Exhibit 10.2
OTTER TAIL CORPORATION
1999 STOCK INCENTIVE PLAN
2006 PERFORMANCE AWARD AGREEMENT
     This Performance Award Agreement is between Otter Tail Corporation, a
Minnesota corporation (the “Corporation”), and you, as an employee of the
Corporation or one of its Affiliates, effective as of the date of grant (the
“Grant Date”) set forth in the attached Performance Award Certificate.
     WHEREAS, the Corporation, pursuant to the Otter Tail Corporation 1999 Stock
Incentive Plan (the “Plan”), wishes to grant to you the opportunity and right to
receive a number of the Corporation’s Common Shares, par value $5.00 per share
(the “Common Shares”), subject to the terms and conditions contained in this
Agreement and in the attached Performance Award Certificate, which is made a
part of this Agreement.
     NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Corporation and you hereby agree
as follows:
     1. Performance Award. The Corporation hereby grants to you, effective as of
the Grant Date, a Performance Award representing the right to receive a
specified number of Common Shares, as set forth in the attached Performance
Award Certificate and subject to the terms and conditions set forth in this
Agreement, the Performance Award Certificate and the Plan. The Performance
Award, to the extent it becomes payable, shall be paid in Common Shares of the
Corporation (the “Shares”).
     2. Performance Period and Performance Goals. The performance period for
purposes of determining whether the Performance Award will be paid shall be
January 1, 2006 through December 31, 2008 (the “Performance Period”). The
performance goals for purposes of determining whether, and the extent to which,
the Performance Award will be paid are set forth in Exhibit 1 to this Agreement,
which Exhibit is made a part of this Agreement.
     3. Payment. Subject to the provisions of Sections 4 and 5 of this
Agreement, the Performance Award shall be paid as soon as practicable after the
Compensation Committee of the Corporation’s Board of Directors (the “Committee”)
determines, in its discretion after the end of the Performance Period, whether
and to what extent the performance goals have been achieved in accordance with
the terms set forth in Exhibit 1 to this Agreement.
     4. Forfeiture; Early Payment. Notwithstanding the provisions of Section 3
of this Agreement, in the event your employment is terminated during the
Performance Period, the Performance Award and your right to receive any Shares
shall be immediately and irrevocably forfeited, unless such termination is by
reason of:
          (a) disability (as determined under any long-term disability program
then maintained by the Corporation or any of its Affiliates that is applicable
to you),
          (b) retirement (normal or early retirement under any retirement plan
of the Corporation or any of its Affiliates that is applicable to you),

 

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          (c) death,
          (d) your resignation for “Good Reason” (as defined in your Executive
Employment Agreement, dated on or before the Grant Date, between the Corporation
and you), or
          (e) your termination “Without Cause” (as defined in your Executive
Employment Agreement, dated on or before the Grant Date, between the Corporation
and you).
In the event your employment is terminated during the Performance Period for one
of the reasons enumerated in clauses (a) through (e) above, then you or your
estate shall be entitled to receive a payment of the Performance Award based on,
and assuming that, the performance goal would be achieved at the Target level,
as set forth in Exhibit 1 to this Agreement. Such payment shall be made promptly
following the date of such termination. If a payment is made pursuant to this
Section 4, no payment shall be made pursuant to Section 3 of this Agreement.
     5. Change in Control. Notwithstanding the provisions of Section 3 of this
Agreement, in the event of a “Change in Control” (as defined in the Change in
Control Severance Agreement, dated on or before the Grant Date, between the
Corporation and you) during the Performance Period that occurs prior to your
termination of employment, you shall be entitled to receive a payment of the
Performance Award based on, and assuming that, the performance goal would have
been achieved at the Target level, as set forth in Exhibit 1 to this Agreement.
Such payment shall be made promptly following the date of the Change in Control.
If a payment is made pursuant to this Section 5, no payment shall be made
pursuant to Section 3 of this Agreement.
     6. Restriction on Transfer. The Performance Award, and the right to receive
Shares, may not be sold, assigned, transferred, pledged, hypothecated or
otherwise disposed of or encumbered, other than by will or the laws of descent
and distribution, and no attempt to transfer the Performance Award, and the
right to receive the Shares, whether voluntary or involuntary, by operation of
law or otherwise, shall vest the transferee with any interest or right in or
with respect to the Performance Award or the Shares. No transfer by will or the
applicable laws of descent and distribution of the Performance Award shall be
effective to bind the Corporation unless the Committee shall have been furnished
with written notice of such transfer and a copy of the will or such other
evidence as the Committee may deem necessary to establish the validity of the
transfer.
     7. Issuance of Shares. After the Performance Award becomes payable pursuant
to Section 3, 4 or 5 hereof, and following payment of the applicable withholding
taxes pursuant to Section 8 hereof, the Corporation shall promptly cause to be
issued a certificate or certificates, registered in your name or in the name of
your legal representatives, beneficiaries or heirs, as the case may be,
representing the Shares (less any shares withheld to pay withholding taxes) and
shall cause such certificate or certificates to be delivered to you or your
legal representatives, beneficiaries or heirs, as the case may be.

