, there shall be no further registration of transfers of shares of Company
Exhibit No. 2
J. Palfreyman, NW Natural
94652083. I O 0055570-@408 5
8
common stock on the stock transfer books of the Surviving Corporation.
1.08 Lost Certificates. If any Certificate shall have been lost, stolen, or destroyed,
upon the making of an affidavit of that fact by the Person claiming such Certfficate to be lost,
stolen, or destroyed and, if required by NW Natural or Water Platform, the posting by such
Person of a bond, in such reasonable amount as NW Natural or Water Pladorm may direct, as
indemnity against any claim that may be made against it with respect to such Certificate, NW
Natural will issue or Water Platform will transfer, in exchange for such lost, stolen, or destroyed
Certificate, the Merger Consideration to be paid in respect of the shares of Company common
stock formerly represented by such Certificate as contemplated under this Section 1.
1.09 Withholding Tax.NW Natural and the Company shall be entitled to deduct and
withhold from the Merger Consideration all Ta,res that NW Natural and the Company may be
required to deduct and withhold under any provision of Tax Law. AII such withheld amounts
shall be treated as delivered to Shareholder hereunder.
1.10 Closing. Subject to the terms and conditions of this Agreement, the completion of
the Transaction shall take place at a closing (the "Closing") to be held (a) at 10:00 a.m.,
Portland, Oregon time, no later than two Business Days after the last of the conditions to Closing
set forth in Section 6 have been satisfied or waived (other than conditions which, by their nature,
are to be satisfied on the Closing Date), at the offices of Stoel Rives LLP, 760 SW Ninth
Avenue, Suite 300, Portland, Oregon 97205, or at a time, date and place as Shareholder and NW
Natural mutually agree, or (b) through the elecronic exchange of signature pages at a time and
date as Shareholder and NW Natural mutually agree. The Closing will be effective as of the
close of business on the Closing Date for Tax and accounting purposes. The day on which the
Closing takes place is the "Closing Date."
SECTION 2
REPRESENTATIONS AND WARRANTIES OF SIIAREHOLDER AI\D TIIE
COMPAIVY
Except as set forth in the correspondingly numbered Part of Shareholder's Disclosure
Schedules delivered pursuant to Section 4.09, the Company and Shareholder represent and
warrant to NW Natural that the statements contained in this Section 2 are true and correct as of
the Signing Date and as of the Closing Date (except those representations and warranties that
address matters only as of a specified date, which are true and correct only as of such date).
2.Ol Authority; Enforceability. The Company has full corporate power and authority
to execute, deliver and perform the Transaction Document to which the Company is a party and
to perform its obligations hereunder and thercunder. Except in connection with the PUC
Approvals, none of the Company or any Shareholder must give any notice to, make any filing
with, or obtain any authorization, consent, or approval of, any government or governmental
agency to consummate the Transaction. The execution, delivery, and performance of the
Transaction Documents to which it is a party have been duly authorizedby the Company. This
Agreement has been duly executed and delivered by Shareholder and the Company, and
(assuming due authorization, execution and delivery by NW Natural) this Agreement constitutes
Exhibit No.2
J. Palfreyman, NW NaturalI
694652083. I 0 0055570-00408
a legal, valid and binding obligation of Shareholder and the Company enforceable against each
of them in accordance with its terms, except insofar as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting
creditors' rights generally, or by principles governing the availability of equitable remedies.
2.02 Regulated Utility; Organization, Authority and Qualifrcation; No
Subsidiaries. The Company is a regulated public utility in Idatro and is legally authorized by the
State of Idaho to sell and distribute water in the town of ldaho Falls, Idaho. Such authorization is
not limited by time and is not subject to any restrictions which would reasonably be expected to
have a Material Adverse Effect. Since December 31, 2Al2,no Governmental Authority has
denied the request of the Company to include in a rate case for recovery any asset then in utility
service. The Company is duly organized and validly existing under the laws of the State of
Oregon, with full power and authority to conduct its business, to own or use its assets, and to
perform all its obligations under all Material Contracts. The Company is not required to be
qualified to do business as a foreign entity in any jurisdiction- The Company does not have any
subsidiaries or an ownership interest in any other Person.
2.03 Company Capitalization. The authorized capital stock of the Company consists
of I ,000 shares of voting common stock, of which 25A arc issued and outstanding (the
"Shares"). The shareholders of record of the Company, and the number Shares owned by each,
are rts set forth in Part 2.03 of Shareholder's Disclosure Schedules. All of the Shares are
authorized, have been validly issued, are fully paid and non-assessable, and are owned of record
and beneficially by Shareholder specified in Part 2.03 of Shareholder's Disclosure Schedules,
free and clear of all Encumbrances. There are no outstanding or authorized options, warrants,
convertible securities or other rights, agreements, iurangements or commitments of any character
relating to the equity of the Company or obligating the Company to issue or sell any membership
interests or shares of capital stock of, or any other interest in, the Company; the Company does
not have outstanding or authorized any stock appreciation, phantom stock, profit participation or
similar rights; and there are no voting trusts, member agreements, proxies or other agreements or
understandings in effect with respect to the voting or transfer of any of the Shares.
2.04 No Conflicts; Consents. Neither the execution, delivery and performance of this
Agreement or the other Transaction Documents nor the consummation or performance of the
Transaction will, directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with, or violate (i) any Organizational Document of the
Company, or (ii) any resolution adopted by the board of directors of the Company;
(b) contravene, conflict with, or violate, or (except for the PUC Approvals) give any
Governmental Authority or other Person the right to challenge the Transaction, or to exercise any
remedy or obtain any relief under, any applicable Law or any Governmental Order to which the
Company or any Shareholder, or any assets owned or used by the Company, is subject;
(c) require the consent, notice or other action by any Person under, or breach, or give
any Person the right to declare a default or exercise any remedy or to obtain any additional rights
under, or to accelerate the maturity or performance of, or payment under, or cancel, terminate, or
modify, any Contract (including any Material Contract) to which the Company or any
94652083.r00055520-oso8 7
Exhibit No. 2
J. Palfreyman, NW Natural
10
Shareholder is a party; or
(d) result in the imposition or creation of any Encumbrance upon, or with respect to,
any assets owned or used by the Company, other than pursuant to the terms of any financing
agreement to which NW Naturd is a party or any other action of NW Natural.
2.05 Financial Statements; Undisclosed Liability.
(a) The Company has delivered to NW Natural unaudited balance sheets of the
Company as of December 3 I of each of the years 2014, 20 15 and 2016 and the related
statements of income and retained earnings, stockholders' equity and cash flow for the years then
ended (the "Annual Financial Statements"), and unaudited financial statements consisting of
the balance sheet of the Company as of September 30,2017 and the related statements of income
for the 9-month period then ended, certified by the President of the Company (the "Interim
flnancial Statements" and together with the Annual Financial Statements, the "Financial
Statements").The Financial Statements have been prepared in accordance with GAAP applied
on aconsistent basis throughout the period involved, subject, in the case ofthe Interim Financial
Statements, to normal and recurring year-end adjustments (the effect of which will not be
materially adverse to the Company) and the absence of notes (that, if presented, would not differ
materially from those presented in the Annual Financial Statements). The Financial Statemens
are based on the books and records of the Company, and fairly present the financial condition of
the Company in all material respects as of the respective dates they were prepared and the results
of the operations of the Company for the periods indicated. The balance sheet of the Company as
of September 30, 2Ol7 is referred to herein as the "Interim Balance Sheef' and the date thereof
as the "Interim Balance Sheet Date."
(b) The Company has no liabilities, obligations or commitments of any nature
whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or
unaccrued, matured or unmatured, or otherwise ("Liabilities"), except (i) those which are
adequately reflected or reserved against in'the Interim Balance Sheet, and (ii) those which have
been incurred in the ordinary course of business consistent with past practice since the Interim
Balance Sheet Date and which are not, individually or in the aggregate, material in amount.
2.A6 Absence of Certain Changes, Events and Conditions. Since the Interim
Balance Sheet Date, there has not been any event, occurrence or development that has had, or
could reasonably be expected to have, individually or in the aggrcgate, a Material Adverse Effect
or, and other than (i) in the ordinary course of business consistent with past practice, or (ii) as set
forth in Part2.O6 of Shareholder's Disclosure Schedules, there has not been, with respect to the
Company, any:
(a) increase, decrease, acceleration or payment by the Company of any bonus, salary,
benefit, or other compensation to any current or former equity owner, director, manager, officer,
employee, or consultant of the Company or entry into or amendment of any employment,
severance, bonus, retirement, loan, or other Contract with any current or former equity owner,
director, manager, officer, employee, or consultant of the Company;
(b) any material change in accounting practices or cash management practices or
Exhibit No. 2
J. Palfreyman, NW Natural
11
894652083_ r 0 0055570-{p408
policies, practices and procedures with respect to collection of accounts receivable,
establishment of reserves for uncollectible accounts, accrual of accounts receivable, inventory
control, prepayment of expenses, payment of trade accounts payable, accrual of other expenses,
deferral of revenue and acceptance of customer deposits;
(c) entry into, modification, termination, acceleration or expiration of, or receipt of
notice of termination of, any Material Contract;
(d) material damage, destruction or loss (whether or not covered by insurance) to any
asset owned or used by the Company;
(e) sale, lease, other disposition of, or imposition of any Encumbrance upon, any of
the Real Property, capital stock or other equity interests or assets, tangible or intangible, of the
Company;
(0 release or waiver of any claim or right of the Company with a value in excess of
$50,000:
(g) capital expenditure (or series of related capital expenditures) by the Company
involving more than $50,fiX);
(h) (i) action to make, change or rescind any Tax election; (ii) action to amend any
Tax Retum or take any position on any Tax Return; or (iii) action, omission or entrance into any
transaction that would have the effect of increasing the Tax liability or reducing any Ta"r asset of
N\M Natural or the Company in respect of any Post-Closing Tax Period; or
(i) entry into any Contract to do any of the foregoing, or any action or omission that
would result in any of the foregoing.
2.07 MaterialContracts.
(a) Parrt2.07(a) of Shareholder's Disclosure Schedules lists each of the following
current Contracts to which the Company is a party, excluding those disclosed in Parts 2.08(b)
and 2.09(b) of Shareholder's Disclosure Schedules (such Contracts, together with all Contracts
conceming the occupancy, management or operation of any Real Property (including material
brokerage contracts) listed or othenvise disclosed in Part 2.08(b) of Shareholder's Disclosure
Schedules, "Material Contracts"):
(i) each Contract for all purchased water services and purchased wastewater
servrces;
(ii) each Contract for reuse or effluent disposal;
(iii) each Contract for developer or service under which the Company has any
continuing or outstanding water or wastewater service obligation, and the total number of (A)
contractual connections; (B) contractual connections paid for but not yet connected; (C)
contractual connections not yet paid for and not yet connected; and (D) any contractual
connections for which the Company has or expects to begin collecting a periodic minimum or
e46s2$3.ro@55i7(xp4oE 9
Exhibit No. 2
J, Palfreyman, NW Natural
12
base charge prior to Closing;
(iv) each Contract involving aggregate consideration in excess of $50,0@ in
any l2-month period and which, in each case, cannot be cancelled by the Company bound
thercby without penalty and without more than 90 days' notice;
(v) each Contract that provides for the indemnification by the Company of
any Person in an amount reasonably expected to exceed $50,000 or the assumption of any Tax,
environmental or other material Liability of any Person, in each case in an amount reasonably
expected to exceed $50,000;
(vi) each Contract that relates to the acquisition or disposition of any business,
stock, or other equity interests or other securities or assets of any other Person or real property
(whether by merger, sale of stock or other equity interests, sale of assets or otherwise);
(vii) each employment agreement and Contract with independent contractors or
consultants (or similar arrangements);
(viii) each Conract with any Governmental Authority;
(ix) each Contract that limits or purports to limit the ability of the Company to
(A) compete in any line of business or with any Person or in any geographic area or during any
period of time, or (B) solicit any Person to enter into a business or employment relationship, or
(C) enter into a business or employment relationship with any Person;
(x) each Contract for capital expenditures in excess of $50,000;
(xi) each Conuact that involves the settlement, release, compromise, or waiver
of any material rights, claims, obligations, duties, or liabilities, in each case in an amount greater
than $50,000;
(xii) each Contract that provides for any joint venture, partnership or similar
arangement involving a sharing of profits, losses, costs, Taxes, or other liabilities by the
Company with any other Person;
(xiii) each Contract between Shareholder or any Affiliate and the Company;
(xiv) except for Contracts relating to trade receivables, each Contract that
relates to Indebtedness of the Company (including guarantees), or any bond or letter of credit in
favor of, or posted by, the Company, in excess of $50,000 in the aggregate;
(xv) each Contract with a supplier to whom the Company has paid in 2016 or
expects to pay in20l7 aggregate consideration for goods or services of at least $50,000; and
(xvi) any other Contract involving aggregate consideration in excess of $50,@0
in a l2-month period and not previously disclosed pursuant to this Section 2.07, Section 2.0E(b)
or Section 2.09(b).
Exhibit No. 2
J. Palfreyman, NW Natural
13
94652083. t0 0055570-CXX08 l0
O) Each Material Contract is, with respect to the Company that is a party thereto,
valid and binding, enforceable in accordance with its terms, and in full force and effect. Neither
the Company or, to Shareholder's Knowledgo, my other party thereto is in breach of or default
under (or is alleged to be in breach of or default under), in any material respect, or has provided
or received any notice of any intention to terminate, any Material Contract. No event or
circumstance has occurred that, with notice or lapse of time or both, would constitute an event of
default under any Material Contract or result in a termination thereof or would cause or permit
the acceleration or other changes of any right or obligation or the loss of any benefit thereunder.
2.0E Title to Assets; Real and Personal Property; Easements.
(a) Part 2.08(a) of Shareholder's Disclosure Schedules lists all real estate owned by
the Company (the "Owned Real Property"), including the legal description, street address, and
any tax parcel identification number of each property. The Company has delivered to NW
Natural copies of the deeds and other instruments by which the Company acquired the Owned
Real Property and copies of all title insurance policies, opinions, abstracts, surveys, sitelbuilding
plans, maps and subdivision plans in the possession of Shareholder or the Company relating to
the Owned Real Property.
(b) Part 2.0E(b) of Shareholder's Disclosure Schedules lists all real estate leased by
the Company as a lessee, sub-lessee, or assignee (the "Leascd Real Property" and, together
with the Owned Real Property, the "Real Property"). All l-eased Real Property is leased
pursuant to valid written leases listed in Part 2.0tO) of Shareholder's Disclosure Schedules.
The Company is not a sublessor or grantor under any sublease or other instrument granting to
any other Person any right to the possession, lease, occupancy or enjoyment of any Irased Real
Property.
(c) All buildings, plants, and stnrctures owned by the Company lie wholly within the
boundaries of the Real Property in question and do not encroach upon the property of, or
otherwise conflict with the property rights of any other Person. The uses of the Real Property
being made by the Company do not violate any applicable zoning, subdivision,land use, or other
Law. No assessment for public improvements has been served upon the Company with respect to
any Real Property which remains unpaid. To Shareholder's Knowledge, no public improvements
have been ordered to be made to any Real Property which have not heretofore been completed,
assessed and paid for. No third party has a right to acquire any interest in the Owned Real
Property or in the Company's interests in the [-eased Real Property. To Shareholder's
Knowledge, there is no existing or proposed plan to modify or realign any street or highway or
any existing or proposed eminent domain proceeding that would result in the taking of all or any
part of any parcel of Real Property or that would prevent or hinder the continued use of any such
parcel as presently used by the Company.
(d) The Company has good and valid (and, in the case of Owned Real Property, good
and marketable fee simple) title to, or a valid leasehold interest in, all Real Property and personal
property and other assets reflected in the Interim Financial Statements or acquired after the
lnterim Balance Sheet Date, other than properties and assets sold or othenrise disposed of in the
ordinary course of business consistent with past practice since the Interim Balance Sheet Date or
as set forth in Part 2.08(d) of Shareholder's Disclosure Schedules. All such properties and assets
94652083.10 oo5557o-@ro8 I I
Exhibit No.2
J, Palfreyman, NW Natural
14
(including leasehold interests) are free and clear of Encumbrances except for the following
(collectively referred to as "Permitted Encumbrances"):
(i) those items set forth in Part 2.0E(d) of Shareholder's Disclosure
Schedules;
(ii) liens for Taxes, assessments or other governmental charges not yet
delinquent or the amount or validity of which is being contested in good faith by appropriate
proceedings;
(iii) mechanics, carriers', workmen's, repairmen's or other like liens or similar
Encumbrances arising or incurred in the ordinary course of business consistent with past practice
for amounts that are not delinquent or the arnount and validity of which is being contested in
good faith and which have not and would not rcasonably be expected to be, individually or in the
aggrcgate, materially adverse to the business of the Company; or
(iv) covenants, exceptions, restrictions, easements, zoning ordinances, righs of
way, and other similar encumbrances affecting ReaI Property contained in prior instruments of
record, in title insurance policies or the title reports provided to NW Natural.
(e) The fixed assets of the Company as of September 30, 2Ol7 are included as Part
2.08(eXi) of Shareholder's Disclosure Schedule, which includes all of the water and wastewater
assets of the Company comprising the Utility System, except Water Rights. Each Water Right
owned or held by Company is listed in Part 2.ffi(e) (ii) of Shareholder's Disclosure Schedule.
The Company has used each Water Right, in accordance with the terms and conditions of such
Water Right, at least once during the five years preceding the Signing Date. No Water Right is
subject to abandonment, forfeiture or cancellation, in whole or in part. With respect to each
Water Right, Company has Easements for all sources of water, points of diversion or
appropriation, diversion or appropriation works and facilities, and distribution, storage and
delivery facilities.
