Restricted Unit Plan

FORM OF


CORNERSTONE PROPANE PARTNERS, L.P.


1996 RESTRICTED UNIT PLAN


(As Adopted _____________, 1996)


CORNERSTONE PROPANE PARTNERS, L.P.
1996 RESTRICTED UNIT PLAN


TABLE OF CONTENTS


PAGE


1. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-


2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-


3. Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-13-


4. Initial Executive Rights. . . . . . . . . . . . . . . . . . . . . . . .-16-


5. Time Vesting Rights . . . . . . . . . . . . . . . . . . . . . . . . . .-17-


6. Performance Vesting Rights. . . . . . . . . . . . . . . . . . . . . . .-18-


7. Reserved Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . .-19-


8. Other Provisions Applicable to Vesting. . . . . . . . . . . . . . . . .-20-


9. Director Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . .-22-


10. Delivery of Units, etc. . . . . . . . . . . . . . . . . . . . . . . . .-25-


11. Adjustment Upon Changes in Capitalization . . . . . . . . . . . . . . .-27-


12. Termination and Amendment of the Plan . . . . . . . . . . . . . . . . .-27-


13. Death of Grantee. . . . . . . . . . . . . . . . . . . . . . . . . . . .-28-


14. Non-Exclusivity of the Plan . . . . . . . . . . . . . . . . . . . . . .-29-


15. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . .-29-


16. Regulations and Other Approvals; Governing Law. . . . . . . . . . . . .-30-


17. Withholding of Taxes. . . . . . . . . . . . . . . . . . . . . . . . . .-33-


18. Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-34-


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19. Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-34-


20. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-34-


21. Effective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-35-


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CORNERSTONE PROPANE PARTNERS, L.P.
RESTRICTED UNIT PLAN


1. PURPOSE. The purpose of the Plan is to strengthen Cornerstone Propane Partners, L.P., a Delaware limited partnership (the "PARTNERSHIP"), by providing an incentive to certain Senior Executives and Directors (as hereinafter defined) of Cornerstone GP, Inc.; a Delaware corporation, the Managing General Partner of the Partnership, and thereby encouraging them to devote their abilities and industry to the success of the Partnership's business enterprise in such a manner as to maximize the Partnership's value. It is intended that this purpose be achieved by extending to certain Senior Executives and Directors an added long-term incentive for continued service to the Partnership and the Managing General Partner, and for high levels of performance and unusual efforts which enhance the Partnership's value through the grant of rights to receive Common Units (as hereinafter defined) of the Partnership.


2. Definitions.


For purposes of this Plan, unless otherwise specified in an agreement, capitalized terms shall have the following meanings:


2.1 "ACT" means the Securities Act of 1933, as amended.


2.2 "AGREEMENT" means the written agreement between the Partnership and a Grantee evidencing the grant of an Award and setting forth the terms and conditions thereof.


2.3 "AWARD" means a grant of Time Vesting Rights and/or Performance Vesting Rights.


2.4 "BOARD" means the Board of Directors of the Managing General Partner.


2.5 "CAUSE" means, unless otherwise provided in an Agreement, (i) in the case of a Senior Executive, (a) the Grantee's gross negligence or willful misconduct in the performance of his or her duties, (b) the Grantee's willful or grossly negligent failure to perform his or her duties, (c) the breach by the Grantee of any written covenants to the Partnership or the Managing General Partner, (d) dishonest, fraudulent or unlawful behavior by the Grantee (whether or not in conjunction with employment) or the Grantee being subject to a judgment, order or decree (by consent or otherwise) by any governmental or regulatory authority that


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restricts his or her ability to engage in the business conducted by the Partnership or the Managing General Partner or any of their affiliates or (e) willful or reckless breach by the Grantee of any policy adopted by the Partnership or the Managing General Partner concerning conflicts of interest, standards of business conduct or fair employment practices or procedures with respect to compliance with applicable laws, and (ii) in the case of a Director, the commission of an act of fraud or intentional misrepresentation or an act of embezzlement, misappropriation or conversion of assets of the Partnership, the Managing General Partner or any of their affiliates.


2.6 "CHANGE IN CAPITALIZATION" means any increase or reduction in the number of Common Units, or any change (including, but not limited to, a change in value) in the Common Units, or exchange of Common Units for a different number or kind of units or other securities of the Partnership, by reason of a reclassification, recapitalization, merger, consolidation, reorganization, spin- off, split-up, issuance of warrants or rights or other convertible securities, unit distribution, unit split or reverse unit split, cash dividend, property dividend, combination


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or exchange of units, repurchase of units, change in corporate structure or otherwise.


