Document:

exv4w2

 

Exhibit 4.2

Otter Tail Corporation

Second Amendment

Dated as of October 1, 2004

to

Note Purchase Agreement

Dated as of December 1, 2001

Re: $90,000,000 6.63% Senior Notes

due December 1, 2011

 

 

Second Amendment to Note Purchase Agreement

     This Second Amendment dated as of October 1, 2004 (the or this “Second
Amendment”) to the Note Purchase Agreement dated as of December 1, 2001 is
between and among Otter Tail Corporation, a Minnesota corporation (the
“Company”), and each of the institutions which is a signatory to this Second
Amendment (collectively, the “Noteholders”).

Recitals:

     A. The Company and each of the Noteholders have heretofore entered into
the Note Purchase Agreement dated as of December 1, 2001, as amended by a First
Amendment thereto dated as of December 1, 2002 (as heretofore amended, the
“Note Purchase Agreement”). The Company has heretofore issued the $90,000,000
6.63% Senior Notes due December 1, 2011 (the “Notes”) dated December 27, 2001
pursuant to the Note Purchase Agreement. The Noteholders are the holders of
100% of the outstanding principal amount of the Notes.

     B. The Company has requested that the Note Purchase Agreement be amended
to, among other things, (1) eliminate the Investment Grade Put Event set forth
in Section 8.3 of the Note Purchase Agreement and, in place thereof, add a
Transfer of Utility Assets Put Event, (2) eliminate the Company’s option in
clause (B) of Section 10.5(d) to use the Net Proceeds Amount from a Transfer of
Utility Assets to be applied to a Utility Property Reinvestment Application
and, in its place, permit the Company to use such Net Proceeds Amount to be
applied to a Debt Prepayment Application, with any remaining Net Proceeds
Amount being applied to a Utility Property Reinvestment Application and (3)
provide that the Company deposit into a segregated investment account a minimum
amount of Net Proceeds Amount from Transfers of Utility Assets during any
consecutive four fiscal quarter period of the Company in which the Disposition
Value of such Transfers has exceeded 5% of Total Utility Plant, each as more
fully set forth herein.

     C. The Company and the Noteholders now desire to amend the Note Purchase
Agreement to address those items in B above in the respects, but only in the
respects, hereinafter set forth.

     E. Capitalized terms used herein shall have the respective meanings
ascribed thereto in the Note Purchase Agreement (as amended hereby) unless
herein defined or the context shall otherwise require.

     Now, therefore, upon the full and complete satisfaction of the conditions
precedent to the effectiveness of this Second Amendment set forth in §3.1
hereof, and in consideration of good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the Company and the Noteholders do
hereby agree as follows:

 

 

	 	 	 
	Otter Tail Corporation

	 	 Second Amendment to Note Purchase Agreement

Section 1. Amendments.

     Section 1.1. Section 8.3 of the Note Purchase Agreement shall be and is
hereby amended in its entirety to read as follows:

          “Section 8.3. Transfer of Utility Assets Put Event. (a) In the
event that a Transfer of Utility Assets Put Event shall occur, the
Company will give written notice (a “Company Notice”) of such fact not
more than 15 days after the occurrence of such event to all holders of
the Notes. The Company Notice shall (i) describe the facts and
circumstances of the Transfer of Utility Assets Put Event in reasonable
detail, (ii) describe the Debt of the Company then outstanding, (iii)
refer to this Section 8.3 and the right of the holders of the Notes to
require the Company to purchase their Notes on the terms and conditions
provided for herein upon the occurrence of a Transfer of Utility Assets
Put Event, and (iv) contain an offer by the Company to purchase all of
the outstanding Notes in full together with unpaid accrued interest to
the date of purchase and the Make-Whole Amount. Each holder of the Notes
shall have the right to accept such offer and require purchase of the
Notes held by such holder in full by written notice to the Company given
within 60 days following receipt of the Company Notice. On the date
designated in such holder’s notice (which shall be not less than 15 days
nor more than 30 days after the date such notice is delivered to the
Company), the Company shall purchase all Notes held by such holder at
100% of the principal amount of such Notes, together with unpaid accrued
interest thereon to the date of purchase, and the Make-Whole Amount, if
any. Failure to respond by a holder of the Notes shall constitute an
acceptance of such offer and the date of purchase shall be the 10th
Business Day following the end of the 60 day period referred to in the
preceding sentence. The obligation of the Company to give notice in
accordance with this subsection (a) shall remain in effect so long as any
Notes remain outstanding.

          (b) In the event that a holder of the Notes shall have rejected the
Company’s offer of purchase of its Notes in connection with a Transfer of
Utility Assets Put Event, such holder shall have the right to require the
Company to purchase its Notes at a Subsequent Transfer of Utility Assets
Put Event. The provisions in subsection (a) of this Section 8.3 shall
apply upon the occurrence of Subsequent Transfer of Utility Assets Put
Event.

