Exhibit 10.5

 

AGREEMENT REGARDING

SUPPLEMENTAL RETIREMENT BENEFITS

 

This agreement is being entered into between David W. Stevens (“Executive”) and
Cascade Natural Gas Corporation (“Cascade”) to document their agreement with
respect to supplemental retirement benefits.

 

A.            Executive and Cascade entered into an employment agreement date
March 3, 2005 (the “Employment Agreement”).

 

B.            Section 4.4 of the Employment Agreement provides that Cascade will
provide Executive the opportunity to participate in a supplemental deferred
compensation plan that will be anticipated, using reasonable assumptions
concerning the rate of investment returns, to provide Executive with replacement
pay at retirement equal to 55 percent of his average base salary at normal
retirement age 65 with 15 years of service, under the Employment Agreement,
after taking into account Social Security retirement benefits and any retirement
benefits payable to Executive under any qualified or nonqualified retirement
plan sponsored by Cascade or by Executive’s prior employer.

 

C.            Cascade is adopting a new executive deferred compensation plan
that will credit to an account for Executive a net contribution amount as well
as a rate of investment return based on elections made by Executive.

 

D.            The new plan will not provide a guaranteed level of retirement
income because it will provide benefits based on the rate at which net
contribution amounts and investment earnings are credited to Executive’s account
and,  as a result, it is possible that the value of the account may provide more
or less than 55 percent of Executive’s average base salary.

 

E.             Actuaries retained by Cascade have produced the attached
schedule of net contribution amounts to be credited to Executive’s account that
will reasonably be expected, based on the assumptions set out in the schedule,
to provide the targeted rate of replacement pay.

 

In consideration of the premises, the parties agree as follows:

 

1.             Net contributions to the account under the deferred compensation
plan that are in accordance with the attached schedule will satisfy Cascade’s
obligations to Executive under section 4.4 of the Employment Agreement.

 

2.             Cascade shall have no liability to Executive under section 4.4 of
the Employment Agreement other than to credit contributions to the Executive’s
account under the plan at the rates set forth in the attached schedule during
the term of Executive’s employment with Cascade.

 

CASCADE NATURAL GAS CORPORATION

EXECUTIVE

 

 

By

/s/ Larry L. Pinnt

 

/s/ David W. Stevens

 

Title

Chairman

 

 

 

 

 

Executed:

January 11, 2006

Executed:

January 11, 2006

 

 

 

 

--------------------------------------------------------------------------------

 

Cascade Natural Gas

Executive Defined Contribution Plan Benefit Projection

 

Input Data for David Stevens as of October 1, 2005

 

Hire Age:

 

46

 

Current Annual Base Pay (excluding bonus):

 

$

400,000

 

Current Age:

 

46

 

Future Pay Increases:

 

4.00

%

Retirement Age:

 

65

 

Pre-Ret DC Investment Return:

 

6.50

%(1)

Service at Retirement:

 

19

 

Post-Ret DC Investment Return:

 

5.50

%(2)

Assumed Bonus %:

 

27

%(4)

401(k) Annual Deferral (% of Qualified Pay):

 

6.00

%(3)

Personal Tax Rate:

 

35

%

Assumed Future Profit Sharing Contribution:

 

2.00

%

Corporate Tax Rate:

 

36.5

%

 

 

 

 

 

Benefit Development for David Stevens

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior Er

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Qualified

 

 

 

Prior Er

 

SERP &

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plan

 

Prior Er CB

 

Qual DC

 

401(k)

 

CNG

 

 

 

CNG

 

CNG

 

 

 

BOY

 

Total

 

 

 

Limited

 

(now IRA)

 

(now IRA)

 

Shadow After-

 

Match

 

CNG Match

 

Other DC

 

Other DC

 

BOY

 

Age

 

Comp

 

Base Pay

 

Comp

 

Acct EOY

 

Acct EOY

 

Tax Acct EOY

 

Cont.

 

Acct EOY

 

Cont.

