Document:

Exhibit 10.2

LONG TERM
INCENTIVE AWARD AGREEMENT

This Agreement is
entered into as of September 14, 2006, between Cascade Natural Gas Corporation,
a Washington corporation (the “Company”), and Rick Davis (“Recipient”).

On September 14, 2006, the Governance, Nominating and
Compensation Committee (the “Committee”) of the Company’s Board of Directors
(the “Board”) authorized an objectively-determinable performance-based award
(the “Award”) to Recipient pursuant to Section 6 of the Company’s 1998 Stock
Incentive Plan (the “Plan”) of the Plan. 
Compensation paid pursuant to the Award is intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue
Code of 1986 (the “Code”).  Recipient
desires to accept the awards subject to the terms and conditions of this
Agreement.

NOW, THEREFORE,
the parties agree as follows:

1.             Award.

Recipient’s “Target
Shares” for purposes of this Agreement shall be 4,075 shares. Subject to the
terms and conditions of this Agreement, the Company shall issue or otherwise
deliver to the Recipient the number of shares of Common Stock of the Company
(the “Award Shares”) determined under this Agreement based on (a) the Company’s
return on equity as defined in Section 2.4 (ROE) relative to the ROE of a peer
group of companies during the three-year period from July 1, 2006 to June 30,
2009 (the “Award Period”) as described in Section 2 and (b) Recipient’s
continued employment during the Award Period as described in Section 3.  If the Company issues or otherwise delivers
Award Shares to Recipient, the Company shall also pay to Recipient the amount
of cash determined under Section 4 (the “Dividend Equivalent Cash Award”).

2.             Award Performance Condition.

2.1           Subject to possible reduction under
Section 3, the number of Award Shares to be issued or otherwise delivered to
Recipient shall be determined by multiplying the Payout Factor (as defined
below) by the Award Shares.

2.2           To determine the “Payout Factor,” the
eight Peer Group Companies (as defined below) and the Company shall be ranked
based on their respective ROEs from highest to lowest, with the company with
the highest ROE having a ROE Ranking of “1” and the company with the lowest ROE
having a ROE Ranking of “9.”  The Payout
Factor will be the percentage in the following table corresponding to the
Company’s ROE Ranking.

 

 

	
  ROE Ranking

  	
   

  	
  Payout Factor

  
	
  9

  	
   

  	
  0%

  
	
  8

  	
   

  	
  0%

  
	
  7

  	
   

  	
  0%

  
	
  6

  	
   

  	
  20%

  
	
  5

  	
   

  	
  40%

  
	
  4

  	
   

  	
  55%

  
	
  3

  	
   

  	
  70%

  
	
  2

  	
   

  	
  85%

  
	
  1

  	
   

  	
  100%

  

 

2.3           The
“Peer Group Companies” are Avista Corporation (AVA), Chesapeake Utilities
(CPK), The Laclede Group, Inc. (LG), New Jersey Resources Corporation,
Northwest Natural Gas Company (NWN), South Jersey Industries (SJI), Southwest Gas
Corporation (SWX), and WGL Holdings, Inc. (WGL).  If prior to the end of the Award Period, the
common stock of any Peer Group Company ceases to be publicly traded for any
reason, then such company shall no longer be considered a Peer Group Company,
and the Committee shall designate an alternate peer company shall become a Peer
Group Company effective as of the start of the Award Period.

2.4           The
“ROE” for the Company and each Peer Group Company shall be calculated by
dividing the annual earnings per share of each company by the average of the
book value per share determined at
the beginning of the company’s fiscal year and at the end of the company’s
fiscal year.  The earnings per share and
book value will be the latest numbers reported in a company’s annual report and forms 10-K filed with the SEC for the company’s fiscal
year that ends on or before June 30 of each year in the Award Period.

3.             Employment Condition.

3.1           In order to receive the full number
of Award Shares determined under Section 2, Recipient must be employed by the
Company on the last day of the Award Period.

3.2           If Recipient’s employment by the
Company is terminated at any time prior to the end of the Award Period because
of death, disability (within the meaning of Section 409A(c)(2)(C) of the Code),
retirement (as defined in the Company’s Retirement Plan) at or after reaching
age 55, or a Workforce Reduction (as defined in section 3.01-2 of the Cascade
Natural Gas Corporation Officers Severance Pay Plan), Recipient shall be
entitled to receive pro-rated awards. 
The number of Award Shares to be issued or otherwise delivered as a
pro-rated award shall be determined by multiplying the number of Award Shares
determined under Section 2 by a fraction, the numerator of which is the number
of days Recipient was employed by the Company during the Award Period and the
denominator of which is the number of days in the Award Period.