          (c) For purposes of this Section 8.3, “Transfer of Utility Assets
Put Event” shall mean, and occur on, the first date on which the
Disposition Value of all property that was the subject of any Transfer of
Utility Assets (i) occurring in any Four Quarter Period which begins on
or after July 1, 2004, exceeds 15% of Total Utility Plant as of the end
of the then most recently ended fiscal year of the Company, or (ii)
occurring after July 1, 2004 through the date of determination on a
cumulative basis exceeds 25% of Total Utility Plant as of the end of the
then most recently ended fiscal year of the Company; and “Subsequent
Transfer of Utility Assets Put Event” shall mean, and occur on, the date
on which the Disposition Value of all property that was the subject of
any

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	Otter Tail Corporation

	 	 Second Amendment to Note Purchase Agreement

Transfer of Utility Assets occurring after the Transfer of Utility
Assets Put Event through the date of determination exceeds 10% of Total
Utility Plant as of the end of the then most recently ended fiscal year
of the Company. All Transfers of Utility Assets, regardless of whether
the Net Proceeds Amount therefrom were used for a Utility Property
Reinvestment Application or a Debt prepayment Application in accordance
with the terms of Section 10.5(d), shall be included in the determination
of the occurrence of a Transfer of Utility Assets Put Event and
Subsequent Transfer of Utility Assets Put Event, as the case may be.”

     Section 1.2. Section 10.5(c) of the Note Purchase Agreement shall be and
is hereby amended by inserting the phrase “Debt Prepayment Application and/or
a” and the phrase “in accordance with the terms of subsection (d) of this
Section 10.5” immediately before and after, respectively, the phrase “Utility
Property Reinvestment Application within 180 days after such Transfer”
appearing therein.

     Section 1.3. Section 10.5 of the Note Purchase Agreement shall be and is
hereby further amended by deleting subsection (d) therein in its entirety and
adding a new subsection (d) and (e) thereto to read as follows:

          “(d) immediately after giving effect to a Transfer of Utility
Assets, the Disposition Value of all property that was the subject of any
Transfer of Utility Assets (i) occurring in the period of four fiscal
quarters of the Company then next ending would not exceed 10% of Total
Utility Plant (the “10% Four Quarter Limit”) as of the end of the then
most recently ended fiscal year of the Company, and (ii) occurring after
the Closing Date through the date of determination would not exceed 25%
of Total Utility Plant (the “25% Cumulative Limit”) as of the end of the
then most recently ended fiscal year; provided, that if the Net Proceeds
Amount for any Transfer is applied to a Utility Property Reinvestment
Application within 180 days after such Transfer, then such Transfer, only
for purposes of compliance with subsection (d) of this Section 10.5 as of
a date on or after the Net Proceeds Amount is so applied, shall be deemed
not to be a Transfer of Utility Assets; provided, however, that if the
Disposition Value of any property subject to a Transfer of Utility Assets
when added to the Disposition Value of other Transfers of Utility Assets
pursuant to clause (i) or (ii) of this subsection (d) would be in excess
of either or both of the applicable 10% Four Quarter Limit or the 25%
Cumulative Limit, then such Transfer shall be deemed not to be a Transfer
of Utility Assets for purposes of compliance with subsection (d) of this
Section 10.5 only if the Net Proceeds Amount for such Transfer is (A)
deposited upon receipt by the Company in a segregated investment account
with an institution which is not a creditor of the Company or any of its
Subsidiaries (such account being referred to herein as the “Utility
Assets Proceeds Account”) and kept therein until application under the
following clause (B) and (B) applied directly to a Debt Prepayment
Application within 180 days after such Transfer and any remaining Net
Proceeds Amount thereafter (such remaining Net Proceeds Amount resulting
from one or more holders electing not to receive a Debt Prepayment
Application) are applied to a Utility Property Reinvestment Application
within 180 days after such Transfer, provided, for the purposes of the
foregoing clauses

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	Otter Tail Corporation

	 	 Second Amendment to Note Purchase Agreement

(A) and (B), any Put Event Funds deposited in the Utility Assets Proceeds
Account pursuant to Section 10.5(e) in connection with a Transfer with
respect to which a deposit is required under this subsection (d), may be
used towards satisfying the deposit requirement in clause (A) hereof and,
subject to the provisions of Section 10.5(e), may be applied to a Debt
Prepayment Application and Utility Property Reinvestment Application in
accordance with clause (B) hereof; and

