Document:

EX-10.3

Exhibit 10.3

EXECUTION COPY

CONSENT

     THIS CONSENT TO CREDIT AGREEMENT (this “Consent”) is executed and delivered as of this
28th day of July, 2008, by and among LASALLE BANK NATIONAL ASSOCIATION, as administrative agent
(the “Administrative Agent”), the financial institutions party hereto (the
“Lenders”), AKORN, INC., a Louisiana corporation (“Akorn”) and AKORN (NEW JERSEY),
INC., an Illinois corporation (“Akorn New Jersey”).

W I T N E S S E T H :

     A. The Administrative Agent, Akorn, Akorn New Jersey and the Lenders entered into a Credit
Agreement dated as of October 7, 2003 (as amended, restated, supplemented or otherwise modified
from time to time, the “Credit Agreement”). Capitalized terms used but not defined herein
shall have the meanings attributed to them in the Credit Agreement.

     B. Akorn intends to enter into a transaction in which it will borrow $5,000,000 from The John
N. Kapoor Trust dated September 20, 1989 (“Subordinated Creditor”) and issue to
Subordinated Creditor a Subordinated Promissory Note, dated as of July 28, 2008 (the “Subordinated
Note”) evidencing such Debt. A copy of the Subordinated Note is attached hereto as Exhibit
A. The foregoing shall be referred to herein in as the “Transaction”.

     C. The Companies have requested that the Administrative Agent and the Required Lenders consent
to the action to be taken by the Companies in connection with the Transaction with respect to the
Credit Agreement, subject to the terms and conditions set forth herein.

     NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto
hereby agree as follows:

     1. Consent. Subject to the terms and conditions herein, the Required Lenders hereby (a)
consent to Akorn’s incurrence of $5,000,000 of Debt pursuant to the Subordinated Note, and (b)
consent to such Debt being treated as Subordinated Debt in accordance with clause (d) of the
definition thereof; provided, that the foregoing clauses (a) and (b) are expressly
conditioned upon the satisfaction of the conditions to effectiveness set forth in Section 4 hereof.

     2. Representations and Warranties. To induce the Administrative Agent and the Lenders to
execute this Consent, each Company jointly and severally represents and warrants to the
Administrative Agent and the Lenders as follows:

     (a) Each Company is in good standing under the laws of its jurisdiction of formation and in each
jurisdiction where, because of the nature of its activities or properties, such qualification is
required, except for such jurisdictions where the failure to so qualify would not have a Material
Adverse Effect.

     (b) Each Company is duly authorized to execute and deliver this Consent and is duly authorized to
perform its obligations hereunder.

 

CHI: 2118136.4

 

     (c) The execution,
delivery and performance by the Companies of this Consent and the Companies’
entering into the Transaction do not and will not (i) require any consent or approval of any
governmental agency or authority (other than any consent or approval which has been obtained and is
in full force and effect), (ii) conflict with (A) any provision of law, (B) the charter, by-laws or
other organizational documents of any Company or (C) any agreement, indenture, instrument or other
document, or any judgment, order or decree, which is binding upon any Company or any of its
properties or (iii) require, or result in, the creation or imposition of any Lien on any asset of
any Company.

     (d) This Consent is the legal, valid and binding obligation of each Company, enforceable against such
Company in accordance with its terms, subject to bankruptcy, insolvency and similar laws affecting
enforceability of creditors’ rights generally and to general principals of equity.

     (e) The representations and warranties in the Loan Documents (including but not limited to Section 9 of
the Credit Agreement) are true and correct in all material respects with the same effect as though
made on and as of the date of this Consent (except to the extent stated to relate to a specific
earlier date, in which case such representations and warranties were true and correct as of such
earlier date).

     (f) Akorn owns good and marketable title to the real property that was subject to the Decatur Mortgage
Documents free and clear of all Liens, charges and claims.

     (g) No Event of Default or Unmatured Event of Default has occurred and is continuing.

     3. Covenant. Each Company covenants that within 75 days following the date of this Consent,
it shall deliver to the Administrative Agent an executed mortgage, in form and substance
satisfactory to the Administrative Agent, with respect to Akorn’s facility located in Decatur,
Illinois, together with title commitments, surveys, appraisals, opinions, environmental reports and
any other related documents requested by the Administrative Agent.

     4. Conditions to Effectiveness. The effectiveness of this Consent is expressly conditioned
upon delivering to the Administrative Agent all of the following in form and substance acceptable
to the Administrative Agent: (a) this Consent executed by each Company, the Administrative Agent
and the Required Lenders; (b) an executed copy of the Subordinated Note certified by the secretary
of Akorn as true, accurate and complete; (c) an executed copy of the Subordination and
Intercreditor Agreement in form attached hereto as Exhibit B by the Companies, the
Administrative Agent and the Subordinated Creditor and (d) a certificate of the Secretary or
Assistant Secretary of each Company evidencing that all corporate proceedings required to authorize
the Transaction and the execution and delivery of this Consent, the Subordination Agreement and all
other documents relating hereto and thereto on behalf of each Company have been duly taken and
setting forth the names, offices and specimen signatures of the officers of each Company who are
authorized to execute this Consent and such other

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CHI: 2118136.4

 

documents on behalf of each Company. The date on
which such events have occurred is the “Effective Date”.

     5. Affirmation. The execution, delivery and effectiveness of this Consent shall not operate
as a waiver or forbearance of any Unmatured Event of Default or Event of Default or any right,
power or remedy of the Administrative Agent or any Lender under the Credit Agreement or any of the
other Loan Documents, or constitute a consent, waiver or modification with respect to any provision
of the Credit Agreement or any of the other Loan Documents, and each Company hereby fully ratifies
and affirms each Loan Document to which it is a party. Reference in any of this Consent, the
Credit Agreement or any other Loan Document to the Credit Agreement shall be a reference to the
Credit Agreement as modified hereby and as further amended, modified, restated, supplemented or
extended from time to time. This Consent shall constitute a Loan Document for purposes of the Credit Agreement and the other Loan
Documents.

     6. Counterparts. This Consent may be executed in two or more counterparts, each of which
shall constitute an original, but all of which when taken together shall constitute one instrument.
Delivery of an executed counterpart of this Consent by facsimile shall be effective as delivery of
an original counterpart.

     7. Headings. The headings and captions of this Consent are for the purposes of reference only
and shall not affect the construction of, or be taken into consideration in interpreting, this
Consent.

     8. Further Assurances. Each Company agrees to execute and deliver, or cause to be executed
and delivered, in form and substance satisfactory to the Administrative Agent and the Lenders, such
further documents, instruments, amendments and financing statements and to take such further
action, as may be necessary from time to time to perfect and maintain the liens and security
interests created by the Loan Documents.

     9. APPLICABLE LAW. THIS CONSENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO ILLINOIS CHOICE OF LAW DOCTRINE.

     10. Acknowledgment. Each Company hereby waives, discharges and forever releases the
Administrative Agent and each of the Lenders, and each of said Person’s employees, officers,
directors, attorneys, stockholders and successors and assigns, from and of any and all claims,
causes of action, allegations or assertions that either Company has or may have had at any time
through (and including) the date of this Consent, against any or all of the foregoing, regardless
of whether any such claims, causes of action, allegations or assertions are known to either Company
or whether any such claims, causes of action, allegations or assertions arose as a result of the
Administrative Agent’s or any Lender’s actions or omissions in connection with the Credit
Agreement, including any amendments or modifications thereto, or otherwise.

[signature pages follow]

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CHI: 2118136.4

 

     IN WITNESS WHEREOF, this Consent has been duly executed and delivered as of the day and year
first above written.

	 	 	 	 	 	 	 
	 	 	AKORN, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Arthur Przybyl
	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:
	 	President and CEO	 	 
	 
	 	 	 	 	 	 
	 	 	AKORN (NEW JERSEY), INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Arthur Przybyl	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:
	 	President and CEO	 	 
	 
	 	 	 	 	 	 
	 	 	LASALLE BANK NATIONAL ASSOCIATION,	 	 
	 	 	as Administrative Agent and Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Patrick J. O’Toole	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:
	 	Senior Vice President	 	 

 

CHI: 2118136.4exv4w1

Exhibit 4.1

CREDIT AGREEMENT

     THIS CREDIT AGREEMENT, dated as of July 30, 2008, is by and between OTTER TAIL CORPORATION,
dba OTTER TAIL POWER COMPANY, a Minnesota corporation (the “Borrower”), the banks or financial
institutions listed on the signature pages hereof or which hereafter become parties hereto by means
of assignment and assumption as hereinafter described (individually referred to as a “Bank” or
collectively as the “Banks”), BANK OF AMERICA, N.A., as Syndication Agent, and U.S. BANK NATIONAL
ASSOCIATION, a national banking association, as agent for the Banks (in such capacity, the
“Agent”).

ARTICLE I DEFINITIONS AND ACCOUNTING TERMS

     Section 1.1 Defined Terms. In addition to the terms defined elsewhere in this
Agreement, the following terms shall have the following respective meanings (and such meanings
shall be equally applicable to both the singular and plural form of the terms defined, as the
context may require):

     “Advance” means the portion of the outstanding Revolving Loans by the Banks as to
which one of the available interest rate options and, if pertinent, an Interest Period, is
applicable. An Advance may be a “LIBOR Advance” or a “Base Rate Advance” (each, a “type” of
Advance).

     “Adverse Event” means the occurrence of any event that could have a material adverse
effect on the business, operations, property, assets or condition (financial or otherwise) of the
Borrower and the Subsidiaries as a consolidated enterprise or on the ability of the Borrower to
perform its obligations under the Loan Documents.

