Document:

EX-4.2

Exhibit 4.2

EXECUTION COPY

OTTER TAIL CORPORATION

 

THIRD AMENDMENT

 

Dated as of June 26, 2009

to

NOTE PURCHASE AGREEMENT

Dated as of August 20, 2007

$33,000,000 5.95% Senior Unsecured Notes, Series A, due 2017

$30,000,000 6.15% Senior Unsecured Notes, Series B, due 2022

$42,000,000 6.37% Senior Unsecured Notes, Series C, due 2027

$50,000,000 6.47% Senior Unsecured Notes, Series D, due 2037

 

 

THIRD AMENDMENT TO NOTE PURCHASE AGREEMENT

     This Third Amendment dated as of June 26, 2009 (the or this “Third Amendment”) to the Note
Purchase Agreement dated as of August 20, 2007 is between OTTER TAIL CORPORATION, a Minnesota
corporation (the “Company”), and each of the institutions which is a signatory to this Third
Amendment (collectively, the “Noteholders”).

RECITALS:

     A. The Company and each of the Noteholders have heretofore entered into that certain Note
Purchase Agreement dated as of August 20, 2007 between the Company and each of the Noteholders
listed on Schedule A thereto, as amended by a First Amendment dated as of December 14, 2007 between
the Company and the institutions signatory thereto and by a Second Amendment dated as of September
11, 2008 between the Company and the institutions signatory thereto (as so amended, the “Note
Purchase Agreement”). The Company has heretofore issued (a) $33,000,000 aggregate principal amount
of 5.95% Senior Unsecured Notes, Series A, due 2017 (the “Series A Notes”); (b) $30,000,000
aggregate principal amount of 6.15% Senior Unsecured Notes, Series B, due 2022 (the “Series B
Notes”); (c) $42,000,000 aggregate principal amount of 6.37% Senior Unsecured Notes, Series C, due
2027 (the “Series C Notes”); and (d) $50,000,000 aggregate principal amount of 6.47% Senior
Unsecured Notes, Series D, due 2037 (the “Series D Notes” and together with the Series A Notes, the
Series B Notes and the Series C Notes, collectively, the “Notes”) pursuant to the Note Purchase
Agreement.

     B. Section 24 of the Note Purchase Agreement provides for certain terms and conditions upon
which the Company may reorganize its corporate structure into a holding company with Otter Tail
Power Company as a separate, first-tier subsidiary (the “Corporate Reorganization”).

     C. The Company has determined that it will complete the Corporate Reorganization in a
different manner than as set forth in Section 24 of the Note Purchase Agreement, as follows: the
Company (“Old Otter Tail”) will form a direct, wholly owned subsidiary that will be a Minnesota
corporation (“New Otter Tail”). New Otter Tail will form a direct, wholly owned subsidiary that
will be a Minnesota corporation (“Merger Sub”). Old Otter Tail will transfer to New Otter Tail by
way of assignment or contribution to capital all of the shares of capital stock of its direct,
wholly owned subsidiaries. Pursuant to articles of merger and a plan of merger among Old Otter
Tail, New Otter Tail and Merger Sub, Old Otter Tail will merge with Merger Sub (the “Merger”). The
surviving corporation in the Merger will be Old Otter Tail and will have the name Otter Tail Power
Company, and the current shareholders of Old Otter Tail will become shareholders of New Otter Tail.
Immediately upon effectiveness of the Merger, New Otter Tail will change its name to Otter Tail
Corporation. Immediately prior to the Merger, Old Otter Tail will transfer to New Otter Tail by
way of assignment, and New Otter Tail will assume, all of the property, contracts, leases, rights,
privileges, franchises, patents, trademarks, licenses, registrations and other assets and
liabilities that pertain to the operation of the new holding company and that are not specific to
the operation of the power company. Following the

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Merger, Otter Tail Power Company will be the holder of all of the rights and obligations of
Old Otter Tail under the Note Purchase Agreement.

     D. The Company has proposed that the Note Purchase Agreement be amended to, among other
things, reflect the current structure proposed for completion of the Corporate Reorganization.

     E. The Company and the Noteholders now desire to amend the Note Purchase Agreement in the
respects, but only in the respects, hereinafter set forth.

     F. Capitalized terms used herein shall have the respective meanings ascribed thereto in the
Note Purchase Agreement unless herein defined or the context shall otherwise require.

     G. All requirements of law have been fully complied with and all other acts and things
necessary to make this Third Amendment a valid, legal and binding instrument according to its terms
for the purposes herein expressed have been done or performed.

     NOW, THEREFORE, upon the full and complete satisfaction of the conditions precedent to the
effectiveness of this Third Amendment set forth in Section 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:

SECTION 1. AMENDMENTS.

     1.1. Effective as of the completion of the Merger, Section 12.7 of the Note Purchase
Agreement shall be and is hereby amended in its entirety to read as follows:

     “Section 12.7 Liens. The Company will not, and will not permit any Subsidiary to,
directly or indirectly create, incur, assume or permit to exist (upon the happening of a
contingency or otherwise) any Lien on or with respect to any property or asset (including,
without limitation, any document or instrument in respect of goods or accounts receivable)
of the Company or any such Subsidiary, whether now owned or held or hereafter acquired, or
any income or profits therefrom, or assign or otherwise convey any right to receive income
or profits, except:

     (a) Liens for taxes and assessments or governmental charges or levies and Liens
securing claims or demands of mechanics and materialmen; provided that payment thereof is
not at the time required by Section 11.4;

     (b) Liens of or resulting from any judgment or award in an aggregate amount not to
exceed $10,000,000, the time for the appeal or petition for rehearing of which shall not
have expired, or in respect of which the Company or a Subsidiary shall at any time in good
faith be prosecuting an appeal or proceeding for a review and in respect of which a stay of
execution pending such appeal or proceeding for review shall have been secured;

     (c) Liens incidental to the conduct of business or the ownership of properties and
assets (including, without limitation, Liens in connection with worker’s

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compensation,
unemployment insurance and other like laws, carrier’s, warehousemen’s liens and statutory
landlords’ liens) and Liens to secure the performance of bids, tenders or trade contracts,
or to secure statutory obligations, surety or appeal bonds or other Liens of like general
nature, in any such case incurred in the ordinary course of business and not in connection
with the borrowing of money; provided in each case, the obligation secured is not overdue
or, if overdue, is being contested in good faith by appropriate actions or proceedings;

     (d) minor survey exceptions or minor encumbrances, easements or reservations, or rights
of others for rights-of-way, utilities and other similar purposes, or zoning or other
restrictions as to the use of real properties, which are reasonably necessary for the
conduct of the activities of the Company and its Subsidiaries or which customarily exist on
properties of corporations engaged in similar activities and similarly situated and which do
not in any event materially impair their use in the operation of the business of the Company
and its Subsidiaries;

     (e) Liens securing Debt of a Subsidiary to the Company or to another Subsidiary;

     (f) Liens existing as of the date hereof and described on Schedule 7.15 hereto and
Liens securing any refinancing of Indebtedness secured by such Liens, provided that such
refinancing shall be subject to similar terms and secured by the same assets and the
principal amount of Indebtedness secured thereby is not increased;

     (g) Liens in connection with the acquisition of property after the date hereof by way
of purchase money mortgage, conditional sale or other title retention agreement, Capital
Lease or other deferred payment contract, provided that such Liens attach only to the
property being acquired and that the Debt secured thereby does not exceed the Fair Market
Value of such property at the time of acquisition thereof and the Lien shall be created
contemporaneously with, or within one hundred eighty (180) days after, the acquisition of
such property;

     (h) Liens that existed on assets of other Persons at the time of acquisition of such
other Persons or of such assets by the Company or a Subsidiary and which continue to attach
only to such assets and Liens securing any refinancing of Indebtedness secured by such
Liens, provided that such refinancing shall be subject to similar terms and secured by the
same assets and the principal amount of Indebtedness secured thereby is not increased;

     (i) Liens arising under or related to any statutory or common law provisions, or
customary account agreements, or other customary rights relating to banker’s liens, rights
of setoff or similar rights and remedies as to deposit or securities accounts or other funds
or instruments maintained or held with a depositary or other financial institution or
securities intermediary;

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     (j) Liens of lessors of real property on which facilities owned or leased by the
Company or any Subsidiary are located;

     (k) Liens (to the extent falling under the definition of “Lien”) consisting of
ownership interests (and protective filings respecting such ownership interests) of lessors
of assets (other than Utility Assets) to the Company or any Subsidiary under any operating
lease, and of licensors of intellectual property or other rights to the Company or any
Subsidiary, it being understood and agreed that for purposes of this clause (k), rail cars
shall not be considered “Utility Assets”;

     (l) Liens (to the extent falling under the definition of “Lien”) consisting of rights
of lessees or sublessees of assets of the Company or any Subsidiary leased in the ordinary
course of the Company’s or such Subsidiary’s business, which leases do not materially
interfere with the ordinary course of business of the Company or such Subsidiary; and

     (m) Liens created, assumed or incurred after the date of the Closing given to secure
Debt of the Company or any Subsidiary in addition to the Liens permitted by the preceding
clauses (a) through (l) hereof;

provided that (1) all Debt secured by such Liens shall have been incurred within the applicable
limitations provided in Section 12.1(b) and (2) at the time of creation, assumption or incurrence
of the Debt secured by such Lien and after giving effect thereto and to the application of the
proceeds thereof, no Default or Event of Default would exist.”

     1.2. Section 12.9 of the Note Purchase Agreement shall be and is hereby amended in its
entirety to read as follows:

     “Section 12.9. Subsidiary Guarantees. The Company will not permit any Subsidiary to
either (a) endorse, guarantee, contingently agree to purchase or to provide funds for the
payment of, or otherwise become contingently liable upon, any obligation of any other
Person, except by the endorsement of negotiable instruments for deposit or collection (or
similar transactions) in the ordinary course of business, or (b) agree to maintain the net
worth or working capital of, or provide funds to satisfy any other financial test applicable
to, any other Person, except (in the case of (a) or (b) above) for (i) guaranties by one or
more Subsidiaries of the Company or Varistar of obligations of the Company or Varistar in
respect of Indebtedness identified in Schedule 7.15 hereto, (ii) guaranties by one or more
Subsidiaries of the Company or Varistar of obligations of the Company in respect of
Indebtedness of the Company pursuant to that certain Note Purchase Agreement, dated as of
February 23, 2007, between the Company and Cascade Investment L.L.C., (iii) guaranties by
any Subsidiaries of Varistar in respect of indebtedness incurred by Varistar under a credit
facility with U.S. Bank National Association entered into after the date hereof, if any (a
“Varistar Credit Facility”), and in connection therewith Varistar agrees to a covenant
restricting itself or its Subsidiaries from guaranteeing indebtedness of any other Person
(subject to the exceptions provided for therein) (a “Subsidiary Guarantee Covenant”), (iv)
guaranties by the Company or
any Subsidiary of obligations of any Subsidiary as lessee under any lease that is not a

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Capital Lease, (v) guaranties by Varistar Corporation of obligations of DMI Industries, Inc.
in respect of down payments by customers of DMI Industries, Inc. in aggregate amounts of up
to $30,000,000, with the amount of such guaranties to be deemed to be either (x) the dollar
limitation set forth in any such guaranty, if applicable, or (y) the amount of such down
payment so guarantied, and (vi) other guaranties limited as to principal of recovery to not
more than $10,000,000 in the aggregate. Notwithstanding the foregoing, in the event Varistar
enters into a Varistar Credit Facility, then (i) in the event such Varistar Credit Facility
is terminated or expires by its terms, or if the Corporate Reorganization is consummated
pursuant to the terms of Section 24 hereof, the provisions of this Section 12.9 shall be
deemed deleted and shall no longer be in effect and (ii) in the event that the Subsidiary
Guarantee Covenant does not apply to any particular Subsidiary or Subsidiaries, the
provisions of this Section 12.9 shall be deemed deleted and shall no longer be in effect
with respect to such particular Subsidiary or Subsidiaries.”

     1.3. Clause (j) of Section 13 of the Note Purchase Agreement shall be and is hereby
amended in its entirety to read as follows:

          “(j) [INTENTIONALLY OMITTED];”

     1.4. Section 24 of the Note Purchase Agreement shall be and is hereby amended in its
entirety to read as follows:

“SECTION 24. CORPORATE REORGANIZATION.

     (a) Without any representation or warranty that the following transaction will be
consummated, the Company has informed the holders of the Notes that it is planning the
following transaction (the “Corporate Reorganization”) which Corporate Reorganization will
consist of the following steps:

     (i) formation of a new subsidiary, Otter Tail Holding Company (“New OTC”),
which will be a Minnesota corporation;

     (ii) formation by New OTC of a new subsidiary, Otter Tail Merger Sub Inc.
(“Merger Sub”), which will be a Minnesota corporation;

     (iii) transfer by the Company to New OTC by way of assignment or contribution
to capital of all Non- Power Company Assets; 

     (iv) assumption by New OTC of all liabilities and obligations of the Company
except (A) those under this Agreement and the Notes issued hereunder, (B) those
under the agreements listed on Schedule 24 under the caption “Senior Indebtedness
Agreements and Notes to be Retained as Obligations of the Regulated Subsidiary
following the Corporate Reorganization” and the Notes described on such Schedule 24
under such caption, and (C) all liabilities and obligations that pertain to the
Company’s electric generation and transmission
business and do not pertain to the operation of the Company as a holding

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company (such liabilities and obligations other than those described in (A), (B) and
(C) hereof are called the “OTC-Assumed Liabilities”);

     (v) release of the Company from the OTC-Assumed Liabilities listed on Schedule
24 under the caption “Release of OTC-Assumed Liabilities” by each holder thereof;

     (vi) merger of the Company with Merger Sub (the “Merger”) pursuant to a Plan of
Merger (the “Plan of Merger”) by and among the Company, New OTC and Merger Sub,
where (A) the surviving corporation in the Merger will (I) be the Company, (II) have
the name Otter Tail Power Company and (III) be a direct, wholly-owned subsidiary of
New OTC and (B) the current shareholders of the Company will become shareholders of
New OTC;

     (vii) change of the name of New OTC to Otter Tail Corporation; and

     (viii) the Company (now named Otter Tail Power Company and sometimes referred
to herein as the “Regulated Subsidiary”) will remain obligated under this Agreement
and the Notes issued hereunder. 