(0 (i) The use and operation ofthe Real Property in the conduct ofthe business of
the Company do not violate in any material respect any Law, covenant, condition, rcstriction,
easement,license, permit or agreement; (ii) the Company has obtained all Permits required for
the current use and occupancy of the Real Property and all such Permits shall remain in full force
and effect without modification immediately following the consummation of the Transaction;
and (iii) there are no Actions pending nor, to Shareholder's Knowledge, threatened in writing
against or affecting the Real Property or any portion thereof or interest therein in the nature or in
lieu of condemnation or eminent domain proceedings.
(g) The buildings, plants, structures, and equipment owned or leased by the Company
are structurally sound, in good operating condition and repair, and adequate for the uses to which
they are being put, and none of such buildings, plants, structures, or equipment is in need of
maintenance or repairs other than (i) ordinary, routine maintenance that is not material in nature
or cost, and (ii) replacement of any roof, roof membrane, heating, ventilation and air
conditioning equipment and other equipment that from time to time becomes obsolete or in need
of replacement, but which is done in the ordinary course of business and does not involve a cost
e4652og3.romi557tloo4og 12
Exhibit No. 2
J. Palfreyman, NW Natural
15
of replacement that is material.
(h) The assets owned and leased by the Company constitute all the assets used in
connection with the operation of the business of the Company. Such assets constitute all the
assets necessary for the Company to continue to conduct its business following the Closing as it
is currently being conducted.
(i) Part 2.08(i) of the Disclosure Schedule identifies in reasonable detail all
Easements with respect to the Utility System, which Easements are legally enforceable and are
sufficient to own and operate the Utility System. The Company has provided to NW Natural
copies of all title insurance policies, opinions, abstracts, surveys, site/building plans, maps and
subdivision plans in the possession of Shareholder or the Company rclating to the Easements.
2.W IntellectualProperty
(a) Part 2.0!l(a) of Shareholder's Disclosure Schedules lists all (i) Company IP
Registrations and (ii) Company Intellectual Property, including software (excluding, however,
generally commercially provided third party software in executable code form licensed pursuant
to a shrink wrap or click wrap license agreement or other third party provider mandated standard
license terms and conditions) used by the Company, that are not registered but that are material
to the Company's business or operations.
O) Part 2.09(b) of Shareholder's Disclosure Schedules lists all material Company IP
Agreements. The Company has provided NW Natural with copies of all such material Company
IP Agreements, including all material modifications, amendments and supplements thereto and
waivers thereunder. Each Company IP Agreement is valid and binding on the Company that is a
party thereto in accordance with is terms and is in full force and effect except where the failure
to be valid and binding has not had, and would not rcasonably be expected to have, a Material
Adverse Effect. Neither the Company, nor, to Shareholder's Knowledge, any other party thereto
is in material breach of or material default under (or, to Shareholder's Knowledge, is alleged to
be in material breach of or material default under), or has provided or received any notice of
breach or default of or any intention to terminate, any material Company IP Agreement.
2.10 Insurance.
(a) Part 2.10 of Shareholder's Disclosure Schedules sets forth a list, as of the Signing
Date, of all current policies or binders of fue, Iiability, product liability, umbrella liability, real
and personal property, workers' compensation, vehicular, directors' and officers' liability,
fiduciary liability and other casualty and property insurance maintained by the Company and
relating to the assets, business, operations, employees, officers and directors of the Company
(collectively, the "Insurance Policies") and true and complete copies of such lnsurance Policies
have been made available to NW Natural.
(b) The Insurance Policies are in full force and effect, will be renewed in the ordinary
course of business and shall remain in full force and effect following the completion of the
Transaction. The Company has not received any written notice of cancellation of, premium
increase with respect to, or material alteration of coverage under, any of Insurance Policy.
Exhibit No.2
J. Palfreyman, NW Natural
94652083. r O 0055570-00408 t3
16
(c) All premiums due on the Insurance Policies have either been paid or, if due and
payable prior to Closing, will be paid prior to Closing in accordance with the payment terms of
each Insurance Policy. The Insurance Policies do not provide for any retrospective premium
adjustment or other experience-based liability on the part of the Company.
(d) All of the Insurance Policies (i) are valid and binding in accordance with their
terms; (ii) have not, to Shareholder's Knowledge, been subject to any lapse in coverage; (iii) are
sufficient for compliance with applicable Laws and all Material Contracts; and (iv) are of the
type and in amounts customarily carried by Persons conducting a business similar to the
Company.
{e) There are no claims related to the business of the Company pending under any
Insurance Policy as to which coverage has been denied or disputed or in respect of which there is
an outstanding reservation of rights.
2.ll Legal Proceedingsl Governmental Orders.
(a) There are no Actions pending or, to Shareholder's Knowledge, threatened
(i) against or by Shareholder or the Company affecting the Utility System or the Company's
business operations, properties or assets; (ii) against or by any Shareholder that rclates to the
Shares; or (iii) against or by the Company, any Shareholder or any of their Affiliates that
challenges or seeks to prevent, enjoin, impose limitations on or otherwise delay the Transaction
To Shareholder's Knowledge, no event has occurred or circumstances exist that would be
reasonably likely to -sive rise to any such Action.
(b) There are no outstanding Governmental Order.s and no unsatisfied judgments,
penalties or awards against or affecting the Utility System, the Company or any of its properties
or assets. The Company is in compliance with the terms of each Governmental Order. To
Shareholder's Knowledge, no event has occurred that constitutes or could reasonably be
expected to result in (with or without notice or lapse of time) a violation of any such
Governmental Order.
2.12 Compliance with Laws; Permits; Water Quality.
ta) Except as set forth in Part 2.12{a) of Shareholder's Disclosure Schedules
(i) the Company has at all times complied, and is now in compliance, in all
rnaterial respects, with all Laws applicable to it and its respective business, properties or assets,
and has made all filings required to be made by it since December 31,2012, under all applicable
Laws related to the regulation of public utilities;
(ii) no event has. occurred or circumstance exists that (with or without notice
or lapse of time) (A) could constitute or result in a violation by the Company of, or a failure on
the part of the Company to comply with, any Law. or (B) could give rise to any obligation on the
part of the Company to undertake, or to bear all or any portion of the cost of, any remedial
action. in each case that would be reasonably expected to have a Material Adverse Effect;
(iii) the Company has not received any written notice or other communication
9.1652083.100055570-0&108 14
Exhibit No. 2
J. Palfreyman, NW Natural
17
(whether oral or written) from any Govemmental Authority or any other Person regarding
(A) any actual, alleged, or potential violation of, or failure to comply with, any Law, or (B) any
actual, alleged, or potential obligation on the part of the Company to undertake, or to bear all or
any portion of the cost of, any remedial action.
(b) The Company has all material Permits necessary to lawfully own, operate and
maintain the Utility System and to conduct is business in the manner in which it conducts such
business and to own and use its assets in the manner in which it owns and uses such asses. Each
material Permit is set forth in Part 2.12(b) Shareholder's Disclosure Schedules, and each such
Permit is valid and in full force and effect. Except as set forth in Part 2.12(b) of Shareholder's
Disclosure Schedules:
(i) the Company has at all times been in material compliance with each such
Permit;
(ii) no event has occurred or circumstance exists that could (with or without
notice or lapse of time) (A) constitute or result, directly or indirectly, in a violation of, or a
failure on the part of the Company to comply with, any such Permit, or (B) result, directly or
indirectly, in the revocation, suspension, cancellation, termination, or modification of any such
Permit, in each case that would reasonably be expected to have a Material Adverse Effect;
(iii) the Company has not received any notice or other communication
(whether oral or written) from any Governmental Authority or any other Person regarding
(A) any actual, alleged, or potential violation of, or failure to comply with, any such Permit, or
(B) any actual, proposed, or potentid revocation, suspension, cancellation, termination, or
modification of any such Permit, in each case that would reasonably be expected to have a
Material Adverse Effect; and
(iv) all applications required to have been filed for the renewal or reissuance of
the Permits necessary to permit the Company to continue to conduct its business in the manner in
which it conducts such business have been duly filed on a timely basis with the appropriate
Governmental Authorities, and all other filings required to have been made with respect to such
Permits have been duly made on a timely basis with the appropriate Governmental Authorities.
(c) The drinking water supplied by the Company to its customers is and has been in
compliance in all material respects with all applicable federal and state drinking water standards
and regulations, and the Company has all rights necessary to extract and deliver water to its
customers pursuant to existing agreements or applicable Law, and the Company has no reason to
believe that any such rights will be lost, revoked or compromised or will not be satisfied.
2.13 EnvironmentalMatters.
(a) The Company is in material compliance with all Environmental Laws
(b) Neither Company, nor any Shareholder or any other Person for whose conduct the
Company could be held responsible, has received from any Person any: (i) Environmental Notice
or Environmental Claim; or (ii) written request from a Govemmental Authority for information
pursuant to any Environmental Law.
9,1652083.10 00555?O4O4OB 15
Exhibit No. 2
J. Palfreyman, NW Natural
18
(c) Part 2.13(c) of Shareholder's Disclosure Schedules lists each Environmental
Permit that is held by the Company or that otherwise relates to the business of, or to any assets
owned or used by, the Company. The Company has obtained and is in material compliance with
all Environmental Permits necessary for the ownership, lease, operation or use of the business or
assets of the Company, and all such Environmental Permits are in full force and effect and will
be maintained in full force and effect through the Closing Date in accordance with all applicable
Environmental Laws. To Shareholder's Knowledge there is no condition, event or circumstance
related to Environmental Laws or Environmental Permits that might prevent or impede, after the
Closing Date, the ownership, lease, operation or use of the business or assets of the Company as
currently carried out. With respect to all Environmental Permits, Shareholder and the Company
have undertaken, or will undertake prior to the Closing Date, all measures necessary to ensure
that they continue in effect, and to Shareholder's Knowledge there is no condition, event or
circumstance that might prevent or impede their continued effectiveness. Neither the Company,
nor any Shareholder, has received any Environmental Notice or written communication
regarding any adverse change in the status or terms and conditions of the Environmental Permits
necessary for the ownership, lease, operation or use of the business or assets of the Company.
(d) No real property currently or formerly owned, operated or leased by the Company
is listed on, or has been proposed for listing on, the National Priorities List (or CERCLIS) under
CERCLA, or any similar state list.
(e) There has been no Release of Hazardous Materials in contravention of any
Environmental Law with respect to the business or assets of the Company or any real property
owned, operated or leased at any time by the Company, and none of the Company or any
Shareholder has received an Environmental Notice that any real property owned, operated or
leased at any time by the Company (including soils, groundwater, surface water, buildings and
other structure located on any such real property) has been contaminated with any Hazardous
Material which could reasonably be expected to rcsult in an Environmental Claim against, or a
material violation of any Environmental Law or term of any Environmental Permit by, the
Company or any Shareholder.
(f) To Shareholder's Knowledge, there is no condition, event or circumstance
concerning the Release or use of Hazardous Materials that might, after the Closing Date, prevent
or materially increase the costs associated with the ownership, lease, operation, performance or
use of the business or assets or Real Property of the Company as currently carried out.
(g) Except as used by the Company in the ordinary course of business and in
compliance with Law, to Shareholder's Knowledge there is no Hazardous Material present on or
under the Facilities or Easements.
(h) None of the Facilities contains any (i) above-ground or underground storage tanks
or (ii) landfills, surface impoundments, or disposal areas.
2.14 Employee Benefit Matters.
(a) Part2.l4(a) of Shareholder's Disclosure Schedules contains a true and complete
list, as of the Signing Date, of each "employee benefit plan" as defined by Section 3(3) of
Exhibit No.2
J. Paltreyman, NW Natural
94652083. I 0 0055570-(xXO8 I6
19
ERISA, and each other material employee severance, retirement, non-qualified deferred
compensation or fringe benefit plan, contract, agreement, practice, policy or arrangement, written
or oral and whether or not subject to ERISA, sponsored, maintained, contributed to or required to
be contributed to by the Company for the benefit of its directors, officers, employees or former
employees and their dependents or beneficiaries, other than plans established pursuant to statute
(each, a "Benefit Plan"). Part2.l4(a) of Shareholder's Disclosure Schedules identifies as such
any Benefit Plan that is (x) a plan intended to meet the requirements of Section 401(a) of the
Code or (y) a plan subject to Title IV of ERISA. Other than the Company, no corporation or
trade or business has been in the past five years controlled by, controlling, or under common
control with the Company within the meaning of Section 414 of the Code or Section 400I(aXla)
or 4001O) of ERISA. PartZ.l4(a) of Shareholder's Disclosure Schedules separately identifies
each Benefit Plan that contains a change in control provision.
(b) The Company has made available to NW Natural true, correct and complete
copies of (i) the material documents comprising each Benefit Plan or summary if unwritten;
(ii) all curent trust agreements, insurance contracts, or any other funding instruments rclated to
each Benefit Plan; (iii) the most recent favorable determination or opinion letter issued by the
lnternal Revenue Service; (iv) all notices to or from the Internal Revenue Service or any office or
representative of the Department of Labor or other applicable Governmental Authority relating
to any unresolved compliance issues in respect of any such Benefit Plan; (v) the most recent
actuarial and financial reports (audited and unaudited) and the annual reports filed with any
Governmental Authority with respect to each Benefit Plan during the current and prior year;
(vi) the most recent nondiscrimination tests performed under the Code; (vii) all current Contracts
with third-party administrators, actuaries, investment managers, consultants, or other
independent conractors that relate to each Benefit PIan; and (viii) the most recent summary plan
descriptions, summaries of material modifications and memoranda, summaries of benefits and
coverage, employee handbooks, and other current written communications regarding each
Benefit Plan.
(c) Each Benefit Plan has been established, and is administered and maintained, in
accordance with its terms and in compliance with all applicable laws (including ERISA, the
Code and any applicable local Laws) in all material respects (both in form and operation). Each
Benefit Plan that is intended to be qualified under Section 401(a) of the Code is so qualified and
has received a favorable and curent determination letter from the Internal Revenue Service or is
the subject of a favorable opinion letter from the Internal Revenue Service on the form of such
Benefit Plan, and to Shareholder's Knowledge, nothing has occurred with respect to the
operation of such Benefit Plan that has caused or would reasonably be expected to cause the loss
of such qualification or the imposition of any material penalty or Tax under ERISA or the Code
on the Company.
(d) Neither the Company nor is ERISA Affiliates sponsor or maintain or contribute
to or have any material liability with respect to any: (A) defined benefit "pension plan" (within
the meaning of Section 3(2) of ERISA) that is subject to Title IV or Section 302 of ERISA, or
Sections 412 and 430 of the Code, (B) "multiemployer plan" (within the meaning of
Section 3(37) of ERISA), (C) "multiple employer plan" (within the meaning of Section 413(c) of
the Code), or (D) any Benefit Plan primarily for the benefit of employees outside of the United
States. The Company does not maintain a self-funded "group health plan" (as such term is
94652oE3.rom555zo-fiN$ 17
Exhibit No. 2
J. Palfteyman, NW Natural
20
defined in Section 5000(bxl) of the Code)). All contributions and payments have been timely
made or accrued with rcspect to all Benefit Plans and are deductible under Code Section 162 or
4M,
(e) Therc is no pending or, to Shareholder's Knowledge, threatened Action relating to
a Benefit Plan (other than routine claims for benefits), and no Benefit Plan has been in the past
five years the subject of an audit by a Govemmental Authority or the subject of an application or
filing under or is a participant in, an amnesty, voluntary compliance or similar program or is
currently a participant in any self-correction program sponsored by any Governmental Authority.
(0 The Company is not a party to any agreement under which any employee or
independent contractor is entitled to any "gross-up" payment in respect of Taxes under Sections
4999 or 4O9A of the Code. No Benefit Plan is a "nonqualified defened compensation plan"
within the meaning of Section 409A of the Code.
(g) Neither the execution of this Agreement nor the occurrence of the Closing will
(A) entitle any employee to severance payable by the Company, (B) accelerate the time of
funding, vesting or payment of any benefits under any of the Benefit Plans or (C) result in any
payment in the nature of compensation that would, either alone or in combination with any other
payment, result in an "excess parachute paymenf' within the meaning of Section 280G(b) of the
Code to any Person.
(h) With respect to any Benefit Plan, there has been no prohibited transaction within
the meaning of Section 406 of ERISA or Section 4975 of the Code with respect to any Benefit
Plan that would subject the Company to any Tax or penalty (civil or otherwise) imposed by
ERISA or the Code.
(i) The Company has complied with the applicable continuation requirements for
each Benefit Plan in all material respects, including (i) Section 49808 of the Code and
Sections 601 through 608, inclusive, of ERISA (*COBRA") and (ii) any applicable state Laws
mandating welfare benefit continuation coverage for employees.
0) Other than the continuation coverage requirements of COBRA, the Company has
no obligation or potential liability for benefits to employees, former employees, or their
dependents following termination of employment or retirement under any health and welfare
Benefit Plan.
(k) All filings required by ERISA and the Code as to each Benefit Plan have been
timely filed, and all notices and disclosures to participants required by either ERISA or the Code
have been timely provided.
0) Each Benefit Plan contains authority to terminate which provides NW Natural
with the ability to terminate such Benefit Plan in the future, subject to compliance with all
applicable Laws.
2.15 EmploymentMatters.
(a) Part 2.15(a) of the Shareholder's Disclosure Schedules lists persons who are
946s2o83.rooo5557o,oo4os 18
Exhibit No. 2
J. Palfreyman, NW Natural
21
employees, independent contractors or consultants of the Company as of the date of this
Agreement, including any employee who is on a leave of absence of any nature, paid or unpaid,
authorized or unauthorized, and sets forth for each such individual who is an employee or
independent contractor the following: (A) n{Lme; (B) title or position (including whether full or
part time); (C) annual base compensation rate for 2017,2016 and 2015; and (D) hire date.