     “Agent” means U.S. Bank National Association, as agent for the Banks hereunder and
each successor, as provided in Section 11.8, who shall act as Agent.

     “Agent’s Fee Letter” means the letter agreement, dated as of the date hereof (as
hereafter amended from time to time) between the Borrower and the Agent respecting certain fees
payable to the Agent for its own account.

     “Agreement” means this Credit Agreement, as it may be amended, modified, supplemented,
restated or replaced from time to time.

     “Applicable Facility Fee Rate; Applicable Margin” means the percentages set forth
below, determined based on the applicable Level:

 

 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Applicable Margin	 	Applicable
	 	 	LIBOR	 	Base Rate	 	Facility
	Level:	 	Advances	 	Advances	 	Fee Rate
	Level I:
	 	 	0.325	%	 	 	0.000	%	 	 	0.050	%
	Level II:
	 	 	0.400	%	 	 	0.000	%	 	 	0.075	%
	Level III:
	 	 	0.500	%	 	 	0.000	%	 	 	0.100	%
	Level IV
	 	 	0.625	%	 	 	0.000	%	 	 	0.125	%
	Level V
	 	 	0.750	%	 	 	0.000	%	 	 	0.150	%
	Level VI
	 	 	1.000	%	 	 	0.000	%	 	 	0.200	%

The Applicable Facility Fee Rate and Applicable Margin shall be those shown for Level II as of
the date of this Agreement. The Applicable Facility Fee Rate and Applicable Margin shall be
adjusted ten (10) Business Days after any change in ratings that would require such adjustment.
For purposes of the foregoing, the Levels shall be defined and determined as follows:

Level I shall apply if the Borrower’s Long Term Debt Rating is A or better (S&P)
or A2 or better (Moody’s) but no numerically lower Level applies.

Level II shall apply if the Borrower’s Long Term Debt Rating is A- or better (S&P)
or A3 or better (Moody’s) but no numerically lower Level applies.

Level III shall apply if the Borrower’s Long Term Debt Rating is BBB+ (S&P) or
Baa1 (Moody’s) but no numerically lower Level applies.

Level IV shall apply if the Borrower’s Long Term Debt Rating is BBB (S&P) or Baa2
(Moody’s) but no numerically lower Level applies.

Level V shall apply if the Borrower’s Long Term Debt Rating is BBB- (S&P) or Baa3
(Moody’s) but no numerically lower Level applies.

Level VI shall apply if the Borrower’s Long Term Debt Rating is below BBB- (S&P)
or Baa3 (Moody’s).

In the event of a split rating (i.e., Long Term Debt Ratings by S&P and Moody’s that would not be
in the same Level), the Level shall be based on the higher Long Term Debt Rating unless the
ratings are more than one Level apart, in which case the Level would be based on the Long Term
Debt Rating one Level lower than the higher of the two Long Term Debt Ratings.

      “Assumed Liabilities” is defined in Section 12.1.

2

 

     “Base Rate” means, for any day, a fluctuating rate per annum as determined by the
Agent to equal the greater of (i) the Prime Rate in effect on such day, or (ii) a rate per annum
equal to the Federal Funds Effective Rate in effect on such day plus 0.50% per annum. If the Agent
shall have determined (which determination shall be conclusive in the absence of manifest error)
that it is unable to ascertain the Federal Funds Effective Rate for any reason (including, without
limitation, the inability or failure of the Agent to obtain sufficient bids or publications in
accordance with the terms hereof), the Base Rate shall be a fluctuating rate per annum equal to the
Prime Rate in effect from time to time per annum until the circumstances giving rise to such
inability no longer exist.

     “Base Rate Advance” means an Advance designated as such in a notice of borrowing under
Section 2.3 or a notice of continuation or conversion under Section 2.4.

     “Business Day” means any day (other than a Saturday, Sunday or legal holiday in the
State of Minnesota) on which national banks are permitted to be open in Minneapolis, Minnesota and
New York, New York and, with respect to LIBOR Advances, a day on which dealings in Dollars may be
carried on by the Agent in the interbank LIBOR market.

     “Capitalized Lease” means any lease which is or should be capitalized on the books of
the lessee in accordance with GAAP.

     “Code” means the Internal Revenue Code of 1986, as amended, or any successor statute,
together with regulations thereunder.

     “Commitment” means the maximum unpaid principal amount of the Loans and participations
in Letters of Credit of all Banks which may from time to time be outstanding hereunder, being
initially $170,000,000, as the same may be increased from time to time pursuant to Section
2.9 or reduced from time to time pursuant to Section 4.3, or, if so indicated, the
maximum unpaid principal amount of Loans and participations in Letters of Credit of any Bank (which
amounts are set forth on Schedule 1.1(a) hereto or in the relevant Assignment and
Assumption Agreement for such Bank) and, as the context may require, the agreement of each Bank to
make Loans to the Borrower and to participate in the Letters of Credit subject to the terms and
conditions of this Agreement up to its Commitment.

     “Compliance Certificate” means a certificate in the form of Exhibit B, duly
completed and signed by an authorized officer of the Borrower.

     “Default” means any event which, with the giving of notice to the Borrower or lapse of
time, or both, would constitute an Event of Default.

     “EBIT” means, for any period of determination, the consolidated net income of the
Borrower and its Subsidiaries before provision for income taxes, plus, to the extent
subtracted in determining consolidated net income, Interest Expense, all as determined in accordance with GAAP,
excluding (to the extent included): (a) non-operating gains (including, without limitation,

3

 

extraordinary or nonrecurring gains, gains from discontinuance of operations and gains arising from
the sale of assets other than inventory) during the applicable period; (b) similar non-operating
losses during such period, and (c) payments of any premiums and any other costs, fees and expenses
required to be paid by the terms thereof in connection with the repayment or redemption of
Interest-bearing Debt existing as of the date of this Agreement and of preferred stock existing as
of the date of this Agreement.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any
successor statute, together with regulations thereunder.

     “ERISA Affiliate” means any trade or business (whether or not incorporated) that is a
member of a group of which the Borrower is a member and which is treated as a single employer under
Section 414 of the Code.

     “Event of Default” means any event described in Section 10.1.

     “Federal Funds Effective Rate” means, for any day, an interest rate per annum equal to
the weighted average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day,
the average of the quotations for such day on such transactions received by the Agent from three
Federal funds brokers of recognized standing selected by it. In the case of a day which is not a
Business Day, the Federal Funds Effective Rate for such day shall be the Federal Funds Effective
Rate for the preceding Business Day. Each change in the Base Rate due to a change in the Federal
Funds Effective Rate shall take effect on the effective date of such change in the Federal Funds
Effective Rate.

     “Facility Fees” shall have the meaning set forth in Section 3.3.

     “Federal Reserve Board” means the Board of Governors of the Federal Reserve System or
an successor thereto.

     “GAAP” means generally accepted accounting principles as applied in the preparation of
the audited consolidated financial statements of the Borrower referred to in Section 7.5.

     “Indebtedness” means, without duplication, all Interest-bearing Debt and all other
obligations, contingent or otherwise, which in accordance with GAAP should be classified upon the
obligor’s balance sheet as liabilities. For all purposes of this Agreement, the Indebtedness of
any Person shall include the Indebtedness of any partnership or joint venture in which such Person
is a general partner or a joint venturer. 
     “Interest and Dividend Coverage Ratio” means the ratio, calculated for each period of
four consecutive fiscal quarters of the Borrower, of: (a) EBIT for such period; to (b) the
sum for such period of (i) Interest Expense, plus (ii) dividends or interest on Preferred
Stock.

4

 

     “Interest-bearing Debt” means, without duplication, all obligations of the Borrower or
a Subsidiary on a consolidated basis: (a) in respect of borrowed money; (b) secured by a mortgage,
pledge, security interest, lien or charge on the assets of the Borrower or a Subsidiary, whether
the obligation secured is the obligation of the owner or another Person (provided that non-recourse
obligations will only be taken into account up to the fair market value of the related property);
(c) for the deferred purchase price of any property or services evidenced by a note, payment
contract (other than an account payable arising in the ordinary course of business) or other
instrument, (d) as lessee under any Capitalized Lease; (e) all guaranties and contingent or other
legal obligations in respect to Interest-bearing Debt of other Persons, excluding ordinary course
endorsements; (f) net liabilities under any interest rate swap, collar or other interest rate
hedging agreement; (g) undertakings or agreements to reimburse or indemnify issuers of letters of
credit other than commercial letters of credit; (h) off-balance sheet liabilities, including
synthetic leases, but excluding operating leases as defined by GAAP; and (i) indebtedness
attributable to Permitted Securitization Transactions (whether or not such transactions include
recourse to the Borrower or a Subsidiary).

     “Interest Expense” means, for any period of determination, the aggregate consolidated
amount, without duplication, of interest paid, accrued or scheduled to be paid in respect of any
Indebtedness of the Borrower and its Subsidiaries, including in all cases interest expense
determined in accordance with GAAP and, to the extent not otherwise included in GAAP interest
expense: (a) all but the principal component of payments in respect of conditional sale contracts,
Capitalized Leases and other title retention agreements; (b) commissions, discounts and other fees
and charges with respect to letters of credit and bankers’ acceptance financings; (c) net costs
under any interest rate swap, collar or other interest rate hedging agreements, in each case
determined in accordance with GAAP; (d) amounts calculated in respect of synthetic leases as if
such leases were Capitalized Leases, and (e) discount or other yield attributable Permitted
Securitization Transactions.