     (b) If the Company elects to effect the Corporate Reorganization as provided in Section
24(a) above, such Corporate Reorganization shall not require the consent of the holders of
the Notes. Upon the effectiveness of such Corporate Reorganization and by virtue of the
Merger, Otter Tail Power Company shall be the obligor with respect to the obligations of the
Company under this Agreement and the Notes. The holders of the Notes acknowledge that upon
the effectiveness of the Corporate Reorganization, Otter Tail Corporation (New OTC) shall
have no liabilities, responsibilities or obligations with respect to this Agreement and the
Notes. In addition, as of such time (i) the reference on the cover page of this Agreement
to the Company shall be amended to read as follows: “Otter Tail Power Company,” (ii) the
reference to “Otter Tail Corporation” in the first paragraph of this Agreement shall be
replaced with the words “Otter Tail Power Company” and (iii) the address of the Company
appearing on the first page of this Agreement shall be amended to read as follows: “Otter
Tail Power Company, 215 South Cascade Street, Fergus Falls, MN 56537.”

     (c) Upon the effectiveness of such Corporate Reorganization, the Regulated Subsidiary
will, promptly upon the surrender by each holder of a Series A, Series B, Series C or Series
D Note originally issued by Otter Tail Corporation, deliver to such holder a replacement
Note or Notes (in each case, a “Replacement Note”) that equals the outstanding principal
amount of such holder’s surrendered Series A, Series B, Series C or Series D Note or Notes,
that reflects Otter Tail Power Company as the issuer thereof, and that includes, for each
Series, a Private Placement Number issued by Standard & Poor’s CUSIP Service Bureau (in
cooperation with the SVO) with respect to such Series reflecting Otter Tail Power Company as
the issuer, in exchange for such holder’s Note or Notes originally issued by Otter Tail
Corporation, and each such Replacement Note or
Replacement Notes shall in all other ways be substantially the same in form and

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substance as the Series A, Series B, Series C and Series D Notes originally issued by Otter
Tail Corporation.

     (d) In connection with the Corporate Reorganization, on or before the effective date
thereof (the “Effective Date”), each of the following terms (the “Reorganization Terms”)
shall be satisfied:

     (i) The Regulated Subsidiary shall have delivered to each holder of a Note an
Officer’s Certificate confirming that the Corporate Reorganization has been consummated in
accordance with the terms and conditions of Section 24(a), confirming the name change of the
Company to Otter Tail Power Company, confirming that the Company, under such new name,
remains obligated under this Agreement and the Notes issued hereunder, and that this
Agreement and the Notes issued hereunder remain in full force and effect, enforceable
against the Company in accordance with their respective terms, and confirming that no
Default or Event of Default under this Agreement shall have occurred and be continuing as of
the Effective Date.

     (ii) Each holder of a Note shall have received an opinion or opinions of counsel
from Dorsey & Whitney LLP or the General Counsel of the Company to the effect that as of the
Effective Date: (A) the execution and delivery by the Regulated Subsidiary of the
Replacement Notes to be issued in exchange for such holders’ existing Notes, and the
performance by the Regulated Subsidiary of its obligations under the Plan of Merger, the
Notes (including any Replacement Notes) and this Agreement have been duly authorized by all
necessary corporate or similar action on the part of the Regulated Subsidiary and the Plan
of Merger, this Agreement and the Notes issued hereunder are (and any Replacement Notes
issued pursuant to Section 24(c) of this Agreement will, upon such issuance, be) legal,
valid and binding obligations of the Regulated Subsidiary enforceable against the Regulated
Subsidiary in accordance with their terms, except as an enforcement of such terms may be
limited by bankruptcy, insolvency, fraudulent conveyances and similar laws affecting the
enforcement of creditors’ rights generally and by general equitable principles, (B) that the
execution and delivery by the Regulated Subsidiary of the Replacement Notes and the
performance by the Regulated Subsidiary of its obligations under the Plan of Merger, this
Agreement and the Notes (including any Replacement Notes) will not contravene any provision
of the Regulated Subsidiary’s articles of incorporation, bylaws or similar governing
documents, any law or regulation applicable to the Regulated Subsidiary or any agreement,
mortgage or instrument known to such counsel to which the Regulated Subsidiary is a party,
except for any such contravention which would not, individually or in the aggregate, result
in a Material Adverse Effect, (C) the holders of the Notes (including any Replacement Notes
received in exchange for such Notes) will not recognize gain or loss for United States
federal income tax purposes as a result of the Corporate Reorganization (and if the holders
would recognize gain, in lieu of such opinion, such holders will receive an indemnity
agreement from the Regulated Subsidiary with respect to such gains), it being understood
that such opinion or opinions of counsel may be subject to such

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assumptions, exceptions and
qualifications as are customary, and (D) upon the filing of articles of merger with the
Secretary of State of the State of Minnesota, and on the date and time specified therein,
the Merger will be effective in accordance with the terms and provisions of such
articles of merger and the laws of the State of Minnesota.

     (iii) The Regulated Subsidiary will have obtained senior unsecured debt ratings
from the Designated Ratings Agencies that are equal to or greater than the ratings which
were assigned to the Company immediately prior to the Effective Date of the Corporate
Reorganization;

     (iv) The Regulated Subsidiary shall have provided to the holders of the Notes (A) a
schedule listing all partnerships and joint ventures in which the Regulated Subsidiary is a
partner (limited or general) or joint venturer, (B) copies of (1) the agreement and articles
of merger entered and filed in connection with the Merger, (2) any amendment to the articles
of incorporation and bylaws of the Regulated Subsidiary filed or made in connection with the
Corporate Reorganization, including an amendment reflecting the change in the Company’s name
to Otter Tail Power Company, (3) certified copies of the articles of incorporation and
bylaws of New OTC, and (4) a certificate of Good Standing for the Company and New OTC in the
jurisdictions of their incorporation, certified by the appropriate governmental officials;
and (C) a balance sheet of the Company giving effect to the Corporate Reorganization,
prepared in accordance with GAAP, and projections and budgets for the Company following the
Corporate Reorganization, prepared in good faith by the Company;

     (v) there shall be no actions, suits or proceedings pending or, to the knowledge of
the Regulated Subsidiary, threatened against or affecting the Regulated Subsidiary or any
property of the Regulated Subsidiary in any court or before any arbitrator of any kind or
before or by any Governmental Authority that, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect;

     (vi) the Regulated Subsidiary shall not be in default under any order, judgment,
decree or ruling of any court, arbitrator or Governmental Authority or in violation of any
applicable law, ordinance, rule or regulation (including without limitation Environmental
Laws) of any Governmental Authority, which default or violation, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect;

     (vii) the Regulated Subsidiary shall own or possess all licenses, permits,
franchises, authorizations, patents, copyrights, service marks, trademarks and trade names,
or rights thereto, that are Material, without known conflict with the rights of others,
except for those conflicts that, individually or in the aggregate, would not have a Material
Adverse Effect;

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     (viii) the Regulated Subsidiary shall have delivered to the Noteholders an
Officer’s Certificate, dated as of the Effective Date, to the effects set forth in clauses
(v), (vi) and (vii) above and to the effect that the schedule of partnerships and joint
ventures described in clause (iv) above set forth, as of the date of such Officer’s
Certificate, the information that would be required by Section 7.4 of the Agreement if the
representations and warranties in such Section were being made as of such date; and

     (ix) The Company or the Regulated Subsidiary shall pay all of the fees, charges and
disbursements of the special counsel referred to in Section 4.4 and arising out of the
transactions contemplated by this Section 24.

     In the event the Company completes a Corporate Reorganization but fails to satisfy any
of the Reorganization Terms that are not waived in accordance with Section 19.1 of this
Agreement, the Company will give written notice of such fact (the “Failed Reorganization
Notice”) to the Holders of the Notes not more than five (5) days after any such failure.
The Failed Reorganization Notice shall (i) refer to this Section 24 and the right of the
Holders of the Notes to require the Company to prepay their Notes on the terms and
conditions provided for herein as a result of the Company’s failure to satisfy any of the
Reorganization Terms, and (ii) contain an offer by the Company to prepay all of the
outstanding Notes in full together with unpaid accrued interest to the date of prepayment
and the Make-Whole Amount determined for the prepayment date with respect to such principal
amount. Each holder of the Notes shall have the right to accept such offer and require
prepayment of the Notes held by such holder in full by written notice (the “Failed
Reorganization Prepayment Notice”) to the Company given within sixty (60) days following
receipt of the Failed Reorganization Notice. On the prepayment date designated in such
holder’s Failed Reorganization Prepayment Notice (which shall not be less than fifteen (15)
days nor more than thirty (30) days after the date such Failed Reorganization Prepayment
Notice is delivered to the Company), the Company shall prepay 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 prepayment and the Make-Whole Amount determined for the prepayment date with
respect to such principal amount. Failure to respond by a holder of the Notes shall
constitute a rejection of such offer by such holder.

     1.5. Exhibit 24(g) to the Note Purchase Agreement and each reference thereto are hereby
deleted in their entirety.

     1.6. Schedule B is hereby amended as follows:

     (a) The definitions of the terms “Assignment Date,” “Assignment Terms,” “Company
Guaranty,” “Failed Assignment Notice,” “Failed Assignment Prepayment Notice,” “Note
Assumption and Exchange Agreement,” “Priority Debt” and “Regulated Subsidiary Notes” are
hereby deleted.

     (b) The definitions of the terms “Company,” “GAAP” and “Priority Debt” are hereby
amended to read as follows:

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     “Company” means Otter Tail Corporation, a Minnesota corporation or any
successor that becomes such in the manner prescribed in Section 12.4. For the
avoidance of doubt, from and after the Corporate Reorganization, the “Company” shall
refer to Otter Tail Power Company.

     “GAAP” means generally accepted accounting principles as in effect from time to
time in the United States of America. For purposes of determining compliance with
the financial covenants contained in this Agreement, any election by the Company to
measure an item of Indebtedness using fair value (as permitted by Statement of
Financial Accounting Standards No. 159 or any similar accounting standard) shall be
disregarded and such determination shall be made as if such election had not been
made.

     “Priority Debt” means, at any time without duplication, the sum of (a) all Debt
of the Company and of any Subsidiaries secured by Liens other than by Liens
permitted by Sections 12.7(a) through (g) and (i) and (b) all Debt of Subsidiaries
and Preferred Stock of Subsidiaries held by entities other than the Company or a
Wholly-Owned Subsidiary.

     (c) The following definitions are hereby added so that such terms are organized in
alphabetical order along with the remaining definitions in Schedule B:

     “Effective Date” is defined in Section 24.

     “Failed Reorganization Notice” is defined in Section 24.

     “Failed Reorganization Prepayment Notice” is defined in Section 24.

     “Merger” is defined in Section 24.

     “Merger Sub” is defined in Section 24.

     “New OTC” is defined in Section 24.

     “Non-Power Company Assets” means all tangible and intangible assets of the
Company except for the Power Company Assets.

     “OTC-Assumed Liabilities” is defined in Section 24.

     “Power Company Assets” means all tangible and intangible assets of the Company
consisting of property, contracts, leases, right, privileges, franchises, patents,
trademarks, licenses, registrations and other assets that pertain to the Company’s
electric generation and transmission business.

     “Reorganization Terms” is defined in Section 24.

     “Replacement Notes” is defined in Section 24.

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     1.7. Schedule 24, in the form attached hereto, is hereby added to the Note Purchase
Agreement.

SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

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

     (a) this Third Amendment has been duly authorized, executed and delivered by it and
this Third Amendment constitutes the legal, valid and binding obligation 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 Third Amendment, constitutes the
legal, valid and binding obligation 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;

     (c) the execution and delivery by the Company of this Third Amendment, and the
performance by the Company of its obligations hereunder (i) have been duly authorized by all
requisite corporate action and, if required, shareholder action, (ii) do 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 articles 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 indenture, mortgage,
deed of trust, loan, purchase or credit agreement or other Material agreement or 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 Section 2.1(c);

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

     (e) except as set forth on Schedule A hereto, all the representations and warranties
contained in Section 7 of the Note Purchase Agreement (other than the information on the
Schedules thereto which information is no longer current and other than the representations
and warranties set forth in Section 7.3, Section 7.4, and the first sentence of Section
7.15) 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 THIRD AMENDMENT.

     3.1. This Third Amendment shall not become effective until, and shall become

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effective when, each and every one of the following conditions shall have been satisfied:

     (a) executed counterparts of this Third Amendment, duly executed by the Company and the
Noteholders, have been delivered to the Noteholders;

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

     (c) the Company shall have paid to the holders of the outstanding Notes, ratably, an
agreed-upon fee.

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

SECTION 4. PAYMENT OF NOTEHOLDERS’ COUNSEL FEES AND EXPENSES.

     4.1. The Company agrees to pay upon demand, the reasonable fees and expenses of Winston &
Strawn LLP, counsel to the Noteholders, in connection with the negotiation, preparation,
approval, execution and delivery of this Third Amendment.

SECTION 5. Noteholder Representations and Warranties.

     5.1. Each Noteholder separately represents that it holds the principal amount of Notes
set forth opposite its signature block below.

SECTION 6. MISCELLANEOUS.

     6.1. This Third Amendment shall be construed in connection with and as part of the Note
Purchase Agreement, and except as modified and expressly amended by this Third 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.

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

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

     6.4. This Third Amendment shall be governed by and construed in accordance with the laws
of the State of New York.

[Remainder of page Intentionally Left Blank]

12

 

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

	 	 	 	 	 
	 	OTTER TAIL CORPORATION

 	 
	 	By:  	/s/ George A. Koeck
 	 
	 	 	George A. Koeck 	 
	 	 	General Counsel & Corporate Secretary 	 

 

 

	 	 	 	 	 

	 	 	 	 	 
	Accepted and Agreed to:

	 	Principal Amount of Notes:

	 
	 	 	 	 
	TEACHERS INSURANCE AND ANNUITY 

ASSOCIATION OF AMERICA

	 	$	40,000,000	 

	 	 	 	 	 
	 	 	 
	By  	/s/ Ho Young Lee
 	 	 
	 	Name:  	Ho Young Lee 	 	 
	 	Title:  	Director 	 	 
	 

	 	 	 	 	 
	PROVIDENT LIFE AND ACCIDENT INSURANCE 

COMPANY

	 	$	25,000,000	 
	 
	By: Provident Investment Management, LLC
	 	 	 	 
	Its: Agent
	 	 	 	 

	 	 	 	 	 
	 	 	 
	By  	/s/ Ben Vance
 	 	 
	 	Name:  	Ben Vance 	 	 
	 	Title:  	Managing Director 	 	 
	 

	 	 	 	 	 
	THE GUARDIAN LIFE INSURANCE COMPANY 

OF AMERICA

	 	$	14,000,000	 

	 	 	 	 	 
	 	 	 
	By  	/s/ Thomas M. Donohue
 	 	 
	 	Name:  	Thomas M. Donohue 	 	 
	 	Title:  	Managing Director 	 	 
	 

	 	 	 	 	 
	THRIVENT FINANCIAL FOR LUTHERANS

	 	$	10,000,000	 

	 	 	 	 	 
	 	 	 
	By  	/s/ Alan D. Onstad
 	 	 
	 	Name:  	Alan D. Onstad 	 	 
	 	Title:  	Senior Director 	 	 
	 

	 	 	 	 	 
	PHOENIX LIFE INSURANCE COMPANY

	 	$	10,000,000	 

	 	 	 	 	 
	 	 	 
	By  	/s/ Paul M. Chute
 	 	 
	 	Name:  	Paul M. Chute 	 	 
	 	Title:  	Sr. Managing Director 	 	 
	 

 

 

	 	 	 	 	 
	Accepted and Agreed to:

	 	Principal Amount of Notes:

	 
	FORT DEARBORN LIFE INSURANCE COMPANY

	 	$	2,500,000	 
	THE CATHOLIC AID ASSOCIATION

	 	$	500,000	 
	GREAT WESTERN INSURANCE COMPANY

	 	$	500,000	 
	AMERICAN REPUBLIC INSURANCE COMPANY

	 	$	1,000,000	 
	CINCINNATI INSURANCE COMPANY

	 	$	4,000,000	 
	COLORADO BANKERS LIFE INSURANCE COMPANY

	 	$	500,000	 
	 
	 	 	 	 
	By: Advantus Capital Management, Inc.
	 	 	 	 