(b) The Company is in compliance in all material respects with all applicable Laws
pertaining to employment and employment practices, including all Laws relating to labor
relations, equal employment opportunities, fair employment practices, employment
discrimination, harassment, retaliation, reasonable accommodation, disability rights or benefits,
immigration, wages, hours, overtime compensation, child labor, hiring, promotion and
termination of employees, working conditions, meal and break periods, privacy, health and
safety, workers' compensation,leaves of absence and unemployment insurance. All individuals
characterized and treated by the Company as independent contractors or consultants are properly
treated as independent contractors under all applicable Laws. All employees of the Company
classified as exempt under the Fair I-abor Standards Act and state and local wage and hour laws
are properly classified. There are no Actions against the Company pending, or to Shareholder's
Knowledge, threatened in writing to be brought or filed, by or with any Governmental Authority
or arbitrator in connection with the employment of any current or former applicant, employee,
consultant, intern or independent contractor of the Company, including any claim relating to
unfair labor practices, employment discrimination, harassment, retaliation, equal pay, wage and
hours or any other employment related matter arising under applicable Laws.
(c) The Company is not, and has not been for the past two years, the subject of any
audit, investigation or enforcement action by any Governmental Authority in connection with
any Government Contract or related compliance with Executive Order No. 11246 of 1965,
Section 503 of the Rehabilitation Act of 1973 and the Vietnam Era Veterans' Readjustment
Assistance Act of 1974, including all implementing regulations. The Company has not been
debarred, suspended or othenrise made ineligible from doing business with the United States
government or any government contractor.
2.16 Taxes. Except as set forth in Part 2.16 of Shareholder's Disclosure Schedules:
(a) All Tax Returns required to be filed by applicable Law on or before the Closing
Date by the Company have been, or will be, timely filed. Such Tax Returns are, or if not filed as
of the Signing Date, will be, true, complete and correct in all material respects and comply or, if
not filed as of the Signing Date, will comply with all applicable Laws. No request for an
extension of time in which to file any Tax Return that relates to the Company has been filed,
which Tax Return has not since been filed. All Taxes due and owing, or asserted to be due and
owing by a Governmental Authority, by Shareholder or the Company (whether or not shown on
any Tax Return) have been, or will be, timely paid on or before the Closing Date. The charges,
accruals, and reserves with respect to Taxes on the accounting Records of the Company are
adequate and are at least equal to the Company's expected liability for Taxes.
(b) The Company is an S corporation for federal income tax purposes and in each
state, locality or other jurisdiction in which it files Tax Returns. The election to be treated as an S
corporation has been in effect for federal Tax purposes continuously since February 9, 2006 and
!r46i2o83.rooo5557o.m4o8 19
Exhibit No. 2
J. Palfreyman, NW Natural
22
has been in effect for state, local and other jurisdictions continuously at all times since such date
The Company will be an S corporation for all Tax purposes as of immediately before the
Closing.
(c) The Company has timely withheld and rernitted all Taxes required to have been
withheld and remitted in connection with amounts paid or owing to any employee, independent
- contractor, creditor, customer, vendor, shareholder or other party, and has complied with all
information reporting ;und backup withholding provisions of applicable Law.
(d) No claim has been made by any taxing authority in any jurisdiction where the
Company does not file Tax Returns that it is, or rnay be, subject to Tax by that jurisdiction, nor
to Shareholder's Knowledge is there any reasonable basis for such a claim.
(e) No extensions or waivers of statutes of limitations for the assessment or collection
of Taxes arc currently outstanding with respect to any Taxes or Tax Returns of the Company.
(f) Part 2.16(0 of Shareholder's Disclosure Schedules sets forth and identifies
(i) all audits of all Tax Returns of the Company, including a description of
the nature and, if completed, the outcome of each audit since January 1,2A12. The Company has
delivered to NW Natural copies of all reports, statements of deficiencies. evidences of payment
of the deficiencies, appeals and similar items with resp€ct to such audits. Part 2.16(f) of
Shareholder's Disclosure Schedules describes all adjustments to any Tax Return made with
respect to the Company for all taxable years and periods since January l,?012, and the resulting
deficiencies proposed by the Internal Revenue Service or other Governmental Authority. To
Shareholder's Knowledge. no Governmental Authority will assess any additional Taxes for any
period for which Tax Returns have been filed by the Company.
(g) All deficiencies (including interest, additions to t,rx, penalties and fees) asserted,
or assessments made. against any Shareholder or the Company as a result of any examinations or
adjustments by any taxing authority of the Tax Retums filed by. or reporting income with respect
to the operations of, the Company have been fully paid.
(h) The Company is not a party to any Action with a taxing authority. There are no
pending Actions against the Company in respect of Taxes and the Company has not received any
written notice of any threatened Action in respect of Taxes.
(i) The Company has delivered to NW Natunal copies of (i) all federal, state, local
;urd foreign income, and franchise Tax Returns of the Cornpany for all Tax periods ended after
December 31,2013, and (ii) all employment and similar Tax Returns of the Company for all Tax
periods ended after December 31, 2013.
(-i) There are no Encumbrances for Taxes {other than for current Taxes not yet due
and payable) upon the assets of, or filed against Shareholder or the Company.
(k) No private letter rulings, technical advice memoranda, closing agrcements or
similar writings, agreements or rulings have been requested of, or entered into or issued by, any
taxing authority with respect to the Company.
9465:o83.rooo5557o-oo4oE 20
Exhibit No. 2
J. Palfreyman, NW Natural
23
(l) None of the Company or any Shareholder is a party to, or bound by, any Tax
indemnity, Tax sharing, Tax allocation or similar agreement. The Company has never been a
member of an affiliated, combined, consolidated or unitary Til( group for Tax purposes. The
Company has no Liability for Taxes of any Person (other than itself) under Treasury Regulations
Section 1.1502-6 (or any corresponding provision of state, local or foreign Law), as transferee or
successor, by contract or othenpise.
(m) The Company will not be required to include any item of income in, or exclude
any item of deduction from, taxable income for any taxable period or portion thereof ending after
the Closing Date as a result of:
(i) any change in a method of accounting under Section 481 of the Code (or
any comparable provision of state, local or foreign Tax Laws), or use of an improper method of
accounting, for a ta:rable period ending on or prior to the Closing Date;
(ii) an installment sale or open transaction occurring on or prior to the Closing
Date, other than the conversion of the Shares into the Merger Consideration pursuant to this
Agreement;
(iii) a prepaid amount received on or before the Closing Date;
(iv) any closing agreement under Section 7121 of the Code, or similar
provision of state, local or foreign Law; or
(v) any election under Section 108(i) of the Code.
(n) Shareholder is a "United States person" as such term is used in Section 1445 of
the Code.
(o) The Company is not, and has not been, a party to, or a promoter of, a "reportable
transaction" or a "listed transaction" within the meaning or intent of Section 6707A(c)(l) of the
Code and Treasury Regulations Section 1.601l4O) or othenrise identified as a tax avoidance
transaction.
(p) The Company is not subject to Tax or engaged in business in any foreign
jurisdiction. The Company has not entered into a gain recognition agreement pursuant to
Treasury Regulations Section 1.367(a)-8. The Company has not transferred an intangible, the
transfer of which would be subject to the rules of Section 367(d) of the Code.
(q) No power of attomey has been granted by the Company with respect to any
matter relating to Taxes which is currently in force.
2.17 Brokers. No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Transaction based upon anangements
made by or on behalf of any Shareholder or the Company.
2.lE Accredited Investor Status. Shareholder is an "accredited investor" as defined in
Rule 501 of Regulation D promulgated under the Securities Act. Shareholder is purchasing
9rl652O83.tOOO5557O-m4o8 2l
Exhibit No.2
J. Palfreyman, NW Natural
24
shares of NW Natural common stock (the "NlV Natural Shares") for is own account, for
investment purposes only and has no current arrangements or understandings for the resale or
distribution to others and will only resell the NW Natural Shares or any part thereof pursuant to a
registration or an available exemption under applicable I-aw. Shareholder acknowledges that the
offer and sale of the NW Natural Shares, which are issued or transferred as the Merger
Consideration in the Merger, have not been registered under the Securities Act or the securities
Laws of any state or other jurisdiction, and that the NW Natural Shares are being offered and
sold pursuant to an exemption from registration contained in the Securities Act, and cannot be
disposed of unless they are subsequently registered under the Securities Act and any applicable
state Laws or an exemption from such registration is available. Shareholder understands and
agrees that NW Natural may issue a stop-transfer instruction to its transfer agent with rcspect to
the NW Natural Shares or place a legend on the NW Natural Shares, if certificated, substantially
similar to the legend set forth below in addition to any other legend that may be required by
applicable Law:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE TRANSFERRED EXCEPT (A) PURSUANT TO AN
EFFECTWE REGISTRATION UNDER THE SECI.JRITIES ACT
OF 1933, AND APPLICABLE STATE SECURITIES LAWS, OR
(B) n{ A TRANSACTTON WHICH IS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933
AND APPLICABLE STATE SECURITIES LAWS.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF NW NATURAL
Except as set forth in the correspondingly numbered Part of NW Natural's Disclosure
Schedules, NW Natural represents and warrants to Shareholder that the statements contained in
this Section 3 are tnre and correct as of the Signing Date and as of the Closing Date (except
those reprcsentations and waranties that address matters only as of a specified date, which are
uue and corect only as of such date).
3.01 Organization and Authority of N\tr Nafural. NW Natural is a corporation duly
organized and validly existing under the Laws of the state of Oregon; Water Platform is a limited
liability company duly organized and validly existing under the Laws of the state of Oregon; and
Merger Sub is a is a corporation duly organized and validly existing under the l-aws of the state
of Idaho. Each of NW Natural, Water Plafform and Merger Sub has full corporate or limited
liability company power and authority to enter into the NW Natural Transaction Documents, to
carry out their respective obligations thereunder and to complete the transactions contemplated
thereby. The execution and delivery by NW Natural, Water Platform and Merger Sub of the NW
Natural Transaction Document, the perforrrance by NW Natural, Water Platform andMerger Sub
of their respective obligations thereunder and the completion by NW Natural, Water Platform
and Merger Sub of the transactions contemplated thereby have been duly authorized by all
Exhibit No. 2
J. Palfreyman, NW Natural
94652083. I O 0055570-m40E 22
25
requisite corlrorate action on the part of NW Natural, Water Platform and Merger Sub. This
Agreement has been duly executed and delivered by NW Natural, Water Platform and Merger
Sub and (assuming due authorization, execution and delivery by Shareholder and the Company)
this Agreement constitutes a legal, valid and binding obligation of NW Natural, Water Platform
and Merger Sub enforceable against them in accordance with its terms, except insofar as
enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar Laws affecting creditors' rights generally, or by principles governing the availability
of equitable remedies. When each other ItlW Natural Transaction Document has been duly
executed and delivered by NW Natural, Water Platform and Merger Sub (assuming due
authorization, execution and delivery by each other party thereto), such NW Natural Transaction
Document will constitute a legal and binding obligation of NW Natural, Water Platform and
Merger Sub enforceable against them in accordance with its terms.
3.02 No Conflicts; Consents. The execution, delivery and performance by NW
Natural, Water Platform and Merger Sub of the NW Natural Transaction Documents, and the
completion of the transactions contemplated thereby, do not and will not: (a) conflict with or
result in a violation or breach of, or default under, any provision of the Organizational
Documents of NW Natural, Water Platform or Merger Sub; (b) conflict with or result in a
violation or breach of any provision of any I-aw or Governmental Order applicable to NW
Natural, Water Platform or Merger Sub; or (c) except for consents in connection with the PUC
Approvals and as set forth in Part 3.02 of NW Natural's Disclosure Schedules, require the
consent, notice or other action by any Person under any Contract to which NW Natural, Water
Platform or Merger Sub is a party. No consent, approval, Permit, Governmental Order,
declaration or filing with, or notice to, any Governmental Authority is required by or with
respect to NW Natural, Water Platform or Merger Sub in connection with the execution and
delivery of this Agreement and the other NW Natural Transaction Documents and the
completion of the transactions contemplated hereby and thereby, except for such filings as may
be required with the IPUC, the OPUC and the WUTC and such consents, approvals, Permits,
Governmental Orders, declarations, filings or notices which, in the aggregate, if not obtained,
would not have a NW Natural Material Adverse Effect.
3.03 Brokerc. No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Transaction based upon iurangements
made by or on behalf of NW Natural, Water Platform or Merger Sub.
3.M Legal Proceedings. There are no Actions pending or, to NW Natural's
knowledge, threatened in writing against or by NW Natural or any Affiliate of NW Natural that
challenge or seek to prevent, enjoin or otherwise delay the Transaction. No event has occurred or
circumstances exist that may give rise or serve as a basis for any such Action.
SECTION 4
COVENANTS OF TIM COMPANY AND SHAREHOLDER
4.01 Conduct of Business Prior to the Closing.
(a) From the Signing Date until the Closing or termination of this Agreement, except
Exhibit No. 2
J. Palfreyman, NW Natural
94652083. r 0 0055570"fiX08 23
26
as otherwise provided in this Agreement or consented to in writing by NIV Natural (which
consent shall not be unreasonably conditioned, withheld or delayed) and except as required by
applicable Law, the Company and Shareholder shall, and shall cause (to the fullest extent
possible under Law) the Company to, (x) conduct its business in the ordinary course of business
consistent with past practice; and (y) use commercially reasonable best efforts to preserve intact
its current operations, organization, business and goodwill and to preserve the rights and
relationships of its employees, customers, lenders, suppliers, and regulators. Without limiting the
foregoing, from the Signing Date until the Closing Date or termination of this Agreement, the
Company shall, and Shareholder shall cause the Company to:
(i) pay its debts, Taxes and other obligations when due;
(ii) except for in-progress construction, maintain the properties and assets
owned, operated or used by it in the same condition in all material respects as they were on the
Signing Date, subject to reasonable wear and tear;
(iii) continue in full force and effect without material modification all
Insurance Policies, except as required by applicable Law;
(iv) perform in all material rcspects all of is obligations under all Material
Contracts;
(v) maintain its books and records in accordance with past practice and
continue to collect accounts receivable and pay accounts payable using procedures consistent
with past practices;
(vi) comply with applicable Laws and Permits and preserve all Permits;
(vii) preserve the Company's status as an S corporation; and
(viii) not to take or permit any action that would knowingly cause any of the
changes, events or conditions described in Section 2.076 to occur.
(b) Without limiting the generality of the foregoing, except as othenrise provided in
or required by this Agreement or with the prior written consent of NW Natural in writing (which
consent shall not be unreasonably conditioned, withheld or delayed) and except as required by
applicable Law, Shareholder (with respect to clauses below that relate to the Shares) and the
Company shall not:
(i) declare, set aside, make or pay any dividend or other distribution in
respect of the capital stock of, or other equity interests in, the Company;
(i0 transfer, issue, sell, pledge, encumber or dispose of any shares of capital
stock or other securities of, or other equity interests in, the Company or grant options, warrants,
calls or other rights to purchase or otherwise acquire shares of the capital stock or other securities
of, or other equity interests in, the Company;
(iii) effect any recapitalization, reclassification, stock split, combination or like
9.r5s2o83.tooo5s5zo{n408 24
Exhibit No. 2
J. Palfreyman, NW Natural
27
change in the capitalization of the Company, or amend the terms of any outstanding securities of
the Company;
(iv) amend the Organizational Documents of the Company;
(v) except as set forth in Part 4.01(bXv) of Shareholder's Disclosure
Schedules or to the extent it is included in Closing Working Capital (A) increase the salary or
other compensation of any director, manager or employee of the Company, except in the
ordinary course ofbusiness, (B) grant any unusual or extraordinary bonus, benefit or othcr direct
or indirect compensation to any director, or manager of the Company, (C) increase the coverage
or benefits available undcr any (or create any new) Benefit Plan or otherwise modify or amend or
terminate any such Benefit Plan except in the ordinary course of business, or (D) enter into any
employment, deferred compensation, severance, special pay, consulting, non-competition or
similar agreement or arrangement with any directors or officers of the Company (or amend any
such agreement to which of the Company is a party), except in the ordinary course of business;
(vi) except as set forth in Part 4.0f OXvi) of Shareholder's Disclosure
Schedules (A) issue, create, incur, aisume, guarantee, endorse or otherwise become liable or
responsible with respect to (whether directly, contingently or otherwise) any Indebtedness,
except in the ordinary course ofbusiness; (B) pay, repay, discharge, purchase, repurchase or
satisfy any Indebtedness of the Company, except in the ordinary course of business; (C) modify
the terms of any Indebtedness or other Liability in any material aspect; or (D) default under any
Indebtedness of the Company; in each case (A) - (C) above, except as provided in Section
6.01(h) (Payoff lrners);
(vii) subject to any Encumbrance except Permitted Encumbrances or otherwise
encumber, any material properties or assets of the Company;
(viii) adopt a plan of complete or partial liquidation, dissolution, restructuring,
recapitalization or other reorganization or alter the corporate structure of the Company;
(ix) acquire any material properties or assets;
(x) sell, assign, license, transfer, convey, lease or othenrise dispose of any of
the properties or assets of, or used by, the Company, other than in the ordinary course of business
consistent with past practices;
(xi) except in the ordinary course of business, cancel or compromise any debt,
liability or claim or waive or release any material right of the Company, except for the
cancellation or compromise of any debt, liability or claim (A) in accordance with its terms,
(B) not in excess of $50,000 in the aggregate, and (C) disclosed, reflected or reserved against in
the Financial Statements;
(xii) introduce any material change with respect to the operation of the
Company involving any material change in the types, nature, composition or quality of its
products or services, or, other than in the ordinary course of business, make any material change
in product or service prices or tenns or materially change its pricing, discount, or allowance
policies or grant any material pricing, discount, or allowance for any customer or supplier not in
946s2og3.rom5557o{xx0t 25
Exhibit No. 2
J. Palfreyman, NW Natural
28
accordance with such policies;
(xiii) enter into any material transaction or enter into, modify or renew any
Contract which by reason of its size, nature or otherwise is not in the ordinary course of business;
(xiv) except for transfers of cash pursuant to normal cash management practices
in the ordinary course of business, make any investrnents in or loans to, or pay any fees or
expenses to, any Shareholder or any Affiliate;
(xv) make a change in its accounting or Tax reporting principles, methods or
policies
(xvi) enter into any Contract, understanding or commitment that restrains,
restricts, limits or impedes the ability of the Company to compete with or conduct any business
or line of business in any geographic area or solicit the employment of any persons;
(xvii) except in the ordinary course of business, terminate, amend, restate,
supplement or waive any rights under any (A) Material Contract or (B) Permit;
(xviii) settle or compromise any pending or threatened Action or any claim or
claims for, or that would result in a loss of revenue of, an amount that could reasonably be
expected to be greater than $50,000 in the aggregate;
(xix) except in the ordinary course of business, materially change or modify its
credit, collection or payment policies, procedures or practices, including receivables factoring
(with or without recourse) or acceleration of collections of receivables (whether or not past due)
or fail to pay or delay payment of payables or other liabilities;
(xx) take any action that would materially adversely affect the ability of
Shareholder or of the Company to complete the Transaction; or
(xxi) agree to do anything (A) prohibited by this Section 4.01(b), (B) which
makes any of the representations and warranties of Shareholder in any of the Shareholder
Transaction Documents untrue or incorrect or that would reasonably be expected to result in any
of the conditions to the Closing not being satisfied or (C) that would be reasonably expected to
have a Material Adverse Effect.