     “Interest Period” means, for any LIBOR Advance, the period commencing on the borrowing
date of such LIBOR Advance or the date a Base Rate Advance is converted into such LIBOR Advance, or
the last day of the preceding Interest Period for such LIBOR Advance, as the case may be, and
ending on the numerically corresponding day one, two, three or six months thereafter, as selected
by the Borrower pursuant to Section 2.3 or Section 2.4; provided, that:

(a) any Interest Period which would otherwise end on a day which is not a Business Day shall
end on the next succeeding Business Day unless such next succeeding Business Day falls in
another calendar month, in which case such Interest Period shall end on the next preceding
Business Day;

(b) any Interest Period which begins on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last Business Day of the calendar month at the end of
such Interest Period; and

(c) no Interest Period shall extend beyond the Termination Date.

5

 

     “Investment” means the acquisition, purchase, making or holding of any stock or other
security, any loan, advance, contribution to capital, extension of credit (except for trade and
customer accounts receivable for inventory sold or services rendered in the ordinary course of
business and payable in accordance with customary trade terms), any acquisitions of real or
personal property (other than real and personal property acquired in the ordinary course of
business) and any purchase or commitment or option to purchase stock or other debt or equity
securities of or any interest in another Person or any integral part of any business or the assets
comprising such business or part thereof.

     “Letters of Credit” shall have the meaning set forth in Section 2.8.

     “Letter of Credit Agreements” shall have the meaning set forth in Section 2.8.

     “Letter of Credit Obligations” shall mean the aggregate amount of all possible
drawings under all Letters of Credit plus all amounts drawn under any Letter of Credit and not
reimbursed by the Borrower under the applicable Letter of Credit Agreement.

     “LIBOR Advance” means an Advance designated as such in a notice of borrowing under
Section 2.3 or a notice of continuation or conversion under Section 2.4.

     “LIBOR Interbank Rate” means the offered rate for deposits in United States Dollars
for delivery of such deposits on the first day of an Interest Period of a LIBOR Advance, for the
number of days comprised therein, quoted by the Agent from Reuters Screen LIBOR01 page or any
successor thereto as of approximately 11:00 a.m., London time, on the day that is two Banking Days
preceding the first day of the Interest Period of such LIBOR Advance, or the rate for such deposits
determined by the Agent at such time based on such other published service of general application
as shall be selected by the Agent for such purpose; provided, that if the LIBOR Interbank
Rate is not determinable in the foregoing manner, the Agent may determine the rate based on rates
offered to the Agent for deposits in United States Dollars in the interbank eurodollar market at
such time for delivery on the first day of the Interest Period for the number of days comprised
therein.

     “LIBOR Rate (Reserve Adjusted)” means a rate per annum calculated for the Interest
Period of a LIBOR Advance in accordance with the following formula:

	 	 	 	 	 
	LRRA

	 	=
	LIBOR Interbank Rate	 
	 
	 	 	 	 
	 
	 	 	1.00 – LRR	 

In such formula, “LRR” means “LIBOR Reserve Rate” and “LRRA” means “LIBOR Rate (Reserve Adjusted)”,
in each instance determined by the Agent for the applicable Interest Period. The Agent’s
determination of all such rates for any Interest Period shall be conclusive in the absence of
manifest error.

     “LIBOR Rate (Reserve Adjusted) Daily Floating” means the LIBOR Rate (Reserve Adjusted)
determined by the Agent on each Business Day based on Interest Periods of one

6

 

month reported on
such Business Day (without taking into account the two-day future delivery convention applicable to
such reports), which rate shall remain in effect until the next following Business Day.

     “LIBOR Reserve Rate” means a percentage equal to the daily average during such
Interest Period of the aggregate maximum reserve requirements (including all basic, supplemental,
marginal and other reserves), as specified under Regulation D of the Federal Reserve Board, or any
other applicable regulation that prescribes reserve requirements applicable to Eurocurrency
liabilities (as presently defined in Regulation D) or applicable to extensions of credit by the
Agent the rate of interest on which is determined with regard to rates applicable to Eurocurrency
liabilities. Without limiting the generality of the foregoing, the LIBOR Reserve Rate shall
reflect any reserves required to be maintained by the Agent against (i) any category of liabilities
that includes deposits by reference to which the LIBOR Interbank Rate is to be determined, or (ii)
any category of extensions of credit or other assets that includes LIBOR Advances.

     “Lien” means any security interest, mortgage, pledge, lien, hypothecation, judgment
lien or similar legal process, charge, encumbrance, title retention agreement or analogous
instrument or device (including, without limitation, the interest of the lessors under Capitalized
Leases and the interest of a vendor under any conditional sale or other title retention agreement).

     “Loans” means the Revolving Loans and the Swing Line Loans.

     “Loan Documents” means this Agreement, the Notes, each Letter of Credit Agreement,
each document and agreement delivered under Section 12.3(e), and each other instrument,
document, guaranty, security agreement, mortgage, or other agreement executed and delivered by the
Borrower or any guarantor or party granting security interests in connection with this Agreement,
the Loans or any collateral for the Loans.

     “Long Term Debt Rating” means the rating assigned by S&P and Moody’s to the long
term, unsecured and unsubordinated indebtedness of the Borrower.

     “Material Subsidiary” means (a) the Subsidiaries listed on Schedule 1.1(b)
hereto, and (b) any Subsidiary acquired or formed after the date of this Agreement if at the time
of such acquisition or formation or at any time thereafter either (i) the consolidated assets of
such Subsidiary and its Subsidiaries shall exceed 5.00% of the consolidated assets of the Borrower
and its Subsidiaries, or (ii) the consolidated gross revenues of such Subsidiary and its
Subsidiaries shall exceed 5.00% of
the consolidated gross revenues of the Borrower and its Subsidiaries. Such assets and gross
revenues shall be determined on a pro forma basis at the time of such acquisition or formation, and
shall be determined thereafter at the request of the Agent, but not less than one time per fiscal
year of the Borrower thereafter.

     “Merger Sub” is defined in Section 12.1.

     “Moody’s” means Moody’s Investors Service, Inc.

7

 

     “New OTC” is defined in Section 12.1.

     “Non-Power Company Assets” means all tangible and intangible assets of the Borrower
except for the Power Company Assets, and shall expressly include (a) stock of Varistar Corporation,
and (b) all notes payable by Varistar Corporation or any Subsidiary of Varistar Corporation to the
Borrower.

     “Notes” means the Revolving Notes and the Swing Line Note.

     “Payment Date” means the Termination Date, plus (a) the last day of each Interest
Period for each LIBOR Advance and, if such Interest Period is in excess of three months after the
first day of such Interest Period, and thereafter each day three months after each succeeding
Payment Date; (b) the last day of each month for any Swing Line Loan, and (c) the last day of each
March, June, September and December of each year for each Base Rate Advance and for any fees
including, without limitation, Utilization Fees, Facility Fees and the Letter of Credit commissions
payable under Section 2.8(c)(vi).

     “PBGC” means the Pension Benefit Guaranty Corporation, established pursuant to
Subtitle A of Title IV of ERISA, and any successor thereto or to the functions thereof.

     “Percentage” means, as to any Bank, the proportion, expressed as a percentage, that
such Bank’s Commitment bears to the total Commitments of all Banks. The Percentages of the Banks
as of the date of this Agreement are set forth on Schedule 1.1(a).

     “Permitted Divestitures” means sales of stock or assets, transfers of stock or assets,
mergers resulting in divestiture of stock or assets or other divestitures of assets of the Borrower
and Subsidiaries, which, in the aggregate for all such transactions during any one fiscal year of
the Borrower, shall not result in the sale, transfer or other divestiture of stock or assets having
a value in excess of 10% of the consolidated assets of the Borrower and its Subsidiaries as of the
beginning of such fiscal year.

     “Permitted Investments” means the following:

(a) Investments outstanding on the date hereof in Subsidiaries by the Borrower and other
Subsidiaries;

(b) additional Investments by the Borrower or any Subsidiary consisting of loans to or
equity investments in any Subsidiary;

(c) Investments consisting of purchase by the Borrower or any Subsidiary of the equity
interest in any Person that will be a Subsidiary upon completion of such Investment,
provided, that the amount of such Investment in any one Person shall not exceed
$20,000,000 (including the amount of any Indebtedness of such Person that remains
Indebtedness of such Person or is assumed by the Borrower or a Subsidiary);

8

 

(d) Investments by the Borrower or any Subsidiary in a Person that conducts only a
Regulated Business which Person will be a Subsidiary upon completion of such Investment;

(e) Investments made as part of the Permitted Reorganization.

     “Permitted Reorganization” means the transactions described in Article XII
hereof, which transactions shall be deemed the Permitted Reorganization only when completed in
accordance with all of the requirements of Article XII and upon satisfaction of all of the
conditions provided therein.

     “Permitted Securitization Transactions” means sales of accounts receivable and other
securitization transactions in nominal principal amounts not to exceed (a) $50,000,000 for Varistar
Corporation and its Subsidiaries, and (b) $50,000,000 for the Borrower and Subsidiaries other than
Varistar Corporation and its Subsidiaries; provided, that such transactions shall include
only recourse to the Borrower or a Subsidiary (i) under customary representations and warranties
not constituting credit support for the assets sold, and (ii) 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 Expense, shall each be determined on a reasonable basis by the Borrower as if each such
transaction were a financing transaction and not a sale.