 

Acct EOY

 

Service

 

45

 

 

 

 

 

 

 

244,121

 

156,662

 

738,057

 

 

 

 

 

 

 

 

 

 

 

46

 

508,000

 

400,000

 

210,000

 

259,988

 

166,845

 

769,240

 

0

(6) 

0

 

0

(6)

0

 

0.5

 

47

 

528,320

 

416,000

 

215,000

 

276,888

 

177,690

 

801,740

 

6,450

 

6,656

 

12,900

 

13,313

 

1.5

 

48

 

549,453

 

432,640

 

220,000

 

294,885

 

189,240

 

835,614

 

6,600

 

13,900

 

13,200

 

27,800

 

2.5

 

49

 

571,431

 

449,946

 

225,000

 

314,053

 

201,541

 

870,919

 

6,750

 

21,770

 

13,500

 

43,539

 

3.5

 

50

 

594,288

 

467,943

 

235,000

 

334,466

 

214,641

 

907,715

 

7,050

 

30,460

 

14,100

 

60,920

 

4.5

 

51

 

618,060

 

486,661

 

240,000

 

356,207

 

228,593

 

946,066

 

7,200

 

39,870

 

14,400

 

79,741

 

5.5

 

52

 

642,782

 

506,128

 

245,000

 

379,380

 

243,451

 

986,037

 

7,350

 

50,047

 

14,700

 

100,094

 

6.5

 

53

 

668,493

 

526,373

 

250,000

 

404,018

 

259,275

 

1,027,697

 

7,500

 

61,040

 

15,000

 

122,080

 

7.5

 

54

 

695,233

 

547,428

 

255,000

 

430,280

 

276,128

 

1,071,117

 

7,650

 

72,902

 

15,300

 

145,805

 

8.5

 

55

 

723,042

 

569,325

 

265,000

 

458,248

 

294,077

 

1,116,372

 

7,950

 

85,845

 

15,900

 

171,690

 

9.5

 

56

 

751,964

 

592,098

 

270,000

 

488,034

 

313,192

 

1,163,539

 

8,100

 

99,784

 

16,200

 

199,569

 

10.5

 

57

 

782,043

 

615,782

 

275,000

 

519,756

 

333,549

 

1,212,698

 

8,250

 

114,784

 

16,500

 

229,568

 

11.5

 

58

 

813,324

 

640,413

 

285,000

 

553,540

 

355,230

 

1,263,935

 

8,550

 

131,069

 

17,100

 

262,137

 

12.5

 

59

 

845,857

 

666,029

 

290,000

 

589,520

 

378,320

 

1,317,336

 

8,700

 

148,566

 

17,400

 

297,133

 

13.5

 

60

 

879,692

 

692,671

 

300,000

 

627,839

 

402,911

 

1,372,994

 

9,000

 

167,511

 

18,000

 

335,022

 

14.5

 

61

 

914,879

 

720,377

 

305,000

 

668,649

 

429,100

 

1,431,003

 

9,150

 

187,842

 

18,300

 

375,684

 

15.5

 

62

 

951,474

 

749,192

 

315,000

 

712,111

 

456,991

 

1,491,463

 

9,450

 

209,804

 

18,900

 

419,608

 

16.5

 

63

 

989,533

 

779,160

 

320,000

 

758,398

 

486,696

 

1,554,477

 

9,600

 

233,348

 

19,200

 

466,697

 

17.5

 

64

 

1,029,115

 

810,327

 

330,000

 

807,694

 

518,331

 

1,620,153

 

9,900

 

258,733

 

19,800

 

517,465

 

18.5

 

 

 

 

 

 

Exec

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

Exec

 

 

 

 

 

Corp Tax on

 

Total Cost of

 

BOY

 

Total

 

Cont

 

Gross

 

Exec Net

 

Exec Acct

 

Exec Inv

 

Exec Plan

 

Age

 

Comp

 

Percent

 

Cont.

 

Cont. (5)

 

EOY

 

Earnings

 

(Cont. + Tax)

 

45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

46

 

508,000

 

5.25

%

21,000

 

21,000

(6)

21,672

 

245

 

21,245

 

47

 

528,320

 

5.25

%

21,840

 

2,490

 

25,650

 

543

 

3,033

 

48

 

549,453

 

5.25

%

22,714

 

2,914

 

30,324

 

643

 

3,556

 

49

 

571,431

 

5.25

%

23,622

 

3,372

 

35,775

 

759

 

4,131

 

50

 

594,288

 

5.25

%

24,567

 

3,417

 

41,627

 

889

 

4,306

 

51

 

618,060

 

5.75

%

27,983

 

6,383

 

50,920

 

1,062

 

7,445

 

52

 

642,782

 

5.75

%

29,102

 

7,052

 

61,508

 

1,290

 

8,343

 

53

 

668,493

 

5.75

%

30,266

 

7,766

 

73,520

 

1,550

 

9,316

 

54

 

695,233

 

5.75

%

31,477

 

8,527

 

87,099

 

1,844

 

10,371

 

55

 

723,042

 

5.75

%

32,736

 