          (e) if during any Four Quarter Period which begins on or after July
1, 2004, the Net Proceeds Amount from any Transfer of Utility Assets when
added to the Net Proceeds Amount from any other such Transfers during
such Four Quarter Period exceeds 5% of Total Utility Plant as of the most
recently ended fiscal year, such Net Proceeds and any other Net Proceeds
Amounts from any Transfers occurring thereafter during such Four Quarter
Period (collectively, the “Put Event Funds”) shall be deposited into the
Utility Assets Proceeds Account and such Put Event Funds together with
any other funds in the Utility Assets Proceeds Account (collectively, all
such funds so deposited or in the Utility Assets Proceeds Account being
“Available Funds”) shall be used to the extent of a Pro Rata Part thereof
for the repurchase of any Notes pursuant to Section 8.3 in connection
with either a Transfer of Utility Assets Put Event or a Subsequent
Transfer of Utility Assets Put Event (collectively, the “Put Events” or
individually a “Put Event”) with the remaining balance of such Available
Funds to be used to prepay other Debt of the Company, provided, that if
any such Put Event occurs after an offer has been made by the Company for
a Debt Prepayment Application, the Available Funds needed to consummate
such Debt Prepayment Application shall first be used for such purpose and
any remaining Available Funds shall be used to the extent of a Pro Rata
Part thereof for the repurchase of Notes resulting from such Put Event
pursuant to Section 8.3 with the remaining balance of such Available
Funds to be used to prepay other Debt of the Company, provided, further
that (i) so long as no Put Event has occurred, Put Event Funds shall be
released to the Company at the end of the third fiscal quarter next
following the fiscal quarter in which such Put Event Funds were so
deposited unless required for application pursuant to Section 10.5(d) and
(ii) if a Put Event was exercised and Available Funds remain in the
Utility Assets Proceeds Account, such Available Funds shall be released
unless required for application pursuant to Section 10.5(d).” As used in
this Section 10.5(e) the term “Pro Rata Part” means an amount equal to
the applicable Available Funds multiplied by a fraction the numerator of
which is the outstanding principal amount of the Notes and the
denominator of which is the aggregate principal amount of Debt of the
Company then outstanding.

     Section 1.4. The defined term “Debt Prepayment Application” appearing in
Schedule B of the Note Purchase Agreement shall be and is hereby amended in its
entirety to read as follows:

          “Debt Prepayment Application” means, with respect to any Transfer of
property, the application by the Company or its Subsidiaries of cash in
an amount equal to the Net Proceeds Amount with respect to such Transfer
to pay Debt of the Company; provided, (a) that in the course of making
such application, the Company shall give to each holder of Notes a
written offer to prepay each outstanding Note held by such holder at par
if

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	Otter Tail Corporation

	 	 Second Amendment to Note Purchase Agreement

made pursuant to Section 10.5(c), or at par plus the applicable
Make-Whole Amount if made pursuant to Section 10.5(d), in accordance with
the following provisions in a principal amount equal to the Ratable
Portion of such Note. In connection with an offer to prepay pursuant to
Section 10.5(c) only, if any holder of a Note fails to accept such an
offer of prepayment, then for purposes of the preceding sentence only the
Company nevertheless shall be deemed to have paid Debt of the Company in
an amount equal to the Ratable Portion for such Note. The offer to
prepay shall specify a date for prepayment (the “Proposed Prepayment
Date”) not less than 30 days nor more than 45 days after the date of such
offer. A holder of Notes may accept the offer to prepay by causing a
notice of such acceptance to be delivered to the Company not later than
15 days after receipt by such holder of such offer, and a failure by a
holder of Notes to accept an offer to prepay (i) pursuant to Section
10.5(c) shall constitute a rejection of such offer by such holder, or
(ii) pursuant to Section 10.5(d) shall be deemed to constitute an
acceptance of such offer by such holder. Upon an acceptance by the
holder as set forth above of an offer by the Company to prepay such
Notes, the Notes shall become due and payable at par (plus the Make-Whole
Amount in cases of a prepayment pursuant to Section 10.5(d)) on the
Proposed Prepayment Date for such Notes. “Ratable Portion” for any Note
means an amount equal to the product of (x) the Net Proceeds Amount being
so applied to the payment of Debt of the Company multiplied by (y) a
fraction the numerator of which is the outstanding principal amount of
such Note and the denominator of which is the aggregate principal amount
of Debt of the Company.

     Section 1.5. The following defined terms shall be and are hereby added in
alphabetical order to Schedule B of the Note Purchase Agreement:

          “Four Quarter Period” means a period of four consecutive fiscal
quarters of the Company.

          “Put Event” is defined in Section 10.5(e).

          “Put Event Funds” is defined in Section 10.5(e).

          “Subsequent Transfer of Utility Assets Put Event” is defined in
Section 8.3(c).

          “Transfer of Utility Assets Put Event” is defined in Section 8.3(e).

          “Utility Assets Proceeds Account” is defined in Section 10.5(d).

     Section 1.6. The following defined terms appearing in Schedule B of the
Note Purchase Agreement are hereby deleted in their entirety: “Acceptable
Rating” and “Designated Rating”.

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	Otter Tail Corporation

	 	 Second Amendment to Note Purchase Agreement

Section 2. Representations and Warranties of the Company.

     Section 2.1. To induce the Noteholders to execute and deliver this Second
Amendment (which representations shall survive the execution and delivery of
this Second Amendment), the Company represents and warrants to the Noteholders
that:

          (a) this Second Amendment has been duly authorized, executed and
delivered by it and this Second Amendment constitutes the legal, valid
and binding obligation, contract and agreement of the Company enforceable
against it in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws or equitable principles relating to or limiting creditors’ rights
generally;

          (b) the Note Purchase Agreement, as amended by this Second
Amendment, constitutes the legal, valid and binding obligations,
contracts and agreements of the Company enforceable against it in
accordance with their respective terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws or equitable principles relating to or limiting creditors’ rights
generally;