     “Person” means any natural person, corporation, limited liability company,
partnership, joint venture, firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision or any other entity, whether acting in an individual,
fiduciary or other capacity.

     “Plan” means an employee benefit plan or other plan, maintained for employees of the
Borrower or of any ERISA Affiliate, and subject to Title IV of ERISA or Section 412 of the Code.

     “Power Company” is defined in Section 12.1.

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

     “Preferred Stock” means stock of the Borrower other than common stock.

     “Prime Rate” means the rate of interest from time to time announced by the Agent as
its “prime rate.” For purposes of determining any interest rate which is based on the Prime Rate,
such interest rate shall be adjusted each time that the prime rate changes.

     “Regulated Business” means a line of business consisting of generation and
transmission of electricity, regulated by the Minnesota Public Utilities Commission or an
equivalent state or federal regulatory agency in another jurisdiction.

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     “Related Party” means any Person (other than a Subsidiary): (a) which directly or
indirectly through one or more intermediaries controls, or is controlled by, or is under common
control with, the Borrower, (b) which beneficially owns or holds 5% or more of the equity interest
of the Borrower; or (c) 5% or more of the equity interest of which is beneficially owned or held by
the Borrower or a Subsidiary. The term “control” means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.

     “Release Notice” is defined in Section 12.2.

     “Released Obligations” is defined in Section 12.2.

     “Reportable Event” means a reportable event as defined in Section 4043 of ERISA and
the regulations issued under such Section, with respect to a Plan, excluding, however, such events
as to which the PBGC by regulation has waived the requirement of Section 4043(a) of ERISA that it
be notified within 30 days of the occurrence of such event, provided that a failure to meet the
minimum funding standard of Section 412 of the Code and Section 302 of ERISA shall be a reportable
event regardless of the issuance of any such waivers in accordance with Section 412(d) of the Code.

     “Required Banks” means those Banks whose total Percentage exceeds 50.00%, or if no
Commitments remain in effect, whose share of principal of the Loans exceeds 50.00% of the aggregate
outstanding principal of all Loans; provided, that if there shall be at least 5 Banks,
Required Banks shall mean at least 3 Banks which 3 Banks’ total Percentage exceeds 50.00%, or if no
Commitments remain in effect, whose share of principal of the Loans exceeds 50.00% of the aggregate
outstanding principal of all Loans.

     “Restricted Payments” means any expenditure by the Borrower or any Subsidiary for
purchase, redemption or other acquisition for value of any shares of the Borrower’s or any
Subsidiary’s stock, payment of any dividend thereon (other than stock dividends and dividends
payable solely by a Subsidiary to another Subsidiary or by a Subsidiary to the Borrower), any
distribution on, or payment on account of the purchase, redemption, defeasance or other acquisition
or retirement for value of, any shares of the Borrower’s or any Subsidiary’s stock, or the setting
aside of any funds for any such purpose (other than payment to, or on account of or for the benefit
of, the Borrower only). Consummation of the Permitted Reorganization in accordance with the terms
and conditions set forth in Article XII hereof shall not be deemed to constitute a
Restricted Payment.

     “Revolving Loans” means the Loans described in Section 2.1(a).

     “Revolving Note” means the promissory note of the Borrower described in Section
2.5(a), substantially in the form of Exhibit A-1, as such promissory note may be
amended, modified or supplemented from time to time, and such term shall include any substitutions
for, or renewals of, such promissory note.

     “S&P” means Standard & Poor’s Ratings Group.

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     “Senior Indebtedness Agreement” means any agreement under which the Borrower issues
notes or incurs obligations for Interest-bearing Debt, which notes and Interest-bearing Debt are
senior obligations of the Borrower, pari passu with the Loans and Notes, and shall include (a) the
Note Purchase Agreement, dated as of December 1, 2001, as thereafter amended, between the Borrower
and the Noteholders named therein pertaining to the $90,000,000, 6.63% Senior Notes of the Borrower
due December 1, 2011, (b) the Note Purchase Agreement, dated as of February 23, 2007, as thereafter
amended, between the Borrower and the Noteholders named therein pertaining to the $50,000,000,
5.778% Senior Notes of the Borrower due November 30, 2017, and (c) the Note Purchase Agreement,
dated as of August 20, 2007, as thereafter amended, between the Borrower and the Noteholders named
therein pertaining to (i) the $33,000,000, 5.95% Senior Unsecured Notes, Series A, due 2017, (ii)
the $30,000,000, 6.15% Senior unsecured Notes, Series B, due 2022, (iii) the $42,000,000, 6.37%
Senior Unsecured notes, Series C, due 2027, and (iv) the $50,000,000, 6.47% Senior Unsecured Notes,
Series D, due 2037.

     “Senior Indebtedness Prepayment Event” means the (a) occurrence of any event under any
Senior Indebtedness Agreement that would require the Borrower to prepay, or offer to prepay, any
Senior Indebtedness prior to its stated maturity, (b) occurrence of any event under any Senior
Indebtedness Agreement that would give the holder of Senior Indebtedness any right to put such
Senior Indebtedness to the Borrower or require the Borrower to repurchase or redeem such Senior
Indebtedness in each case prior to its stated maturity, or (c) voluntary offer by the Borrower to
prepay or purchase Senior Indebtedness prior to its stated maturity to remain in compliance with
any covenant or agreement of a Senior Indebtedness Agreement, but not any other voluntary offer by
the Borrower to prepay or purchase Senior Indebtedness prior to its stated maturity. Senior
Indebtedness Prepayment Events shall include, without limitation, any Transfer of Utility Assets
Put Event or Debt Prepayment Application, as defined in the Senior Indebtedness Agreements (or any
Senior Indebtedness Agreement).

     “Subsidiary” means any Person of which or in which the Borrower and its other
Subsidiaries own directly or indirectly 50% or more of: (a) the combined voting power of all
classes of stock having general voting power under ordinary circumstances to elect a majority of
the board of directors of such Person, if it is a corporation, (b) the capital interest or profit
interest of such Person, if it is a partnership, joint venture or similar entity, or (c) the
beneficial interest of such Person, if it is a trust, association or other unincorporated
organization.

     “Swing Line Commitment” means the maximum unpaid principal amount of the Swing Line
Loans which may from time to time be outstanding hereunder, being initially $20,000,000, and, as
the context may require, the agreement of the Swing Line Bank to make the Swing Line Loans to the
Borrower subject to the terms and conditions of this Agreement.

     “Swing Line Bank” means U.S. Bank.

     “Swing Line Loans” means the Loans described in Section 2.1(b).

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     “Swing Line Note” means the promissory note of the Borrower described in Section
2.5(b), substantially in the form of Exhibit A-2, as such promissory note may be
amended, modified or supplemented from time to time, and such term shall include any substitutions
for, or renewals of, such promissory note.

     “Swing Line Participation Amount” is defined in Section 2.7(b).

     “Termination Date” means the earliest of (a) July 30, 2011, (b) the date on which the
Commitments are terminated pursuant to Section 10.2 hereof or (c) the date on which the
Commitments are reduced to zero pursuant to Section 4.3 hereof.

     “Total Capitalization” means as of any date of determination, the sum of (a) the
amounts set forth on the consolidated balance sheet of the Borrower as the sum of the common
stocks, preferred stock, additional paid-in capital and retained earnings of the Borrower
(excluding treasury stock); plus (b) the principal amount of Interest-bearing Debt of the
Borrower and the Subsidiaries.

     “Total Utilization” means the sum, at any time of (a) the outstanding principal amount
of the Loans, plus (b) outstanding Letter of Credit Obligations.

     “Unrefunded Swing Line Loans” is defined in Section 2.7(b).

     “U.S. Bank” means U.S. Bank National Association, in its individual capacity and not
as Agent hereunder.

     “Utilization Fees” is defined in Section 3.2.

     Section 1.2 Accounting Terms and Calculations. Except as may be expressly provided
to the contrary herein, all accounting terms used herein shall be interpreted and all accounting
determinations hereunder (including, without limitation, determination of compliance with financial
ratios and restrictions in Articles VIII and IX hereof) shall be made in accordance
with GAAP consistently applied. Any reference to “consolidated” financial terms shall be deemed to
refer to those financial terms as applied to the Borrower and its Subsidiaries in accordance with
GAAP.

     Section 1.3 Computation of Time Periods. In this Agreement, in the computation of a
period of time from a specified date to a later specified date, unless otherwise stated the word
“from” means “from and including” and the word “to” or “until” each means “to but excluding.”

     Section 1.4 Other Definitional Terms. The words “hereof”, “herein” and “hereunder”
and words of similar import when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement. References to Sections, Exhibits, schedules
and like references are to this Agreement unless otherwise expressly provided.

 ARTICLE II TERMS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT

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     Section 2.1 The Commitments. Subject to the terms and conditions hereof and in
reliance upon the warranties of the Borrower herein:

(a) each Bank agrees, severally and not jointly, to make loans (each, a “Revolving Loan”
and, collectively, the “Revolving Loans”) to the Borrower from time to time from the date
hereof until the Termination Date, during which period the Borrower may repay and reborrow
in accordance with the provisions hereof, provided, that the aggregate unpaid
principal amount of any Bank’s Revolving Loans, its Percentage of Letter of Credit
Obligations and its Percentage of Swing Line Loans shall not exceed such Bank’s Commitment
and provided, further, that the total of all outstanding Revolving Loans,
Letter of Credit Obligations and Swing Line Loans shall not exceed the aggregate Commitments
of all Banks at any time. The Revolving Loans shall be made by the Banks on a pro rata
basis, calculated for each Bank based on its Percentage.