Exhibit No. 2
J. Palfreyman, NW Natural
29
4.02 Access to Infomation. From the Signing Date until the Closing or the
termination of this Agfeement, Sharcholder and the Company shall (a) afford NW Natural and its
Representatives reasonable access, during normal business hours and upon reasonable prior
notice, to and the right to inspect all of the Real Property, properties, assets, premises, books and
records, Contracts and other documents and data related to the Company; (b) furnish NW
Natural and its Representatives with such financial, operating and other data and information
related to the Company as NW Natural or any of its Representatives may reasonably request
(including at least three full years of financial statements); and (c) instruct the Representatives of
Shareholder and the Company to reasonably cooperate with NW Naturat in its due diligence
investigation of the Company. Without limiting the foregoing, the Company shall permit NW
Natural and its Representatives to conduct all necessary environmental due diligence of the
94f52083.r0 oo5557uxxoo 26
Company and the Real Property, including a review of all pertinent records, the collecting and
analysis of samples of indoor or outdoor air, surface water, groundwater or surface or subsurface
land on, at, in, under or from the Company and the Real Property, and a Phase I, and if necessary
a Phase II, environmental audit with respect to each parcel included therein; provided, rftzr, NW
Natural shall not conduct any invasive testing without Shareholder's prior written consent (which
shall not be unrcasonably withheld, delayed or conditioned) and NW Natural shall restore the
Real Property to the same condition it was in immediately prior to such testing at NIW Natural's
sole cost and expense. Any investigation pursuant to this Section 4.02 shall be conducted in such
manner as not to interfere unrcasonably with the conduct of the business of the Company and in
a manner consistent with applicable Law and provisions of leases or other Contracts applicable
to such investigations, if any. Notwithstanding anything to the contrary contained in this
Section 4.02, without the prior consent of Shareholder (which consent shall not be unrcasonably
withheld, conditioned or delayed), NW Natural shall not contact any employee of, lenders to,
suppliers to (including manufacturers), orcustomers of, the Company or make a site visit to any
of the locations of the Company.
4.03 No Solicitation of Other Bids.
(a) Except as required by applicable Law, none of the Company or any Shareholder
shall, and shall not authorize or permit any of its Affiliates or any of their respective
Representatives to, directly or indirectly, (i) encourage, solicit, initiate, facilitate or continue
inquiries regarding an Acquisition Proposal; (ii) enter into discussions or negotiations with, or
provide any information to, any Person concerning a possible Acquisition Proposal; or (iii) enter
into any agreements or other instruments (whether or not binding) regarding an Acquisition
Proposal. Shareholder and the Company shall immediately cease and cause to be terminated, and
shall cause its Affiliates and all of their respective Representatives to immediately cease and
cause to be terminated, all existing discussions or negotiations with any Persons conducted
heretofore with respect to an Acquisition Proposal. An "Acquisition Proposal" means any
inquiry, proposal or offer from any Person (other than NW Natural or any of its Affiliates)
concerning (i) a merger, consolidation, liquidation, recapitalization, share exchange or other
business combination transaction involving the Company; (ii) the issuance or acquisition of
shares of capital stock or other equity securities of the Company; or (iii) the sale, Iease, exchange
or other disposition of any significant portion of the properties or assets of the Company.
(b) In addition to the other obligations under this Section 4.03, the Company or a
Shareholder shall promptly (and in any event within three Business Days after receipt thereof by
the Company or a Shareholder) advise NW Natural in writing of any Acquisition Proposal, any
request for information with respect to any Acquisition Proposal, or any inquiry with respect to
or which could reasonably be expected to result in an Acquisition Proposal, the material tenns
and conditions of such request, Acquisition Proposal or inquiry, and the identity of the Person
making the same.
(c) Each of the Company and Sharcholder agrees that the rights and remedies for
noncompliance with this Section 4.03 shall include having such provision specifically enforced
by any court having equity jurisdiction, it being acknowledged and agreed that any such breach
or threatened breach shall cause irreparable injury to NW Natural and that money damages
would not provide an adequate remedy to NW Natural.
Exhibit No. 2
J. Palfreyman, NW Natural
946520E3. I 0 0055570-q)408 27
30
4.04 Notice of Certain Events.
(a) From the Signing Date until the Closing or termination of this Agreement,
Shareholder and the Company shall reasonably promptly notify NW Natural in writing of:
(i) any fact, circumstance, event or action the existence, occurrence or taking
of which (A) has had, or would reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect, (B) has resulted in, or could reasonably be expected to result in, any
representation or walranty made by any Shareholder or the Company hereunder not being true
and correct, or (C) has resulted in, or could reasonably be expected to result in, the failure of any
of the conditions set forth in Section 6.01 to be satisfied;
(ii) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the Transaction;
(iii) any notice or other communication from any Governmental Authority in
connection with the Transaction;
(iv) any Actions commenced or, to Shareholder's Knowledge, threatened
against, relating to or involving or otherwise affecting the Company or any Shareholder that, if
pending on the Signing Date, would have been required to have been disclosed pursuant to
Sectlon 2,16 or that relates to the completion of the Transaction; and
(v) any renegotiation of, attempt to renegotiate, or exercise by the Company
of any outstanding right to renegotiate any Material Contract with any Person, or written demand
by any Person for such renegotiation, except in the ordinary course of business where such
renegotiation of the Material Contract results in terms no less beneficial to the Company than the
curent terms of such Material Contract.
(b) NW Natural's receipt of information pursuant to this Section 4.M (unless such
information is also included in any updated Shareholder's Disclosure Schedules delivered by
Shareholder to NW Natural pursuant to Section 2) shall not opente as a waiver or otherwise
affect any representation, warranty or agreement given or made by the Company or any
Shareholder in this Agreement (including Section E.02).
4.05 Confidentiality. From and after the Closing, Shareholder shall, and shall cause its
Affiliates to, hold, and shall use its reasonable best efforts to cause its Representatives to hold, in
confidence any and all material information, whether written or oral, concerning the Company,
except to the extent that such information (a) is generally available to and known by the public
through no fault of a Shareholder, any Affiliate of a Shareholder, or their respective
Representatives; or (b) is lawfully acquired by Shareholder from and after the Closing from
sources which are not prohibited from disclosing such information by a legal, contractual or
fiduciary obligation. If any Shareholder or any of their Affiliates or Representatives are
compelled to disclose any information by judicial or administrative process or by other
requirements of Law, Shareholder shall promptly notify NW Natural in writing and shall disclose
only that portion of such information which Shareholder is advised by its legal counsel in writing
is legally required to be disclosed, provided that,if requested and authorized by NW Natural,
Shareholder shall use rcasonable best efforts, at NW Natural's sole cost and expense, to obtain
e4652083.r0 oo555zo-@4oB 28
Exhibit No. 2
J. Palfreyman, NW Natural
31
an appropriate protective order or other reasonable assurance that confidential treatment will be
accorded such information.
4.06 Non-Competition; Non-Solicitation.
(a) For a period of five years commencing on the Closing Date (the "Restricted
Period"), Shareholder shall not, and shall not permit any of its Affiliates (excluding, for
purposes of this Section 4.066, any historical employees of the Company) to, dircctly or
indirectly, (i) engage in or assist others in engaging in the Restricted Business in the Territory;
(ii) have an interest in any Person that engages directly or indirectly in the Restricted Business in
the Territory in any capacity, including as a partner, shareholder, member, employee, principal,
agent, trustee or consultant; or (iii) intentionally interfere in any material respect with the
business relationships (whether formed prior to or after the Signing Date) betneen the Company
and customers or suppliers of the Company. Notwithstanding the foregoing, a Shareholder may
own, directly or indirectly, solely as an investment, securities of any Person traded on any
national securities exchange if such Shareholder is not a controlling Person of, or a member of a
group which controls, such Person and does not, directly or indirectly, own 5Vo or more of any
class of securities of such Person.
(b) During the Restricted Period, a Shareholder shall not, and shall not permit any of
its Affiliates to, directly or indirectly, hire or solicit any employee or consultant of the Company
or NW Natural or encourage any such employee or consultant to terminate his relationship with
the Company or NW Natural orhire any such employee who has left such employment, except
pursuant to a general solicitation which is not dirccted specifically to any such employees or
consultants.
(c) Shareholder acknowledges that a breach or threatened breach of this Section
4.066 would give rise to irreparable harm to NW Natural, for which monetary damages would
not be an adequate remedy, and hereby agrees that in the event of a breach or a threatened breach
by such Shareholder of any such obligations, NW Natural shall, in addition to any and all other
rights and remedies that may be available to it in respect of such breach, be entitled to equitable
relief, including a temporary restraining order, an injunction, specific performance and any other
relief that may be available from a court of competent jurisdiction (without any requirement to
post bond).
(d) Shareholder acknowledges that the restrictions contained in this Section 4.06 are
reasonable and necessary to protect the legitimate interests of NW Natural and constitute a
material inducement to NW Natural to enter into this Agreement and complete the Transaction.
If any covenant contained in this Section 4.066 should ever be adjudicated to exceed the time,
geographic, product or service, or other limitations perrritted by applicable Law in any
jurisdiction, then any court is expressly empowered to reform such covenant, and such covenant
shall be deemed reformed, in such jurisdiction to the maximum time, geographic, product or
service, or other limitations permitted by applicable Law. The covenants contained in this
Section 4.066 and each provision hereof are severable and distinct covenants and provisions.
The invalidity or unenforceability of any such covenant or provision as written shall not
invalidate or render unenforceable the remaining covenants or provisions hereof, and any such
invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such
Exhibit No. 2
J. Palfreyman, NW Natural
94652083. tO 0055570-00408 29
32
covenant or provision in any other jurisdiction.
4.07 Governmental Approvals and Consents.
(a) Shareholder shall, and shall cause the Company to, as promptly as reasonably
practicable and in coordination with NW Natural, use its commercially reasonable best efforts to
obtain, or cause to be obtained, all consents, authorizations, orders and approvals from all
Governmental Authorities that may be or become necessary for Shareholder's and the
Company's execution and delivery of this Agfeement, the performance of Shareholder's and the
Company's obligations pursuant to this Agreement and the other Shareholder Transaction
Documents and the completion of the Transaction. Shareholder shall, and shall cause the
Company to, cooperate fully with NW Natural and its Affiliates in promptly seeking to obtain all
such consents, authorizations, orders and approvals. Neither the Company nor any Shareholder
shall, nor shall they permit the Company to, take any action that will have the effect of materially
delaying, impairing or impeding the receipt of any required consents, authorizations, orders and
approvals.
(b) Shareholder and the Company shall use commercially reasonable best efforts to
give all notices to, and obtain all consents from, all third parties that are described in Part 2.04
or Part 3.02 of the Disclosure Schedules.
(c) The Company and Shareholder shall promptly request from the lnternal Revenue
Service, and shall pursue diligently and in good faith, a determination that any termination or
invalidity of the Company's election to be an S corporation was inadvertent, and that the
Company is an S corporation for federal income tax purposes and in each state, locality or other
jurisdiction in which it files Tax Returns.
4.08 Books and Records.
(a) To facilitate the resolution of any claims made by or against or incurred by NW
Natural or the Company after the Closing, or for any other reasonable purpose, for a period equal
to the statute of limitations referenced in Section 7.056 following the Closing, Shareholder shall:
(i) rctain the book$ and records (including personnel files) of such Person
which relate to the Company and its operations for periods prior to the Closing; and
(ii) upon reasonable notice, afford the Representatives of NW Natural and the
Company reasonable access (including the right to make, at NW Natural's expense,
photocopies), during normal business hours, to such books and records;
provided, however, that any books and records related to Tax matters shall be retained pursuant
to the periods set forth in Section 7.
(b) Notwithstanding the foregoing, Shareholder, shall not be obligated to provide NW
Natural with access to any books or records (including personnel files) pursuant to this
Section 4.0t where such access would violate any Law.
4.09 Delivery of Shareholder's Disclosure Schedules. Shareholder and the Company
9,1652ffi3.t0 fl)5557(Mn40s 30
Exhibit No. 2
J. Palfreyman, NW Natural
33
shall deliver to NW Natural the Shareholder's Disclosure Schedules as promptly as possible. The
Shareholder's Disclosure Schedules shall be deemed to have been delivered on the first business
day after NW Natural has received complete Shareholder Disclosure Schedules accompanied by
written affirmation of Shareholder that they are complete.
4.10 Closing Conditions. From the Signing Date until the Closing or the termination
of this Agreement, Shareholder and the Company shall use commercially reasonable best efforts
to take such actions as are necessary to expeditiously satisfy the closing conditions set forth in
Section 6 hereof.
4.ll hrblic Announcements. Unless otherwise required by applicable Law, neither
the Company nor any Shareholder shall, and none shall permit its Affiliates to, make any public
announcements in respect of this Agreement or the transactions contemplated hereby or
otherwise communicate with any news media without the prior written consent of NW Natural,
and the parties shall cooperate as to the timing and contents of any such announcement.
4.12 Further Assurances. Following the Closing, Shareholder shall, and shall cause
his Affiliates, to execute and deliver such additional documents, instruments, conveyances and
assurances and take such further actions as may be reasonably required to carry out the
provisions hereof and give effect to the Transaction.
SECTION 5
COVENANTS OF NW NATI'RAL
5.0f Governmental Approvals and Consents.
(a) NW Natural shall, as promptly as reasonably practicable and in coordination with
Shareholder and the Company, (i) make, or cause or be made, all filings and submissions
required under any Law applicable to NW Natural or any of its Affiliates; and (ii) use
commercially reasonable best efforts to obtain, or cause to be obtained, all consents,
authorizations, orders and approvals from all Governmental Authorities that may be or become
necessary for NW Natural's execution and delivery of this Agreement, the performance of NW
Natural's obligations pursuant to this Agreement and the other NW Natural Transaction
Documents and the completion of the Transaction. NW Natural shall cooperate fully with
Shareholder, the Company and each of their respective Affiliates in promptly seeking to obtain
all such consents, authorizations, orders and approvals. NW Natural shall not willfully take any
action that will have the effect of materially delaying, impairing or impeding the receipt of any
required consents, authorizations, orders and approvals.
(b) NW Natural shall use commercially reasonable best efforts to give all notices to,
and obtain all consents from, all third parties that are described in Part 2.M of Shareholder's
Disclosure Schedules and Part 3.02 of NW Natural's Disclosure Schedules, including granting
any customary guarantees.
(c) Without limiting the generality of NW Natural's undertakings pursuant to
subsections (a) and (b) above, as soon as possible and in any event not later than 60 days after
the date of this Agreement, NW Natural shall file an application with the IPUC and, if necessary,946s2oE3.rooosss7o-m408 31
Exhibit No. 2
J. Palfreyman, NW Natural
34
the OPUC and the WUTC (the "PUC Applications") requesting approval of transactions
contemplated by this Agreement and the recovery and treatment of costs to be incurred under
this Agreement (and, for the avoidance of doubt, not including any requess with respect to any
other agreement or transaction of or involving NW Natural other than in connection with this
Agreement). NW Natural shall use commercially reasonable efforts to:
(i) respond to any inquiries by the IPUC, the OPUC or the WIJTC regarding
the Transaction or by any other Governmental Authority regarding other matters with rcspect to
the Transaction or any NW Natural Transaction Document;
(ii) avoid the imposition of any order or the taking of any action that would
restrain, alter or enjoin the Transaction; and
(iii) if any Governmental Order adversely affecting the ability of the parties to
complete the Transaction or any NW Natural Transaction Document has been issued, to have
such Governmentd Order vacated or lifted.
S.O2 Closing Conditions. From the Signing Date until the Closing or the termination
of this Agreement, NW Natural shall use commercially reasonable best efforts to take such
actions as are necessary to expeditiously satisfy the closing conditions set forth in Section 6.02
hereof.