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     8. Income Tax Matters.
          (a) You acknowledge that you will consult with your personal tax
advisor regarding the income tax consequences of the grant of the Performance
Award, the receipt of Shares upon any payment of the Performance Award, the
subsequent disposition of the Shares and any other matters related to this
Agreement. In order to comply with all applicable federal or state income tax
laws or regulations, the Corporation may take such action as it deems
appropriate to ensure that all applicable federal or state payroll, withholding,
income or other taxes, which are your sole and absolute responsibility, are
withheld or collected from you.
          (b) In accordance with the terms of the Plan, and such rules as may be
adopted by the Committee under the Plan, you may elect to satisfy your federal
and state income tax withholding obligations arising from the receipt of the
Shares by (i) delivering cash, check (bank check, certified check or personal
check) or money order payable to the order of the Corporation, (ii) having the
Corporation withhold a portion of the Shares otherwise to be delivered having a
Fair Market Value equal to the amount of such taxes, or (iii) delivering to the
Corporation Common Shares having a Fair Market Value equal to the amount of such
taxes. The Corporation will not deliver any fractional Share but will pay, in
lieu thereof, the Fair Market Value of such fractional Share. Your election must
be made on or before the date that the amount of tax to be withheld is
determined.
     9. Miscellaneous.
          (a) Nothing contained in this Agreement or the Plan shall confer on
you any right to continue in the employ of the Corporation or any Affiliate or
affect in any way the right of the Corporation or any Affiliate to terminate
your employment at any time.
          (b) You shall not have any rights of a holder of Common Shares unless
and until Shares are actually issued to you after the end of the Performance
Period as provided in this Agreement.
          (c) The Corporation shall not be required to deliver any Shares until
the requirements of any federal or state securities laws, rules or regulations
or other laws or rules (including the rules of any securities exchange) as may
be determined by the Corporation to be applicable are satisfied.
          (d) This Agreement is subject to the terms of the Plan. Terms used in
this Agreement which are not defined herein shall have the respective meanings
given to such terms in the Plan. A copy of the Plan is available to you upon
request.
          (e) This Agreement shall be governed by and construed in accordance
with the internal laws of the State of Minnesota, without giving effect to the
conflicts of laws principles thereof.
          (f) Headings in this Agreement are for convenience of reference only
and shall not be deemed in any way to be material or relevant to the
construction or interpretation of this Agreement or any provision hereof.

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          (g) THIS PERFORMANCE AWARD AGREEMENT IS ATTACHED TO AND MADE A PART OF
A PERFORMANCE AWARD CERTIFICATE AND SHALL HAVE NO FORCE OR EFFECT UNLESS SUCH
PERFORMANCE AWARD CERTIFICATE IS DULY EXECUTED AND DELIVERED BY THE CORPORATION
AND YOU.
* * * * * * * *

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OTTER TAIL CORPORATION
1999 STOCK INCENTIVE PLAN
PERFORMANCE AWARD CERTIFICATE
     This certifies the Performance Award, as specified below, has been granted
under the Otter Tail Corporation 1999 Stock Incentive Plan (the “Plan”), the
terms and conditions of which are incorporated by reference herein and made a
part hereof. In addition, the award shown in this Certificate is nontransferable
and is subject to the terms and conditions set forth in the attached 2006
Performance Award Agreement of which this Certificate is a part.
[Name and Address of the Participant]
[Social Security Number of the Participant]
     You have been granted the following Award:

     
Grant Type:
  Performance Award
Target Number of Common Shares
   
Subject to Award:
   
Maximum Number of Common Shares
   
Subject to Award:
   
Grant Date:
  April 10, 2006
Performance Period:
  January 1, 2006 — December 31, 2008
Performance Goals:
  Set forth in Exhibit 1 to the 2006 Performance Award Agreement

          By the Corporation’s and your signature below, it is agreed that this
Performance Award is governed by the terms and conditions of the Performance
Award Agreement, a copy of which is attached and made a part of this document,
and the Plan.

            OTTER TAIL CORPORATION
      By:           [Name of Authorized Officer]
[Title]     

                  [Name of Participant]
                 

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Exhibit 1
Performance Goals for Three-Year Performance Period
(January 1, 2006 — December 31, 2008)

                                                              Threshold   Target
  Maximum
Performance Goal
  Otter Tail TSR performance relative to peer group   <10 %ile   10 %ile   25th
%ile   50th %ile   75th %ile or greater
Payment Levels
  % of target shares     0 %     50 %     50 %     100 %     150 %

n Amounts payable for performance between the 25th and 75th percentile will be
interpolated.
n Total Shareholders Return (TSR) = stock price appreciation plus value of
dividends.
n Peer group = Edison Electric Institute Index