(b) the Swing Line Bank agrees to make loans (each a “Swing Line Loan” and, collectively,
the “Swing Line Loans”) to the Borrower from time to time from the date hereof until the
Termination Date, during which period the Borrower may repay and reborrow in accordance with
the provisions hereof, provided, that the aggregate unpaid principal amount of the Swing
Line Loans at any one time outstanding shall not exceed the Swing Line Commitment.

     Section 2.2 Advance Options. The Revolving Loans shall be constituted of LIBOR
Advances and/or Base Rate Advances, as shall be selected by the Borrower, except as otherwise
provided herein. Any combination of types of Advances may be outstanding at the same time, except
that the total number of outstanding LIBOR Advances shall not exceed eight (8) at any one time.
Each LIBOR Advance shall be in a minimum amount of $500,000. Each Base Rate Advance shall be in a
minimum amount of $100,000. Swing Line Loans may be in any amount requested by the Borrower.

     Section 2.3 Borrowing Procedures.

(a) Request by Borrower. Any request by the Borrower for a Loan shall be in
writing, or by telephone promptly confirmed in writing, and must be given so as to be
received by the Agent not later than:

(i) 1:00 p.m., Minneapolis time, one Business Day prior to the date of the requested
Loan, if the Loan shall be comprised of Base Rate Advances; or

(ii) 12:00 noon, Minneapolis time, three Business Days prior to the date of the
requested Revolving Loan, if the Revolving Loan shall be, or shall include, a LIBOR
Advance.

Each request for a Loan shall specify (1) the borrowing date (which shall be a Business
Day), (2) the amount of such Loan and the type or types of Advances comprising such Loan,
and (3) if such Loan shall include LIBOR Advances, the initial Interest Periods for

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such
Advances. The Swing Line Bank and the Borrower shall, from time to time, enter into
mutually acceptable arrangements for notices of funding, funding and repayment of the Swing
Line Loans.

(b) Funding of Agent. The Agent shall promptly notify each other Bank of the
receipt of such request, the matters specified therein, and of such Bank’s Percentage of the
requested Revolving Loans. On the date of the requested Revolving Loans, each Bank shall
provide its share of the requested Revolving Loans to the Agent in immediately available
funds not later than 11:00 a.m., Minneapolis time. On the date of any requested Swing Line
Loans, the Swing Line Bank shall provide the requested Swing Line Loan to the Agent in
immediately available funds not later than 4:00 p.m., Minneapolis time. Unless the Agent
determines that any applicable condition specified in Article VI has not been
satisfied, the Agent will make the requested Loans available to the Borrower at the Agent’s
principal office in Minneapolis, Minnesota in immediately available funds not later than
5:00 p.m. (Minneapolis time) on the lending date so requested. If the Agent has made a
Revolving Loan to the Borrower on behalf of a Bank but has not received the amount of such
Revolving Loan from such Bank by the time herein required, such Bank shall pay interest to
the Agent on the amount so advanced at the overnight Federal Funds rate from the date of
such Revolving Loan to the date funds are received by the Agent from such Bank, such
interest to be payable with such remittance from such Bank of the principal amount of such
Revolving Loan (provided, however, that the Agent shall not make any Revolving Loan on
behalf of a Bank if the Agent has received prior notice from such Bank that it will not make
such Revolving Loan). If the Agent does not receive payment from such Bank by the next
Business Day after the date of any Revolving Loan, the Agent shall be entitled to recover
such Revolving Loan, with interest thereon at the rate then applicable to the such Revolving
Loan, on demand, from the Borrower, without prejudice to the Agent’s and the Borrower’s
rights against such Bank. If such Bank pays
the Agent the amount herein required with interest at the overnight rate before the Agent
has recovered from the Borrower, such Bank shall be entitled to the interest payable by the
Borrower with respect to the Revolving Loan in question accruing from the date the Agent
made such Revolving Loan.

     2.4 Continuation or Conversion of Loans. The Borrower may elect to (i) continue any
outstanding LIBOR Advance from one Interest Period into a subsequent Interest Period to begin on
the last day of the earlier Interest Period, or (ii) convert any outstanding Advance into another
type of Advance (on the last day of an Interest Period only, in the instance of a LIBOR Advance),
by giving the Agent notice in writing, or by telephone promptly confirmed in writing, given so as
to be received by the Agent not later than:

(a) 1:00 p.m., Minneapolis time, one Business Day prior to the date of the requested
continuation or conversion, if the continuing or converted Advance shall be a Base Rate
Advance; or

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(b) 12:00 noon, Minneapolis time, three Business Days prior to the date of the requested
continuation or conversion, if the continuing or converted Advance shall be a LIBOR Advance.

Each notice of continuation or conversion of an Advance shall specify (i) the effective date of the
continuation or conversion date (which shall be a Business Day), (ii) the amount and the type or
types of Advances following such continuation or conversion (subject to the limitation on amount
set forth in Section 2.2), and (iii) for continuation as, or conversion into, LIBOR
Advances, the Interest Periods for such Advances. Absent timely notice of continuation or
conversion, following expiration of an Interest Period unless the LIBOR Advance is paid in full the
Agent may at any time thereafter convert the LIBOR Advance into a Base Rate Advance. Until such
time as such Advance is converted into a Base Rate Advance by the Agent or the Borrower or is
continued as a LIBOR Advance with a new Interest Period by notice by the Borrower as provided
above, such Advance shall continue to accrue interest at a rate equal to the interest rate
applicable during the expired Interest Period adjusted, however, to reflect changes in the
Applicable Margin. No Advance shall be continued as, or converted into, a LIBOR Advance if the
shortest Interest Period for such Advance may not transpire prior to the Termination Date or if a
Default or Event of Default shall exist.

     Section 2.5 The Notes. The Loans shall be evidenced by the following Notes:

(a) The Revolving Loans of each Bank shall be evidenced by a Revolving Note in the amount
of such Bank’s Commitment originally in effect and dated as of the date of this Agreement.
The Banks shall enter in their respective records the amount of each Revolving Loan and
Advance, the rate of interest borne by each Advance and the payments made on the Revolving
Loans, and such records shall be deemed conclusive evidence of the subject matter thereof,
absent manifest error.

(a) The Swing Line Loans shall be evidenced by the Swing Line Note in the amount of the
Swing Line Commitment. The Swing Line Bank shall enter in its records the amount of each
Swing Line Loan and the payments made on the Swing Line Loans, and such records shall be
deemed conclusive evidence of the subject matter thereof, absent manifest error.

     Section 2.6 Funding Losses. In the event of (a) any failure of the Borrower to
borrow, continue or convert a LIBOR Advance on a date specified in a notice thereof, or (b) any
payment (including, without limitation, any payment pursuant to Section 4.2, 4.3 or
10.2), prepayment or conversion of any LIBOR Advance on a date other than the last day of
the Interest Period for such Advance, the Borrower agrees to pay each Bank’s costs, expenses and
Interest Differential (as determined by such Bank) incurred as a result of such event. The term
“Interest Differential” shall mean that sum amount, not less than $0, equal to the financial loss
incurred by each Bank resulting from such event, calculated as the difference between the amount of
interest such Bank would have earned (from like investments in the Money Markets as of the first
day of the Interest Period of the relevant Advance) had such event not occurred and the interest
the Bank will actually earn (from like investments in the Money Markets as of the date of such
event) as a

15

 

result of the redeployment of funds from such event. Because of the short-term nature
of this facility, the Borrower agrees that the Interest Differential shall not be discounted to its
present value. The term “Money Markets” refers to one or more wholesale funding markets available
to the Banks, including negotiable certificates of deposit, commercial paper, LIBOR deposits, bank
notes, federal funds and others. Such determinations by each Bank of shall be conclusive in the
absence of manifest error.

     Section 2.7 Refunding of Swing Line Loans.

(a) At any time permitted hereunder, the Borrower may request the Banks to make Revolving
Loans which may be applied to repay the Swing Line Loans outstanding. Upon occurrence and
during continuance of a Default or Event of Default, the Swing Line Bank may, on behalf of
the Borrower (which hereby irrevocably directs the Swing Line Bank to act on its behalf),
upon notice given by the Swing Line Bank no later than 12:00 noon, Minneapolis time, on the
relevant refunding date, request each Bank to make, and each Bank hereby agrees to make, a
Revolving Loan (which shall be a Base Rate Advance), in an amount equal to such Bank’s
Percentage of the aggregate amount of the Swing Line Loans (the “Refunded Swing Line Loans”)
outstanding on the date of such notice, to refund such Swing Line Loans. Notwithstanding
failure by the Borrower to satisfy the conditions of Section 6.2, each Bank shall
make the amount of such Revolving Loan available to the Agent in immediately available
funds, no later than 2:00 p.m., Minneapolis time, on the date of such notice. The proceeds
of such Revolving Loans shall be distributed by the Agent to the Swing Line Bank and
immediately applied by the Swing Line Bank to repay the Refunded Swing Line Loans.

(b) If, for any reason, Revolving Loans may not be (as determined by the Agent in its sole
discretion), or are not, made pursuant to Section 2.7(a) to repay Swing Line Loans,
then, effective on the date such Revolving Loans would otherwise have been made, each Bank
severally, unconditionally and irrevocably agrees that it shall purchase a participating
interest in such Swing Line Loans (“Unrefunded Swing Line Loans”) in an amount equal to the
amount of Revolving Loans which would otherwise have been made by such Bank pursuant to
Section 2.7(a). Each Bank will immediately transfer to the Agent, in immediately
available funds, the amount of its participation (the “Swing Line Participation Amount”),
and the proceeds of such participation shall be distributed by the Agent to the Swing Line
Bank in such amount as will reduce the amount of the participating interest retained by the
Swing Line Bank in its Swing Line Loans.