5.03 Books and Records.
(a) To facilitate the resolution of any claims made against or incurred by Shareholder
before the Closing, or for any other reasonable purpose, for a period equal to the statute of
limitations period referenced in Section 7.05 after the Closing, NW Natural shall:
(i) retain the books and records (including personnel files) of the Company
relating to periods prior to the Closing in a manner reasonably consistent with the prior practices
of the Company; and
(ii) upon reasonable notice, afford Shareholderreasonable access (including
the right to make, at Shareholder's expense, photocopies), during normal business hours, to such
books and records;
provided, however, that any books and records related to Tax matters shall be retained pursuant
to the periods set forth in Section 7.
(b) Notwithstanding the foregoing, NW Natural shall not be obligated to provide
Shareholder with access to any books or records (including personnel files) pursuant to this
Section 5.03 where such access would violate any Law.
5.04 Employee Matterc. As of the Closing Date, NW Natural shall, or shall cause the
Company or one of NW Natural's Affiliates to, offer to continue to employ each of the Company
employees listed in Schedule 5.04 (a "Company Employee") with tcrms and conditions of
employment such that such Company Employee (i) receives compensation not less than such
Company Employee's annualized base salary or base rate of pay immediately before the Closing
9,f6i2o83.rooos5s7o-@rog 32
Exhibit No. 2
J. Palfreyman, NW Natural
35
Date, and (ii) is eligible to receive employee benefits that are no less favorable to the Company
Employee, in the aggregate, than those for which such Company Employee was eligible
immediately before the Closing Date. Each Company Employee employed by the Company
immediately before the Closing Date (x) shall be employed by NW Natural, the Company or one
of NW Natural's Affiliates for a period of at least two year following the Closing Date
$trovided,however,that NW Natural, the Company or one of NW Natural's Affiliates may
terminate the employment of any Company Employee for cause during such period) and
(y) shall, for at least one year following the Closing Date, receive compensation and employee
benefits on the terms described in the preceding sentence.
5.05 Further Assurances. Following the Closing, NW Natural shall, and NW Natural
shall cause its Affiliates to, execute and deliver such additional documents, instruments,
conveyances and assurances and take such further actions as may be reasonably required to carry
out the provisions hereof and give effect to the Transaction.
SECTION 6
CONDITIONS TO CLOSING
6.01 Conditions to Obligations of NW Natural. The obligations of NW Natural to
complete the Transaction is subject to the fulfillment or NW Natural's waiver, at or prior to the
Closing, of each of the following conditions:
(a) The representations and warranties of Shareholder and the Company contained in
this Agreement, the other Shareholder Transaction Documents and any certificate or other
writing delivered pursuant hereto shall be true and correct in all respects (without giving effect to
any qualifications or limitations as to materiality or Material Adverse Effect) on and as of the
Signing Date and on and as of the Closing Date with the same effect as though made at and as of
such date (except those representations and warranties that address matters only as of a specified
date, the accuracy of which shall be determined as of that specified date in all respects), except
where the failure to be true or correct has not had a Material Adverse Effect on the Company.
(b) Shareholder and the Company shall have duly performed and complied in all
material respects with all agreements, covenants and conditions required by this Agreement and
each of the other Shareholder Transaction Documents to be performed or complied with by it
prior to or on the Closing Date; provided that,with respect to agreements, covenants and
conditions that are qualified by materiality, Shareholder and the Company shall have performed
such agreements, covenants and conditions, as so qualified, in all respects.
(c) No injunction or restraining order shall have been issued by any Governmental
Authority, and be in effect, which prohibits the consummation of the Transaction or any material
aspect thereof.
(d) From the Signing Date, there shall not have occurred any Material Adverse Effect
on the Company, nor shall any event or events have occurred that, individually or in the
aggregate, with or without the lapse of time, would reasonably be expected to result in a Material
Adverse Effect on the Company.
Exhlbit No. 2
J. Palfreyman, NW Natural
36
94652083. r 0 m55570-m408 33
(e) The Transaction Documens shall have been executed and delivered by the parties
thereto (other than NW Natural) and true and complete copies thereof shall have been delivered
to NW Natural.
(0 NW Natural shall have received a certificate, dated the Closing Date and signed
by Shareholder, that each of the conditions set forth in Section 6.01(a) and Section 6.01(b) has
been satisfied.
(g) Shareholder shall have delivered to NW Natural a certificate of existence for the
Company from the Secretary of State of Idatro.
(h) Shareholdershall have delivered payoffletters, in a form reasonably acceptable to
NW Natural, (*PayoffLetterc") to the Company prior to Closing to pay the Indebtedness
specified on Schedule 6.01(h).
(i) The Company shall have delivered to NW Natural an affidavit, signed under
penalty of perjury, stating that it is not and has not been a United States real property holding
corporation, dated as of the Closing Date and in form and substance required under Treasury
Regulation Section 1.897-2(h), and shall comply with the notice requirements pursuant to
Treasury Regulation Section 1.897-2(hX4).
0) Shareholder shall have delivered to NW Natural certificates evidencing the Shares
duly endorsed in blank or accompanied by stock powers or other instruments of transfer duly
executed in blank and with all required stock transfer to( stamps affixed.
(k) Shareholder and the Company shall have delivered to NW Natural such other
documents or instruments as NW Natural reasonably requests and are reasonably necessary to
complete the Transaction.
0) No Governmental Authority shall have enacted, issued, promulgated, enforced or
entered any Governmental Order which is in effect and has the effect of making the Transaction
illegal, otherwise prohibiting completion of the Transaction or causing the Transaction to be
rescinded following completion thereof.
(m) The Company shall have received all required consents referred to in Section 2.M
(including the PUC Approvals) and NW Natural shall have received all the consents referred to
in Section 3.02,in each case, in form and substance reasonably satisfactory to NW Natural, and
no such consent, authorization, order and approval shall have been revoked.
(n) Shareholder and the Company shall have received determination from the Internal
Revenue Service that any termination or invalidity of the Company's election to be an S
corporation was inadvertent, and that the Company is an S corporation for federal income tax
purposes and in each state, locality or other jurisdiction in which it files Tax Returns.
(o) NW Natural or the Company shall have received executed a letter agreement
relating to continued employment from Brent Johnson in the form attached as Exhibit D.
(p) The Company shall have rcceived an executed amendment to the l-ease
94652083.r00055570-(xo8 34
Exhibit No.2
J. Palfteyman, NW Natural
17
Agreement dated September 1, 20l l between Shareholder and the Company, in a form
reasonably acceptable to the Company that incorporates the terms specified on Exhibit E.
(q) To the extent any lease for Leased Real Property requires landlord consent to the
Transaction, Shareholder shall have obtained and delivered to NW Natural a landlord consent
and estoppel certificate from the landlord for such Leased Real Property in form and substance
acceptable to NW Natural in its commercially reasonable discretion.
6.02 Conditions to Obligations of Shareholder. The obligations of Shareholder to
complete the Transaction shall be subject to the fulfillment or Shareholder's waiver, at or prior to
the Closing, of each of the following conditions:
(a) The representations and warranties of NW Natural contained in this Agreement,
the other NW Natural Transaction Documents and any certificate or other writing delivered
pursuant hereto shall be true and correct in all respects (without giving effect to any
qualifications or limitations as to materiality or NW Natural Material Adverse Effec0 on and as
of the Signing Date and on and as of the Closing Date with the same effect as though made at
and as of such date), except where the failure to be true or correct has not had a NW Natural
Material Adverse Effect.
O) NW Natural shall have duly performed and complied in all material respects with
all agreements, covenans and conditions required by this Agreement and each of the other NW
Natural Transaction Documents to be performed or complied with by it prior to or on the Closing
Date; provided, that, with respect to agreements, covenants and conditions that are qualified by
materiality, NW Natural shall have performed such agreements, covenants and conditions, as so
qualified, in all respects.
(c) No injunction or restraining order shall have been issued by any Govemmental
Authority, and be in effect, which prohibits the consummation of the Transaction or any material
aspect thereof.
(d) From the Signing Date, there shall not have occurred any NW Naturd Material
Adverse Effect, nor shall any event or events have occurred that, individually or in the aggregate,
with or without the lapse of time, would reasonably be expected to result in a NW Natural
Material Adverse Effect.
(e) The Transaction Documents (other than this Agreement) shall have been executed
and delivercd by the parties thereto (otherthan Shareholder, the Company or any Shareholder)
and true and complete copies thereof shall have been delivered to Sharcholder.
(0 Shareholder shall have received a certificate, dated the Closing Date and signed
by the chief executive officer of NW Natural, that each of the conditions set forth in
Section 6.02(a) and Section 6.02(b) have been satisfied.
(g) NW Natural shall have delivercd the initial Merger Consideration in accordance
with the terms hereof.
(h) No Governmental Authority shall have enacted, issued, promulgated, enforced or
9,1652083.10 0055570.0@08 35
Exhibit No. 2
J. Palfreyman, NW Natural
38
entered any Governmental Order which is in effect and has the effect of making the Transaction
illegal, othenrise prohibiting completion of the Transaction or causing the Transaction to be
rescinded following completion thereof.
(i) The board of directors or compensation committee of NW Natural shall have
approved the award of restricted stock units, and authorized an appropriate officer of NW
Natural to enter into a restricted stock unit agreement with employees of the Company in the
amounts agreed by NW Natural and Shareholder.
SECTION 7
TAX II{ATTERS
7.01 Tax Covenants.
(a) Without the prior written consent of NW Natural, no Shareholder (and, prior to
the Closing, none of the Company and its Representatives) shall, to the extent it may affect the
Company, make, change or rescind any Tax election, amend any Tax Return or take any position
on any Ta:r Return, take any action, omit to take any action or enter into any other transaction or
agreement that would have the effect of increasing the Tax liability or reducing any Tax asset of
NW Natural, the Company in respect of any Post-Closing Tax Period. Shareholder agrees to
indemnify and hold harmless NW Natural (and, after the Closing Date, also the Company)
against any such increase in Tax liability or reduction of any Tax asset.
(b) All transfer, documentary, sales, use, stamp, registration, value added and other
such Taxes and fees (including any penalties and interest) incurred in connection with this
Agreement and the other Transaction Documents (including any real property transfer Tax and
any other similar Tax) shall paid when due. Shareholder shall, at its own expense, timely file any
Tax Retum or other document with respect to such Taxes or fees (and NW Natural shall
cooperate with respect thereto as necessary).
(c) Shareholder shall prepare, or cause to be prepared, all Tax Retums required to be
filed by the Company after the Closing Date with respect to all Pre-Closing Tax Periods. Any
such Tax Return shall be prepared in a manner consistent with past practice (unless otherwise
required by Law) and without a change of any election or any accounting method and shall be
submitted for review by Shareholder to NW Natural (together with schedules, statements and, to
the extent requested by NW Natural, supporting documentation) at least 60 days prior to the due
date (including extensions) of such Tax Return. If NW Natural objects to any item on any such
Tax Return, it shall, within 15 days after delivery of such Tax Return, notify Shareholder in
writing that it so objects, specifying with particularity any such item to which it objects.
Shareholder shall take into account in good faith any such objection raised by NW Natural in
finalizing any such Tax Return for filing. Tax Returns for taxable periods that begin on or before
the Closing Date and end after the Closing Date (each such period a "Straddle Period") shall be
prepared by NW Natural in a manner consistent with past practice (unless othenvise required by
Law) and NW Natural shall provide Shareholder a reasonable opportunity to review and
comment on each such Tax Return before filing. The preparation and filing of any Tax Return of
the Company that does not relate to a Pre-Closing Tax Period to any extent shall be exclusively
Exhibit No.2
J. Palfreyman, Nw Natural
94652083. I 0 0055570-00408 36
39
q
within the control of NW Natural.
7.02 Tax Indemnification. Shareholder shall indemnify the Company, NIW Natural,
and each NW Natural Indemnitee and hold them harmless from and against (a) any L,oss
attributable to any breach of or inaccuracy in any representation or warranty made in Section
2.15; (b) any Loss attributable to any breach or violation of, or failure to fully perform, any
covenant, agreement, undertaking or obligation in this Section 7; (c) all Pre-Closing Taxes;
(d) dl Taxes for which Shareholder is liable pursuant to Section 7.01O); (e) all Taxes of any
member of an affiliated, consolidated, combined or unitary group of which the Company (or any
predecessor of the Company) is or was a member on or prior to the Closing Date by reason of a
liability under Treasury Regulation Section 1.1502-6 or any comparable provisions of foreign,
state or local Law; and (0 any and all Taxes of any Person imposed on the Company arising
under the principles of transferee or successor liability or by contract, relating to an event or
transaction occurring before the Closing Date, in each of the above cases, together with any out-
of-pocket fees and expenses (including attorneys' and accountants' fees) incurred in connection
therewith. Shareholder shall neimburse NW Natural for any Taxes of the Company that are the
responsibility of Shareholder pursuant to this Section 7.02 within l5 Business Days after
payment of such Taxes by NW Natural, the Company. All indemnity payments pursuant to this
Section 7.02 shall be made on an after-to(, grossed-up basis, such that the total amount received
by NIJV Natural places NW Natural in the same after-tax position it would have occupied if it had
not suffered such Loss or been liable for such Taxes. The limitations specified in Section 7.03
shall apply to all Tax Claims under this Section 7.
7.03 Straddle Period. In the case of Taxes that are payable with respect to a Straddle
Period, the portion of any such Taxes that are treated as Pre-Closing Taxes for purposes of this
Agreement shall:
(a) in the case of Taxes based upon, or related to, income, receipts, profits, wages,
capital, net worth, or sales, transfers or assignments of property, be deemed equal to the amount
which would be payable if the taxable year or period of the Company ended with the Closing
Date; and
O) in the case of other Taxes, be deemed to be the amount of such Taxes for the
entire taxable period multiplied by a fraction the numerator of which is the number of days in the
period ending on the Closing Date and the denominator of which is the number of days in the
entire taxable period.
7.04 Contests. NW Natural agrees to give written notice to Sharcholder of the receipt
of any written notice by the Company, NW Natural or any of NW Natural's Affiliates which
involves the assertion of any claim, or the cornmencement of any Action, in respect of which an
indemnity may be sought by NW Natural pursuant to this Section 7 (a "Tax Claim"); provided
that failure to comply with this provision shall not affect NW Natural's right to indemnification
hereunder, except to the extent that Shareholder is prejudiced in any material respect by NW
Natural's failure to give such notice. To the extent permitted by applicable Law, each of NW
Natural and Shareholder shall furnish the other with copies of all relevant correspondence
received from any Governmental Authority in connection with a Tax Claim provided that failure
to comply with this provision shall not affect NW Natural's right to indemnification hereunder.
94652o83.looo55szo-{xxo8 37
Exhibit No. 2
J. Palfreyman, NW Natural
40
Shareholder shall have the right at its own expense to control any Tax Claim relating exclusively
to a Pre-Closing Tax Period, provided, however, that Shareholder shall act in a manner
consistent with the Company' prior practices and the terms of this Agreement, and provided,
further, that NW Natural shall have the right to reasonable advance notice of, and to participate
in, any such Tax Claim. NW Natural shall control any other Tax Claim, including any Tax Claim
for a Straddle Period, provided, however, that Shareholder shall have the right to notice of, and
to participate in, any such Tax Claim if and to the extent Shareholder would have liability with
respect thereto, including as a result of an indemnity provision of this Agreement. Sharcholder
shall promptly reimburse NW Natural for all costs (including reasonable attorney and accounting
fees) incurred by NW Natural in the contest or resolution of any such Tax Claim for a Straddle
Period in proportion to the amount at issue which relates to Pre-Closing Taxes.
7.05 Cooperation and Exchange of Information. Shareholder and NW Natural shall
provide each other with such cooperation and information as either of them reasonably may
request of the other in filing any Tax Retum pursuant to this Section 7 or in connection with any
audit or other proceeding in respect of Taxes of the Company. Such cooperation and information
shall include providing copies of relevant Tax Returns or portions thereof, together with
accompanying schedules, related work papers and documents relating to rulings or other
determinations by tax authorities. Shareholder and NW Natural shall retain all Tax Retums,
schedules and work papers, records and other documents in its possession relating to Tax matters
of the Company for any taxable period beginning before the Closing Date until the expiration of
the statute of limitations of the taxable periods to which such Tax Returns and other documents
r€late, without regard to extensions except to the extent notified by the other parties in writing of
such extensions for the respective Tax periods. Prior to transferring, destroying or discarding any
Tax Retums, schedules and work papers, records and other documents in its possession relating
to Tax matters of the Company for any taxable period beginning before the Closing Date, a
Shareholder or NW Natural (as the case may be) shall provide the other party with reasonable
written notice and offer the other party the opportunity to take custody of such materials. Failure
to comply with this provision shall not adversely affect in any manner NW Natural's right to
indemnification hereunder except to the extent that Shareholder is prejudiced in any material
respect thereby.
7.06 Survival. Notwithstanding anything in this Agreement to the contrary, the
provisions of Section 2.16 and this Section 7 shall survive for the full period of all applicable
statutes of limitations (giving effect to any waiver, mitigation or extension thereof) plus 9O days.
7.07 Overlap. To the extent that any obligation or responsibility pursuant to Section 8
may overlap with an obligation or responsibility pursuant to this Section 7, the provisions of this
Section 7 shall govem.
SECTION 8
INDEMMFICATION
8.0I Survival. All representations, warranties, covenants, and obligations in this
Agreement, the Disclosure Schedules, the other Transaction Documents and any certificate,
document, or other writing delivered pursuant to this Agreement or any other Transaction
94652ffi3.r000i5570-tx)4oo 38
Exhibit No. 2
J. Palfreyman, NW Natural
41
Document will survive the Closing and the consummation and performance of the Transaction.