 2
 

 

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

4.             Dividend Equivalent Cash Awards.

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

5.             Certification and Payment.

5.1           Prior to the regularly scheduled
meeting of the Committee held in the fourth quarter of the fiscal year
immediately following the final year of the Award Period (the “Certification
Meeting”), the Company shall calculate the number of Award Shares deliverable
and the amount of the Dividend Equivalent Cash Award payable to Recipient, and
shall submit these calculations to the Committee.  At or prior to the Certification Meeting, the
Committee shall certify in writing (which may consist of approved minutes of
the Certification Meeting) the levels of ROE attained by the Company and the
Peer Group Companies, the number of Award Shares deliverable to Recipient and
the amount of the Dividend Equivalent Cash Award payable to Recipient.

5.2           Subject to applicable tax withholding
under Section 6, the amounts so certified shall be delivered or paid (as
applicable) as soon as practicable following the Certification Meeting and in
no event later than 2 1⁄2 months after the close of the calendar year in which
the Certification Meeting occurs, except to the extent Section 5.3
applies.  No amounts shall be delivered
or paid prior to certification.  No
fractional shares shall be delivered and the number of Award Shares deliverable
shall be rounded to the nearest whole share.

5.3           Payment to any Recipient who is a “specified
employee” (as defined in Treasury Regulations under Section 409A of the
Internal Revenue Code) and whose right to payment vested under Section 3.2 on
account of the Recipient’s retirement or termination of employment due to a
Workforce Reduction shall be no earlier than six months after the Recipient’s
employment terminates.

6.             Tax Withholding.

Recipient
acknowledges that, on the date the Award Shares are issued or otherwise
delivered to Recipient (the “Payment Date”), the Value (as defined below) on
that date of the Award Shares (as well as the amount of the Dividend Equivalent
Cash Awards) will be treated as ordinary compensation income for federal and
state income and FICA tax purposes, and that the Company will be required to
withhold taxes on these income amounts. 
To satisfy the required withholding amount, the Company shall first
withhold all or part of the Dividend Equivalent Cash Awards, and if that is insufficient,
the Company shall withhold the number of Award Shares having a Value equal to
the remaining withholding amount.  For
purposes of this Section 

 3
 

 

6, the “Value” of an
Award Share shall be equal to the closing market price for Company Common Stock
on the last trading day preceding the Payment Date.  Notwithstanding the foregoing, Recipient may
elect not to have Award Shares withheld to cover taxes by giving notice to the
Company in writing prior to the Payment Date, in which case no Award Shares shall
be delivered to Recipient until Recipient shall have paid to the Company in
cash any required tax withholding not covered by withholding of the Dividend
Equivalent Cash Awards.

7.             Change in Control.

7.1           If a Change in Control (as defined in
Section 8) occurs before the end of the Award Period, the Company shall, within
5 business days thereafter and subject to applicable tax withholding as
provided for in Section 6, pay the Recipient the cash value of the Target
Shares and pay to Recipient a Dividend Equivalent Cash Award based on such
number of Target Shares.

7.2           The cash value of the Target Shares
shall be determined as follows:

7.2-1        If the Company’s common stock is still
trading, then the cash value shall be the average of the value of the Company’s
common stock traded on the three business days immediately following the date
of the Change in Control.

7.2-2        If the Company’s common stock is no
longer publicly traded, then the cash value shall be determined based on the
following:

(a)           If the Company’s common stock has
been replaced by another publicly traded security, then cash value shall be the
average value of any security that replaces the common stock for the three
business days that immediately follow the Change in Control.

(b)           If (a) does not apply, the cash value
shall be equal to the price paid by the purchaser of control of the Company in
connection with the last event that constitutes the Change in Control.

7.3           Amounts paid under this Section 7
shall be in satisfaction of any and all obligations of the Company to issue or
otherwise deliver Award Shares or pay Dividend Equivalent Cash Awards under
this Agreement.

8.             Definition of Change in Control

For purposes of
determining whether a Change in Control has occurred and whether payment under
Section 7 is on account of a Change in Control, the following definitions shall
apply:

8.1           “Change in Control” means a change in
ownership of the Company under Section 8.2, a change in effective control of
the Company under Section 8.3, or a change in the ownership of a substantial
portion of the Company’s assets under Section 8.4.

8.2           A change in ownership occurs on the
date that any one person or more than one person acting as a group acquires
ownership of stock of the Company that, together with stock 

 4
 

 

already held by such person or group, constitutes more
than 50 percent of the total fair market value or total voting power of the
Company’s stock.