(c) Whenever, at any time after the Swing Line Bank has received from any Bank such Bank’s
Swing Line Participation Amount, the Swing Line Bank receives any payment on account of the
Swing Line Loans, the Swing Line Bank will distribute to such Bank its Swing Line
Participation Amount (appropriately adjusted, in the case of interest payments, to reflect
the period of time during which such Bank’s participating interest was outstanding and
funded and, in the case of principal and interest payments, to reflect such Bank’s
pro rata portion of such payment if such payment is not sufficient to pay
the principal of and interest on all Swing Line Loans then due); provided,
however, that in

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the event that such payment received by the Swing Line Bank is
required to be returned, such Bank will return to the Swing Line Bank any portion thereof
previously distributed to it by the Swing Line Bank.

(d) Each Bank’s obligation to make the Loans referred to in Section 2.7(a) and to
purchase participating interests pursuant to Section 2.7(b) shall be absolute and
unconditional and shall not be affected by any circumstance, including, without limitation,
(i) any setoff, counterclaim, recoupment, defense or other right which such Bank or the
Borrower may have against the Swing Line Bank, the Borrower or any other Person for any
reason whatsoever; (ii) the occurrence or continuance of a Default or an Event of Default or
the failure to satisfy any of the other conditions precedent specified in Article
VI; (iii) any adverse change in the condition (financial or otherwise) of the Borrower;
(iv) any breach of this Agreement or any other Loan Document by the Borrower or any Bank; or
(v) any other circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing.

     Section 2.8 Letters of Credit

(a) Letters of Credit. Subject to the terms and conditions of this Agreement, and
on the condition that aggregate Letter of Credit Obligations shall never exceed the lesser
of (i) $50,000,000 or (ii) the Commitments, and that the sum of Letter of Credit Obligations
plus Loans shall never exceed the aggregate Commitments of all Banks, the Borrower may, in
addition to Loans, request that the Agent issue letters of credit for the account of the
Borrower by making such request to the Agent (such letters of credit as any of them may be
amended, supplemented, extended or confirmed from time to time, being herein collectively
called the “Letters of Credit”). The Agent may, at its discretion, elect to issue
or decline to issue any requested Letter of Credit. No Letter of Credit shall expire more
than one year after the date of issuance thereof (provided, that Letters of Credit may
automatically extend absent notice of termination by the issuer). Upon the date of the
issuance of a Letter of Credit, the Agent shall be deemed, without further action by any
party hereto, to have sold to each Bank, and each Bank shall be deemed without further
action by any party hereto, to have purchased from the Agent, a participation, in its
Percentage, in such Letter of Credit and the related Letter of Credit Obligations.

(b) Purchase Unconditional. Each Bank’s purchase of a participating interest in a
Letter of Credit pursuant to Section 2.8(a) shall be absolute and unconditional and
shall not be affected by any circumstance, including, without limitation, (i) any setoff,
counterclaim, recoupment, defense or other right which such Bank or the Borrower may have
against the Agent, the Borrower or any other Person for any reason whatsoever; (ii) the
occurrence or continuance of a Default or an Event of Default or the failure to satisfy any
of the other conditions precedent in Article VI; (iii) any adverse change in the
condition (financial or otherwise) of the Borrower; (iv) any breach of this Agreement or any
other Loan Document by the Borrower or any Bank; (v) the expiry date of any Letter of Credit
occurring after such Bank’s Commitment has terminated; or (vi) any other circumstance,
happening or event whatsoever, whether or not similar or any of the foregoing.

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(c) Additional Provisions. The following additional provisions shall apply to each
Letter of Credit:

(i) Upon receipt of any request for a Letter of Credit, the Agent shall notify each
Bank of the contents of such request and of such Bank’s Percentage of the amount of
such proposed Letter of Credit.

(ii) No Letter of Credit may be issued if after giving effect thereto the Letter of
Credit Obligations shall exceed $50,000,000 or if the sum of (A) the aggregate
outstanding principal amount of Loans plus (B) the aggregate Letter of
Credit Obligations would exceed the aggregate Commitments of all Banks. The
Commitment of each Bank shall be deemed to be utilized for all purposes hereof in an
amount equal to such Bank’s Percentage of the Letter of Credit Obligations.

(iii) Upon receipt from the beneficiary of any Letter of Credit of any demand for
payment thereunder, Agent shall promptly notify the Borrower and each Bank as to the
amount to be paid as a result of such demand and the payment date. If at any time
the Agent shall have made a payment to a beneficiary of such Letter of Credit in
respect of a drawing or in respect of an acceptance created in connection with a
drawing under such Letter of Credit, each Bank will pay to Agent immediately upon
demand by the Agent at any time during the period commencing after such payment
until reimbursement thereof in full by the Borrower, an amount equal to such Bank’s
Percentage of such payment, together with interest on such amount for each day from
the date of demand for such
payment (or, if such demand is made after 2:00 p.m. Minneapolis time on such date,
from the next succeeding Business Day) to the date of payment by such Bank of such
amount at a rate of interest per annum equal to the Federal Funds Effective Rate for
such period.

(iv) The Borrower shall be irrevocably and unconditionally obligated forthwith to
reimburse the Agent for any amount paid by the Agent upon any drawing under any
Letter of Credit, without presentment, demand, protest or other formalities of any
kind, all of which are hereby waived. Such reimbursement may, subject to
satisfaction of the conditions in Article VI hereof and to the available
Commitment (after adjustment in the same to reflect the elimination of the
corresponding Letter of Credit Obligation), be made by the borrowing of Loans. The
Agent will pay to each Bank such Bank’s Percentage of all amounts received from the
Borrower for application in payment, in whole or in part, of a Letter of Credit
Obligation, but only to the extent such Bank has made payment to the Agent in
respect of such Letter of Credit pursuant to clause (iii) above.

(v) The Borrower’s obligation to reimburse the Agent for any amount paid by the
Agent upon any drawing under any Letter of Credit shall be performed strictly in
accordance with the terms of this Agreement and the applicable Letter of Credit

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Agreement under any and all circumstances whatsoever and irrespective of (A) any
lack of validity or enforceability of any Letter of Credit, any Letter of Credit
Agreement or this Agreement, or any term or provision therein, (B) any draft or
other document presented under a Letter of Credit proving to be forged, fraudulent,
or invalid in any respect or any statement therein being untrue or inaccurate in any
respect, (C) payment by the Agent under a Letter of Credit against presentation of a
draft or other document that does not comply with the terms of such Letter of
Credit, or (D) any other event or circumstance whatsoever, whether or not similar to
any of the foregoing, that might, but for the provisions of this clause (v),
constitute a legal or equitable discharge of, or provide a right of setoff against,
the Borrower’s obligations hereunder. Neither the Agent nor the Bank shall have any
liability or responsibility by reason of or in connection with the issuance or
transfer of any Letter of Credit or any payment or failure to make any payment
thereunder (irrespective of any of the circumstances referred to in the preceding
sentence), or any error, omission, interruption, loss or delay in transmission or
delivery of any draft, notice or other communication under or relating to any Letter
of Credit (including any document required to make a drawing thereunder), any error
in interpretation of technical terms or any consequence arising from causes beyond
the control of the Agent; provided that the foregoing shall not be construed to
excuse the Agent from liability to the Borrower to the extent of any direct damages
(as opposed to consequential damages, claims in respect of which are hereby waived
by the Borrower to the extent permitted by applicable law) suffered by the Borrower
that are caused by the Agent’s failure to exercise care when determining whether
drafts and other
documents presented under a Letter of Credit comply with the terms thereof. The
parties hereto expressly agree that, in the absence of gross negligence or willful
misconduct on the part of the Agent (as finally determined by a court of competent
jurisdiction), the Agent shall be deemed to have exercised care in each such
determination. In furtherance of the foregoing and without limiting the generality
thereof, the parties hereto expressly agree that, with respect to documents
presented which appear on their face to be in substantial compliance with the terms
of the Letter of Credit, the Agent may, in its sole discretion, either accept and
make payment upon such documents without responsibility for further investigation or
refuse to accept and make payment upon such documents if such documents are not in
strict compliance with the terms of such Letter of Credit.

(vi) The Borrower will pay to Agent for the account of each Bank in accordance with
its Percentage letter of credit fee with respect to each Letter of Credit equal to
an amount, calculated on the basis of face amount of each Letter of Credit, in each
case for the period from and including the date of issuance of such Letter of Credit
to and including the date of expiration or termination thereof at a per annum rate
equal to the then-applicable Applicable Margin for LIBOR Advances, such fee to be
due and payable quarterly, in arrears on the Payment Dates. The Agent will pay to
each Bank, promptly after receiving any payment in respect of the letter of credit
fee referred to in this clause (v), an amount equal to

19

 

the product of such
Bank’s Percentage times the amount of such fees. The Borrower shall also pay
to Agent at the Principal Office for the account of the Agent a fronting fee of
0.125% of the face amount of the applicable Letter of Credit. At all times that the
rate of interest provided in Section 3.1(d) shall apply to the Loans, the
fee paid for the account of the Banks under this Section shall be increased by 2.00%
per annum. All fees hereunder shall be computed on the basis of a year of 360 days
and paid for the actual number of days elapsed.