The right to indemnification, payment, reimbursement, or other remedy based upon any such
representation, warranty, covenant, or obligation will not be affected by any investigation
(including any environmentd investigation or assessment) conducted or any knowledge acquired
at any time, whether before or after the Signing Date or the Closing Date, with rcspect to the
accuracy or inaccuracy of, or compliance with, such representation, warranty, covenant, or
obligation. The waiver of any condition relating to any representation, wiuranty, covenant, or
obligation will not affect the right to indemnification, payment, reimbursement, or other remedy
based upon such representation, warranty, covenant, or obligation.
8.02 Indemnification by Shareholder. Except to the extent included as a liability in
the calculation of the Closing Adjustment for purposes of determining the Merger Consideration,
and subject to the other terms and conditions of this Section 8, Shareholder shall indemnify and
defend (for Third-Party Claims) each of NW Natural and its Affiliates (including the Company)
and their respective Representatives (collectively, the "NW Natural Indemnitees") against, and
shall hold each of them harmless from and against, and shall pay and reimburse each of them for,
any and all Losses incurred or sustained by, or imposed upon, the NW Natural Indemnitees
based upon any of the following:
(a) any inaccuracy in or breach of any of the representations or w,uranties of any
Shareholder or the Company contained in the ShareholderTransaction Documents or any
certificate delivered to NW Natural pursuant thereto, as of the date such representation or
warranty was made or aq if such representation or warranty was made on and as of the Closing
Date (except for representations and warranties that expressly relate to a specified date, the
inaccuracy in or breach of which will be determined with reference to such specified date); or
(b) any breach or non-fulfillment of any covenant, agreement or obligation to be
performed by the Company or any Sharcholder pursuant to any Shareholder Transaction
Document (other than any breach or violation of, or failure to fully perform, any covenant,
agreement, undertaking or obligation in Section 7, it being understood that the sole remedy for
any such breach, violation or failure shall be pursuant to Section 7).
8.03 Indemnification by NW Natural. Subject to the other terms and conditions of
this Section 8, NIW Natural shall indemnify and defend (for Third-Party Claims) Shareholder and
his Affiliates and Representatives (collectively, the "Seller Indemnitees") against, and shall
hold each of them harmless from and against, and shall pay and reimburse each of them for, any
and all l.osses incurred or sustained by, or imposed upon, the Seller lndemnitees based upon:
(a) any inaccuracy in or breach of any of the representations or warranties of NW
Natural contained in any NW Natural Transaction Document or any certificate delivered to
Shareholder pursuant thereto, as of the date such representation or warranty was made or as if
such representation or wiuranty was made on and as of the Closing Date (except for
representations and warranties that expressly relate to a specified date, the inaccuracy in or
breach of which will be determined with reference to such specified date); or
(b) any breach or non-fulfillment of any covenant, agreement or obligation to be
performed by NW Natural pursuant to any NW Natural Transaction Documents.
9465zos3.rooo55i7o-@408 39
Exhibit No.2
J. Palfreyman, NW Natural
42
8.04 Limitations. Shareholder liability for Losses provided for in Section 8.02 shall be
limited to the Merger Consideration, except for any claim for Losses based upon (i) any
inaccuracy in or breach of any representation, warranty or covenant in $ection 2.01,
Section 2.03, Section2.M, or Section 2.16, or related to income Taxes of any Shareholder or the
Company for which indemnification is available under Section 7 or (ii) fraud (each a
"Fundemental Indemnity Claim").
8.05 Indemnification Procedures. The party making a claim under this Section 8 is
referred to as the "Indemnifted Party," and the party against whom such claims are asserted
under this Section E is refened to as the "Indemnifying Party."
(a) Third-Party Claims. If any Indemnified Party receives notice of the assertion or
corlmencement of any Action made or brought by any Person who is not a party to this
Agreement or an Affiliate of a party to this Agreement or a Representative of the foregoing (a
"Third-Party Claim") against such Indemnified Party with respect to which the Indemnifying
Party is obligated to provide indemnification under this Agreement, the Indemnified Party shall
give the Indemnifying Party reasonably prompt written notice thereof, but in any event not later
than 30 calendar days after receipt of such notice of such Third-Party Claim. The failure to give
such prompt written notice shall not, however, relieve the Indemnifying Party of its
indemnification obligations, except and only to the extent that the Indemnifying Party forfeits
rights or defenses or is otherwise prejudiced by reason of such failure.
Such notice by the Indemnified Party shall describe the Third-Party Claim in reasonable
detail, shall include copies of all material written evidence thereof and shall indicate the
estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the
Indemnified Party. The Indemnifying Party shall have the right to participate in, or by giving
written notice to the Indemnified Party, to assume the defense of any Third-Party Claim at the
lndemnifying Party's expense and by the Indemnifying Party's own counsel, and the
Indemnified Party shall cooperate in good faith in such defense; provided, that if the
Indemnifying Party is Shareholder, Shareholder shall not have the right to defend or direct the
defense of any such Third Party Claim that (x) is asserted directly by or on behalf of a Person
that is a supplier or customer of the Company, or (y) seeks an injunction or other equitable relief
against the Indemnified Party. If the Indemnifying Party assumes the defense of any Third-Party
Claim, subject to Section E.05O), it shall have the right to take such action as it deems necessary
to avoid, dispute, defend, appeal or make counterclaims pertaining to any such Third-Party
Claim in the name and on behalf of the Indemnified Party.
The Indemnified Party shall have the right to participate in the defense of any Third-Party
Claim with counsel selected by it subject to the Indemnifying Party's right to control the defense
thereof. The fees and disbursements of such counsel shall be at the expense of the Indemnified
P*y, provided, that lf in the reasonable opinion of counsel to the Indemnified Party, (A) there
are legal defenses available to an Indemnified Party that are different from or additional to those
available to the Indemnifying Party which the Indemnifying Party is unable to or refuses to
asserq or (B) there exists a conflict of interest between the Indemnifying Party and the
Indemnified Party that cannot be waived, the Indemnifying Party shall be liable for the
reasonable fees and expenses of counsel to the Indemnified Party in each jurisdiction for which
the Indemnified Party determines counsel is necessary or appropriate. If the Indemnifying Party
Exhibit No. 2
J. Palfreyman, NW Natural
9,1652083. r 0 0055570{0108 40
43
elects not to compromise or defend such Third-Party Claim, fails to promptly notify the
Indemnified Party in writing of its election to defend as provided in this Agreement, or fails to
diligently prosecute the defense of such Third-Party Claim, the lndemnified Party may, subject
to Section 8.05(b), pay, compromise, and defend such Third-Party Claim and seek
indemnification for ariy and all losses based upon, arising from or relating to such Third-Party
Claim. Shareholder and NW Natural shall cooperate with each other in all reasonable respects in
connection with the defense of any Third-Party Claim, including making available (subject to the
provisions of Section 4.055) records relating to such Third-Party Claim and fumishing, without
expense (other than reimbursernent of actual out-of-pocket expenses) to the defending party,
management employees of the non-defending party as may be reasonably necessary for the
preparation of the defense of such Third-Party Claim.
(b) Settlement of Third-Party Claims. Notwithstanding any other provision of this
Agreement, the Indemnifying Party shall not enter into settlement of any Third-Party Claim
without the prior written consent of the Indemnified Party unless such settlement (i) includes, as
an unconditional tenn thereof, a written release of each Indemnified Party from all liabilities and
obligations in connection with such Third-Paty Claim and (ii) does not impose any liability or
obligation on the Indemnified Party. If the Indemnified Party has assumed the defense pursuant
to Section 8.050), it shall not agree to any settlement without the written consent of the
Indemnifying Party unless such settlement (x) includes, as an unconditional term thereof, a
written release of the Indemnifying Party from all liabilities and obligations in connection with
such Third-Party Claim and (y) does not impose any liability or obligation on the Indemnifying
Party other than financial obligation for which the Indemnified Party is indemnified hereunder.
(c) Direct Claims. Any Action by an Indemnified Party on account of a Loss which
does not result from a Third-Party Claim (a "Direct Claim") shall be asserted by the
Indemnified Party giving the Indemnifying Party reasonably prompt and complete written notice
thereof. The failure to give such prompt written notice shall not, however, relieve the
Indemnifying Party of its indemnification obligations, except and only to the extent that the
Indemnifying Party forfeits rights or defenses or is otherwise prejudiced by reason of such
failure. Such notice by the Indemnified Party shall describe the Direct Claim in reasonable detail,
shall include copies of all material written evidence thereof and shall indicate the estimated
amount, if reasonably practicable, of the [oss that has been or may be sustained by the
Indemnified Party. The Indemnifying Party shall have 30 days after its receipt of such notice to
respond in writing to such Direct Claim. The Indemnified Party shall allow the Indemnifying
Party and its professional advisors to investigate the matter or circumstance alleged to give rise
to the Direct Claim, and whether and to what extent any amount is payable in respect of the
Direct Claim and the Indemnified Party shall assist the Indemnifying Party's investigation by
giving such information and assistance (including access to NW Natural's or the Company's, as
applicable, premises and personnel and the right to examine and copy any accounts, documents
or records) as the Indemnifying Party or any of its professional advisors may reasonably request.
If the Indemnifying Party rejects the claim, in whole or in part, or does not so respond within
such 30-day period, the Indemnifying Party shall be deemed to have rejected such claim, in
which case the Indemnified Party shall be free to pursue such remedies as may be available to
the Lrdemnified Party on the terms and subject to the provisions of this Agreement.
(d) Tax Claims. Notwithstanding any other provision of this Agreement, the control
946s2083.t0 oo5sszo-m408 4l
Exhibit No.2
J. Palfreyman, NW Natural4
of any claim, assertion, event or proceeding in respect of Taxes of the Cornpany (including, but
not limited to, any such claim in respect of a breach of the representations and warranties in
Section 2.16 hereof or any breach or violation of or failure to fully perform any covenant,
agreement, undertaking or obligation in Section 7) shall be governed exclusively by Section 7
hereof.
8.06 Payments.
(a) The amount of any Losses payable under this Section E (or any provisions of this
Agreement that expressly provides for indemnification) by the Indemnifying Party shall be net of
any (r) amounts recovered by the Indemnified Party under applicable insurance policies, or from
any other Person alleged to be responsible therefor and (ii) Tax benefit realized by the
Indemnified Party arising from the incurrence or payment of any such losses. If the Indemnified
Party receives any amounts under applicable insurance policies, or from any other Person alleged
to be responsible for any [osses, subsequent to an indemnification payment by the Indemnifying
Party, then such Indemnified Party shall promptly reimburse the Indemnifying Party for any
payment made or expense incurred by such Indemnifying Party in connection with providing
such indemnification payment up to the amount received by the Indemnified Party. The
Indemnified Party shall use commercially reasonable efforts to collect any amounts available
under insurance coverage, or from any other Person potentially responsible, for any Losses
payable under this Section 8 (or any other provision of this Agreement that expressly provides
for indemnification). The Indemnifying Party shal have no obligation to provide any indemnity
hereunder to the extent the Indemnified Party's claim under any applicable insurance policies
remains outstanding.
O) Once a Loss is agreed to by the Indemnifying Party or finally adjudicated to be
payable pursuant to this Section 8, the Indemnifying Party shall satisfy its obligations within 30
Business Days of such final, non-appealable adjudication by wire transfer of immediately
available funds to the Indemnified Party. The parties hereto agree that should an Indemnifying
Party not make full payment of any such obligations within such 3GBusiness Day period, any
amount payable shall accrue interest from and including the date of agreement of the
Indemnifying Pafty or final, non-appealable adjudication to but excluding the date such payment
has been made at a rate equal to39o per annum.
(c) Shareholder may elect to pay l,osses in cash or by a transfer of NW Natural
Shares; provided that if Shareholder does not make an election within five Business Days of the
final determination of [,osses, NW Natural shall settle such Losses (to ttre extent they do not
exceed the value of available Withheld Shares) through the transfer of available Withheld
Shares. If [osses, or a portion of l-osses, are paid through the transfer of NW Natural Shares, the
number of shares transferred to NW Natural will equal (A) the amount of the Losses divided by
(B) the last reported sale price of NW Natural common stock on the NYSE on the last complete
trading day prior to the transfer.
E.07 Tax Treahnent of Indemnification Payments. All indemnification payments
made under this Agreement shall be treated by the parties as an adjustment to the Merger
Consideration for Ta,r purposes, unless otherwise required by Law.
Exhibit No. 2
J, Palfreyman, NW Natural
94652083. I 0 005557G,m408 42
45
8.0E Duty to Mitigate. After the Closing, the lndemnified Party shall use
commercially reasonable efforts to mitigate any Losses under this Section 8, including notifying
the Indemnifying Party of any inaccuracy of a representation or warranty or any breach of a
covenant or agreement contained herein as soon as reasonably practicable after discovering such
inaccuracy or breach; provided that the failure to provide any such notification on a timely basis
shall not relieve the Indemnifying Party of any obligation under this Section 8 except to the
extent that such failure has a material adverse effect on the Indemnifying Party's ability to
mitigate the related Loss.
E.09 Exclusive Remedies. Except with respect to Closing Adjustments, and subject to
Section 10.11, the sole and exclusive remedy with respect to any and all claims (other than any
Fundamental Indemnity Claim) for any indemnity claims shall be pursuant to the indemnification
provisions set forth in Section 7 and this Section E. In furtherance ofthe foregoing, subject to
Section 10.11, each party hereby waives, to the fullest extent permitted under Law, any and all
rights, claims and causes of action for any breach of any representation, warranty, covenant,
agre€ment or obligation set forth in the Shareholder Transaction Documents and the NW Natural
Transaction Documents or otherwise relating to the subject matter of this Agreement it may have
against any other party hereto and each of their respective Affiliates and Representatives arising
under or based upon any Law, except pursuant to the indemnification provisions set forth in
Section 7 and this Section 8. Nothing in this Section 8.09 shall limit any Person's right to seek
and obtain any equitable relief (including specific performance) to which any Person shall be
entitled or to seek any remedy on account of any party's fraudulent, criminal or intentional
misconduct. To the extent any Losses are included in the Closing Adjustment, NW Natural
lndemnitees are not entitled to recover for such Losses through this Section 8.
E.10 Shareholder Liability for Fundamental Indemnity Claims. To the extent
amounts paid to or on behalf of NW Natural with respect to Fundamental Indemnity Claims
cause aggregate amounts payable to or on behalf of NW Natural with respect to indemnity
claims to exceed available insurance coverage, Shareholder agrees to indemnify and promptly
reimburse NW Natural, upon a demand therefor, for such excess Losses. In addition to and not in
limitation of the indemnification obligations set forth in the immediately preceding sentence,
Shareholder further agrees to indemnify NW Natural for any Losses related to income Taxes of
Shareholder or the Company for which indemnification is available under Section 7 and for
which such Shareholder is at any time entitled to receive, in connection with any such Tax
Claim, a refund from any Tax authority of any Taxes previously paid by such Shareholder,
provided that the maximum amount of a Shareholder's indemnification obligation for Losses
rclated to a Tax Claim pursuant to this sentence shall not exceed the aggregate amount of the Tax
refunds received by such Shareholder in connection with such Tax Claim. To the extent that NW
Natural or the Company incurs Losses related to income Taxes of Shareholder or the Company
for which indemnification is available under Section 7 and any Shareholder is at any time
entitled to receive, in connection with any such Tax Claim, a refund from any Tax authority of
any Taxes previously paid, such Shareholder shall promptly (a) take all necessary steps to apply
for such refund, (b) take all necessary steps to assign all rights thereto to the Company, (c)
deliver, upon receipt thereof, the full amount of any such refund payment to the Company, and
(d) provide the Company with a copy of such refund claim, advise the Company immediately of
any communications it receives from the Tax authority and provide the Company with a copy of
all communications sent by it to the Tax authority; any such refund amounts received by the
94652m3.rooo5ss7o,{p40E 43
Exhibit No.2
J. Palfreyman, NW Natural6
Company from a Shareholder shall reduce on a dollar-for-dollar basis such Shareholder's, as
applicable, indemnification obligations hereunder with respect to any l.osses incurred as a result
of the related Tax Claim. The parties agree to work together in good faith to ensure that any
amounts paid with respect to any Ta:r Claim pursuant to the assignment or paying over of Ta,x
refunds provisions of this Section 8.10 do not exceed the aggregate liability of Shareholder with
respect to such Tax Claim, and if they do exceed such liability, any excess will be repaid
promptly by the Company to the appropriate party.
SECTION 9
TERMINATION
9.01
Closing:
(a)
(b)
Termination. This Agreement may be terminated at any time prior to the
by the mutual written consent of the Company and NW Natural;
by NW Natural by written notice to the Company ifl
(i) NW Natural is not satisfied with the results of its due diligence
investigation of the Business, provided that written notice is delivered prior to the later of (A)
March 31, 2018 or (B) the 6lst day following the delivery of the Shareholder's Disclosure
Schedules;
(ii) NW Natural is not then in material breach of any provision of this
Agreement and there has been a material breach or inaccuracy in or failure to perform any
representation, warranty, covenant or agreement made by Shareholder or the Company pursuant
to this Agreement that would give rise to the failure of any of the conditions specified in Section
6 and such material breach, inaccuracy or failure has not been cured within 30 days of
Shareholder's receipt of written notice of such breach from NW Natural;
(iii) any of the conditions set forth Section 6.01, including receipt of the PUC
Approvals, shall not have been, or if it is apparent that any of such conditions will not be,
fulfilled by December 31, 2018, unless such failure is due primarily to the failure of NW Natural
to perform or comply with any of the covenants, agreements or conditions hereof to be
performed or complied with by it prior to the Closing; or
(iv) any of the PUC Applications is denied in whole or in pertinent piut, or a
final decision and order issued by the IPUC, the OPUC or the WUTC on the PUC Applications
is not a PUC Approval.