8.2-1        A change in ownership will not be deemed
to occur if, before the person or group acquires additional Company stock, the
person or group acquiring Company stock owned, or is treated as owning, more
than 50 percent of the total fair market value or total voting power of Company
stock.

8.2-2        An increase in the ownership percentage
of the person or group as a result of a transaction in which the Company
redeems its stock for cash or other property will be treated as an acquisition
by the person or group.

8.2-3        Ownership of stock will be determined by
applying the rules in section 318(a) of the Internal Revenue Code and by
treating stock underlying a vested option as owned by the individual who holds
the vested option, unless the stock to which the option applies is not
substantially vested as defined in Treasury regulation section 1.83-3(b) and
(j).

8.2-4        Persons who will be considered as acting
as a group to acquire or hold Company stock or effective control of the Company
to the extent provided by applicable regulations or other written guidance
published by the Internal Revenue Service.

8.3           A change in effective control of the
Company shall occur, regardless whether a change in ownership occurs under
Section 8.2, on the date that an event described in 8.3-1 or 8.3-2 occurs,
subject to 8.3-3.

8.3-1        A change in effective control occurs on
the date that any one person or more than one person acting as a group acquires
(or has acquired during the 12-month period that ends on the date of the most
recent acquisition by such person or group) ownership of Company stock
possessing more than 35-percent of the total voting power of the Company’s
stock.

8.3-2        A change in effective control also
occurs on the date that a majority of the Company’s board of directors is
replaced during any 12-month period by directors whose election is not endorsed
by a majority of the Company’s board members prior to the date of election or
appointment.

8.3-3        A change in effective control will not
result from the acquisition of additional control of the company by any person
or group that, immediately before such acquisition, owned more than 35 percent
of the total voting power of the Company’s stock.

8.4           A change in ownership of a
substantial portion of the Company’s assets occurs on the date that any person
or more than one person acting as a group acquires (or has acquired during the
12-month period ending on the date of the most recent acquisition by such
person or group) Company assets with a total gross fair market value equal to
40 percent or more of the total gross fair market value of all of the Company’s
assets immediately prior to the acquisition (or series of acquisitions).

 5
 

 

8.4-1        Gross fair market value for this purpose
means the value of the Company’s assets or the value of the assets being
disposed of, without regard to any liabilities associated with such assets.

8.4-2        No Change in Control occurs solely
because the Company transfers assets to an entity controlled by the Company’s
shareholders immediately after the transfer.

8.4-3        No change in ownership of the Company’s
assets is deemed to occur solely by reason of a transfer of the Company’s
assets to any of the following:

(a)           A shareholder of the Company
(immediately before the asset transfer) in exchange for the Company’s stock.

(b)           An entity, half or more of whose
total value or voting power is owned by he Company (directly or indirectly).

(c)           A person or group that owns (directly
or indirectly) 50 percent or more of the value or voting power of all of the
Company’s outstanding shares.

(d)           An entity, half or more of whose
total value or voting power is owned (directly or indirectly) by a person who
owns 50 percent or more of the value or voting power of the Company’s
outstanding shares.

9.             Limitations on Certain Excess
Payments

9.1           No payments shall be made to a
Recipient under this Agreement that would constitute excess parachute payments
within the meaning of Section 280G of the Internal Revenue Code.

9.2           The determination of whether payments
constitute excess parachute payments shall be made by the Committee, with the
advice of counsel.  The Committee shall
notify the Recipient and any other interested parties of its determination
which shall be final and binding on all parties.

9.2-1        The Committee shall notify the Company
and the Recipient in writing of its determination within 5 business days after
the Recipient’s employment terminates.

9.2-2        The notice shall list all payments that
are deemed to constitute excess parachute payments and include the Committee’s
determination of the present value of each listed payment.

9.3           In determining whether payments under
the Plan constitute excess parachute payments, the Committee shall take into
account any other payments of compensation that must be counted under Section
280G.

9.4           The Recipient may, by written notice
to the Committee and the Company, elect to receive any combination of benefits
to which the Recipient is otherwise entitled, that will not 

 6
 

 

exceed the maximum amount that can be paid to the
Recipient without resulting in excess parachute payments.

9.5           If the Recipient fails to provide
timely notice of an election to receive a combination of benefits, the
Committee shall determine the payments that are to be reduced to avoid paying
any excess parachute payments to the Recipient.