	 	 	 	 	 
	 	 	 
	By  	/s/ Rose A. Lambros
 	 	 
	 	Name:  	Rose A. Lambros 	 	 
	 	Title:  	Vice President 	 	 
	 

	 	 	 	 	 
	NAVY MUTUAL AID ASSOCIATION

	 	$	7,000,000	 

	 	 	 	 	 
	 	 	 
	By  	/a/ Allen M. McCray
 	 	 
	 	Name:  	Allen M. McCray 	 	 
	 	Title:  	Vice President, Investments 	 	 
	 

	 	 	 	 	 
	NATIONAL GUARDIAN LIFE INSURANCE 

COMPANY

	 	$	3,000,000	 

	 	 	 	 	 
	 	 	 
	By  	/s/ R.A. Mucci
 	 	 
	 	Name:  	R.A. Mucci 	 	 
	 	Title:  	Senior Vice President & Treasurer 	 	 
	 

	 	 	 	 	 
	AMERICAN FAMILY LIFE ASSURANCE 

COMPANY OF COLUMBUS

	 	$	18,500,000	 

	 	 	 	 	 
	 	 	 
	By  	/s/ Mary Ellen Kein
 	 	 
	 	Name:  	Mary Ellen Kein 	 	 
	 	Title:  	V. P. Fixed Income 	 	 
	 

	 	 	 	 	 
	AMERICAN FAMILY LIFE ASSURANCE 

COMPANY OF COLUMBUS (JAPAN BRANCH)

	 	$	18,500,000	 

	 	 	 	 	 
	 	 	 
	By  	/s/ Greg Gantt
 	 	 
	 	Name:  	Greg Gantt 	 	 
	 	Title:  	V. P. Fixed Income 	 	 

 

 

	 	 	 	 	 

Schedule 24

Senior Indebtedness Agreements and Notes

to be Retained as Obligations of the Regulated Subsidiary 

following the Corporate Reorganization

1. Obligations of Otter Tail Corporation, dba Otter Tail Power Company pursuant to the Credit
Agreement, dated as of July 30, 2008, among Otter Tail Corporation, dba Otter Tail Power Company,
the Banks party thereto from time to time, Bank of America, N.A., as Syndication Agent, and U.S.
Bank National Association, as Agent for the Banks.

2. $20,625,000, Mercer County, North Dakota Pollution Control Refunding Revenue Bonds (Otter Tail
Corporation Project) Series 2001.

3. $10,400,000, Grant County, South Dakota Pollution Control Refunding Revenue Bonds (otter Tail
Power Corporation Project) Series 1993.

4. $5,165,000, Grant County, South Dakota Pollution Control Refunding Revenue Bonds (otter Tail
Power Corporation Project) Series 2001.

5. $90,000,000, 6.63% Senior Notes due December 1, 2011, issued under the Note Purchase Agreement,
dated as of December 1, 2001, as thereafter amended, between Otter Tail Corporation and the
Noteholders party thereto.

6. Obligations of Otter Tail Corporation, d/b/a Otter Tail Power Company pursuant to the Term Loan
Agreement, dated as of May 22, 2009, among Otter Tail Corporation, d/b/a Otter Tail Power Company,
JPMorgan Chase Bank, N.A., as Administrative Agent, KeyBank National Association, as Syndication
Agent, Union Bank, N.A., as Documentation Agent, and the Banks named therein.

Release of OTC-Assumed Liabilities

1. $50,000,000 Senior Unsecured Note due November 30, 2017, issued under the Note Purchase
Agreement, dated as of February 23, 2007, as thereafter amended, between Otter Tail Corporation and
Cascade Investment L.L.C.

 

 

Schedule A

Exceptions to Representations and Warranties

	1.	 	Schedule 7.19 of the Note Purchase Agreement should include the following statement: the
Company has investments in eleven limited partnerships that invest in tax-credit-qualifying
affordable-housing projects that provided tax credits of $55,000 in 2008, $285,000 in 2007 and
$839,000 in 2006. As of December 31, 2009, the Company owned a majority interest in eight of
the eleven limited partnerships with a total investment of $1,426,000.EX-4.3

Exhibit 4.3

Execution Copy

 

 

Otter Tail Corporation

 

Amendment No. 2

Dated as of June 30, 2009

to

Note Purchase Agreement

Dated as of February 23, 2007

 

Re: $50,000,000 Senior Note

due November 30, 2017

 

 

 

 

Amendment No. 2 to Note Purchase Agreement

     This
Amendment dated as of June 30, 2009 (the or this “Amendment”) to the Note Purchase
Agreement dated as of February 23, 2007 is between Otter Tail Corporation, a Minnesota corporation
(the “Company”), and Cascade Investment, L.L.C. (“Cascade”).

Recitals:

     A. The Company and Cascade have heretofore entered into the Note Purchase Agreement dated as
of February 23, 2007, as amended by a letter agreement dated December 14, 2007 (as so amended, the
“Note Purchase Agreement”). The Company has heretofore issued the $50,000,000 5.778% Senior Note
due November 30, 2017 (the “Note”) dated December 14, 2007 pursuant to the Note Purchase Agreement.

     B. The Company has announced that it intends to restructure the Company into a holding company
with Otter Tail Power Company as a separate, first-tier subsidiary as described in Article I hereto
(the “Permitted Reorganization”).

     C. The Company has requested (i) that Cascade consent to the assignment (the “Assignment”),
effective immediately prior to the effectiveness of the Permitted Reorganization (the “Effective
Time”), by the Company of its rights and obligations under the Note Purchase Agreement and the Note
to Otter Tail Holding Company (“Otter Holding”) pursuant to the Assignment, Assumption and Release Agreement, dated as of the date
immediately preceding the effectiveness of the Permitted Reorganization and effective as of the
Effective Time, by and among the Company, Otter Holding and Cascade, substantially in the form of
Exhibit A hereto (the “Assignment Agreement”) and (ii) that the Note Purchase Agreement and the
Note be amended as set forth herein.

     D. The Company and Cascade now desire to amend the Note Purchase Agreement and the Note 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, in consideration of good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the Company and Cascade do hereby agree as follows,
which agreement shall become effective as of the Effective Time upon the full and complete
satisfaction of each of the conditions precedent set forth in Sections 1.1, 5.1 and 5.2 hereof:

ARTICLE
I

PERMITTED REORGANIZATION

     Section 1.1. Proposed Holding Company Reorganization. Without any representation or warranty
that the following transaction will be consummated, the Company has informed Cascade that it is
planning the following transaction (the “Permitted Reorganization”):

 

 

	 	(a)	 	formation by the Company of a new subsidiary, Otter Holding, which will be a Minnesota
corporation;
	 
	 	(b)	 	formation by Otter Holding of a new subsidiary, Otter Tail Merger Sub Inc.
(“Merger Sub”), which will be a Minnesota corporation;
	 
	 	(c)	 	transfer by the Company to Otter Holding by way of assignment or contribution to
capital of all tangible and intangible assets of the Company except for the tangible and
intangible assets of the Company that pertain to the Company’s electric generation and
transmission business, and shall expressly include (a) stock of Varistar Corporation, and
(b) all notes payable by Varistar Corporation or any of its Subsidiaries to the Company
(such assets to be transferred, the “Non-Power Company Assets”);
	 
	 	(d)	 	assumption by Otter Holding of all liabilities and obligations of the Company except
the following (i) those under the senior indebtedness agreements listed on Schedule A and
any note described on such Schedule A, and (ii) all liabilities and obligations that
pertain to the Company’s electric generation and transmission business and do not pertain
to the operation of the Company as a holding company;
	 
	 	(e)	 	assumption by Otter Holding of the Amended and Restated Credit Agreement, dated as of
December 23, 2008, among Varistar Corporation, the Banks referenced therein, Bank of America, N.A., Keybank National Association and Wells
Fargo Bank National Association, as Co-Documentation Agents, and U.S.
Bank National Association, as Agent for the Banks and as Lead Arranger;
	 
	 	(f)	 	release of Varistar Corporation and its Subsidiaries from any guaranties of senior
indebtedness agreements listed on Schedule A and any note described on such Schedule A;
	 
	 	(g)	 	merger of the Company with Merger Sub, where (i) the surviving corporation will be the
Company and will have the name Otter Tail Power Company and will be a direct, wholly owned
subsidiary of Otter Holding and (ii) the current shareholders of the Company will become
shareholders of Otter Holding;
	 
	 	(h)	 	change of the name of Otter Holding to Otter Tail Corporation;
	 
	 	(i)	 	assumption by Otter Holding of all of the Company’s obligations under the Note Purchase
Agreement and Note and release by Cascade of the Company’s obligations pursuant to the
Assignment Agreement (which releases shall not release or affect the obligations and
liabilities of the Subsidiary Guarantors under the Guaranty Agreement);
	 
	 	(j)	 	the Permitted Reorganization shall take effect immediately following the Effective
Time; and,

2

 

	 	(k)	 	as of the Effective Time and upon the effectiveness of the Permitted
Reorganization, Cascade shall be deemed to have waived any Event of Default that is
a Change of Control Event that may otherwise have occurred solely as a result of
the Company having entered into the Assignment Agreement and the Permitted
Reorganization and Cascade agrees and acknowledges that neither the Assignment nor
the Permitted Reorganization shall constitute a violation of Section 4.9 of the
Note Purchase Agreement.

ARTICLE II

CONSENT TO ASSIGNMENT

     Subject to the terms and conditions of this Amendment and the Assignment Agreement, Cascade
shall consent to the transfer and assignment by the Company to Otter Holding as of the Effective
Time of all of the rights and obligations of the Company under the Note Purchase Agreement and the
Note and, from and after the Effective Time, Cascade shall look solely to Otter Holding for the
performance of the obligations of the Company under the Note Purchase Agreement and the Note. From
and after the Effective Time, and subject to the terms and conditions of this Amendment and the
Assignment Agreement, Otter Tail Power Company shall be fully released and discharged from all
liabilities, responsibilities and obligations with respect to the Note Purchase Agreement and the
Note. From and after the Effective Time, (i) all references to “the Company” in the Note Purchase
Agreement and the Note shall mean Otter Holding and (ii) all references to
“the Note” in the Note Purchase Agreement shall mean the Note, executed by Otter Holding, as
amended to reflect the provisions hereof and in the form of Exhibit B hereto.

ARTICLE III

AMENDMENTS

     Section 3.1. (a) Effective as of the Effective Time, the following definitions of “Change of
Control Event,” “Credit Agreement” and “Priority Debt” set forth in Annex A to the Note Purchase
Agreement shall be amended in their entirety to read as follows:

     “Change of Control Event” means any of the following:

     (a) any Person or group of Persons (other than (i) the Company, (ii) any
Subsidiary, (iii) any trustee or other fiduciary holding securities under an employee
benefit plan of the Company, (iv) the Purchaser or (v) any Affiliate of the
Purchaser)1 beneficially owns (within the meaning of Rule 13d-3 under the
Exchange Act) more than 25% of any class of voting stock of the Company; or

     (b)
(i) the Company enters into any binding or non-binding agreement with any
third party (other than the Purchaser or any Affiliate of the Purchaser) with respect
to, or any third party (other than the Purchaser or any Affiliate of the

 

			
	1	 	According to normal convention, underscore represents language added to the original
and strikethrough indicates a deletion of text from the original. However, it is intended that the
marking is for convenience only and has no legal effect.

3

 

Purchaser) makes a public announcement or filing with the SEC that indicates an
intention to enter into, (i) a merger, consolidation, share exchange, recapitalization
or other business combination involving the Company and as a result of such merger,
consolidation, share exchange, recapitalization or other business combination, a Person
other than the Purchaser or any Affiliate of the Purchaser, directly or indirectly,
shall would acquire a 25% or greater equity
interest in, or 25% or more of the voting
securities or capital stock of, or 25% or more of the Consolidated Assets of the
Company or the any successor corporation or (ii) the acquisition by a Person other than
the Purchaser or any Affiliate of the Purchaser in any other manner (including by
disposition or transfer), directly or indirectly, of a 25% or greater equity interest
in, 25% or more of the voting securities or capital stock of, or 25% or more of the
Consolidated Assets of, the Company.

     “Credit Agreement” shall mean the Amended and Restated Credit Agreement, dated as of
December 23, 2008April 26, 2006, among the Company (formerly known as Otter Tail Holding
Company), the Banks referenced therein, Bank of America, N.A., Keybank National Association
andJPMorgan Chase Bank, N.A., as Syndication Agent, Wells Fargo Bank National Association,
as Co-Documentation Agents, and U.S. Bank National Association, as Agent for the Banks and
as Lead Arranger, as amended from time to time, and any replacement or successor agreement
or agreements thereto-, including, without limitation, the
Varistar Credit Agreement and any other bank credit facility or bank credit facilities
in which the Company or Varistar Corporation is party in effect from time to time with
banks or other lending institutions.