(c) by Shareholder by written notice to NW Natural if:
(i) neither the Company nor any Shareholder is then in material breach of any
provision of this Agreement and there has been a material breach, inaccuracy in or failure to
perform any representation, warranty, covenant or agreement made by NW Natural pursuant to
this Agreement that would give rise to the failure of any of the conditions specified in Section 6
and such material breach, inaccuracy or failure has not been cured by NtJt/ Natural within
94652o83.t0q)s5570-oo4oE 44
Exhibit No. 2
J. Palfreyman, NW Natural
47
30 days of NW Natural's receipt of written notice of such breach from Shareholder; or
(ii) any of the conditions set forth in Section 6.02 shall not have been, or if it
is apparent that any of such conditions will not be, fulfilled by December 31, 2018, unless such
failure is due primarily to the failure of a Shareholder or the Company to perform or comply with
any of the covenants, agreements or conditions hereof to be performed or complied with by it
prior to the Closing.
(d) by NW Natural or Shareholder if (i) there shall be any Law that makes completion
of the Transaction illegal or otherwise prohibited, or (ii) any Governmental Authority shall have
issued a Governmental Order enjoining the Transaction, and such Governmental Order shall
have become final and non-appealable.
9.02 Effectof Termination. If this Agreement is terminated in accordance with this
Section 9, this Agreement shall forthwith become void and there shall be no liability on the part
of any party hereto.
SECTION 10
MISCELLANEOUS
10.01 Expenses. Except for $20,000 of Transaction Expenses NW Natural paid on
behalf of (or reimbursed to) the Company or Shareholder, all costs and expenses, including fees
and disbursements of counsel, financial advisors, experts and accountants, incurred in connection
with this Agreement and the transactions contemplated hereby and related due diligence shall be
paid by the party incurring such costs and expenses, whether or not the Closing shall have
occurred.
10.02 Notices. All notices, requests, consents, claims, demands, waivers and other
communications under this Agreement must be in writing and will be deemed to have been given
(a) when delivered by hand (with written confirmation of receipt); (b) when received by the
addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date
sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during
normal business hours of the recipient, and on the next Business Day if sent after normal
business hours of the recipient; or (d) on the third day after the date mailed, by certified or
registered mail, return receipt requested, postage prepaid. Communications must be sent to the
respective parties at the addresses or telecopy numbers set forth on the first page of this
Agreement (or at such other address or telecopy number for a party specified in a notice given in
accordance with this Section 10.02), with copies to:
Exhibit No.2
J. Palfreymen, NW Natural
48
9,1652083. l0 0055570-00408 45
In the case of NW Natural:
In the case of a Shareholder (or the
Company prior to the Closing):
Northwest Natural Cas Company
220 N.W. Second Avenue
Portland, Oregon 97209
Attn: Mardilyn Saathoff, General Counsel
Email : MardiLyn.Saathoff @ nwnatural.com
arnd
Stoel Rives LLP
760 SW Ninth Avenue, Suite 3000
Portland, OR 97205
Facsimile: 503.220.2480
Attn: James M. Kearney
Email: jim.kearney @ stoel.com
Brent Johnson
I 1030 Ledge Stone Drive
McGregor, TX76657
Email : brjone24 @.yahoo.com
10.03 Interpretation. For purposes of this Agreement, (a) the words "include,"
"includes" and "including" shall be deemed to be followed by the words "rvithout limitation";
(b) the word "or" is not exclusive; (c) the words "herein," "hereoi" "hereby," "hereto" and
"hereunder" refer to this Agreement as a whole; and (d) words denoting any gender shall include
all genders. Unless the context otherwise requires, references herein: (x) to sections, Disclosure
Schedules and Exhibits mean the sections oi and Disclosure Schedules and Exhibits attached to,
this Agreement; (y) to an agreement, instrument or other document means such agreement,
instrument or other document as amended, supplemented and modified from time to time to the
extent permitted by the provisions thereof and (z) to a statute means such statute as amended
from time to time aurd includes any successor legislation thereto and any regulations promulgated
thereunder. This Agreement shall be construed without regard to any presumption or rule
requiring construction or interpretation against the party drafting an instrument or causing any
instrument to be drafted. The Disclosure Schedules and Exhibits referred to herein shall be
construed with, and as an integral part of, this Agreement to the same extent as if they were set
forth verbatim herein. Where interest on any amount is specified in this Agreement, such interest
is a per annum rate and shall be calculated daily on the basis of a 365 day year and the actual
number of days elapsed, without compounding.
f0.04 Headings. The headings in this Agreement are for reference only and shall not
affect the interpretation of this Agreement.
10.05 Severability. If any term or provision of this Agreement is invalid, illegal or
unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other term or provision of this Agreement or invalidate or render unenforceable such term or
provision in any other jurisdiction. Except as provided in Section 4.06(d), upon such
determination that any term or other provision is invalid, illegal or unenforceable, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of
946-s2o83.ro oo5557o-oo4o8 46
Exhibit No. 2
J. Palfreyman, NW Natural
49
the parties as closely as possible in a mutually acceptable manner in order that the transactions
contemplated hereby be completed as originally contemplated to the greatest extent possible.
10.06 Entire Agreement. The Transaction Documents constitute the sole and entire
agreement of the parties to this Agreement with respect to the subject matter contained herein
and therein, and supersede all prior and contemporaneous understandings and agreements, both
written and oral, with respect to such subject matter. In the event of any inconsisteney between
the statements in the body of this Agreement and those in the other Transaction Documents, the
statements in the body of this Agreement will control.
10.07 Successors and Assigns. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and permined assigns. Neither
party may assign its rights or obligations hereunder without the prior written consent of the other
parties, which consent shall not be unreasonably conditioned, withheld or delayed; provided
however that, prior to the Closing Date, NW Natural may, without the prior written consent of
Shareholder, assign all or any portion of its righs under this Agreement to a parent company or
to one or more of its direct or indirect wholly owned subsidiaries.
10.08 No Third-Party Beneficiaries. Except as provided in Section 7.03 and Section
E, this Agreement is for the sole benefit of the parties hereto and their respective successors and
permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any
other Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.
10.09 Amendment and Modification; Waiver. This Agreement may only be amended,
modified or supplemented by an agreement in writing signed by NW Natural and Shareholder.
No waiver by any party of any of the provisions hereof shall be effective unless explicitly set
forth in writing and signed by the party so waiving. No waiver by any party shall operate or be
construed as a waiver in respect of any failure, breach or default not expressly identified by such
written waiver, whether of a similar or different character, and whether occurring before or after
that waiver. No failure to exercise, or delay in exercising, any right, remedy, power or privilege
arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or privilege.
10.10 Governing Law; Submission to Jurisdictionl Waiver of Jury Trial.
(a) This Agreement shall be governed by and construed in accordance with the
internal Iaws of the State of Oregon without giving effect to any choice or conflict of law
provision or rule (whether of the State of Oregon or any other jurisdiction).
(b) ANy LEGAL SUrT, ACTION OR PROCEEDING ARISING OUT OF OR
BASED UPON THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY SHALL BE INSTITUTED
EXCLUSryELY IN THE STATE OR FEDERAL COURTS OF THE UNTTED'STATES OF
AMERICA LOCATED IN THE STATE OF OREGON OR THE COURTS OF THE STATE OF
oREGON (AND IN NO OTTTER), AND EACH PARTY IRREVOCABLY SUBMTTS TO THE
Exhibit No. 2
J. Palfreyman, NW Natural
94652083. I 0 0055570-00408 47
50
EXCLUSryE JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR
PROCEEDING. SERVICE OF PROCESS, SUMMONS, NOTICE OR OTHER DOCUMENT
BY MAIL TO SUCH PARTY'S ADDRESS SET FORTH HEREIN SHALL BE EFFECTTVE
SERVICE OF PROCESS FOR ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT
IN ANY SUCH COURT. TTIE PARTIES IRREVOCABLY AND UNCONDTTIONALLY
WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR
ANY PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAryE AND AGREE NOT
TO PLEAD OR CLAM IN ANY SUCH COURT THAT A}.IY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCO}.IVENIENT FORIJM.
(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE OT}IER
TRANSACTION DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND
DIFFICULT ISSIJES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND
I.JNCONDITIONALLY WAryES ANY RIGTIT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LEGAL ACTION ARISING OI"IT OF OR RELATING TO THIS
AGREEMENT, TIIE OTHER TRANSACTION DOCI.JMENTS OR TIIE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. EACH PARTY TO THIS AGREEMENT
CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATTVE OF ANY OTHER
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER
PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WATVER IN THE EVENT
OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE MPLICATIONS OF
THIS WAryER, (C) SUCH PARTY MAKES THIS WATVER VOLI.JNTARILY, AND
(D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WATVERS AND CERTIFICATIONS IN THIS
Section 10.f0.
f0.11 Specific Performance. Subject to the rights to terminate the Agreement specified
in Section 9, irreparable damage would occur if any provision of this Agreement were not
performed in accordance with the terms hereof and the parties shall be entitled to specific
performance of the terms hereof, in addition to any other remedy to which they are entitled at
law or in equity.
10.12 Counterparts. This Agreement may be executed in counteqparts, each of which
shall be deemed an original, but all of which together shall be deemed to be one and the same
agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of
electronic transmission shall be deemed to have the same legal effect as delivery of an original
signed copy of this Agreement.
ISTGNATTJRE PAGE FOLLOWSI
Exhibit No. 2
J. Palfteyman, NW Natural
51
9,1652083. I 0 005557&00408 48
The parties hereto have caused this Agreement to be duly executed and delivered as of
the date first written above.
ITIW NATT]RAL:
NORTITWEST NATI,]RAL GAS COMPAI\TY
By:
Name:
Title:
WATER PLATFORM:
NW NATT'RAL WATER COMPANY,LLC
By:
Name:
Title:
MERGER SIJB:
F"WC MERGER SUB,INC.
By:
Name:
Title:
TIIE COMPANY:
FALLS WATER CO.,INC.
By:
Name: Brent Johnson
Title: President
SHAREHOLDER:
Exhibit No. 2
J. Palfreyman, NW Natural
52
Brent Johnson
Appendix I
Defined Terms
"Acquisition Proposal" has the meaning set forth in Section 4.03.
"Action" means any claim, action, cause of action, demand, lawsuit, arbitration, audit,
notice of violation, proceeding, litigation, citation, summons, subpoena or govemmental
investigation for which written notice has been given to the Company of any nature, civil,
criminal, administrative, regulatory or otherwise, whether at law or in equity.
"Afriliate" of a Person means any other Person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control with, such Person.
The term "control" (including the terms 'tontrolled by" and "under cofllmon control with")
means the possession, directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting securities, by
contract or othenrise.
"Agreement" has the meaning set forth in the preamble.
"Annual Financial Statements" has the meaning set forth in Section 2.05(a).
"Articles of Merger" has the meaning set forth in Section 1.02.
"Benefit Plan" has the meaning set forth in Section 2.14(a).
"Book-Entry Shares" has the meaning set forth in Section 1.05(c).
'Susiness l)ay" means any day except Saturday, Sunday or any other day on which
commercial banks located in Portland, Oregon are authorized or required by Law to be closed for
business.
*CERCLA" means the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of
1986,42 U.S.C. $ 9601 et seq.
"Certificate" has the meaning set forth in Section 1.05(b).
"Closing" has the meaning set forth in Section 1.100.
"Closing Adjustment" has the meaning set forth in Section 1.06(b).
"Closing Drte" has the meaning set forth in Section 1.100.
"Closing Indebtedness" has the meaning set forth in Section 1.05(a).
"Closing Statement" has the meaning set forth in Section 1.06(a).
"Closing Working Capital" means: (a) the Cunent Assets of the Company, less (b) the
Current Liabilities of the Company, determined as of the open of business on the Closing Date.
Exhibit No. 2
J. Palfreyman, NW Natural
53
"COBRA" has the meaning set forth in Section 2.14(i).
"Code" means the lntemal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preamble.
"Company Employee" has the meaning set forth in Section 5.04.
"Company Intellectual Property" means all Intellectual Property that is owned or held
for use by the Company, together with the name of the Company, and all assumed, fictional,
business and trade names used by the Company.
"Company IP Agreements" means all licenses, sublicenses, consent to use agreements,
settlements, coexistence agreements, covenants not to sue, permissions and other Contracts
(including any right to receive or obligation to pay royalties or any other consideration), relating
to Intellectual Property to which the Company is a party or otherwise bound excluding
agreements for generally commercially provided third party software in executable code form
licensed pursuant to a shrink wrap or click wrap license agreement or other third party provider
mandated standard license terms and conditions.
"Company IP Registrations" means all owned Company Intellectual Property that is
registered with any Governmental Authority or authorized private registrar in any jurisdiction,
including registered trademarks, domain names and copyrights, issued and reissued patents and
pending applications for any of the foregoing.
"Contracts" means all contracts, Ieases, deeds, mortgages, licenses, instruments, notes,
commitments, undertakings, indentures, joint ventures and all other agreements, commitments
and legally binding arrangements, whether written or oral.
"Current Assets" means cash and cash equivalents, accounts receivable, inventory and
prepaid expenses, but excluding (a) the portion of any prepaid expense of which NW Natural
will not receive the benefit following the Closing, (b) defened Tax assets and (c) receivables
from any of the Company's Affiliates, directors, employees, officers or stockholders and any of
their respective Affiliates, determined in accordance with GAAP applied using the same
accounting methods, practices, principles, policies and procedures, with consistent
classifications, judgments and valuation and estimation methodologies that were used in the
preparation of the Financial Statements for the most recent fiscal year end as if such accounts
were being prepared and audited as of a fiscal year end.
"Current Liabilities" means accounts payable, accrued Taxes and accrued expenses, but
excluding payables to any of the Company's Affiliates, directors, employees, officers or
stockholders and any of their respective Affiliates, deferred Tax liabilities, Transaction Expenses
and the current portion of any Indebtedness of the Company, determined in accordance with
GAAP applied using the same accounting methods, practices, principles, policies and
procedures, with consistent classifications, judgments and valuation and estimation
methodologies that were used in the preparation of the Audited Financial Statements for the most
recent fiscal year end as if such accounts were being prepared and audited as of a fiscal year end.
Exhibit No. 2
J. Palfreyman, NW Natrral
54
"Direct Claim" has the meaning set forth in Section 8.05(c).
"Dlsclosure Schedules" means the Disclosure Schedules delivered by NW Natural or
Shareholder pursuant to the terms and provisions of this Agreement.
"Disputed Amounts" has the meaning set forth in Section f.06(cXiii).
"I)ollar" or'$" means the lawful currency of the United States.
"Easemenf'means all rights, privileges, easements, Iicenses, prescriptive plans, rights-
of-way, and rights to use public and private roads, highways, streets, railroads and other areas
owned or used by the Company in connection with the construction, reconstruction, installation,
expansion, maintenance and operation of the Utility System.
"Effective Time" has the meaning set forth in Section 1.02.
"Encumbrance" means any charge, claim, community property interest, pledge,
condition, equitable interest, lien (statutory or other), option, security interest, mortgage,
easement, encroachment, right of way, right of first refusal, or restriction of any kind, including
any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of
ownership.
"Environrnental Claim" means any Action, Govemmental Order, lien, fine, penalty, or,
as to each, any settlement or judgment arising therefrom, by or from any Person alleging liability
of whatever kind or nature (including liability or responsibility for the costs of enforcement
proceedings, investigations, cleanup, govemmental response, removal or remediation, natural
resources damages, property damages, personal injuries, medical monitoring, penalties,
contribution, indemnification and injunctive relief) arising out of, based on or resulting from:
(a) the presence of, Release of, or exposure to any Hazardous Materials; or (b) any actual or
alleged non-compliance with any Environmental Law or term or condition of any Environmental
Permit.
"Environmental Laws" means any applicable Law and any Governmental Order or
binding agreement with any Governmental Authority: (a) relating to pollution (or the cleanup
thereof) or the protection of natural resources, endangered or threatened species, human health or
safety (but only as it related to the environment), or the environment (including ambient air, soil,
surface water or groundwater, or subsurface strata); or (b) conceming the presence of, exposure
to, or the management, manufacture, use, containment, storage, recycling, reclamation, reuse,
treatrnent, generation, discharge, transportation, processing, production, disposal or remediation
of any Hazardous Materials. The term "Environmental Laws" includes the following (including
their implementing regulations and any state analogs): the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986,42 U.S.C. $ 9601 et seq.; the Solid Waste Disposal Act, as
amended by the Resource Conservation and Recovery Act of 1976, as amended by the
Hazardous and Solid Waste Amendments of 1984,42 U.S.C. $ 6901 et seq.; the Federal Water
Pollution Control Act of 1972, as amended by the Clean Water Act of 1977 ,33 U.S.C. $ 1251 er
seq.; the Toxic Substances Control Act of 1976, as amended, l5 U.S.C. $ 2601 et seq.; the
Emergency Planning and Community Right-to-Know Act of 1986,42 U.S.C. $ I l00l et seq.; the
Exhibit No. 2
J. Palfreyman, NW Natural
55
Clean AirAct of 1966, as amended by the Clean AirAct Amendments of 1990,42
U.S.C. $ 7Ol et seq.; and the Occupational Safety and Health Act of 1970, as amended, 29
U.S.C. $ 651 et seq.
"Environmental Notice" means any Order, written directive, written request for
information, notice of violation or infraction, or written notice respecting any Environmental
Claim relating to actual, alleged or potential non-compliance with any Environmental Law or
any Environmental Permit.
"Environmental Permit" means any Permit issued, granted, given, authorized by or
made pursuant to any Environmental Law.
"ERISA" means the Employee Retirement lncome Security Act of 1974,as amended,
and the regulations promulgated thereunder.