          (c) the execution, delivery and performance by the Company of this
Second Amendment (i) has been duly authorized by all requisite corporate
action and, if required, shareholder action, (ii) does not require the
consent or approval of any governmental or regulatory body or agency, and
(iii) will not (A) violate (1) any provision of law, statute, rule or
regulation or its certificate of incorporation or bylaws, (2) any order
of any court or any rule, regulation or order of any other agency or
government binding upon it, or (3) any provision of any material
indenture, agreement or other instrument to which it is a party or by
which its properties or assets are or may be bound, or (B) result in a
breach or constitute (alone or with due notice or lapse of time or both)
a default under any indenture, agreement or other instrument referred to
in clause (iii)(A)(3) of this § 2.1(c);

          (d) as of the date hereof and after giving effect to this Second
Amendment, no Default or Event of Default has occurred which is
continuing; and

          (e) all the representations and warranties contained in Section 5 of
the Note Purchase Agreement are true and correct in all material respects
with the same force and effect as if made by the Company on and as of the
date hereof.

Section 3. Conditions to Effectiveness of This Second Amendment.

     Section 3.1. This Second Amendment shall not become effective until, and
shall become effective when, each and every one of the following conditions
shall have been satisfied:

          (a) executed counterparts of this Second Amendment, duly executed by
the Company and the holders of 100% of the outstanding principal of the
Notes, shall have been delivered to the Noteholders;

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	Otter Tail Corporation

	 	 Second Amendment to Note Purchase Agreement

          (b) the Noteholders shall have received a copy of the resolutions of
the Board of Directors of the Company authorizing the execution, delivery
and performance by the Company of this Second Amendment, certified by its
Secretary or an Assistant Secretary;

          (c) the representations and warranties of the Company set forth in §
2 hereof are true and correct on and with respect to the date hereof;

          (d) the Noteholders shall have received the favorable opinion of
counsel to the Company as to the matters set forth in §§ 2.1(a), 2.1(b)
and 2.1(c) hereof, which opinion shall be in form and substance
satisfactory to the Noteholders;

          (e) Varistar Corporation shall have affirmed its obligations under
the Guaranty Agreement pursuant to an Affirmation in the form of Exhibit
A hereto;

          (f) the Banks which are parties to the Bank Credit Agreement which
contains ratings triggers, shall have entered into an amendment to the
Bank Credit Agreement to remove such triggers;

          (g) the Company shall have paid the reasonable fees and expenses of
Chapman and Cutler, counsel to the Noteholders, pursuant to § 4.1; and

          (h) the Company shall have paid to the holders of the Notes, on a
pro rata basis, a non-refundable fee of one-tenth of one percent (1/10 of
1%) of the outstanding principal amount of the Notes.

Upon receipt of all of the foregoing, this Second Amendment shall become effective.

Section 4. Payment of Noteholders’ Counsel Fees and Expenses.

     Section 4.1. The Company agrees to pay upon demand, the reasonable fees
and expenses of Chapman and Cutler, counsel to the Noteholders, in connection
with the negotiation, preparation, approval, execution and delivery of this
Second Amendment.

Section 5. Miscellaneous.

     Section 5.1. This Second Amendment shall be construed in connection with
and as part of the Note Purchase Agreement, and except as modified and
expressly amended by this Second Amendment, all terms, conditions and covenants
contained in the Note Purchase Agreement and the Notes are hereby ratified and
shall be and remain in full force and effect.

     Section 5.2. Any and all notices, requests, certificates and other
instruments executed and delivered after the execution and delivery of this
Second Amendment may refer to the Note Purchase Agreement without making
specific reference to this Second Amendment but nevertheless all such
references shall include this Second Amendment unless the context otherwise
requires.

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	Otter Tail Corporation

	 	 Second Amendment to Note Purchase Agreement

     Section 5.3. The descriptive headings of the various Sections or parts of
this Second Amendment are for convenience only and shall not affect the meaning
or construction of any of the provisions hereof.

     Section 5.4. This Second Amendment shall be governed by and construed in
accordance with New York law.

     Section 5.5. The execution hereof by you shall constitute a contract
between us for the uses and purposes hereinabove set forth, and this Second
Amendment may be executed in any number of counterparts, each executed
counterpart constituting an original, but all together only one agreement.

	 	 	 
	

	 	Otter Tail Corporation
	 
	 	 
	

	 	/s/ Kevin Moug

	

	 	Kevin Moug
	

	 	Chief Financial Officer and Treasurer

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	Otter Tail Corporation

	 	 Second Amendment to Note Purchase Agreement

Accepted and Agreed to:

	 	 	 	 	 
	 	The Prudential Insurance Company of

America

 	 
	 	By:  	/s/ Brian N. Thomas
 	 
	 	 	Name:  	Brian N. Thomas 	 
	 	 	Title:  	Vice President 	 
	 

	 	 	 
	

	 	Hartford Life Insurance Company
	 
	 	 
	

	 	By: Prudential Private Placement Investors, 

        L.P., as Investment Advisor
	 
	 	 
	

	 	By: Prudential Private Placement Investors,

        Inc., General Partner

	 	 	 	 	 
	 	 	 
	 	By:  	