     “Priority Debt” means at any time without duplication, the sum of (a) all Debt of the
Company Varistar Corporation and of any of its Subsidiaries secured by Liens other than by
Liens permitted by Sections 10.3(a) through (g), (j) and (k) and (b) all Debt of Varistar
Corporation and its Subsidiaries and Preferred Stock of Varistar Corporation and its
Subsidiaries held by entities other than the Company, Varistar Corporation or a
Wholly-Owned Subsidiary wholly owned subsidiary of Varistar Corporation; provided, that
there shall be excluded from the definition of Priority Debt (i) any Debt of a Subsidiary
Varistar Corporation or a wholly owned subsidiary of Varistar Corporation to the Company or
a Wholly-Owned Subsidiary and (ii) the Guaranties of the Subsidiary Guarantors or any
Additional Subsidiary Guarantor under (x) the Guaranty Agreement, and (y) the Credit
Agreement and (z) the 2001 Note Purchase Agreement.

     Section 3.2. Effective as of the Effective Time, the following definitions shall be added to
Annex A so that such definitions are ordered alphabetically with the remaining definitions in such
Annex A:

     “Assignment Agreement” means the Assignment, Assumption and Release Agreement, dated
as of June 30, 2009, by and among the Company, the Purchaser and Otter Tail Holding
Company, a Minnesota corporation.

     “Otter Power Consolidated Debt” means as of any date of determination, the total of
all Debt of Otter Tail Power Company and its Subsidiaries outstanding on such date, after
eliminating all offsetting debits and credits between Otter Tail Power Company and

4

 

its Subsidiaries and all other items required to be eliminated in the course of the preparation
of consolidated financial statements of Otter Tail Power Company and its Subsidiaries in
accordance with GAAP.

     “Otter Power Consolidated Net Worth” means, at any time,

     (a) the total assets of Otter Tail Power Company and its Subsidiaries which would be
shown as assets on a consolidated balance sheet of Otter Tail Power Company and its
Subsidiaries as of such time prepared in accordance with GAAP, after eliminating all
amounts properly attributable to minority interests, if any, in the stock and surplus of
such Subsidiaries, minus

     (b) the total liabilities of Otter Tail Power Company and its Subsidiaries which would
be shown as liabilities on a consolidated balance sheet of Otter Tail Power Company and its
Subsidiaries as of such time prepared in accordance with GAAP.

     “Otter Power Consolidated Total Capitalization” means, at any time, the sum of Otter
Power Consolidated Net Worth and Otter Power Consolidated Debt.

     “Permitted Securitization Transactions” means sales of accounts receivable of DMI
Industries, Inc. and ShoreMaster, Inc. in nominal principal amounts not to
exceed, in the aggregate, $50,000,000; provided, that such transactions may include
only recourse to the Company or a Subsidiary (a) under customary representations and
warranties not constituting credit support for the assets sold, and (b) constituting credit
support in an amount not exceeding 10% of the nominal principal amount of the transaction.
The nominal principal amount of any Permitted Securitization Transaction, and the discount
or other yield attributable thereto for purposes of determination of Interest Charges,
shall each be determined on a reasonable basis by the Company as if each such transaction
were a financing transaction and not a sale.

     “Varistar Consolidated Debt” means as of any date of determination, the total of all
Debt of Varistar Corporation and its Subsidiaries outstanding on such date, after
eliminating all offsetting debits and credits between Varistar Corporation and its
Subsidiaries and all other items required to be eliminated in the course of the preparation
of consolidated financial statements of Varistar Corporation and its Subsidiaries in
accordance with GAAP.

     “Varistar Consolidated Net Worth” means, at any time,

     (c) the total assets of Varistar Corporation and its Subsidiaries which would be shown
as assets on a consolidated balance sheet of Varistar Corporation and its Subsidiaries as
of such time prepared in accordance with GAAP, after eliminating all amounts properly
attributable to minority interests, if any, in the stock and surplus of such Subsidiaries,
minus

     (d) the total liabilities of Varistar Corporation and its Subsidiaries which would be
shown as liabilities on a consolidated balance sheet of Varistar Corporation and its
Subsidiaries as of such time prepared in accordance with GAAP.

5

 

     “Varistar Consolidated Total Capitalization” means, at any time, the sum of Varistar
Consolidated Net Worth and Varistar Consolidated Debt.

     Section 3.3. Effective as of the Permitted Reorganization Date, Section 1.2 of the Note
Purchase Agreement shall be amended in its entirety to read as follows:

     “Section 1.2 Interest Rate; Adjustment to Interest Rate. (a) The Note shall bear
interest at a rate of 5.778% per annum (the “Interest Rate”) until July 1, 2009. On and
after July 1, 2009, the Interest Rate shall be 8.89% per annum. ; provided however, that
if, after the date hereof but on or prior to the Closing, a rating assigned by either
Moody’s or S&P to the long-term senior unsecured indebtedness of the Company is downgraded
below “Baa3” or “BBB-,” respectively, then the Interest Rate will increase by 0.50% for
each rating notch downgrade below “Baa3” by Moody’s, and 0.50% for each rating notch
downgrade below “BBB-” by S&P. For illustration purposes only, if each of Moody’s and S&P
downgrades its rating of the Company’s long-term senior unsecured indebtedness by one
rating notch, the Interest Rate will be increased by 1.0%.

     (b) If, after a downgrade as described in the first sentence of Section 1.2(a)
but on or prior to the Closing, a rating assigned by either Moody’s or S&P to the
long-term senior unsecured indebtedness of the Company is upgraded, then the Interest Rate
will decrease by 0.50% for each rating notch upgrade by each of Moody’s and S&P. For
illustration purposes only, if, Moody’s and S&P each downgrade their respective ratings
assigned to the Company’s long-term senior unsecured indebtedness by one rating notch after
the date hereof but on or prior to the Closing (resulting in a 1.0% increase in the
Interest Rate pursuant to Section 1.2(a)), but then, on or prior to the Closing upgrade
their respective ratings of such indebtedness by one rating notch each, the Interest Rate,
as previously increased, will be decreased by 1.0%.

     (c) Notwithstanding the provisions of Sections 1.2(a) and (b), in no event shall the
Interest Rate be (i) less than 5.778% or (ii) adjusted following the Closing.

     Section 3.4. Effective as of the Effective Time, Section 10.1 of the Note Purchase Agreement
shall be amended in its entirety to read as follows:

     “Section 10.1 Limitation on Debt and Priority Debt.

     (a) The Company will not permit Consolidated Debt to exceed 60% of Consolidated Total
Capitalization determined as of the end of each fiscal quarter of the Company.

     (b) The Company will not permit Priority Debt to exceed 20% of Varistar Consolidated
Total Capitalization determined as of the end of each fiscal quarter of the Company.

     (c) The Company will not permit the aggregate principal amount of all Debt of Otter
Tail Power Company and its Subsidiaries to exceed 60% of Otter Power

6

 

Consolidated Total Capitalization determined as of the end of each fiscal quarter of the
Company.”

     Section 3.5. Effective as of the Effective Time, Section 10.3 of the Note Purchase Agreement
shall be amended in its entirety to read as follows:

     “Section 10.3 Limitation on Liens. The Company will not, and will not permit any
Subsidiary to, directly or indirectly create, incur, assume or permit to exist (upon the
happening of a contingency or otherwise) any Lien on or with respect to any property or
asset (including, without limitation, any document or instrument in respect of goods or
accounts receivable) of the Company or any such Subsidiary, whether now owned or held or
hereafter acquired, or any income or profits therefrom, or assign or otherwise convey any
right to receive income or profits, except:

     (a) Liens for taxes and assessments or governmental charges or levies and Liens
securing claims or demands of mechanics and materialmen; provided
that payment thereof is not at the time required by Section 9.4;

     (b) Liens of or resulting from any judgment or award in an aggregate amount not to
exceed $10,000,000, the time for the appeal or petition for rehearing of which shall not
have expired, or in respect of which the Company or a Subsidiary shall at any time in good
faith be prosecuting an appeal or proceeding for a review and in respect of which a stay of
execution pending such appeal or proceeding for review shall have been secured;

     (c) Liens incidental to the conduct of business or the ownership of properties and
assets (including, without limitation, Liens in connection with worker’s compensation,
unemployment insurance and other like laws, carrier’s, warehousemen’s liens and statutory
landlords’ liens) and Liens to secure the performance of bids, tenders or trade contracts,
or to secure statutory obligations, surety or appeal bonds or other Liens of like general
nature, in any such case incurred in the ordinary course of business and not in connection
with the borrowing of money; provided in each case, the obligation secured is not overdue
or, if overdue, is being contested in good faith by appropriate actions or proceedings;

     (d) Minor survey exceptions or minor encumbrances, easements or reservations, or
rights of others for rights-of-way, utilities and other similar purposes, or zoning or
other restrictions as to the use of real properties, which are reasonably necessary for the
conduct of the activities of the Company and its Subsidiaries or which customarily exist on
properties of corporations engaged in similar activities and similarly situated and which
do not in any event materially impair their use in the operation of the business of the
Company and its Subsidiaries;

     (e) Liens securing Debt of a Subsidiary to the Company or to another Subsidiary;

     (f) Liens on property of the Company created by the Indenture to secure Bonds of the
Company issued and outstanding thereunder and described on Schedule 5.15, including
property acquired by the Company after the Closing Date to which such

7

 

     Liens attachLiens arising under or related to any statutory or common law provisions, or customary
account agreements, or other customary rights relating to banker’s liens, rights of setoff or
similar rights and remedies as to deposit or securities accounts or other funds or instruments
maintained or held with a depositary or other financial institution or securities intermediary;

     (g) Liens in addition to those permitted by clause (f) hereof existing as of the date of
this Agreement and described on Schedule 5.15 hereto and Liens securing any refinancing of
Indebtedness secured by such Liens, provided that such refinancing shall be subject to similar
terms and secured by the same assets and the principal amount of Indebtedness secured thereby is
not increased;

     (h) Liens in connection with the acquisition of property after the date hereof by way of
purchase money mortgage, conditional sale or other title retention agreement, Capital Lease or
other deferred payment contract, provided that such Liens attach only to the property being
acquired and that the Debt secured thereby does not exceed the Fair Market Value of such property
at the time of acquisition thereof and the Lien shall be created contemporaneously with, or within
180 days after, the acquisition of such property;

     (i) Liens that existed on assets of other Persons at the time of acquisition of such other
Persons or of such assets by the Company or a Subsidiary and which continue to attach only to such
assets and Liens securing any refinancing of Indebtedness secured by such Liens, provided that
such refinancing shall be subject to similar terms and secured by the same assets and the
principal amount of Indebtedness secured thereby is not increased;

     (j) Liens (to the extent falling under the definition of “Lien”) consisting of rights of
lessors or sublessors of property leased to the Company or any Subsidiary or of lessees or
sublessees of property of the Company or any Subsidiary leased by the Company or any Subsidiary to
such lessees or sublessees, in each case in the ordinary course and consistent with past practice
of the Company’s or such Subsidiary’s business, which leases do not materially interfere with the
ordinary course of business of the Company or such Subsidiary;

     (k) Liens in favor of customs and revenue authorities to secure payment of customs duties in
connection with the importation of goods by the Company or any Subsidiary in the ordinary course
of business and other similar Liens arising in the ordinary course of business of the Company or
any Subsidiary; and

     (l) Liens created, assumed or incurred after the date of the Closing given to secure Debt of
the Company or any Subsidiary in addition to the Liens permitted by the preceding clauses (a)
through (ik) hereof; provided that all Debt secured by Liens permitted under this Section 10.3(jl)
does not exceed $25,000,000 in the aggregate at any time outstanding;

8

 

provided that (1) all Debt secured by such Liens shall have been incurred within the applicable limitations provided in
Sections 10.1(b)-(c) and (2) at the time of creation, assumption or incurrence of the Debt secured
by such Lien and after giving effect thereto and to the application of the proceeds thereof, no
Default or Event of Default would exist.”

     Section 3.6. Effective as of the Effective Time, Section 10.7 of the Note Purchase Agreement
shall be amended in its entirety to read as follows:

     “Section 10.7 Benefit of More Restrictive Covenants or More Favorable Terms. If any
2001 Noteholder or any Lender under the Credit Agreement is or becomes entitled to the
benefit of any covenant, agreement, event of default or other event which would permit the
2001 Noteholder or the Lender to have the Company Debt obligations it holds purchased by
the Company (a “put event”) which is more restrictive on the Company or its Subsidiaries
than the covenants, agreements, events of default or put events contained herein or which
is more favorable to such 2001 Noteholder or such Lender than the covenants, agreements,
events of default or put events contained herein, then such more restrictive or more
favorable covenant, agreement, event of default or put event shall be deemed to be
incorporated into this Agreement by reference during any period such 2001 Noteholder
or such Lender is so entitled thereto without regard to any waivers by the 2001 Noteholder
or the Lender with respect thereto and shall remain so incorporated for a period of 30 days
after the 2001 Noteholder or the Lender is no longer entitled to the benefit thereof and
each Noteholder shall be entitled to the benefits thereof with respect to this Agreement in
addition to the existing covenants, agreements, events of default and put events contained
herein so long as any Note remains outstanding. The Company shall notify each Noteholder of
any such covenant, agreement, event of default or put event, and shall at the request of
the Noteholders amend this Agreement to include such covenant, agreement, event of default
or put event.”

     Section 3.7. Effective as of the Effective Time, Section 10.11 of the Note Purchase Agreement
shall be amended in its entirety to read as follows:

     “Section 10.11 Contingent Liabilities. The Company will not and will not permit any
Material Subsidiary to either: (a) endorse, guarantee, contingently agree to purchase or to
provide funds for the payment of, or otherwise become contingently liable upon, any
obligation of any other Person, except by the endorsement of negotiable instruments for
deposit or collection (or similar transactions) in the ordinary course of business, or (b)
agree to maintain the net worth or working capital of, or provide funds to satisfy any
other financial test applicable to, any other Person, except (in the case of (a) or (b)
above) for:

     (i) guaranties by the Company of loans to leveraged employee stock ownership plans;

     (ii) a performance guaranty by the Company of performance by DMI Industries under a
certain contract involving aggregate payments of approximately $20,000,000 guaranties by the
Company of obligations of DMI Industries, Inc. in respect 

9

 

of down payments by customers of
DMI Industries, Inc. in an aggregate amount of up to $30,000,000, with the amount of such
guaranties to be deemed to be either (x) the dollar limitation set forth in any such
guaranty, if applicable, or (y) the amount of such down payment so guarantied (it being
understood that the Company shall include in the quarterly statements delivered pursuant to
Section 7.1(a) a statement setting forth the highest, lowest and average aggregate amount
of down payments guarantied pursuant to this Section 10.11(ii) during the period covered by
such statements);

     (iii) guaranties by the Company or any Material Subsidiary of obligations of any
Material Subsidiary as lessee under any lease that is not a Capital Lease,

     (iv) other guaranties limited as to principal of recovery to not more than $10,000,000
in the aggregate;

     (v) guaranties by Varistar Corporation of the obligations of the Company under the
Credit Agreement, and

     (vi) the guaranty by Varistar Corporation of the obligations of the Company in respect of up to $40,000,000 of Insured Senior Notes due October 1, 2017,
as described in a Prospectus dated September 11, 2002 and a prospectus supplement dated
on or about September 19, 2002guaranties by the Company of the obligations of DMI
Industries, Inc. and ShoreMaster, Inc. under any agreement governing the terms of
Permitted Securitization Transactions, provided, that such guaranties shall not, in the
aggregate, guaranty receivables sale arrangements involving account receivable sales at
any time remaining outstanding in excess of $50,000,000,and

     (vii) guarantees by Material Subsidiaries of the obligations of the Company under
the Credit Agreement, so long as each and every Subsidiary that guarantees the
obligations of the Company under the Credit Agreement is a Subsidiary Guarantor or an
Additional Subsidiary Guarantor or becomes an Additional Subsidiary Guarantor in
accordance with the terms of Section 9.7 hereof.”