"ERISA Aftiliate" means all employers (whether or not incorporated) that would be
treated together with the Company or any of its Affiliates as a "single employer" within the
meaning of Section 414 of the Code.
"Facilities" means any real property owned or operated or formerly owned or operated
by the Company and any buildings, plants, structures, or equipment (including motor vehicles,
tank cars, and rolling stock) owned or operated or formerly owned or operated by the Company
"Financlal Statements" has the meaning set forth in Section 2.05(a).
"Fundamental Indemnity Claim" has the meaning set forth in Section 8.04.
'GAAP" means U.S. Generally Accepted Accounting Principles applied using the same
accounting methods, practices, principles, policies and procedures, with consistent
classifications, judgments and valuation and estimation methodologies that were used in the
preparation of the Financial Statements for the Company's most recent fiscal year ended prior to
the Closing Date.
"Governnrental Authority" means any federal, state,local or foreign government or
political subdivision thereof, or any agency or instrumentality of such government or political
subdivision, or any self-regulated organization or other non-governmental regulatory authority or
quasi-governmental authority (to the extent that the rules, regulations or orders of such
organization or authority have the force of Law), or any arbitrator, court or tribunal of competent
jurisdiction.
"Goyernmental Order" means any order, writ, judgment, injunction, decr€e,
determination, ruling, assessment, or award entered by or with any Governmental Authority or
arbitrator.
"Hazardous Materials" means: (a) any material, substance, chemical, waste, product,
derivative, compound, mixture, solid, liquid, mineral or gas, in each case, whether naturally
occurring or manmade, that is hazardous, acutely hazardous, toxic, or words of similar import or
regulatory effect under any Environmental Law; and (b) any petroleum or petroleum-derived
Exhibit No. 2
J. Palfreyman, NW Natural
56
products, radon, radioactive materials or wastes, asbestos in any form, lead or lead-containing
materials, urea formaldehyde foam insulation, and polychlorinated biphenyls.
*IBCA" has the meaning set forth in Section 1.01.
"Indebtedness" rneans, without duplication and with respect to the Company, all (a)
indebtedness for borrowed money; (b) obligations for the deferred purchase price of property or
services (other than Current Liabilities taken into account in the calculation of Closing Working
Capital), (c) long or short-term obligations evidenced by notes, bonds, debenturcs or other
similar instruments; (d) obligations under any interest rate, currency swap or other hedging
agreement or arrangement; (e) capital lease obligations; (0 reimbursement obligations under any
letter of credit, banker's acceptance or similar credit transactions; (g) guarantees made by the
Company on behalf of any third party in respect of obligations of the kind referred to in the
foregoing clauses (a) through (0; ana G) any unpaid interest, prcpayment penalties, premiums,
costs and fees that would arise or become due as a result of the prepayment of any of the
obligations referred to in the foregoing clauses (a) through (g).
"Indernnified Party" has the meaning set forth in Section E.05.
"Indemnifying Party" has the meaning set forth in Section E.05.
"Independent Accountants" has the meaning set forth in Section 1.06(cXiii).
"Insurance Policies" has the meaning set fofth in Section 2.10(a).
"Intellectual Property" means all (i) trademarks, service marks, trade names, brand
narnes, logos, trade dress or design right, and trademark and service mark applications;
(ii) Internet domain narnes, web addresses, web pages, websites and key words; (iii) works of
authorship and designs, whether or not copyrightable, including all registered and unregistered
copyrights, moral rights and neighboring rights; (iv) righs in mask works; (v) inventions,
discoveries, trade secrets, business and technical information and know-how and, data and other
confidential or proprietary information; (vi) patents (including all reissues, divisionals,
provisionals, continuations and continuations in part, re-examinations, renewals, substitutions
and extensions thereof), patent applications and other patent rights; (vii) software (including
firmware and other software embedded in hardware devices), software code (including source
code and executable or object code), data files, subroutines, interfaces, including APIs, and
algorithms, and (viii) all know-how, trade secrets, confidential or proprietary information,
customer lists, technical information, data, process technology, plans, drawings, inventions, and
discoveries, whether or not patentable.
"Interim Balance Sheet" has the meaning set forth in Section 2.05(a).
"Interim Balance Sheet Date" has the meaning set forth in Section 2.05(a).
"Interim Financial Statements" has the meaning set forth in Section 2.05(a).
Exhibit No.2
J. Palfreyman, NW Natural
"IPIJC" means the Idaho Public Utilities Commission.
57
"Law" means any statute,law, act, ordinance, regulation, rule, code, order, constitution,
treaty, principle of common law, judgment, decree, order of general applicability or other
requircment or rule of law of any Govemmental Authority, including rules and regulations
promulgated thereunder.
"Leased Real Property" has the meaning set forth in Section 2.08(b).
"Liabilities" has the meaning set forth in Section 2.050).
"Losses" means losses, damages, liabilities, deficiencies, judgments, interest, awards,
penalties, fees, or fines, or costs or expenses relating to the foregoing, including reasonable
attorneys' fees (including reasonable attorney's fees associated with the cost of enforcing any
right to indemnificatibn hercunder and the cost of pursuing any insurance providers); provided,
however, that "Losses" shall not include punitive, incidental, consequential or special damages,
except in the case of fraud or to the extent actually awarded to a Governmental Authority or
other third party.
"Material Adverse Bffecf'means any event, occurrence, fact, condition or change that
is individually or in the aggregate materially adverse to (a) the business, operations, business
prospects, financial condition or assets of the Company or (b) the ability of Shareholder to
complete the Transaction on a timely bxis; provided, however, that "Material Adverse Effect"
shall not include any event, occurrence, fact, condition or change, directly or indirectly, arising
out of or attributable to: (i) general economic, regulatory or political conditions; (ii) conditions
affecting public utilities generally; (iii) any changes in financial or securities markets in general;
(iv) acts of war, whether or not declared, armed hostilities or tenorism, or the escalation or
worsening thereof; or (v) any changes in Law or accounting rules, including CAAP; provided
funher, however, that any event, occurence, fact, condition or change refenpd to in clauses
(i) through (v) immediately above shall be taken into account in determining whether a Material
Adverse Effect has occurred or could reasonably be expected to occur to the extent that such
event, occurrence, fact, condition or change has a disproportionate effect on the Company
compared to other similarly situated utility companies in the markets in which it operates.
'Material Contracts" has the meaning set forth in Section 2.07(al.
"Merger Consideration" has the meaning set forth in Section 1.05(b).
"Merger Sub" had the meaning set forth in the preamble.
"NW Natural" has the meaning set forth in the preamble.
*NW Natural Indemnitees" has the meaning set forth in Section 8.02.
"NW Natural Material Adverse Effect" means any event, occuffence, fact, condition or
change that is individually or in the aggregate materially adverse to (a) the business, operations,
business prospects, financial condition or assets of NW Natural and its subsidiaries, taken as a
whole, or (b) the ability of any NW Natural to complete the Transaction on a timely basis;
provided, however, that "Material Adverse Effect" shall not include any event, occurrence, fact,
condition or change, directly or indirectly, arising out of or attributable to: (i) general economic,
Exhibit No. 2
J. Palfreyman, NW Natural
58
regulatory or political conditions; (ii) conditions affecting the water utility industry generally;
(iii) any changes in financial or securities markets in general; (iv) acts of war, whether or not
declared, armed hostilities or terrorism, or the escalation or worsening thereof; or (v) any
changes in Law or accounting rules, including GAAP; provtdedfurther, however, thatany event,
occulrence, fact, condition or change referred to in clauses (i) through (v) immediately above
shall be taken into account in determining whether a Material Adverse Effect has occurred or
could reasonably be expected to occur to the extent that such event, occurrence, fact, condition or
change has a disproportionate effect on NW Natural compared to other similarly situated natural
gas utility companies in the markets in which it operates.
"NW Natural Shares" has the meaning set forth in Section 2.18.
"NVY Natural Transaction Documents" means this Agreement and the other
Transaction Documents to which ItlW Natural is or will be a party :rs contemplated by this
Agreement.
*f{YSE" means the New York Stock Exchange, or any other stock exchange on which
the shares comprising the Merger Consideration are listed for trading.
"OPUC" means the Oregon Public Utility Commission
"Organizational Documents" means (a) the articles or certificate of incorporation and
the bylaws of a corporation; (b) the certificate of formation and limited liability company
agr@ment, operating agreement, or like agreement of a limited liability company; (c) the
partnership agreement and any statement of partnership of a general partnership; (d) the limited
partnership agreement and the certificate of limited partnership of a limited partnership; (e) any
charter or agreement or similar document adopted or filed in connection with the creation,
formation, or organization of a Person; and (0 any amendment to or restatement of any of the
foregoing.
'Owned Real Propert5r" has the meaning set forth in Section 2.08(a).
'Payoff Lettens" has the meaning set forth in Section 6.01(h).
"Permits" means all permits, licenses, franchises, approvals, authorizations, registrations,
certificates, variances and similar rights obtained from Governmental Authorities.
"Permitted Encumbrances" has the meaning set forth in Section 2.0E(d).
"Person" means an individual, corporation, partnership, joint venture,limited liability
company, Governmental Authority, unincorporated organization, trust, association or other
entity.
"Post-Closing Tax Period" means any taxable period beginning after the Closing Date
and, with respect to any taxable period beginning before and ending after the Closing Date, the
portion of such taxable period beginning after the Closing Date.
Exhibit No. 2
J. Patfreyman, NW Natural
59
"Pre-Closing Tax Period" means any taxable period ending on or beforc the Closing
Date and, with respect to any taxable period beginning before and ending after the Closing Date,
the portion of such taxable period ending on and including the Closing Date.
"Pre-Closing Taxes" means Taxes of the Company for any Pre-Closing Tax Period,
determined in accordance with Section 7.04.
'?UC Applicadon" has the meaning set forth in Section 5.01(c).
'?UC Approval" means a final decision and order by the IPUC, the OPUC or the
Wt TC that is (i) is final and reasonable and (ii) approves all of the relief requested in the PUC
Applications. Shareholder, the Company and NW Natural agree that the PUC Approvals will not
be deemed to be final and reasonable, or an approval of all of the relief requested in the PUC
Application, if (a) it is not an unconditional approval, (b) it denies or defers ruling on any part of
the PUC Application or purports to amend, modify or supplement any of the terms and
conditions of the transactions contemplated by the Agreement or (c) if the decision and order is
subject to further appeal or any party to the proceeding in which the decision and order is issued,
or other aggrieved Person with the right to appeal, intends to, and is legally entitled to, seek a
change in such decision and order through motion or appeal.
"Real Property" has the meaning set forth in Section 2.080).
"Release" means any actual or threatened release, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping,leaching, dumping, abandonment, disposing
or allowing to escape or migrate into or through the environment, including ambient air (indoor
or outdoor), surface water, groundwater, land surface or subsurface strata or within any building,
suucture, facility or fixture.
"Representative" means, with respect to any Person, any and all directors, officers,
employees, consultants, financial advisors, counsel, accountants and otheragents ofsuch Person.
"Restricted Business" means the ownership or operation of a water utility.
"Restricted Period" has the meaning set forth in Section 4.06(a).
"Seller Indemnitees" has the meaning set forth in Section t.03.
'Shareholder" has the meaning set forth in the preamble.
"Shareholder's Knowledge," or any other similar knowledge qualification, means the
actual knowledge of any Shareholder and any officer of the Company after reasonable inquiry
and investigation.
"Shareholder Transaction Documents" means this Agreement and the other
Transaction Documents to which any Shareholder is or will be party as contemplated by this
Agreement.
"Shares" has the meaning set forth in Section 2.03.
Exhibit No. 2
J, Palfreyman, NW Natural
60
"Signing Date" has the meaning set forth in the preamble.
"Straddle Period" has the meaning set forth in Section 7.01(c).
'Surviving Corporation" has the meaning set forth in Section 1.01
"Target Indebtedness" means $750,000.
"Target Working Capital" means $40,000, based upon Current Assets and Cunent
Liabilities as follows:
Unencumbered Cash on Hand
Plus: Accounts Receivable
Plus: Materials and Supplies
Less: Accounts Payable
Irss: Other Current Liabilities
'Tax" or "Taxes" means all federal, state, Iocal, foreign and other income, gross receipts,
sales, use, production, ad valorem, transfer, franchise, registration, profits,license,lease, service,
service use, withholding, payroll, employment, unemployment, unclaimed property, escheat,
estimated, excise, severance, environmental, stamp, occupation, premium, property (real or
personal), real property gains, windfall profits, customs, duties or other taxes, fees, assessments
or charges of any kind whatsoever, together with any interest, additions to tax or penalties with
respect thereto and any interest in respect of such additions to tax or penalties.
'"Tax Claim" has the meaning set forth in Section 7.(M.
'"Tax Election" has the meaning set forth in the preamble.
'"fax Return" means any return, declaration, report, claim for refund, information return
or statement or other document relating to Taxes, including any schedule or attachment thereto,
and including any amendment thereof.
"Territory" means the state of Idaho.
*Third-Party Claim" has the meaning set forth in Section 8.05(a).
"Transaction" means the Merger in accordance with the terms and provisions of the
Transaction Documents and all actions necessary to effectuate the Merger or incidental thereto.
"Transaction Documents" means this Agreement and each other agreement, instrument,
certificate or document delivered pursuant hereto or thereto.
'"fransaction Expenses" means all fees and expenses incuned by the Company or
Shareholder at or prior to the Closing in connection with the preparation, negotiation and
execution of Transaction Documents, and the performance and consummation of the
Transaction.
Exhibit No. 2
J. Palfreyman, NW Natural
61
*Utility System" means all potable water supply, treatment, storage and distribution
systems and wastewater collection, transmission, treatment, disposals and resuse systems owned
by the Company.
"lVater Platform" had the meaning set forth in the preamble.
"IVater Right" means any right, entitlement or authorization to divert, appropriate, store
or use surface water or groundwater granted or recognized by a Governmental Authority,
including, without limitation, all claims, licenses, permits, certificates, decrees and pending
permit and transfer applications.
*IVithheld Shares" has the meaning set forth in Section 1.07(a).
'Withheld Shares Release Date" has the meaning set forth in Section 1.07(a).
*lryUTC" means the Washington Utility and Transportation Commission.
Exhibit No. 2
J. Palfreyman, NW Natural
62
EXHIBIT A
Articles of Merger
[See Anachedl
Exhibit No. 2
J. Palfreyman, NW Natural
94652083. r 0 00555704&08 D-l
63
EXEIBIT B
Articles of f ncorporation
[See Aaachedl
Exhibit No. 2
J, Palfreyman, NW Natural
64
94652083. lO 0055t0{X'408 D-1
EXIIIBIT C
Bylaws
[SeeAmclrcdJ
Exhibit No. 2
J. Palfreyman, NW Natural
65
94652083. I 0 005557040408 D-1
ExhibitD
Form of Offer Letter
TEL: 503.220.2408
FAX: 503.220.2584
Toll Free: 1.8W.422.4012
E-MAIL: [EMAIL]
lDArEl
Mr. Brent Johnson
I 1030 kdge Stone Drive
McGregor, TX76657
Dear Brent,
NW Natural Gas Company, as the acquirer of Falls Water Co., Inc. (FWC), is extending you an
offer of continued employment at FWC in the position of President of FWC with a salary of
$XX annually. In addition to your continued responsibility for FWC, we expect that you will
help to integrate FWC into the NW Natural family of companies and that you may help NW
Natural acquire and integrate other water utilities as it expands its water utility platform. We
know your past experience and expertise will play an important role in our water strategy growth
and success and we look fonvard to having you as part of our team.
The term of your employment is expected to be for 12 months following the consummation of
the acquisition of FrilC by NW Natural. With this offer you will be eligible to continue to
participate in F'\MC benefits programs or comparable benefit programs.
In accepting our offer of employment, you acknowledge that your employment at F'\MC will be
on an at-will basis, meaning that either you or we are free to terminate the employment
relationship at any time with or without cause or notice.
We believe you will find this new path both challenging and rewarding. Please signify your
acceptance of this position and agreement to the terms of the offer by signing this letter and
retuming the original to me by tDATEl. If you have any questions, please call me at (503) 22O-
2408.
Sincerely,
ACCEPTED:
Brent Johnson
Exhibit No. 2
J. Palfreyman, NW Natural
94652083. I 0 0055570-0040E D-l
Date
66
ExhibitE
Terrns of Amendment to Lease Agreement
The Lease Agreement dated September l, 201I between Brent Johnson and the Company will be
amended to reflect the following:
l. A rental rate reduction, to the extent not already made, based on the IPUC's most recent
general rate case order (2012), FIS-W-12-01, Order No. 32663. (In that order, the IPUC also
made a reduction to rental expenses for a lease with its owner because the Company had failed to
demonstrate that the lease is reasonable and the product of arms-length bargaining, resulting in a
reduction of about $12,000 for rental expenses, almost ZOVo of the Company's rental expenses).
2. A term of no less than 24 months from the Closing Date (the "Term").
3. A Company option to purchase the lrased Real Property, which purchase price shall be
determined by an independent appraisal firm, provided the notice of the option to purchase is
delivered to Shareholder within the Term.
Exhibit No.2
J, Palfreyman, NW Natural
946s2083. r O msss70-0(x08
Shareholder's Disclosure Schedules
67
The parries hereto have caused this Agreement to be duly executed and delivered as of
the date first written above.
I\NM NATURAL:
NORTHWEST NATURAL COMPANY
By:
Name:
Title:
WATER PLATFORM:
NW ,LLC
MERGER SUB:
FWC
By:
Name:
Title:
THE COMPfu\Y:
FALLS WATER CO.,INC.
B.r-:
Name:
Title: President
SHARBHOLDER:
Exhibit No. 2
J. Palfreyman, NW Natural
68
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