2.7 "CHANGE OF CONTROL" means the occurrence during the term of the Plan of:


(i) an acquisition (other than directly from the Partnership)
of Common Units, Subordinated Units or voting equity interests of the
Partnership ("VOTING SECURITIES") by any "PERSON" (as the term person is
used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT")), other than the Partnership, the
Managing General Partner or any of their affiliates, immediately after
which such Person has "BENEFICIAL OWNERSHIP" (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of more than [twenty five percent
(25%)] of the combined voting power of the Partnership's then outstanding
Units; PROVIDED, HOWEVER, that in determining whether a Change of Control
has occurred, Units which are acquired in a Non-Control Acquisition' (as
hereinafter defined) shall not constitute an acquisition that would cause a
Change of Control. A "NON-CONTROL ACQUISITION" shall mean an


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acquisition by (i) an employee benefit plan (or a trust forming a part
thereof) maintained by (A) the Managing General Partner or the Partnership
or (B) any corporation, partnership or other Person of which a majority of
its voting power or its voting equity securities or equity interest is
owned, directly or indirectly, by the Partnership, or Northwestern Public
Service Company (for purposes of this definition, a "SUBSIDIARY"), (ii) the
Partnership or Subsidiaries, or (iii) any Person in connection with a "NON-
CONTROL TRANSACTION" (as hereinafter defined);


(ii) approval by the partners of the Partnership of (A) a
merger, consolidation or reorganization involving the Partnership, unless
(x) the holders of Common and Subordinated Units immediately before such
merger, consolidation or reorganization own, directly or indirectly
immediately following such merger, consolidation or reorganization, at
least [sixty percent (60%)] of the combined voting power of the outstanding
Common and Subordinated Units of the entity resulting from such merger,
consolidation or reorganization (the "SURVIVING ENTITY") in substantially
the same proportion as their ownership of the Common and Subordinated
Units


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immediately before such merger, consolidation or reorganization, and (y)
no person or entity (other than the Partnership, any Subsidiary, any
employee benefit plan (or any trust forming a part thereof) maintained by
the Partnership, the Managing General Partner, the Surviving Entity, or
any Person who, immediately prior to such merger, consolidation or
reorganization had Beneficial Ownership of more than twenty five percent
(25%) of the then outstanding Common and Subordinated Units), has
Beneficial Ownership of more than twenty five percent (25%) of the
combined voting power of the Surviving Entity's then outstanding voting
securities; (B) a complete liquidation or dissolution of the Partnership;
or (c) the sale or other disposition of 50% or more of the net assets of
the Partnership to any Person (other than a transfer to a Subsidiary). A
transaction described in clauses (x) or (y) of subsection (A) hereof shall
be referred to as a "NON-CONTROL TRANSACTION;" or


(iii) A Qualified Owner or Qualified Owners (as defined below)
not having, in the aggregate, Beneficial Ownership of at least 50.1% of the
capital stock of the General Partner (by vote and value). For purposes of
this


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Section 2.7, "QUALIFIED OWNER" shall mean Northwestern Public Service
Company, or any corporation of which Northwestern Public Service Company
owns (directly or indirectly) a majority of the combined voting power of
its outstanding voting securities.


Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because any Person (the "SUBJECT PERSON") acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Partnership which, by reducing the number of Voting Securities outstanding, increases the proportional number of Common or Subordinated Units Beneficially Owned by the Subject Person, provided that if a Change of Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Partnership, and after such acquisition by the Partnership, the Subject Person becomes the Beneficial Owner of any additional Voting Securities that increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change of Control shall occur.


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2.8 "CODE" means the Internal Revenue Code of 1986, as amended.


2.9 "COMMITTEE" means a compensation committee consisting of at least two (2) members of the Board appointed by the Board to administer the Plan and to perform the functions set forth herein.


2.10 "COMMON UNITS" means the common units representing limited partnership interests of the Partnership.


2.11 "DIRECTOR" means any member of the Board who at no time prior to or during his or her service on the Board was or is an employee or officer of the Partnership or the Managing General Partner.


2.12 "DISABILITY" shall have the same meaning that such term (or similar term) has under the long-term disability plan in which the Senior Executive or Director is covered.


2.13 "EFFECTIVE DATE" shall mean the date upon which the Public Offering is consummated.


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2.14 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.


2.15 "FAIR MARKET VALUE" per Common Unit on any date means the average of the high and low sale prices of the Common Units on such date on the principal national securities exchange on which such Common Units are listed or admitted to trading, or if such Common Units are not so listed or admitted to trading, the arithmetic mean of the per Common Unit closing bid price and per Common Unit closing asked price on such date as quoted on the National Association of Securities Dealers Automated Quotation System or such other market on which such prices are regularly quoted, or, if there have been no published bid or asked quotations with respect to Common Units on such date, the Fair Market Value shall be the value established by the Board in good faith.


2.16 "GOOD REASON" means, unless otherwise provided in an Agreement, in the case of a Senior Executive, (a) any failure by the Partnership or the Managing General Partner to comply in any material respect with the compensation provisions of a written employment agreement between the Senior Executive and the


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Partnership or the Managing General Partner, or (b) the assignment to the Senior Executive, without his or her consent, of duties and responsibilities materially inconsistent with his or her level of responsibility as an executive officer.


2.17 "GRANTEE" means a person to whom an Award has been granted under the Plan.


2.18 "INITIAL RIGHTS" means the Initial Executive Rights granted to Senior Executives pursuant to Section 4.1 on or effective as of the Effective Date, to receive a number of Common Units with an aggregate value of $7.0 million, and the Initial Director Rights granted to Directors pursuant to Section 9.1.1, on or effective as of the Effective Date, to receive a number of Common Units with an aggregate value of $.9 million (based on the initial public offering price of the Common Units in the Public Offering, regardless of the Fair Market Value of a Common Unit at any other time).


2.19 "MANAGING GENERAL PARTNER" means Cornerstone Propane ...