     Section 3.8. Effective as of the Effective Time, Article XI of the Note Purchase Agreement
shall be amended in its entirety to read as follows:

     “An “Event of Default” shall exist if any of the following conditions or events shall
occur and be continuing:

     (a) the Company defaults in the payment of any principal or Make-Whole Amount, if any,
on any Note when the same becomes due and payable, whether at maturity or at a date fixed
for prepayment or by declaration or otherwise; or

     (b) the Company defaults in the payment of any interest on the Note for more than five
Business Days after the same becomes due and payable; or

     (c) the Company defaults (i) in the performance of or compliance with any term
contained in Article X or Section 7.1(d) or (ii) in the payment when due of the

10

 

amount required to be paid by the Company for any purchase of any Notes pursuant to Section 8.3; or

     (d) the Company defaults in the performance of or compliance with any term contained herein
(other than those referred to in paragraphs (a), (b) and (c) of this Article XI) and such default
is not remedied within 30 days after the earlier of (i) a Responsible Officer obtaining actual
knowledge of such default and (ii) the Company receiving written notice of such default from any
Noteholder (any such written notice to be identified as a “notice of default” and to refer
specifically to this paragraph (d) of Article XI); or

     (e) any representation or warranty made in writing by or on behalf of the Company or by any
officer of the Company in this Agreement or by any Subsidiary in the Guaranty Agreement or in any
writing furnished in connection with the transactions contemplated hereby (including, without
limitation, any amendment to this Agreement and the Assignment Agreement) proves to have been false
or incorrect in any material respect on the date as of which made; or

     (f) (i) the Company, Otter Tail Power Company, any Subsidiary of Otter Tail
Power Company or any Material Subsidiary is in default (as principal or as guarantor or other
surety) in the payment of any principal of or premium or make-whole amount or interest on any
Indebtedness that is outstanding in an aggregate principal amount of at least $5,000,000 beyond
any period of grace provided with respect thereto, or (ii) the Company, Otter Tail Power Company,
any Subsidiary of Otter Tail Power Company or any Material Subsidiary is in default in the
performance of or compliance with any term of any evidence of any Indebtedness in an aggregate
outstanding principal amount of at least $5,000,000 or of any mortgage, indenture or other
agreement relating thereto or any other condition exists, and as a consequence of such default or
condition such Indebtedness has become, or has been declared (or one or more Persons are entitled
to declare such Indebtedness to be), due and payable before its stated maturity or before its
regularly scheduled dates of payment; or

     (g) the Company, Otter Tail Power Company, any Subsidiary of Otter Tail Power Company or any
Material Subsidiary (i) is generally not paying, or admits in writing its inability to pay, its
debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it
of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy,
for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or
other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its
creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer
with similar powers with respect to it or with respect to any substantial part of its property,
(v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the
purpose of any of the foregoing; or

     (h) a court or governmental authority of competent jurisdiction enters an order appointing,
without consent by the Company, Otter Tail Power Company, any Subsidiary of Otter Tail Power
Company or any of the Company’sits Material Subsidiaries, a

11

 

custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to any substantial part of its
property, or constituting an order for relief or approving a petition for relief or reorganization
or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the
Company, Otter Tail Power Company, any Subsidiary of Otter Tail Power Company or any of the
Company’sits Material Subsidiaries, or any such petition shall be filed against the Company, Otter
Tail Power Company, any Subsidiary of Otter Tail Power Company or any of the Company’s Material
Subsidiaries and such petition shall not be dismissed within 60 days; or

     (i) a final judgment or judgments for the payment of money aggregating in excess of
$51,000,000 are rendered against one or more of the Company, Otter Tail Power Company, any
Subsidiary of Otter Tail Power Company or and the Company’s Material Subsidiaries and which
judgments are not, within 30 days after entry thereof, bonded, discharged or stayed pending
appeal, or are not discharged within 30 days after the expiration of such stay; or

     (j) default shall occur in the observance or performance of any provision of the Guaranty
Agreement or the Guaranty Agreement shall cease to be in full force and effect for any reason,
including, without limitation, a final and nonappealable determination by any governmental body or
court that the Guaranty Agreement is invalid, void or
unenforceable, or any Subsidiary Guarantor or any Additional Subsidiary Guarantor shall
contest or deny in writing the validity or enforceability of any provision of, or obligation under,
the Guaranty Agreement; or

     (k) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code
for any plan year or part thereof or a waiver of such standards or extension of any amortization
period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate
any Plan shall have been or is reasonably expected to be filed with the PBGC, (iii) the PBGC shall
have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to
administer any Plan, (iv) the PBGC shall have notified the Company or any ERISA Affiliate that a
Plan may become a subject of any such proceedings, (v) the aggregate benefit liabilities under all
of the Plans subject to Title IV of ERISA (other than Multiemployer Plans), determined as of the
first day of such Plans’ most recently ended plan year on the basis of the actuarial assumptions
specified for funding purposes (but not for other purposes), shall exceed the assets of such Plans
by more than $500,000, (vi) the Company or any ERISA Affiliate shall have incurred or is
reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or
excise tax provisions of the Code relating to employee benefit plans, (vii) the Company or any
ERISA Affiliate withdraws from any Multiemployer Plan, or (viii) the Company or any Subsidiary
establishes or amends any employee welfare benefit plan that provides post-employment welfare
benefits in a manner that would increase the liability of the Company or any Subsidiary
thereunder; and in each case except clause (iii), any such event or events, either individually or
together with any other such event or events, would reasonably be expected to have a Material
Adverse Effect; or

12

 

     (l) (i) the Company shall cease to own, directly or indirectly, all of the capital
stock of each of Varistar Corporation and Otter Tail Power Company or (ii) a Change of
Control Event shall have occurred.

As used in Section 11(k), the terms “employee benefit plan” and “employee welfare benefit
plan” shall have the respective meanings assigned to such terms in section 3 of ERISA.”

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     Section 4.1. To induce Cascade to execute and deliver this Amendment (which representations
shall survive the execution and delivery of this Amendment), the Company represents and warrants to
Cascade that:

     (a) (i) each of this Amendment and the Assignment Agreement has been duly authorized by all
requisite corporate action on the part of the Company, and (ii) this Amendment has been executed
and delivered by the Company and constitutes the legal, valid and binding 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) each of the Note Purchase Agreement, as amended by this Amendment, and
the Note, 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;

     (c) the execution and delivery by the Company of this Amendment and the Assignment Agreement
and the performance by the Company of its obligations under this Amendment and the Assignment
Agreement will not (A) violate the Articles of Incorporation of the Company, as amended, or Bylaws
of the Company, as amended, (B) violate Section 673 of the Minnesota Business Corporation Act (the
“MBCA”) or Minnesota Statutes Section 216B.48, or (C) violate, result in the breach or modification
of, conflict with, constitute a default or result in an acceleration of any obligation under,
result in the imposition of any encumbrance pursuant to, or affect the validity or effectiveness
of, any contract, permit, order or other law applicable to the Company, except (as to clause (C)
only) for any violation, breach, modification, conflict, default, acceleration, encumbrance or
effect which would not have a material adverse effect on the Company and its subsidiaries taken as
a whole. No approval or consent, filings, notifications, waivers or exemptions on the part of any
(A) Minnesota, North Dakota or South Dakota or (B) New York or federal, governmental authority is
required to be obtained or made by the Company in connection with the execution and delivery by it
of this Amendment and the Assignment Agreement and the performance by the Company of its
obligations under this Amendment and the Assignment Agreement, except such as have been obtained or
made;

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

13

 

     (e) all the representations and warranties contained in Article V 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, except as set forth on Schedule B hereto; and

     (f) upon the effectiveness of the Permitted Reorganization, each of the transactions described
in Section 1.1 shall have occurred.

ARTICLE V

CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT

     Section 5.1. Conditions to Permitted Reorganization. The Effective Time shall not occur and
this Amendment shall not take effect until and unless each and every one of the following
conditions (in addition to those set forth in Sections 1.1 and 5.2) have been satisfied in full or
waived by Cascade:

     (a) Otter Holding and Merger Sub shall have been duly incorporated as Minnesota corporations.

     (b) All Non-Power Company Assets shall have been assigned or contributed to the capital of
Otter Holding.

     (c) The stock of Varistar Corporation shall be owned solely by Otter Holding.

     (d) The Articles of Incorporation and By-Laws of Otter Holding shall be satisfactory to
Cascade in form and substance.

     (e) Otter Holding shall have received approval of the Permitted Reorganization from the
Minnesota Public Utilities Commission and any other governmental agency or authority (state,
federal or local) having applicable jurisdiction.

     (f) Cascade shall have received (except as otherwise noted below) all of the following, in
form and substance satisfactory to Cascade, each duly executed by all necessary parties (other than
Cascade):

	 	(i)	 	the Assignment Agreement executed and delivered by the Company and Otter
Holding;
	 
	 	(ii)	 	upon the effectiveness of the Permitted Reorganization and upon the surrender
by Cascade of the Note issued by Otter Tail Corporation on December 14, 2007, the
Note, as amended to reflect the provisions of this Amendment and the Assignment
Agreement, dated as of the date preceding the Permitted Reorganization and
effective as of the Effective Time, executed and delivered by Otter Holding in the
form of Exhibit B hereto;
	 
	 	(iii)	 	a certificate or certificates of the Secretary or an Assistant Secretary of
Otter Holding, attesting to and attaching (i) a copy of the corporate resolution of
Otter Holding authorizing the execution, delivery and 

14

 

	 	 	 	performance of the
Assignment and Assumption Agreement and of this Amendment, (ii) an incumbency
certificate showing the names and titles, and bearing the signatures of, the
officers of Otter Holding authorized to execute the Assignment and Assumption
Agreement, (iii) a copy of the Articles of Incorporation of Otter Holding with all
amendments thereto, including an amendment to change Otter Holding’s name to Otter
Tail Corporation, and (iv) a copy of the By-Laws of Otter Holding with all
amendments thereto;

	 	(iv)	 	a Certificate of Good Standing for Otter Holding in the jurisdiction of its
incorporation, certified by the appropriate governmental officials;
	 
	 	(v)	 	opinions of counsel to Otter Holding and the Material Subsidiaries, addressed to
Cascade, in substantially the forms provided in Exhibit C attached hereto;
	 
	 	(vi)	 	any necessary revised versions of Schedules 4.9, 5.3, 5.4, 5.5, 5.8, 5.11, 5.15
and 10.10 to the Note Purchase Agreement as provided in Section 5.1(g)(i) below;
	 
	 	(vii)	 	a standstill agreement, dated and effective as of the date of the effectiveness
of the Permitted Reorganization, by and between Otter Holding and Cascade, on terms no
less favorable to Cascade than the terms contained in the standstill agreement, dated
May 1, 2009, by and between the Company and Cascade;
	 
	 	(viii)	 	a certificate or certificates of the Secretary or an Assistant Secretary of Otter
Holding, attesting to and attaching a copy of the corporate resolutions (A) adopted by a
committee of “disinterested directors” (as defined in Section 673 of the MBCA) formed by
the board of directors of Otter Holding ratifying and adopting the resolutions of a
special committee of “disinterested directors” of the Company adopted on May 1, 2009 for
the purpose of exempting Cascade and its affiliates and associates from the restrictions
and limitations on “interested shareholders” (as defined in Section 011 of the MBCA) set
forth in the Section 673 of the MBCA, and (B) adopted by the board of directors of the
Company for the purpose of approving any “Business Combination” (within the meaning of
paragraph C.1 of Article VI, Division V of the Articles of Incorporation of the Company)
that resulted or may be deemed to have resulted from the Permitted Reorganization and/or
the assignment by the Company to Otter Holding of its rights and obligations under the
Note Purchase Agreement and the Note;
	 
	 	(ix)	 	written confirmation to Cascade from each Subsidiary Guarantor that, as of the
Effective Time, the Guaranty Agreement remains a legal, valid and binding obligation of
such Subsidiary Guarantor enforceable against such Subsidiary Guarantor in accordance
with its terms with respect to such

15

 

	 	 	 	Subsidiary Guarantor’s unconditional guarantee of the payment by Otter
Holding of all amounts due with respect to the Note as provided in the
Guaranty Agreement, as the Note has been amended to reflect the provisions
of this Amendment and the Assignment Agreement, and the performance by the
Otter Holding of its obligations under the Note Purchase Agreement and the
Note as so amended; provided, that, if such written confirmation is not
provided, each Subsidiary Guarantor shall execute and deliver to Cascade a
new guaranty agreement substantially in the form of the Guaranty Agreement
attached as Exhibit 2 to the Note Purchase Agreement.

     (g) Upon and after consummation of the Permitted Reorganization:

	 	(i)	 	all representations and warranties of the Company hereunder (except for the
first two sentences of Section 5.14), as applied to Otter Holding, shall be true
and correct in all material respects except as provided in Schedule C and except
that Schedules 4.9, 5.3, 5.4, 5.5, 5.8, 5.11, 5.15 and 10.10 to the Note Purchase
Agreement in the form previously delivered to Cascade by Otter Holding on the date
hereof shall be deemed to replace the corresponding Schedules to the Note Purchase
Agreement as of the Permitted Reorganization; and
	 
	 	(ii)	 	no Default or Event of Default shall have occurred after giving effect to the
Permitted Reorganization.

     (h) No default or event of default shall have occurred under any material contract or
agreement constituting a portion of the Non-Power Company Assets, which
default or event of default shall not have been waived to the reasonable satisfaction of
Cascade.