(vii) The issuance by the Agent of each Letter of Credit shall, in addition to the
discretionary nature of this facility, be subject to the conditions precedent that
the Borrower shall have executed and delivered such applications and other
instruments and agreements relating to such Letter of Credit as the Agent shall have
reasonably requested and are not inconsistent with the terms of this Agreement (the
“Letter of Credit Agreements”). In the event of a conflict between the
terms of this Agreement and the terms of any Letter of Credit Agreement (including
the charging of any fees other than normal and customary reimbursable expenses), the
terms hereof shall control.

(viii) In the event that any Letter of Credit remains outstanding after the
Termination Date, the Borrower shall deliver, prior to the Termination Date, cash
collateral to be held and applied in accordance with the terms of Section
10.3.

(d) Indemnification; Release. Borrower hereby indemnifies and holds harmless the
Agent and each Bank from and against any and all claims and damages, losses, liabilities,
costs or expenses which the Agent or such Bank may incur (or which may be claimed against
the Agent or such Bank by any Person whatsoever), regardless of whether caused in whole or
in part by the negligence of any of the indemnified parties, in connection with the
execution and delivery of any Letter of Credit or transfer of or payment or failure to pay
under any Letter of Credit; provided that the Borrower shall not be required to
indemnify any party seeking indemnification for any claims, damages, losses, liabilities,
costs or expenses to the extent, but only to the extent, caused by (i) the willful
misconduct or gross negligence of the party seeking indemnification, or (ii) by the failure
by the party seeking indemnification to pay under any Letter of Credit after the
presentation to it of a request required to be paid under applicable law.

(e) Existing Letters of Credit. Certain Letters of Credit previously issued by the
Agent and listed on Schedule 2.6 shall be deemed to be “Letters of Credit” for all purposes
hereunder.

     Section 2.9 Increase to Commitments. The Borrower may, no more than twice prior to
the Termination Date, increase the Commitments hereunder, by giving notice to the Agent, specifying
the dollar amount of the increase (which shall be in integral multiple of $10,000,000, and which
shall not result in total aggregate Commitments hereunder in excess of $250,000,000);
provided, however, that an increase in the Commitments hereunder may only be made
at a time when no Default or Event of Default shall have occurred and be continuing. The Borrower
may increase

20

 

the Commitments by either increasing a Commitment with an existing Bank or obtaining a
Commitment from a new financial institution, the selection of which shall require the consent of
the Agent, not to be unreasonably withheld. The Borrower, the Agent and each Bank or other
financial institution that is increasing its Commitment or extending a new Commitment shall enter
into an amendment to this Agreement setting forth the amounts of the Commitments, as so increased,
providing that any new financial institution extending a new Commitment shall be a Bank for all
purposes under this Agreement. No such amendment shall require the approval or consent of any Bank
whose Commitment is not being increased and no Bank shall be required to increase its Commitment
unless it shall so agree in writing. Upon the execution and delivery of such amendment as provided
above, this Agreement shall be deemed to be amended accordingly and the Agent shall adjust the
funded amount of the Advances of the Banks so that each Bank (including the Banks with new or
increased Commitments) shall hold their respective Percentages (as amended by such amendment) of
the Advances outstanding and the unfunded Commitments (and each Bank shall so fund any increased
amount of Advances).

     Section 2.10 Purpose of the Loans. The Loans shall be used to support electrical
generation and transmission operations of the Borrower, and shall not be used for non-electrical
operations of the Borrower and its Subsidiaries.

ARTICLE III INTEREST AND FEES

     Section 3.1 Interest.

(a) LIBOR Advances. The unpaid principal amount of each LIBOR Advance shall bear
interest prior to maturity at a rate per annum equal to the LIBOR Rate (Reserve Adjusted) in
effect for each Interest Period for such LIBOR Advance plus the Applicable Margin per annum.

(b) Base Rate Advances. The unpaid principal amount of each Base Rate Advance shall
bear interest prior to maturity at a rate per annum equal to the Base Rate plus the
Applicable Margin per annum.

(c) Swing Line Loans. The unpaid principal amount of all Swing Line Loans shall
bear interest prior to maturity at a rate per annum equal to the LIBOR Rate (Reserve
Adjusted) Daily Floating plus the Applicable Margin for LIBOR Advances per annum.

(d) Interest After Maturity. Any amount of the Loans not paid when due, whether at
the date scheduled therefor or earlier upon acceleration, shall bear interest until paid in
full at a rate per annum equal to the greater of (i) 2.00% in excess of the rate applicable
to the unpaid principal amount immediately before it became due, or (ii) 2.00% in excess of
the Base Rate in effect from time to time.

     Section 3.2 Utilization Fees. At any time that Total Utilization equals or exceeds
50% of the total Commitments outstanding, the Borrower shall pay fees (the “Utilization Fees”) to
the Agent for the account of the Banks (in according with their respective Percentages) in an
amount

21

 

determined by applying 0.10% per annum to an amount equal to the excess of Total Utilization
over 50% of the total Commitments.

     Section 3.3 Facility Fee. The Borrower shall pay fees (the “Facility Fees”) to the
Agent for the account of the Banks (in accordance with their respective Percentages) in an amount
determined by applying the Applicable Facility Fee Rate per annum to the average daily amount of
the Commitments (whether used or unused) of the Banks for the period from the date hereof to the
Termination Date.

     Section 3.4 Computation. Interest, Utilization Fees and Facility Fees shall be
computed on the basis of actual days elapsed and a year of 360 days, provided, that any interest or
fee calculated with reference to the Prime Rate shall be computed on the basis of actual days
elapsed and a year of 365 days.

     Section 3.5 Payment Dates. Accrued interest under Section 3.1(a), (b)
and (c), Utilization and Facility Fees shall be payable on the applicable Payment Dates.
Accrued interest under Section 3.1(d) shall be payable on demand.

     Section 3.6 Agent’s Fee. The Borrower shall pay to the Agent fees described in the
Agent’s Fee Letter.

ARTICLE IV PAYMENTS, PREPAYMENTS, REDUCTION OR TERMINATION

OF THE CREDIT AND SETOFF

     Section 4.1 Repayment. Principal of the Loans, together with all accrued and unpaid
interest thereon, shall be due and payable on the Termination Date.

     Section 4.2 Optional Prepayments. The Borrower may, upon at least three (3) Business
Days’ prior written or telephonic notice received by the Bank, prepay the Loans, in whole or in
part, at any time subject to the provisions of Section 2.6, without any other premium or
penalty. Any such prepayment must be accompanied by accrued and unpaid interest on the amount
prepaid. Each partial prepayment shall be in an amount of $50,000 or an integral multiple thereof.
Any prepayment of a LIBOR Advance shall be in an amount equal to the remaining entire principal
balance of such Advance.

     Section 4.3 Optional Reduction or Termination of Commitment. The Borrower may, at
any time, upon no less than 2 Business Days prior written or telephonic notice received by the
Agent, reduce the Commitment, with any such reduction in a minimum amount of $500,000 or an
integral multiple thereof. Upon any reduction in the Commitment pursuant to this Section, the
Borrower shall pay to the Agent for the account of the Banks the amount, if any, by which the
aggregate unpaid principal amount of outstanding Loans plus the Letter of Credit Obligations
exceeds the Commitment as so reduced. Amounts so paid cannot be reborrowed. The Borrower may, at
any time, upon not less than 2 Business Days prior written notice to the Agent, terminate the
Commitment in its entirety. Upon termination of the Commitment pursuant to this Section,

22

 

the
Borrower shall pay to the Agent for the account of the Banks the full amount of all outstanding
Loans, all accrued and unpaid interest thereon, all unpaid Utilization and Facility Fees accrued to
the date of such termination and all other unpaid obligations of the Borrower to the Banks
hereunder. All payment described in this Section is subject to the provisions of Section
2.6. Notwithstanding the foregoing, the Commitment may not be reduced to an amount below
outstanding Letter of Credit Obligations, or terminated if Letters of Credit are outstanding

     Section 4.4 Payments. Payments and prepayments of principal of, and interest on, the
Notes and all fees, expenses and other obligations under the Loan Documents shall be made without
set-off or counterclaim in immediately available funds not later than 2:00 p.m., Minneapolis time,
on the dates due at the main office of the Agent in Minneapolis, Minnesota, provided,
however, that the Swing Line Bank and the Borrower shall enter into mutually acceptable
arrangements for payment of the Swing Line Loans which may permit payment of the Swing Line Loans
later than such time. Funds received on any day after such time shall be deemed to have been
received on the next Business Day. The Agent shall promptly distribute in like funds to each Bank
its Percentage share of each such payment of principal, interest and Utilization and Facility Fees.
Subject to the definition of the term “Interest Period”, whenever any payment to be made hereunder
or on the Notes shall be stated to be due on a day which is not a Business Day, such payment shall
be made on the next succeeding Business Day and such
extension of time shall be included in the computation of any interest or fees. The Agent is
authorized to debit the operating account of the Borrower designated by the Borrower for such
purpose from time to time for all payments when due hereunder (provided that if such account shall
not have sufficient available funds to pay interest when due, the Borrower shall pay such interest
in immediately available funds).