8,886

 

101,931

 

2,170

 

11,056

 

56

 

751,964

 

6.25

%

37,006

 

12,706

 

121,669

 

2,567

 

15,273

 

57

 

782,043

 

6.25

%

38,486

 

13,736

 

143,753

 

3,047

 

16,783

 

58

 

813,324

 

6.25

%

40,026

 

14,376

 

167,933

 

3,578

 

17,954

 

59

 

845,857

 

6.25

%

41,627

 

15,527

 

194,872

 

4,165

 

19,692

 

60

 

879,692

 

6.25

%

43,292

 

16,292

 

224,352

 

4,814

 

21,105

 

61

 

914,879

 

6.75

%

48,625

 

21,175

 

260,788

 

5,570

 

26,745

 

62

 

951,474

 

6.75

%

50,570

 

22,220

 

300,670

 

6,447

 

28,667

 

63

 

989,533

 

6.75

%

52,593

 

23,793

 

344,768

 

7,411

 

31,205

 

64

 

1,029,115

 

6.75

%

54,697

 

24,997

 

392,975

 

8,471

 

33,469

 

 

--------------------------------------------------------------------------------

(1)          a.                Size of fund will limit investment options.

b.              Size of fund will result in higher fees than company pension
plan.

c.               8% pension plan assumption is relatively aggressive today.

d.              Company has risk if defined benefit pension plan fails to meet
the 8% assumption.

(2)          Annuity purchase interest assumption. Represents fixed income
return rate.

(3)          Assumes full company match. No employee contributions are counted
toward the 55% of pay target.

(4)          Short term bonus assumption is approximately half of target.

(5)          Plan is graduated for larger contributions in later years.

(6)          First year exclusion from Cascade qualified plans.

 

--------------------------------------------------------------------------------

 

Cascade Natural Gas

Executive Defined Contribution Plan Benefit Projection

 

Age 65 Benefit Calculation for David Stevens

 

 

 

 

Benefit

 

Pct of Final
3yr Avg

 

 

 

 

 

 

 

 

 

Total Target Replacement Ratio Under Non Qualified Plan at Age 65

 

 

 

 

 

 

1) Final 3 Year Average Base Salary

 

779,560

 

 

 

 

2) 55% x Final 3 Year Average Base Salary

 

428,758

 

55.0

%

 

 

 

 

 

 

 

 

Elements to Reach Target

 

 

 

 

 

 

 

 

 

 

 

 

1.

Social Security Benefit

 

 

 

 

 

 

1) Projected Social Security benefit beginning at age 65

 

43,772

 

 

 

 

2) One half of Projected Social Security benefit

 

21,886

 

2.8

%

 

 

 

 

 

 

 

2.

Qualified Plan Benefit

 

 

 

 

 

 

1) CNG Match Account

 

258,733

 

 

 

 

2) CNG Other DC Accounts

 

517,465

 

 

 

 

3) Annuity Factor at age 65

 

11.31327

 

 

 

 

4) CNG Qualified Plans annual annuity at age 65

 

68,610

 

8.8

%

 

 

 

 

 

 

 

3.

Prior Employer Qualified Benefits

 

 

 

 

 

 

1) Getty single life annuity at age 65

 

976

 

 

 

 

2) SU 10 year certain and life annuity, converted to single life annuity at age
65

 

1,454

 

 

 

 

3) Cash Balance (IRA), converted to single life annuity at age 65

 

71,394

 

 

 

 

4) DC plan account, converted to single life annuity at age 65

 

45,816

 

 

 

 

5) Total annuity from prior employer qualified plans

 

119,640

 

15.3

%

 

 

 

 

 

 

 

4.

Prior Employer Non-Qualified Benefits

 

 

 

 

 

 

1) SERP & Shadow 401(k) after-tax account balance at age 65

 

1,620,153

 

 

 

 

2) Equivalent after-tax annuity at age 65

 

143,208

 

 

 

 

3) After-tax annuity converted to equivalent pre-tax annuity (IRC 72)

 

186,828

 

24.0

%

 

 

 

 

 

 

 

5.

Target Executive DC Benefit Payable in Order to Meet Retirement Objective at Age
65

 

31,794

 

4.1

%

 

 

 

 

 

 

 

 

Proposed Executive DC Plan Design Results

 

 

 

 

 

 

1) Executive DC Plan account balance at age 65

 

392,975

 

 

 

 

2) Executive DC Plan annual annuity at age 65

 

34,736

 

4.5

%

 

--------------------------------------------------------------------------------