/s/ Brian N. Thomas
 	 
	 	 	Name:  	Brian N. Thomas 	 
	 	 	Title:  	Vice President 	 
	 

	 	 	 
	

	 	Medica Health Plan
	 
	 	 
	

	 	By: Prudential Private Placement Investors,

        L.P., as Investment Advisor
	 
	 	 
	

	 	By: Prudential Private Placement

        Investors, Inc., General Partner

	 	 	 	 	 
	 	By:  	/s/ Brian N. Thomas
 	 
	 	 	Name: Brian N. Thomas

Vice President 	 

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	Otter Tail Corporation

	 	 Second Amendment to Note Purchase Agreement

Accepted and Agreed to:

	 	 	 	 	 
	 	General Electric Capital Assurance

        Company

 	 
	 	By:  	/s/ Scott Sell
 	 
	 	 	Name:  	Scott Sell 	 
	 	 	Title:  	Investment Officer 	 
	 

	 	 	 	 	 
	 	GE Capital Life Assurance Company of

        New York

 	 
	 	By:  	/s/ Scott Sell
 	 
	 	 	Name:  	Scott Sell 	 
	 	 	Title:  	Investment Officer 	 
	 

	 	 	 	 	 
	 	First Colony Life Insurance Company

 	 
	 	By:  	/s/ Scott Sell
 	 
	 	 	Name:  	Scott Sell 	 
	 	 	Title:  	Investment Officer 	 

-10-

 

	 	 	 	 	 

	 	 	 
	Otter Tail Corporation

	 	 Second Amendment to Note Purchase Agreement

Accepted and Agreed to

	 	 	 	 	 
	 	Treasurer of the State of South

      Carolina South Carolina Retirement

      System

 	 
	 	By        /s/ Richard G. Patsy
 	 
	 	Name:  	Richard G. Patsy 	 
	 	Title:  	Director of Investments 	 
	 

-11-

 

	 	 	 
	Otter Tail Corporation

	 	Second Amendment to Note Purchase Agreement

Accepted and Agreed to

	 	 	 	 	 	 	 	 	 	 	 
	 	 	AIG Edison Life Insurance Company	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By:	 	AIG Global Investment Corp,

investment sub-adviser
	 
	 	 	 	 	 	 	 	 	 	 
	

	 	 	 	By
	 	/s/ Victoria Y. Chin

	 	 	 	 
	

	 	 	 	 	 	Victoria Y. Chin	 	 	 	 
	

	 	 	 	 	 	Vice President	 	 	 	 

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	Otter Tail Corporation

	 	Second Amendment to Note Purchase Agreement

Accepted and Agreed to

	 	 	 	 	 
	

	 	Country Life Insurance Company

	 
	 	 	 	 
	

	 	By
	 	/s/ Chad Moser

	

	 	 	 	Name: Chad Moser
	

	 	 	 	Title: Portfolio Manager

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Exhibit A

Affirmation of Guaranty Agreement

     This Affirmation of Guaranty Agreement (the or this “Affirmation”) is made
as of the first day of October, 2004, by Varistar Corporation, a Minnesota
corporation (the “Subsidiary Guarantor”) in favor of the Purchasers named in
Schedule I to the hereinafter defined Note Purchase Agreement (together with
their successors, assigns and transferees, the “Noteholders”). Unless
otherwise defined herein, capitalized terms used herein shall have the meanings
ascribed to them in the hereinafter defined Note Purchase Agreement.

Witnesseth:

     Whereas, the Subsidiary Guarantor is presently a subsidiary of Otter Tail
Corporation, a Minnesota corporation (the “Company”);

     Whereas, the Company and the Noteholders have entered into the Note
Purchase Agreement dated as of December 1, 2001, as amended by a First
Amendment thereto dated as of December 1, 2002 (as amended, modified, restated
or otherwise supplemented from time to time, the “Note Purchase Agreement”);
pursuant to which the Company has issued and sold to the Noteholders its
$90,000,000 6.63% Senior Notes, due December 1, 2011 (the “Notes”);

     Whereas, in connection with the Note Purchase Agreement, the Subsidiary
Guarantor previously executed and delivered to the Noteholders the Guaranty
Agreement dated as of December 1, 2001 (the “Guaranty Agreement”), pursuant to
which the Subsidiary Guarantor has absolutely and unconditionally guaranteed
the payment of the Notes and the performance by the Company of its obligations
under the Note Purchase Agreement;

     Whereas, the Company and the Noteholders have entered into a Second
Amendment dated as of October 1, 2004 (the “Second Amendment”) to the Note
Purchase Agreement, pursuant to which certain provisions of the Note Purchase
Agreement have been amended;

     Whereas, the Company and the Subsidiary Guarantor have derived both direct
and indirect benefits from the issuance and sale of the Notes and will derive
both direct and indirect benefits from the execution and delivery by the
Noteholders of the Second Amendment;

     Whereas, it is a condition precedent to the execution and delivery by the
Noteholders of the Second Amendment that the Subsidiary Guarantor execute this
Affirmation to acknowledge the Second Amendment and to reaffirm its obligations
under the Guaranty Agreement;

     Now, Therefore, in consideration of the premises set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned agrees as follows:

     1. Second Amendment. The Subsidiary Guarantor acknowledges the
Second Amendment, and agrees that the Notes and the obligations of the
Company under the

 

 

Note Purchase Agreement, as amended by the Second Amendment, are
guaranteed by the Guaranty Agreement. All references in the Guaranty
Agreement to the “Note Purchase Agreement” shall be deemed to refer to
the Note Purchase Agreement, as amended by the Second Amendment.