10.          Approvals.

The issuance by
the Company of authorized and unissued shares or reacquired shares under this Agreement
is subject to the approval of the Oregon Public Utility Commission and the
Washington Utilities and Transportation Commission, but no such approvals shall
be required for the purchase of shares on the open market for delivery to
Recipient in satisfaction of its obligations under this Agreement.  The obligations of the Company under this
Agreement are otherwise subject to the approval of state and federal
authorities or agencies with jurisdiction in the matter.  The Company will use its best efforts to take
steps required by state or federal law or applicable regulations, including
rules and regulations of the Securities and Exchange Commission and any stock
exchange on which the Company’s shares may then be listed, in connection with
the award under this Agreement.  The
foregoing notwithstanding, the Company shall not be obligated to issue or
deliver Common Stock under this Agreement if such issuance or delivery would
violate applicable state or federal law.

11.          No Right to Employment.

Nothing contained in this Agreement
shall confer upon Recipient any right to be employed by the Company or to
continue to provide services to the Company or to interfere in any way with the
right of the Company to terminate Recipient’s services at any time for any
reason, with or without cause.

12.          Miscellaneous.

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

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

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

 7
 

 

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

12.5         Applicable Law; Attorneys’ Fees.  The terms and conditions of this Agreement
shall be governed by the laws of the State of Washington.  In the event either party institutes
litigation hereunder, the prevailing party shall be entitled to reasonable
attorneys’ fees to be set by the trial court and, upon any appeal, the
appellate court.

12.6         Counterparts.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original.

12.7         Conflicts with Employment
Agreements.  Notwithstanding anything to
the contrary herein, if there is a conflict between this agreement and any
executed and enforceable employment agreement, the employment agreement
controls.

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

	
  CASCADE NATURAL GAS CORPORATION

  /s/ Larry Pinnt______________________________

  By: Larry Pinnt

  Title: Chairman

   

  	
  RECIPIENT

  /s/ Rick Davis______________________

  Rick Davis

  

 

 

 8Exhibit 10.3

THIRD AMENDMENT TO

CASCADE NATURAL GAS CORPORATION

1998 STOCK INCENTIVE PLAN

AND

SECOND AMENDMENT TO

CASCADE NATURAL GAS CORPORATION

2000 DIRECTOR STOCK AWARD PLAN

This Third Amendment to the 1998 Stock Incentive Plan
and Second Amendment to the 2000 Director Stock Award Plan (this “Amendment”) is dated September 14, 2006, and amends the 1998 Stock
Incentive Plan (as amended to date, the “Incentive Plan”)
and 2000 Director Stock Award Plan (as amended to date, the “Director Plan”) of Cascade Natural
Gas Corporation (the “Corporation”).
Capitalized terms not otherwise defined in this Amendment shall have the
meanings set forth in the Director Plan or Incentive Plan, as the context
requires.

AMENDMENTS

Pursuant to its authority under Section 9.2 of the
Director Plan and Article 10 of the Incentive Plan, the Board of Directors of
the Corporation hereby amends each of the Incentive Plan and Director Plan as
follows:

1.     
     Amendments to Director Plan.   A
new Section 7.8 is hereby added to the Director Plan, which reads as follows:

7.8 
Issuance of Deferred Shares in MDU Merger.  Notwithstanding anything to the contrary in
the Plan or any Deferral Election, immediately prior to the MDU Merger
Effective Time and with no further action on the part of any participant in the
Plan: (a) all outstanding Stock Units shall automatically be cancelled and be
converted into a right to receive Shares; and (b) the Corporation shall
automatically issue to each person whose Stock Units were cancelled, in
accordance with (a) above, a number of Shares equal to the number of such
person’s cancelled Stock Units; provided that in the event that the MDU Merger
Agreement is terminated, this Section 7.8 shall automatically terminate and be
of no further force and effect. “MDU Merger Effective Time”
has the meaning assigned to the term “Effective Time” in the MDU Merger
Agreement.  “MDU
Merger Agreement” means that certain Agreement and Plan of
Merger by and among MDU Resources Group, Inc., Firemoon Acquisition, Inc. and
Cascade Natural Gas Corporation, dated as of July 8, 2006, as amended.

2.           Amendments to Incentive Plan.   Exhibit
F to the Incentive Plan is hereby deleted in its entirety and replaced with the
Director Plan as amended by this Amendment.

 

3.           No Other Amendments.   Except
as expressly amended by this Amendment, each of the Director Plan and the
Incentive Plan shall remain in full force and effect.

4.           Headings.  The article and section headings
contained in this Amendment are inserted for convenience only and will not
affect in any way the meaning or interpretation of this Amendment.

[Signature page follows]

 

 

IN WITNESS WHEREOF, the
undersigned has executed this Amendment as of the date stated in the
introductory paragraph of this Amendment.

	
  

  	
   

  	
  By Order of the Board of Directors,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ David W. Stevens

  
	
   

  	
   

  	
  David W. Stevens

  
	
   

  	
   

  	
  President and Chief Executive Officer

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