     (i) Cascade shall have received satisfactory evidence that upon consummation of the
transactions described herein, the unsecured long term debt of Otter Holding shall be rated no
lower than BB+ by S&P and Ba1 by Moody’s.

     Section 5.2. Other Conditions Precedent. Provided that each and every one of the following
conditions and the conditions in Sections 1.1 and 5.1 shall have been satisfied, this Amendment
shall take effect at the Effective Time:

     (a) executed counterparts of this Amendment, duly executed by the Company and Cascade, shall
have been delivered to the Cascade;

     (b) (i) the representations and warranties of the Company set forth in Section 4.1 hereof are
true and correct on and with respect to the date hereof and at the Effective Time, (ii) the
representations and warranties of the Company and Otter Holding in the Assignment Agreement are
true and correct on and with respect to the date hereof, and (iii) the Company shall have complied
with all of the obligations contained in this Amendment;

     (c) no Default or Event of Default under the Note Purchase Agreement has occurred and is
continuing;

16

 

     (d) Cascade shall have received the favorable opinions of counsel to the Company as to the
matters set forth in Sections 4.1(a), 4.1(b) and 4.1(c) hereof and Section 5 of the Assignment
Agreement, which opinions shall be in form and substance satisfactory to Cascade and shall cover
the matters set forth in Exhibit C to this Amendment attached hereto;

     (e) The Company shall have paid the reasonable fees, charges and disbursements of Cascade’s
special counsel, Cleary Gottlieb Steen & Hamilton LLP, in connection with the negotiation,
preparation, approval, execution and delivery of this Amendment and the Assignment Agreement to the
extent reflected in a statement of such counsel rendered to Cascade and delivered to the Company;
and

     (f) the Company shall have paid to Cascade a mutually agreed upon fee, which shall be
non-refundable.

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

ARTICLE VI

PAYMENT OF NOTEHOLDER’S COUNSEL FEES AND EXPENSES

     Section 6.1. The Company agrees to pay upon demand, the reasonable fees and expenses of Cleary
Gottlieb Steen & Hamilton LLP, counsel to Cascade, in connection with the negotiation, preparation,
approval, execution and delivery of this Amendment.

ARTICLE VII

NOTEHOLDER REPRESENTATIONS AND WARRANTIES

     Section 7.1. Cascade represents that it holds all of the outstanding principal amount
of the Note.

ARTICLE VIII

MISCELLANEOUS

     Section 8.1. This Amendment shall be construed in connection with and as part of the Note
Purchase Agreement, and except as modified and expressly amended by this Amendment, all terms,
conditions and covenants contained in the Note Purchase Agreement and the Note are hereby ratified
and shall be and remain in full force and effect.

     Section 8.2. Any and all notices, requests, certificates and other instruments executed and
delivered after the execution and delivery of this Amendment may refer to the Note Purchase
Agreement without making specific reference to this Amendment but nevertheless all such references
shall include this Amendment unless the context otherwise requires.

     Section 8.3. The descriptive headings of the various Sections or parts of this
Amendment are for convenience only and shall not affect the meaning or construction of any of the
provisions hereof.

     Section 8.4. This Amendment shall be governed by and construed in accordance with New York
law.

17

 

     Section 8.5. The execution hereof by you shall constitute a contract between us for the uses
and purposes hereinabove set forth, and this Amendment may be executed in any number of
counterparts, each executed counterpart constituting an original, but all together only one
agreement.

     Section 8.6. This Amendment shall terminate and have no effect on the Note Purchase Agreement
and the Note if the Effective Time has not occurred by July 2, 2009.

18

 

     The foregoing is hereby agreed to as of the date hereof.

	 	 	 	 	 
	 	Otter Tail Corporation

 	 
	 	By:  	/s/
Kevin G. Moug	 
	 	 	Name:  	Kevin G. Moug 	 
	 	 	Title:  	Chief Financial Officer 	 
	 

ACCEPTED AND AGREED TO:

	 	 	 	 	 
	CASCADE INVESTMENT, L.L.C.

 	 	 
	By:  	/s/ Michael Larson
 	 	 
	 	Name:  	Michael Larson 	 	 
	 	Title:  	Business Manager 	 	 
	 

(Signature page to Amendment No. 2

to Note Purchase Agreement)

 

 

Schedule A

(to Amendment No. 2 to Note Purchase Agreement)

Senior Indebtedness Agreements and Notes

to remain obligations of Otter Tail Power Company following the

the Permitted Reorganization

	1.	 	Notes issued under the Note Purchase Agreement, dated as of August 20, 2007, as thereafter
amended, between the Otter Tail Corporation and the Noteholders named therein consisting of:
	 
	(i)	 	$33,000,000, 5.95% Senior Unsecured Notes, Series A, due 2017;
	 
	(ii)	 	$30,000,000, 6.15% Senior Unsecured Notes, Series B, due 2022;
	 
	(iii)	 	$42,000,000, 6.37% Senior Unsecured Notes, Series C, due 2027; and
	 
	(iv)	 	$50,000,000, 6.47% Senior Unsecured Notes, Series D, due 2037.
	 
	2.	 	$20,625,000, Mercer County, North Dakota Pollution Control Refunding Revenue Bonds (Otter
Tail Corporation Project) Series 2001.
	 
	3.	 	$10,400,000, Grant County, South Dakota Pollution Control Refunding Revenue Bonds
(otter Tail Power Corporation Project) Series 1993.
	 
	4.	 	$5,165,000, Grant County, South Dakota Pollution Control Refunding Revenue Bonds
(otter Tail Power Corporation Project) Series 2001.
	 
	5.	 	All of the 6.63% Senior Notes due December 1, 2011, issued under the Note Purchase Agreement,
dated as of December 1, 2001, as thereafter amended, between Otter Tail Corporation and the
noteholders party thereto, outstanding as of the date of effectiveness of the Permitted
Reorganization.
	 
	6.	 	Credit Agreement, dated as of July 30, 2008, among Otter Tail Corporation, the Banks named
therein, Bank of America, N.A., as Syndication Agent, and U.S. Bank National Association, as
agent for the Banks, as amended, and all Notes of Otter Tail Corporation issued pursuant
thereto.
	 
	7.	 	Term Loan Agreement, dated as of May 22, 2009, among Otter Tail Corporation, d/b/a Otter
Tail Power Company, JPMorgan Chase Bank, N.A., as administrative agent, KeyBank National
Association, as syndication agent, Union Bank, N.A., as documentation agent, and the banks
named therein.

 

 

Schedule B

(to Amendment No. 2 to Note Purchase Agreement)

Exceptions to Representations and Warranties

	1.	 	Since the date of the Note Purchase Agreement, the Indebtedness listed on Schedule 5.15 has
changed and should reflect the following Indebtedness:

	 	 	 	 	 	 	 
	 	 	 	 	Principal Amount
	 	 	 	 	Outstanding
	Location	 	Description	 	(as of 3/31/09)*
	Company
	 	6.63% Senior Notes due December 1, 2011

	 	$	90,000,000	 
	Company
	 	5.778% Senior Unsecured Note due November 30, 2017

	 	$	50,000,000	 
	Company
	 	5.95% Senior Unsecured Notes, Series A, due 2017

	 	$	33,000,000	 
	Company
	 	6.15% Senior Unsecured Notes, Series B, due 2022

	 	$	30,000,000	 
	Company
	 	6.37% Senior Unsecured Notes, Series C, due 2027

	 	$	42,000,000	 
	Company
	 	6.47% Senior Unsecured Notes, Series D, due 2037

	 	$	50,000,000	 
	Company
	 	4.65% Grant County, South Dakota Pollution Control
Refunding Revenue Bonds (Otter Tail Power
Corporation Project) Series 2001 due September 1,
2017

	 	$	5,165,000	 
	Company
	 	4.85% Mercer County, North Dakota pollution control
refunding revenue bonds, due September 1, 2022

	 	$	20,580,000	 
	Company
	 	Pollution control refunding revenue bonds, variable,
4.13% at June 20, 2007, due December 1, 2012

	 	$	10,400,000	 
	Company
	 	Obligations under Credit Agreement dated as of July
30, 2008, as amended

	 	$	32,315,510	 
	Company
	 	Obligations under Term Loan Agreement dated as of
May 22, 2009 (“Term Loan Agreement”)

	 	$	75,000,000	 
	Varistar Corporation
	 	Obligations under Amended and Restated Credit
Agreement dated as of December 23, 2008, as amended

	 	$	116,747,339	 
	Varistar Corporation
	 	Other

	 	$	7,600,730	 

The 6.63% Senior Notes and the 5.778% Senior Unsecured Notes are guarantied by Varistar Corporation
and certain of its Subsidiaries. The obligations of Varistar Corporation under the A&R Credit
Agreement are guarantied by certain of Varistar Corporation’s Subsidiaries. The Grant County and
Mercer County pollution control refunding revenue bonds are covered under a financial guaranty
insurance policy provided by Ambac Assurance Corporation.

 

			
	*	 	Amount outstanding under the Term Loan Agreement was incurred on May 22, 2009.

2

 

Schedule C

(to Amendment No. 2 to Note Purchase Agreement)

Exceptions to Representations and Warranties

as applied to Otter Holding upon and after

consummation of the Permitted Reorganization

	1.	 	The information provided in each Schedule delivered to Cascade as required by Section
5.1(g)(i) of the Amendment is true and correct only as of the date of delivery thereof,
notwithstanding any statement to the contrary in Article V of the Note Purchase Agreement.
	 
	2.	 	For purposes of Section 5.7, no order of the Minnesota Public Utilities Commission
approving the capital structure of Otter Holding is required.
	 
	3.	 	With respect to Section 5.19, Otter Holding was incorporated in June 2009 and will not be
subject to SEC reporting requirements until the Effective Time.
	 
	4.	 	With respect to Section 5.20, Otter Holding was incorporated in June 2009.

3

 

EXHIBIT A

(to Amendment No. 2 to Note Purchase Agreement)

FORM OF ASSIGNMENT, ASSUMPTION AND RELEASE AGREEMENT

[See attached]

 

 

ASSIGNMENT, ASSUMPTION AND RELEASE AGREEMENT

     THIS ASSIGNMENT, ASSUMPTION AND RELEASE AGREEMENT (this “Agreement”), is made and entered into
as of June 30, 2009, by and among Otter Tail Corporation, a Minnesota corporation (“Old Otter
Tail”), Otter Tail Holding Company, a Minnesota corporation (“Otter Holding”) and Cascade
Investment, L.L.C., a Washington limited liability company (“Cascade”). Capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned to them in the Note
Purchase Agreement defined below, unless the context shall otherwise require.

RECITALS:

     A. Old Otter Tail and Cascade have heretofore entered into the Note Purchase Agreement dated
as of February 23, 2007, as amended by a letter agreement dated December 14, 2007 and an Amendment
No. 2 thereto (“Amendment No. 2”) dated as of June 30, 2009 (as so amended, the “Note Purchase
Agreement”). Old Otter Tail has heretofore issued the $50,000,000 5.778% Senior Note due November
30, 2017 (the “Note”) dated December 14, 2007 pursuant to the Note Purchase Agreement.

     B. Old Otter Tail has announced that it intends to restructure Old Otter Tail into a holding
company with Otter Tail Power Company as a separate, first-tier subsidiary as described in Article
I of Amendment No. 2 (the “Permitted Reorganization”).

     C. The Company has proposed that its rights and obligations under the Note Purchase Agreement
and the Note (as such term is defined in Amendment No. 2) be assigned, immediately prior to the
effectiveness of the Permitted Reorganization, to Otter Tail Holding Corporation (“Otter Holding”)
pursuant to this Agreement, and Cascade has consented to such assignment.

     NOW, THEREFORE, in consideration of the premises, the mutual agreements herein set forth below
and other good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:

     1. Assignment. Effective as of immediately prior to the effectiveness of the
Permitted Reorganization (the “Effective Time”), Old Otter Tail hereby transfers, assigns and
conveys to Otter Holding its entire right, title and interest in, to and under, and all of its
obligations under, the Note Purchase Agreement and the Note (as such term is defined in Amendment
No. 2).

     2. Assumption. As of the Effective Time, Otter Holding hereby accepts the foregoing assignment
and hereby assumes and agrees to perform all of the obligations of Old Otter Tail under the Note
Purchase Agreement and the Note (as such term is defined in Amendment No. 2).

     3. Release of Otter Tail Power Company. Upon the effectiveness of the assignment and
assumption contained in Sections 1 and 2 above, respectively, Cascade (a) releases and discharges
Old Otter Tail from all of its obligations under the Note Purchase Agreement and the

 

 

Note, provided, however, that the foregoing shall not constitute a release or affect the
obligations and liabilities of the Subsidiary Guarantors under the Guaranty Agreement, and (b)
agrees and confirms that Old Otter Tail will not thereafter be deemed the “Company” for purposes of
the Note Purchase Agreement and the Note.

     4. Substitution of Schedules. As provided in Section 5.1(g)(i) of Amendment No.
2, Schedules 4.9, 5.3, 5.4, 5.5, 5.8, 5.11, 5.15 and 10.10 to the Note Purchase Agreement are replaced
and superseded by the Schedules previously delivered to Cascade on the date hereof bearing such
numbers.

     5. Representations and Warranties.

     (a) Each of the Company and Otter Holding represents and warrants to Cascade that this
Agreement has been duly authorized by all requisite corporate action on the part of the Company and
Otter Holding and has been executed and delivered by the Company and Otter Holding and constitutes
the legal, valid and binding agreement of the Company and Otter Holding enforceable against each of
them 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) Otter Holding represents and warrants to Cascade that as of the Effective Time, each of
the Note Purchase Agreement and the Note, as amended, will constitute the legal, valid and binding obligations, contracts and agreements of Otter Holding 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) Otter Holding represents and warrants to Cascade that the execution and delivery by Otter
Holding of this Agreement, the Note, as amended, and the Standstill Agreement, dated as of the date
hereof, between Cascade and Otter Holding (the “Standstill Agreement”) and the performance by Otter
Holding of its obligations under this Agreement, the Note, as amended, and the Standstill Agreement
will not (A) violate the Articles of Incorporation of Otter Holding, as amended, or Bylaws of Otter
Holding, as amended, (B) violate Section 673 of the MBCA or Minnesota Statutes Section 216B.48, or
(C) violate, result in the breach or modification of, conflict with, constitute a default or result
in an acceleration of any obligation under, result in the imposition of any encumbrance pursuant
to, or affect the validity or effectiveness of, any contract, permit, order or other law applicable
to Otter Holding, except (as to clause (C) only) for any violation, breach, modification, conflict,
default, acceleration, encumbrance or effect which would not have a material adverse effect on
Otter Holding and its Subsidiaries taken as a whole. No approval or consent, filings,
notifications, waivers or exemptions on the part of any (A) Minnesota, North Dakota or South Dakota
or (B) New York or federal, governmental authority is required to be obtained or made by Otter
Holding in connection with the execution and delivery by it of this Agreement, the Note, as
amended, and the Standstill Agreement and the performance by Otter Holding of its obligations under
this Agreement, the Note, as amended, and the Standstill Agreement, except such as have been
obtained or made.