     2. Affirmation. In connection with the execution and delivery of
the Second Amendment, the Subsidiary Guarantor ratifies and affirms all
of its payment and performance obligations under the Guaranty Agreement,
in each case as if each reference in such Guaranty Agreement to the
obligations secured thereby is construed to hereafter mean and refer to
such obligations under the Note Purchase Agreement, as amended by the
Second Amendment. The Subsidiary Guarantor hereby consents to the terms
and conditions of the Note Purchase Agreement, as amended by the Second
Amendment, and acknowledges receipt of a copy of the Second Amendment and
acknowledges that the Guaranty Agreement remains in full force and effect
and is hereby ratified and confirmed. The execution of this Affirmation
shall not operate as a waiver of any right, power or remedy of the
Noteholders, nor constitute a waiver of any provision of the Guaranty
Agreement nor constitute a novation of any of the obligations under the
Notes or the Note Purchase Agreement, as amended by the Second Amendment.

     3. Successors and Assigns. This Affirmation shall be binding upon
the Subsidiary Guarantor and upon its respective successors and assigns
and shall inure to the benefit of the Noteholders and its respective
successors and assigns. The successors and assigns of such entities
shall include, without limitation, their respective receivers, trustees,
or debtors-in-possession.

     4. Further Assurances. The Subsidiary Guarantor hereby agrees from
time to time, as and when requested by any Noteholder, to execute and
deliver or cause to be executed and delivered, all such documents,
instruments and agreements and to take or cause to be taken such further
or other action as such Noteholder may reasonably deem necessary or
desirable in order to carry out the intent and purposes of this
Affirmation, the Notes, the Guaranty Agreement the Note Purchase
Agreement, as amended by the Second Amendment.

     5. Definitions. All references to the singular shall be deemed to
include the plural and vice versa where the context so requires.

     6. Governing Law. This Agreement shall be governed by and shall be
construed and enforced in accordance with the internal laws of the State
of New York, without regard to conflicts of law principles.

     7. Severability. Wherever possible, each provision of this
Affirmation shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Affirmation
shall be prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions
of this Affirmation.

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     8. Merger. This Affirmation represents the final agreement of the
Subsidiary Guarantor with respect to the matters contained herein and may
not be contradicted by evidence of prior or contemporaneous agreements,
or prior or subsequent oral agreements, among the Company, the Subsidiary
Guarantor or the Noteholders.

     9. Execution in Counterparts. This Affirmation may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the
same agreement.

     10. Section Headings. The section headings herein are for
convenience of reference only, and shall not affect in any way the
interpretation of any of the provisions hereof.

[remainder of page intentionally left blank]

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     In Witness Whereof, this Affirmation has been duly executed by the
undersigned as of the day and year first set forth above.

	 	 	 	 	 	 	 
	 	 	Varistar Corporation, a Minnesota
	

	 	 	 	corporation	 	 
	 
	 	 	 	 	 	 
	

	 	By
	 	/s/ Kevin Moug

	 	 
	

	 	 	 	Kevin G. Moug	 	 
	

	 	 	 	Its: CFO and Treasurer	 	 

-4-<PAGE>

                                                                   EXHIBIT 10.32
                                                    Vitria Contract Number: 8913

                               MARKETING AGREEMENT

This Marketing Agreement (this "Agreement") is entered into between

            QILINSOFT, LLC                        VITRIA TECHNOLOGY, INC.,
A CALIFORNIA LIMITED LIABILITY COMPANY    AND     A DELAWARE CORPORATION
              ("COMPANY")                               ("VITRIA")

for the purpose of setting forth the terms and conditions of a mutually
beneficial joint marketing and sales relationship between the parties.

NOW, THEREFORE, in exchange for the mutual promises contained herein, Vitria and
Company hereby agree as follows:

1.    COMMUNICATIONS AND SALES ASSISTANCE FEE.

1.1 Designated Contact. Each party shall designate a single point of contact to
manage the relationship contemplated by this Agreement. For Vitria, the contact
shall be: Roger Playfair. For Qilinsoft, the contact shall be: Michael Chang.
Unless otherwise agreed by the parties, correspondence between the parties
related to performance under this Agreement shall include a copy to these
contacts.

1.2 Sales Assistance. At its discretion, each party may (i) provide limited
sales assistance to the other party in helping to close sales opportunities with
prospective clients, and (ii) make available to the other party sales and
marketing information that it deems appropriate to help close sales
opportunities. The parties agree that in certain circumstances set forth in
Exhibit A, one party shall pay the other party a sales assistance fee in
consideration of the assisting party's efforts in closing a sales opportunity.
In addition, the party requesting sales assistance shall pay the out-of-pocket
expenses of the party providing such assistance.