2

 

     (d) Cascade represents to each of the Company and Otter Holding that the first two sentences
of Section 6.6 of the Note Purchase Agreement as applied to the Note, as amended by Amendment No. 2
and this Agreement, are true and correct as of the date hereof.

     6. Miscellaneous. This Agreement may be executed in any number of counterparts, each of which
shall be an original, but all of which shall constitute one instrument. The captions and headings
of the various sections of this Agreement are for convenience only and shall not be deemed a part
of this Agreement and shall not be construed as defining or as limiting in any way the scope or
intent of provisions hereof.

     7. Effectiveness. This Agreement shall be deemed effective immediately prior to the
effectiveness of the Permitted Reorganization, provided that each and every one of the conditions
set forth in Sections 5.1 and 5.2 of Amendment No. 2 has been satisfied in full or waived by
Cascade; provided, further, that, if the Permitted Reorganization does not occur by July 2, 2009,
this Agreement shall terminate automatically and the assignment, assumption and release described
above in Sections 1, 2 and 3, respectively, shall be void and of no effect.

     8. Governing Law. This Agreement shall be governed by and construed in accordance with New
York law.

[Signature pages follow.]

3

 

     IN WITNESS WHEREOF, and intending to be legally bound thereby, the parties hereto have
executed this Agreement as of the date written above.

	 	 	 	 	 
	 	OTTER TAIL CORPORATION

 	 
	 	
 	 
	 	George A. Koeck 	 
	 	General Counsel and Corporate Secretary 	 
	 
	 	OTTER TAIL HOLDING COMPANY

 	 
	 	
 	 
	 	George A. Koeck 	 
	 	General Counsel and Corporate Secretary 	 
	 
	 	CASCADE INVESTMENT, L.L.C.

 	 
	 	
 	 
	 	Name:  	 	 
	 	Title:  	 	 

4

 

	 	 	 	 	 

EXHIBIT B

(to Amendment No. 2 to Note Purchase Agreement)

[FORM OF NOTE]

OTTER TAIL HOLDING COMPANY

Senior Note due November 30, 2017

	 	 	 	 	 
	[No. R-1]

	 	 	$50,000,000	 

     FOR VALUE RECEIVED, the undersigned, OTTER TAIL HOLDING COMPANY (herein called the “Company”),
a corporation organized and existing under the laws of the State of Minnesota, hereby promises to
pay to Cascade Investment, L.L.C., or registered assigns, the principal sum of FIFTY MILLION
DOLLARS on November 30, 2017, with interest (computed on the basis of a 360-day year of twelve
30-day months) (a) on the unpaid balance thereof (i) at the rate of 5.778% per annum from December
14, 2007 until July 1, 2009 and (ii) from and after July 1, 2009 at a rate of 8.89%per annum,
payable semiannually, on the last day of each May and November in each year, commencing with the
May or November next succeeding the date hereof, until the principal hereof shall have become due
and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole
Amount (as defined in the Note Purchase Agreement referred to below), payable semiannually as
aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from
time to time equal to the greater of (i) 8.89% or (ii) 2% over the rate of interest publicly
announced by Citibank N.A. from time to time in New York, New York as its “base” or “prime” rate.

     Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are
to be made in lawful money of the United States of America at the principal office of the Company
in Fargo, North Dakota or at such other place as the Company shall have designated by written
notice to the holder of this Note as provided in the Note Purchase Agreement referred to below.

     This Note is a Senior Note (herein called the “Note”) issued pursuant to a Note Purchase
Agreement, dated as of February 23, 2007 (as from time to time amended, the “Note Purchase
Agreement”), between the Company and Cascade Investment, L.L.C., and is entitled to the benefits
thereof. Each holder of this Note will be deemed, by its acceptance hereof, to have made the
representations set forth in Section 6.6 of the Note Purchase Agreement.

     This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender
of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of
transfer duly executed, by the registered holder hereof or such holder’s attorney duly authorized
in writing, a new Note for a like principal amount will be issued to, and registered in the name
of, the transferee. Prior to due presentment for registration of transfer, the Company may treat
the person in whose name this Note is registered as the owner hereof for the purpose of receiving
payment and for all other purposes, and the Company will not be affected by any notice to the
contrary.

 

 

     This Note is subject to optional prepayment, in whole or from time to time in part, at the
times and on the terms specified in the Note Purchase Agreement, but not otherwise.

     If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing,
the principal of this Note may be declared or otherwise become due and payable in the manner, at
the price (including any applicable Make-Whole Amount) and with the effect provided in the Note
Purchase Agreement.

     All amounts of principal, interest and Make-Whole Amount (as such term is defined in the Note
Purchase Agreement) payable with respect to this Note are unconditionally guaranteed by the
Subsidiary Guarantors (as such term is defined in the Note Purchase Agreement), under and pursuant
to that certain Guaranty Agreement dated as of December 3, 2007 from such Subsidiary Guarantors,
all in accordance with the provisions of the Note Purchase Agreement.

     This Note shall be construed and enforced in accordance with, and the rights of the parties
shall be governed by, the law of the State of New York excluding choice-of-law principals of the
law of such State that would require the application of the laws of a jurisdiction other than such
State.

	 	 	 	 	 
	 	OTTER TAIL HOLDING COMPANY

 	 
	 	By:  	 	 
	 	 	George A. Koeck 	 
	 	 	General Counsel and Corporate Secretary 	 

2

 

	 	 	 	 	 

EXHIBIT C

(to Amendment No. 2 to Note Purchase Agreement)

DESCRIPTION OF OPINION OF COUNSEL

[See attached]

 

 

[Form of Opinion of General Counsel]

June 30, 2009

Cascade Investment, L.L.C.

2365 Carillon Point

Kirkland, Washington 98033

Ladies and Gentlemen:

     I have acted as counsel to Otter Tail Corporation, a Minnesota corporation (the “Company”), in
connection with that certain Amendment No. 2 dated as of June 30, 2009
to Note Purchase Agreement dated as of February 23, 2007 (the “Amendment”), between the
Company and Cascade Investment, L.L.C. (“Cascade”), which amends that certain Note Purchase
Agreement, dated as of February 23, 2007 (the “Original Note Purchase Agreement”), as amended by a
letter agreement dated December 14, 2007 (the “Letter Agreement”) (the Original Agreement, as
amended by the Letter Agreement, being referred to herein as the “Note Purchase Agreement”),
between the Company and Cascade relating to the issuance and sale by the Company of its 5.778%
Senior Note due November 30, 2017 in the aggregate principal amount of $50,000,000 (the “Original
Note”), as amended by the Amendment (as amended, the “Replacement Note”). This opinion is being
delivered to you pursuant to Section 5.1(f)(v) and Section 5.2(d) of the Amendment. Capitalized
terms used herein, except as otherwise specifically defined herein, are used with the same meaning
as defined in the Note Purchase Agreement as amended by the Amendment.

     In connection with this opinion I have examined such documents and reviewed such questions of
law as I have considered necessary and appropriate for the purposes of this opinion.

     In rendering my opinions set forth below, I have assumed the authenticity of all documents
submitted to me as originals, the genuineness of all signatures (other than the signatures of
officers of the Company, Otter Holding, Merger Sub and the Subsidiary Guarantors) and the
conformity to authentic originals of all documents submitted to me as copies. I also have assumed
the legal capacity for all purposes relevant hereto of all natural persons and, with respect to all
parties to agreements or instruments relevant hereto other than the Company, Otter Holding, Merger
Sub and the Subsidiary Guarantors, that such parties had the requisite power and authority
(corporate or otherwise) to execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action (corporate or
otherwise), executed and delivered by such parties and that such agreements or instruments are the
valid, binding and enforceable obligations of such parties. I have also assumed that all conditions
precedent to the effectiveness of the Amendment and the Assignment Agreement have been satisfied or
waived contemporaneously with the delivery of this opinion letter. As to questions of fact material
to my opinion, I have relied upon representations and certificates of officers and other employees
of the Company, Otter Holding and Merger Sub (in each case known by me to have authority to make
such representations and

 

 

certifications on behalf of the Company, Otter Holding or Merger Sub, as
appropriate) and the Subsidiaries, and certificates of public officials.

     Based on the foregoing, I am of the opinion that:

	 	1.	 	Each Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and is duly licensed or
qualified and is in good standing in each jurisdiction in which the character of the
properties owned or leased by it or the nature of the business transacted by it makes
such licensing or qualification necessary, except where failure to be so licensed or
to so qualify or to be in good standing would not result in a Material Adverse Effect;
and all of the issued and outstanding shares of capital stock of each Subsidiary have
been duly issued, are fully paid and non-assessable and are owned by the Company, by one or
more Subsidiaries, or by the Company and one or more Subsidiaries.
	 
	 	2.	 	No approval or consent of, filing with, notification to, or waiver or
exemption from, any Minnesota or North Dakota governmental authority or any Minnesota,
North Dakota, South Dakota or other federal governmental authority regulating public
utilities or public utility holding companies, is required to be obtained or made by
the Company in connection with its execution and delivery of the Amendment or the
Assignment Agreement or the performance by the Company of its obligations pursuant to
the Amendment and the Assignment Agreement, except for such approvals, consents,
filings, notifications, waivers or exemptions as have been obtained or made.
	 
	 	3.	 	No approval or consent of, filing with, notification to, or waiver or
exemption from, any Minnesota or North Dakota governmental authority or any Minnesota,
North Dakota, South Dakota or other federal governmental authority regulating public
utilities or public utility holding companies, is required to be obtained or made by
Otter Holding in connection with its execution and delivery of the Assignment
Agreement, the Replacement Note and the Standstill Agreement or the performance by
Otter Holding of its obligations pursuant to the Assignment Agreement, the Replacement
Note and the Standstill Agreement, except for such approvals, consents, filings,
notifications, waivers or exemptions as have been obtained or made and except that I
express no opinion regarding any federal securities laws or the securities or “Blue
Sky” laws of any state.
	 
	 	4.	 	No approval or consent of, filing with, notification to, or waiver or
exemption from, any Minnesota or North Dakota governmental authority or any Minnesota,
North Dakota, South Dakota or other federal governmental authority regulating public
utilities or public utility holding companies, is required to be obtained or made by
any Subsidiary Guarantor in connection with the execution and delivery of the
Acknowledgment of Guaranty dated as of June 30, 2009, executed by each of the
Subsidiary Guarantors (the “Guaranty Acknowledgment”), except for such approvals,
consents, filings, notifications, waivers or exemptions as have been 

2

 

	 	 	 	obtained or made
and except that I express no opinion regarding any federal securities laws or the
securities or “Blue Sky” laws of any state.

	 	5.	 	Each of the Subsidiary Guarantors has the corporate power and authority and is duly
authorized to enter into the Guaranty Acknowledgment and to perform all of its obligations
under the Guaranty Agreement, and the Guaranty Acknowledgment has been duly authorized by all
requisite corporate action on the part of each Subsidiary Guarantor and duly executed and
delivered by each of the Subsidiary Guarantors.
	 
	 	6.	 	The execution and delivery by each of the Subsidiary Guarantors of the Guaranty
Acknowledgment and the performance by each Subsidiary Guarantor of its obligations
pursuant to the Guaranty Agreement will not (a) violate the articles of incorporation or
bylaws of the Company, Otter Holding or any Subsidiary Guarantor, or (b) violate, result
in the breach or modification of, conflict with, constitute a default or result in an
acceleration of any obligation under, result in the imposition of any encumbrance pursuant
to, or affect the validity or effectiveness of, any contract, permit, order or other law
applicable to the Company, Otter Holding or any Subsidiary Guarantor except (as to clause
(b) only) for any violation, breach, modification, conflict, default, acceleration,
encumbrance or effect which would not have a Material Adverse Effect.
	 
	 	7.	 	The execution and delivery by the Company of the Amendment and the Assignment Agreement and
the performance by the Company of its obligations under the Amendment and the Assignment
Agreement will not (a) violate the articles of incorporation or bylaws of the Company, (b)
violate Section 673 of the Minnesota Business Corporation Act (the “MBCA”) or Minnesota
Statutes Section 216B.48, or (c) violate, result in the breach or modification of, conflict
with, constitute a default or result in an acceleration of any obligation under, result in
the imposition of any encumbrance pursuant to, or affect the validity or effectiveness of,
any contract, permit, order or other law applicable to the Company, except (as to clause (c)
only) for any violation, breach, modification, conflict, default, acceleration, encumbrance
or effect which would not have a Material Adverse Effect and except that I express no opinion
regarding any federal securities laws or the securities or “Blue Sky” laws of any state.
	 
	 	8.	 	The execution and delivery by Otter Holding of the Assignment Agreement, the Replacement Note
and the Standstill Agreement and the performance by Otter Holding of its obligations under the
Assignment Agreement, the Replacement Note and the Standstill Agreement will not (a) violate
the articles of incorporation or bylaws of Otter Holding, (b) violate Section 673 of the MBCA
or Minnesota Statutes Section 216B.48, or (c) violate, result in the breach or modification
of, conflict with, constitute a default or result in an acceleration of any obligation under,
result in the imposition of any encumbrance pursuant to, or affect the validity or
effectiveness of, any contract, permit, order or other law applicable to Otter Holding, except
(as to clause (c) only) for any violation, breach, 

3

 

	 	 	 	modification, conflict, default, acceleration, encumbrance or effect which would not have a Material Adverse Effect.

	 	9.	 	There is no litigation pending or, to the best of my knowledge, threatened
which in my opinion could reasonably be expected to have a Material Adverse Effect or
that would impair the ability of Otter Holding to, as of the Effective Time, issue and
deliver the Replacement Note as contemplated in the Note Purchase Agreement, as
amended by the Amendment, and comply with the provisions of the Note Purchase
Agreement, as amended by the Amendment, the Replacement Note, the Standstill Agreement
or of any Subsidiary Guarantor to comply with the provisions of the Guaranty
Agreement.

     The opinions expressed above are limited to the laws of the States of Minnesota and North
Dakota and the federal laws of the United States and, with respect to my opinion in paragraphs 1, 4
and 5 only, the following corporate laws: the Arizona Business Corporation Act, the Delaware
General Corporation Law, the Idaho Business Corporation Act, and the General and Business
Corporation Law of Missouri. I express no opinion as to the laws of any other jurisdiction.