2. MARKETING

2.1 Reputation and Goodwill. Each party agrees to use commercially reasonable
efforts to properly use the other party's correct product names and trademarks
in all external or public forums and shall not knowingly make false or
misleading representations with regard to the other party or its products.

2.2 Publicity. Except as may be otherwise set forth in this Agreement, either
party may disclose the general existence and nature of this Agreement, but may
not disclose the specific terms of this Agreement without the prior consent of
the other party. Neither party may issue a press release describing the
relationship contemplated under this Agreement without the prior written consent
of the other party.

3. CONFIDENTIALITY.

3.1 Confidential Information. Under this Agreement, the parties may have access
to information that is confidential in nature ("Confidential Information").
Confidential Information shall include, but is not limited to: (i) all
information designated as confidential by either party; (ii) software and
products, including all source and object code and documentation related to such
software; (iii) information relating to the disclosing party's software or
hardware products, data files, specifications, data bases, networks, system
design, file layouts, tool combinations and development methods as well as
information relating to the disclosing party's business or financial affairs,
which may include business methods, marketing strategies, pricing, competitor
information, product development strategies and methods, customer lists and
financial results; and, (iv) all tangible material which contains Confidential
Information, whether written or printed documents, computer disks or tapes,
whether user or machine readable. A party's Confidential Information shall not
include any information which: (a) becomes part of the public domain through no
act or omission of the other party; (b) is lawfully acquired by the other party
from a third party without any breach of confidentiality; (c) is disclosed by a
party to a third party without any obligation of confidentiality; (e) is
independently developed by the receiving party; or (f) is approved for release
by prior written authorization of the disclosing party.

Marketing Agreement

                                                                     Page 1 of 5
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                                                                   EXHIBIT 10.32
                                                    Vitria Contract Number: 8913

3.2 Protection. The parties agree to maintain the confidentiality of the
Confidential Information and to protect as a trade secret all portions of the
other party's Confidential Information by preventing any unauthorized copying,
use, distribution, installation or transfer of possession of such information.
Dissemination of Confidential Information by each party shall be limited to
those employees with the need to such access for the advancement of the goals
anticipated under this Agreement. Each party agrees to maintain at least the
same procedures regarding Confidential Information that it maintains with
respect to its own Confidential Information. Without limiting the generality of
the foregoing, neither party shall permit any of its personnel to remove any
proprietary or other restrictive notice contained or included in any material
provided by the other party and both parties shall not permit its personnel to
reproduce or copy any such material except as expressly authorized hereunder.

3.3 Injunctive Relief. Both parties acknowledge that any use or disclosure of
the other party's Confidential Information in a manner inconsistent with the
provisions of this Agreement will cause the disclosing party irreparable damage
for which injunctive relief may be inadequate. Both parties agree that the
disclosing party shall be entitled to receive from a court of competent
jurisdiction equitable relief in addition to other available remedies.

4. TERM AND TERMINATION.

4.1 Term. The term of this Agreement shall be two (2) years. The Agreement shall
automatically terminate after two (2) years.

4.2 Termination by Notification. Either party shall have the right to terminate
this Agreement by notifying the other party with 30 days prior written notice.
Upon termination: (i) both parties shall immediately cease all joint marketing
and sales activities and (ii) all Confidential Information provided to either
party pursuant to this Agreement shall be returned to the disclosing party
within 10 business days after the termination of this Agreement, including all
documentation, hardware and software (whether or not merged into other
materials) or, at a minimum certified by the other party that all copies (in any
form or media) have been destroyed; and (iii) both parties shall mutually agree
as to how to address any outstanding sales and support efforts, such as sales
leads, which were directly caused by the sales efforts from the sales activities
prior to termination of this Agreement.

5. NO WARRANTY.

UNDER NO CIRCUMSTANCE SHALL EITHER PARTY BE LIABLE UNDER THIS AGREEMENT FOR
SPECIAL, INDIRECT, EXEMPLARY, INCIDENTIAL AND/OR CONSEQUENTIAL DAMAGES,
INCLUDING BUT NOT LIMITED TO LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION,
LOSS OF BUSINESS INFORMATION OR OTHER PECUNIARY LOSS, EVEN IF THE PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

6. MISCELLANEOUS.

6.1 Independent Contractors. The parties are independent contractors and neither
party is an employee, agent, partner or joint venture of the other party.
Neither party shall have the right to bind the other party in any Agreement with
a third party or to incur any obligations or liability on behalf of the other
party.

6.2 Non-exclusivity. This Agreement is non-exclusive and nothing in this
Agreement will be construed to prevent either party from entering into a similar
Agreement with any other party or to restrict such party from directly engaging
in related activities.

6.3 Non-solicitation. Company and Vitria jointly agree not to actively recruit
each other's employees during the term of this Agreement and for six (6) months
thereafter; unless mutually agreed to by the parties hereto.

6.4 Notice. Any notice or other communication required by or permitted in this
Agreement shall be in writing and shall be deemed to have been duly given on the
day of service if served personally or by facsimile transmission with
confirmation, or 5 days after mailing if mailed by First Class mail, registered
or certified, postage prepaid, and addressed to the respective parties at the
addresses set forth in the signature block below, or at such addresses as may be
specified by either party pursuant to the terms and provisions of this Section.
If Company's principal place of business is outside the United States and Canada
any notice or other communication shall be deemed duly given on the day of
service if personally served or by facsimile transmission with confirmation, or
three (3) days after mailing if sent by overnight courier service, such as
Federal Express. International correspondence shall only be delivered by
overnight courier.

Marketing Agreement

                                                                     Page 2 of 5
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                                                                   EXHIBIT 10.32
                                                    Vitria Contract Number: 8913

6.5 Severability. The provisions of this Agreement are severable and in the
event of a court of competent jurisdiction determines any one or more of the
provisions contained in this Agreement are, for any reason, invalid, illegal or
unenforceable in any respect, the remaining provisions of this Agreement shall
remain in full force and effect.

6.6 Jurisdiction and Venue. This Agreement shall be governed by and construed in
accordance with the laws of the United States and the State of California,
without giving effect to the principles governing conflicts of laws. It shall
not be governed by the United Nations Convention of the International Sale of
Goods, the application of which is expressly excluded. All legal suits, claims
or proceedings shall be brought in the Federal courts in San Francisco or in the
state courts in Santa Clara County and each party hereby irrevocably submits to
jurisdiction in those courts.

6.7 Entire Agreement. This Agreement (together with all attachments and exhibits
hereto) constitutes the entire agreement between the parties related to joint
marketing and joint sales activities and supersedes any and all prior agreements
between them, whether written or oral, with respect to the subject matter
hereof, and may not be amended or modified except in a writing signed by the
parties hereto. Nothing in this Agreement is intended to modify the License and
Services Agreement or the Development and Services Agreement executed between
the parties and effective as of December 31, 2003. No waiver by either party,
whether express or implied, of any provision of this Agreement, or of any breach
thereof, shall constitute a continuing waiver of such provision or a breach or
waiver of any other provision of this Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their duly authorized representatives, as of the Effective Date.

COMPANY:                                    VITRIA:

QiLinSoft, LLC                              Vitria Technology, Inc.
750 Menlo Avenue, Suite 380                 945 Stewart Drive
Menlo Park, CA 94025                        Sunnyvale, CA 94085
                                            Main Phone 408 212-2700

    /s/ JoMei Chang                             /s/ Michael D. Perry
--------------------------------------   ------------------------------------
Signature                                   Signature

    JoMei Chang, President and CEO            Michael D. Perry, Sr. VP and CEO
--------------------------------------   ------------------------------------
Printed Name/Title                          Printed Name/Title

  November 3, 2004                             November 4, 2004
--------------------------------------   -------------------------------------
Date                                        Effective Date

                                                Vitria-Contracts/Legal
                                                approval:

Marketing Agreement

                                                                     Page 3 of 5
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                                                                   EXHIBIT 10.32
                                                    Vitria Contract Number: 8913

                                    EXHIBIT A

                          SALES ASSISTANCE FEE PROGRAM

This Exhibit sets forth the terms and conditions under which the parties shall
pay one another a sales assistance fee.

In the event that:

      (1)   one party ("Requesting Party") to this Agreement requests sales
            assistance from the other party ("Assisting Party") to this
            agreement in the sale of software licenses to a client or potential
            client (the "Client") of the Requesting Party; and

      (2)   the Requesting Party and the Assisting Party complete and sign a
            Sales Opportunity Registration Form (attached as Annex 1); and

      (3)   the Assisting Party assists the Requesting Party in selling to
            Client as described in the Sales Opportunity Registration Form and
            (a) assistance exceeds eight (8) man-hours or (b) the Assisting
            Party is providing the introduction to the Client and otherwise
            facilitating the relationship; and

      (4)   the Requesting Party receives payment from the Client for the sale
            of software licenses related to the Sales Opportunity Registration
            Form within 12 months of the effective date of the Sales Opportunity
            Registration Form; then

within 30 days of receipt of payment from the Client, the Requesting Party shall
pay to the Assisting Party a mutually-agreed upon percentage of the license fees
paid to the Requesting Party by the Client for the sales opportunity registered
in the Sales Opportunity Registration Form. Unless otherwise agreed, Annex 1
shall be completed only in the event that the criteria in item (3) above are
met.

Marketing Agreement

                                                                     Page 4 of 5
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                                                                   EXHIBIT 10.32
                                                    Vitria Contract Number: 8913

                                     ANNEX 1

                       Sales Opportunity Registration Form

REQUESTING PARTY:__________________

ASSISTING PARTY:___________________

EFFECTIVE DATE:____________________

Client's Information

    Name of Client:
    Address:

    Contact Name:
    Title:
    Phone Number:
    Fax Number:
    Brief description of license sales opportunity:

    Brief description of role of Assisting Party:

    The Sales Assistance Fee percentage shall be:

    Approval signatures:

    _____________________________________________
    Vitria Technology, Inc.           Date

    _____________________________________________
    QiLinSoft, LLC                    Date

Marketing Agreement

                                                                     Page 5 of 5

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