     The foregoing opinions are being furnished to you solely for your benefit (and the benefit of
your successors and assigns) and may not be relied upon by, nor may copies be delivered to, any
other person without my prior written consent.

	 	 	 	 	 
	 	Very truly yours,

 	 
	 	
 	 
	 	George A. Koeck 	 
	 	General Counsel and Corporate Secretary 	 

4

 

	 	 	 	 	 

[Form of Opinion of Dorsey & Whitney LLP]

June 30, 2009

Cascade Investment, L.L.C.

2365 Carillon Point

Kirkland, Washington 98033

Ladies and Gentlemen:

     We have acted as counsel to Otter Tail Corporation, a Minnesota corporation (the “Company”),
in connection with that certain Amendment No. 2 dated as of June 30, 2009 to Note Purchase
Agreement dated as of February 23, 2007 (the “Amendment”), between the Company and Cascade
Investment, L.L.C. (“Cascade”), which amends that certain Note Purchase Agreement, dated as of
February 23, 2007 (the “Original Note Purchase Agreement”), as amended by a letter agreement dated
December 14, 2007 (the “Letter Agreement”) (the Original Note Purchase Agreement, as amended by the
Letter Agreement, being referred to herein as the “Note Purchase Agreement”), between Otter Tail
and Cascade relating to the issuance and sale by the Company of its 5.778% Senior Note due November
30, 2017 in the aggregate principal amount of $50,000,000 (the “Original Note”), as amended by the
Amendment (the “Replacement Note”). This opinion is being delivered to you pursuant to Section
5.1(f)(v) and Section 5.2(d) of the Amendment. Capitalized terms used herein, except as otherwise
specifically defined herein, are used with the same meaning as defined in the Note Purchase
Agreement, as amended by the Amendment.

     In connection with this opinion, we have examined such documents and reviewed such questions
of law as we have considered necessary and appropriate for the purposes of this opinion.

     In rendering our opinions set forth below, we have assumed the authenticity of all documents
submitted to us as originals, the genuineness of all signatures and the conformity to authentic
originals of all documents submitted to us as copies. We have also assumed the legal capacity for
all purposes relevant hereto of all natural persons and, with respect to all parties to agreements
or instruments relevant hereto other than the Company, Otter Holding and Merger Sub, that such
parties had the requisite power and authority (corporate or otherwise) to execute, deliver and
perform such agreements or instruments, that such agreements or instruments have been duly
authorized by all requisite action (corporate or otherwise), executed and delivered by such parties
and that such agreements or instruments are the valid, binding and enforceable obligations of such
parties. We have also assumed that all conditions precedent to the effectiveness of the Amendment
and the Assignment Agreement have been satisfied or waived contemporaneously with the delivery of
this opinion letter. As to questions of fact material to our opinion, we have relied upon
certificates of officers of the Company, Otter Holding and Merger Sub and of public officials.

     Our opinions expressed below as to certain factual matters are qualified as being limited “to
our knowledge” or by other words to the same or similar effect. Such words, as used herein, mean
that prior to or during the course of this firm’s representation of the Company in connection with
the specific transactions contemplated by the Note Purchase Agreement, as

 

 

June 30, 2009

Page 2

amended by the Amendment, no contrary information came to the attention (but not including any
constructive or imputed notice) of the attorneys currently with our firm who have given substantive
attention to matters on behalf of the Company. In rendering such opinions, we have not conducted
any independent investigation of the Company or any of its Subsidiaries, consulted with other
attorneys in our firm with respect to the matters covered thereby, or reviewed any of our prior
files involving the Company or any of its Subsidiaries. Finally, no inference as to our knowledge
with respect to the factual matters upon which we have so qualified our opinions should be drawn
from the fact of our representation of the Company.

     Based on the foregoing, we are of the opinion that:

     (i) The Company is a corporation, duly incorporated, validly existing and in good standing
under the laws of the State of Minnesota and has the corporate power and the corporate authority to
execute and perform its obligations under the Amendment and the Assignment Agreement. The Company
has the corporate power and the corporate authority to conduct the activities in which it is now
engaged, as described in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2008, and is duly licensed or qualified and is in good standing as a foreign
corporation in each jurisdiction in which the character of the properties owned or leased by it or
the nature of the business transacted by it makes such licensing or qualification necessary, except
where the failure to be so licensed or to so qualify or to be in good standing would not result in
a Material Adverse Effect.

     (ii) Otter Holding is a corporation, duly incorporated, validly existing and in good standing
under the laws of the State of Minnesota and has the corporate power and
the corporate authority to execute and perform its obligations under the Amendment, the Note
Purchase Agreement, as amended by the Amendment and assigned to Otter Holding pursuant to the
Assignment Agreement, the Replacement Note and the Assignment Agreement. The Company has the
corporate power and the corporate authority to conduct the activities in which it is now engaged,
and is duly licensed or qualified and is in good standing as a foreign corporation in each
jurisdiction in which the character of the properties owned or leased by it or the nature of the
business transacted by it makes such licensing or qualification necessary, except where the failure
to be so licensed or to so qualify or to be in good standing would not result in a Material Adverse
Effect.

     (iii) Each of the Amendment and the Assignment Agreement has been duly authorized by all
requisite corporate action on the part of the Company, duly executed and delivered by the Company
and constitutes the legal, valid and binding agreement of the Company enforceable against the
Company in accordance with its terms.

     (iv) The Assignment Agreement has been duly authorized by all requisite corporate action on
the part of Otter Holding, duly executed and delivered by Otter Holding and constitutes the legal,
valid and binding agreement of Otter Holding enforceable against Otter Holding in accordance with
its terms.

     (v) Each of the Note Purchase Agreement, as amended by the Amendment, and the Original Note
constitutes the legal, valid and binding agreement of the Company enforceable against the Company
in accordance with its terms. As of the Effective Time, each of the Note Purchase Agreement, as
amended by the Amendment, and, upon the surrender by Cascade of

 

 

June 30, 2009

Page 3

the Original Note and issuance by the Company of the Replacement Note, the Replacement Note will
constitute the legal, valid and binding agreement of Otter Holding enforceable against Otter
Holding in accordance with its respective terms.

     (vi) The Guaranty Agreement constitutes the legal, valid and binding agreement of each of the
Subsidiary Guarantors named as a party thereto, enforceable against such Subsidiary Guarantor in
accordance with its terms. We have assumed for purposes of this opinion that the Guaranty Agreement
and the Acknowledgment of Guaranty dated as of June 30, 2009, executed by each of the Subsidiary
Guarantors (the “Guarantee Acknowledgment”) have each been duly authorized, executed and delivered
by such Subsidiary Guarantor, and note that you have (previously, with respect to the Guaranty
Agreement, and on the date hereof, with respect to the Guaranty Acknowledgment) received opinions
from George A. Koeck, General Counsel and Corporate Secretary of the Company, to that effect.

     (vii) No approval or consent of, filing with, notification to, or waiver or exemption from,
any Minnesota, New York or federal governmental authority (other than any Minnesota, New York or
federal governmental authority regulating public utilities or public utility holding companies, as
to which we express no opinion) is required to be obtained or made by the Company in connection
with its execution and delivery of the Amendment and the Assignment Agreement or the performance by
the Company of its obligations pursuant to the Amendment and the Assignment Agreement, except for such approvals, consents,
filings, notifications, waivers or exemptions as have been obtained or made and except that we
express no opinion regarding any federal securities laws (other than as provided in our opinion in
clause (xi) below), or the securities or “Blue Sky” laws of any state.

     (viii) No approval or consent of, filing with, notification to, or waiver or exemption from,
any Minnesota, New York or federal governmental authority (other than any Minnesota, New York or
federal governmental authority regulating public utilities or public utility holding companies, as
to which we express no opinion) is required to be obtained or made by Otter Holding in connection
with its execution and delivery of the Assignment Agreement, the Standstill Agreement or the
Replacement Note or the performance by Otter Holding of its obligations pursuant to the Assignment
Agreement, the Replacement Note and the Standstill Agreement, except for such approvals, consents,
filings, notifications, waivers or exemptions as have been obtained or made and except that we
express no opinion regarding any federal securities laws (other than as provided in our opinion in
clause (xi) below), or the securities or “Blue Sky” laws of any state.

     (ix) The execution and delivery by the Company of the Amendment and the Assignment Agreement
and the performance by the Company of its obligations under the Amendment and the Assignment
Agreement will not (a) violate the articles of incorporation or bylaws of the Company or (b)
violate, result in the breach or modification of, conflict with, constitute a default or result in
an acceleration of any obligation under, result in the imposition of any encumbrance pursuant to,
or affect the validity or effectiveness of, any contract, permit, order or other law applicable to
the Company, except (as to clause (b) only) for any violation, breach, modification, conflict,
default, acceleration, encumbrance or effect which would not have a Material Adverse Effect and
except that we express no opinion regarding (A) any law regulating public utilities or public
utility holding companies or (B) any federal securities laws

 

 

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(other than as provided in our opinion in clause (xi) below), or the securities or “Blue Sky” laws
of any state.

     (x) The execution and delivery by Otter Holding of the Assignment Agreement, the Replacement
Note and the Standstill Agreement and the performance by Otter Holding of its obligations under the
Assignment Agreement, the Replacement Note and the Standstill Agreement will not (a) violate the
articles of incorporation or bylaws of Otter Holding or (b) violate, result in the breach or
modification of, conflict with, constitute a default or result in an acceleration of any obligation
under, result in the imposition of any encumbrance pursuant to, or affect the validity or
effectiveness of, any contract, permit, order or other law applicable to Otter Holding, except (as
to clause (b) only) for any violation, breach, modification, conflict, default, acceleration,
encumbrance or effect which would not have a Material Adverse Effect and except that we express no
opinion regarding (A) any law regulating public utilities or public utility holding companies or
(B) any federal securities laws (other than as provided in our opinion in clause (xi) below), or
the securities or “Blue Sky” laws of any state.

     (xi) Assuming the accuracy and performance of, and compliance with, the
representations, warranties and agreements of the Company and you in the Note Purchase
Agreement, as amended by the Amendment, and the Assignment Agreement, the issuance and delivery of
the Replacement Note under the circumstances contemplated by the Note Purchase Agreement, as
amended by the Amendment, do not, under existing law, require the registration of the Replacement
Note under the Securities Act of 1933.

     (xii) Neither the Company nor Otter Holding is an “investment company” as such term is defined
in the Investment Company Act of 1940, as amended, and to our knowledge, based solely on our review
of the statements of beneficial ownership of the Company’s stock filed as of the date hereof with
the SEC and our review of the stock ledger of Otter Holding, and in reliance upon certificates of
officers of the Company and Otter Holding, neither the Company nor Otter Holding is “controlled” by
an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

     The opinions set forth above are subject to the following qualifications and exceptions:

(a) Our opinions above in clauses (iii), (iv), (v) and (vi) are subject to the effect
of any applicable bankruptcy, insolvency, reorganization, arrangement, moratorium,
fraudulent transfer, statutes of limitation or other similar laws and judicial
decisions affecting or relating to the rights of creditors generally.

(b) Our opinions in clauses (iii), (iv), (v) and (vi) above are subject to the effect of
general principles of equity, including without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, estoppel, election of remedies and other
similar doctrines affecting the enforceability of agreements generally (regardless of
whether considered in a proceeding in equity or at law). In addition, the availability of
specific performance, injunctive relief, the appointment of a receiver or other equitable
remedies is subject to the discretion of the tribunal before which any proceeding therefor
may be brought.

 

 

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(c) We express no opinion as to the enforceability of provisions in the Note Purchase
Agreement, the Original Note, the Replacement Note, the Amendment, Assignment Agreement or
the Guaranty Agreement to the extent they contain obligations of the Company, Otter Holding
or the Subsidiary Guarantors to pay any prepayment premium, default interest rate or other
form of liquidated damages if the payment of such premium, interest rate or damages may be
construed as unreasonable in relation to the actual damages or disproportionate to actual
damages suffered by the Purchaser as a result of such prepayment or default.

(d) We express no opinion as to the enforceability of the 2001 Note Purchase Agreement and
any Credit Agreement which may be deemed to be incorporated by reference into the Note
Purchase Agreement pursuant to Section 10.7 of the Note Purchase Agreement or as to the
effect such incorporation may have on the enforceability of the Note Purchase Agreement,
the Original Note, the Replacement Note, the Guaranty Agreement or the Guaranty
Acknowledgment.

(e) Our opinion in paragraph (vi) above as to the Guaranty Acknowledgment
and the Guaranty Agreement is subject to the defenses available to a guarantor under
applicable law.

(f) We express no opinion as to the validity, binding effect or enforceability of (i) any
provision of the Note Purchase Agreement, the Original Note, the Replacement Note, the
Amendment, the Assignment Agreement, the Guaranty Acknowledgment or the Guaranty Agreement
related to choice of law, forum selection or submission to jurisdiction (including, without
limitation, any express or implied waiver of any objection to venue in any court or of any
objection that a court is an inconvenient forum) to the extent that the validity, binding
effect or enforceability of any such provision is to be determined by any court other than
a court of the State of New York, (ii) waivers by the Company, Otter Holding or a
Subsidiary Guarantor of any statutory or constitutional rights or remedies, (iii) terms
which excuse any person or entity from liability for such person’s or entity’s negligence
or willful misconduct, (iv) cumulative remedies to the extent such cumulative remedies
purport to compensate, or would have the effect of compensating, the party entitled to the
benefits thereof in an amount in excess of the actual loss suffered by such party, (v)
provisions providing that waivers or consents by a party may not be given effect unless in
writing or that one or more waivers may not under certain circumstances constitute a wavier
of other matters of the same kind, or (vi) terms purporting to establish evidentiary
standards, or as to compliance or the effect of noncompliance by you with any state or
federal laws or regulations applicable to you in connection with the transactions described
in the Guaranty Acknowledgment and the Guaranty Agreement.

(g) In rendering our opinion in paragraphs (vii) and (viii) above, we do not express any
opinion with respect to any approval or consent of, filing with, notification to, or
waiver or exemption from, any Minnesota, New York or federal

 

 

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governmental authority required generally in connection with the business or
operations of the Company or Otter Holding.

     The opinions expressed above are limited to the laws of the States of Minnesota and New York
and the federal laws of the United States and we express no opinion as to the laws of any other
jurisdiction.

     The foregoing opinions are being furnished to you solely for your benefit (and the benefit of
your successors and assigns) and may not be relied upon by, nor may copies be delivered to, any
other person without our prior written consent.

Very truly yours,

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