     4.5 Proration of Payments. If any Bank or other holder of a Loan shall obtain any
payment or other recovery (whether voluntary, involuntary, by application of offset or otherwise)
on account of principal of, interest on, or fees with respect to any Loan, or payment of any Letter
of Credit Obligations, in any case in excess of the share of payments and other recoveries of other
Banks or holders, such Bank or other holder shall purchase from the other Banks or holders, in a
manner to be specified by the Agent, such participations in the Loans held by such other Banks or
holders as shall be necessary to cause such purchasing Bank or other holder to share the excess
payment or other recovery ratably with each of such other Banks or holders; provided,
however, that if all or any portion of the excess payment or other recovery is thereafter
recovered from such purchasing Bank or holder, the purchase shall be rescinded and the purchase
price restored to the extent of such recovery, but without interest.

     Section 4.6 Senior Indebtedness Prepayment Event.

(a) If a Senior Indebtedness Prepayment Event shall occur, the Borrower shall offer to
reduce the Commitments hereunder in Ratable Portion not later than the date of prepayment,
purchase or redemption of the relevant Senior Indebtedness, by written notice given to the
Agent not later than any notice required under the relevant Senior Indebtedness Agreement.
The Agent shall promptly give notice of such offer to the Banks and shall require such a
reduction unless directed not to require such a reduction by the Required Banks.

23

 

(b) If such a reduction of the Commitments shall be so required, it will become effective
upon the prepayment, purchase or redemption by the Borrower of the relevant Indebtedness
under the relevant Senior Indebtedness Agreement. Upon such reduction, if the Loans and the
Letter of Credit Obligations outstanding shall exceed the Commitment as so reduced, the
Borrower shall (i) pay any Loans, and (ii) deliver cash collateral for the Letter of Credit
Obligations to be held and applied in accordance with the terms of Section 10.3, in
the amount of such excess. Failure by the Borrower to so pay the Loans or deliver such cash
collateral shall constitute an Event of Default under Section 10.1(a) hereof.

(c) For such purpose, a “Ratable Portion” shall mean a fraction the numerator of which is
equal to the amount of the prepayment, purchase or redemption of the Indebtedness under the
relevant Senior Indebtedness Agreement that the Borrower is required to make or offer to
make, and the denominator of which is the aggregate principal amount of such Indebtedness
outstanding.

ARTICLE V ADDITIONAL PROVISIONS RELATING TO LOANS

     Section 5.1 Increased Costs. If, as a result of any law, rule, regulation, treaty or
directive, or any change therein or in the interpretation or administration thereof, or compliance
by the Banks with any request or directive (whether or not having the force of law) from any court,
central bank, governmental authority, agency or instrumentality, or comparable agency:

(a) any tax, duty or other charge with respect to any Loan, the Notes or the Commitments is
imposed, modified or deemed applicable, or the basis of taxation of payments to any Bank of
interest or principal of the Loans or of the Utilization and Facility Fees (other than taxes
imposed on the overall net income of such Bank by the jurisdiction in which such Bank has
its principal office) is changed;

(b) any reserve, special deposit, special assessment or similar requirement against assets
of, deposits with or for the account of, or credit extended by, any Bank (excluding any
reserve or other requirement reflected in the calculation of LIBOR Rate (Reserve Adjusted))
is imposed, modified or deemed applicable;

(c) any increase in the amount of capital required or expected to be maintained by any Bank
or any Person controlling such Bank is imposed, modified or deemed applicable; or

(d) any other condition affecting this Agreement or the Commitments is imposed on any Bank
or the relevant funding markets;

and such Bank determines that, by reason thereof, the cost to such Bank of making or maintaining
the Loans, issuing or participating in the Letters of Credit or extending its Commitment is
increased, or the amount of any sum receivable by such Bank hereunder or under the Notes in respect
of any Loan is reduced;

24

 

then, the Borrower shall pay to such Bank upon demand such additional amount or amounts as
will compensate such Bank (or the controlling Person in the instance of (c) above) for such
additional costs or reduction (provided that the Banks have not been compensated for such
additional cost or reduction in the calculation of the LIBOR Reserve Rate). Any Bank making such
demand shall inform the Borrower of the basis for such demand, and provide a statement showing, in
reasonable detail, calculation of the amount demanded and the method of calculation. The Borrower
will promptly notify such Bank if the Borrower does not agree to such Bank’s determination of any
such amount. Any Bank’s reasonable determination of such amount shall be presumed correct, absent
its manifest error or negligence in determining such amounts. In determining such amounts, the
Banks may use any reasonable averaging, attribution and allocation methods. Notwithstanding the
foregoing, no Bank shall charge the Borrower for additional amounts for such additional costs or
reductions: (i) which additional amounts applied or accrued more than 90 days prior to the time
that such Bank became aware of the event giving rise to such additional costs or reductions; or
(ii) unless such Bank is generally requiring payment under comparable provisions of its agreements
with similarly situated borrowers.

     Section 5.2 Deposits Unavailable or Interest Rate Unascertainable or Inadequate;
Impracticability. If the Agent determines (which determination shall be conclusive and binding
on the parties hereto) that:

(a) deposits of the necessary amount for the relevant Interest Period for any LIBOR Advance
are not available in the relevant markets or that, by reason of circumstances affecting such
market, adequate and reasonable means do not exist for ascertaining the LIBOR Interbank Rate
for such Interest Period;

(b) the LIBOR Rate (Reserve Adjusted) will not adequately and fairly reflect the cost to the
Banks of making or funding the LIBOR Advance for a relevant Interest Period; or

(c) the making or funding of LIBOR Advances has become impracticable as a result of any
event occurring after the date of this Agreement which, in the opinion of the Agent,
materially and adversely affects such Advances or any Bank’s Commitment or the relevant
market;

the Agent shall promptly give notice of such determination to the Borrower, and (i) any notice of a
new LIBOR Advance previously given by the Borrower and not yet borrowed or converted shall be
deemed to be a notice to make a Base Rate Advance, and (ii) the Borrower shall be obligated to
either prepay in full any outstanding LIBOR Advances, without premium or penalty on the last day of
the current Interest Period with respect thereto or convert any such LIBOR Advance to a Base Rate
Advance on such last day.

     Section 5.3 Changes in Law Rendering LIBOR Advances Unlawful. If at any time due to
the adoption of any law, rule, regulation, treaty or directive, or any change therein or in the
interpretation or administration thereof by any court, central bank, governmental authority, agency
or instrumentality, or comparable agency charged with the interpretation or

25

 

administration thereof,
or for any other reason arising subsequent to the date of this Agreement, it shall become unlawful
or impossible for any Bank to make or fund any LIBOR Advance, the obligation of such Bank to
provide such Advance shall, upon the happening of such event, forthwith be suspended for the
duration of such illegality or impossibility. If any such event shall make it unlawful or
impossible for the Bank to continue any LIBOR Advance previously made by it hereunder, such Bank
shall, upon the happening of such event, notify the Agent and the Borrower thereof in writing, and
the Borrower shall, at the time notified by such Bank, either convert each such unlawful Advance to
a Base Rate Advance or repay such Advance in full, together with accrued interest thereon, subject
to the provisions of Section 2.6.

     Section 5.4 Discretion of the Banks as to Manner of Funding. Notwithstanding any
provision of this Agreement to the contrary, each Bank shall be entitled to fund and maintain its
funding of all or any part of the Loans in any manner it elects; it being understood, however, that
for purposes of this Agreement, all determinations hereunder shall be made as if the Banks had
actually funded and maintained each LIBOR Advance during the Interest Period for such
Advance through the purchase of deposits having a term corresponding to such Interest Period and
bearing an interest rate equal to the LIBOR Interbank Rate for such Interest Period (whether or not
any Bank shall have granted any participations in such Advances).

ARTICLE VI CONDITIONS PRECEDENT AND SUBSEQUENT

     Section 6.1 Conditions of Initial Loan. The obligation of the Banks to make the
initial Loan hereunder shall be subject to the satisfaction of the conditions precedent, in
addition to the applicable conditions precedent set forth in Section 6.2 below, that the
Agent shall have received all of the following, in form and substance satisfactory to the Agent,
each duly executed and certified or dated as of the date of this Agreement or such other date as is
satisfactory to the Agent:

(a) The Notes payable to each Bank executed by a duly authorized officer (or officers) of
the Borrower.

(b) A certificate or certificates of the Secretary or an Assistant Secretary of the
Borrower, attesting to and attaching (i) a copy of the corporate resolution of the Borrower
authorizing the execution, delivery and performance of the Loan Documents, (ii) an
incumbency certificate showing the names and titles, and bearing the signatures of, the
officers of the Borrower authorized to execute the Loan Documents, (iii) a copy of the
Articles or Certificate of Incorporation of the Borrower with all amendments thereto, and
(iv) a copy of the By-Laws of the Borrower with all amendments thereto.

(c) A Certificate of Good Standing for the Borrower in the jurisdiction of its
incorporation, certified by the appropriate governmental officials.

(d) An opinion of counsel to the Borrower, addressed to the Bank, in substantially the form
of Exhibit C.

26

 

(e) The Agent’s Fee Letter and payment of all fees and reimbursements payable hereunder and
thereunder.

     Section 6.2 Conditions Precedent to all Loans. The obligation of the Bank to make
any Loan hereunder (including the initial Loan) shall be subject to the satisfaction of the
following conditions precedent (and any request for a Loan shall be deemed a representation by the
Borrower that the following are satisfied):

(a) Before and after giving effect to such Loan, the representation and warranties
contained in Article VII shall be true and correct, as though made on the date of
such Loan; and

(b) Before and after giving effect to such Loan, no Default or Event of Default shall have
occurred and be continuing.

ARTICLE VII REPRESENTATIONS AND WARRANTIES

     To induce the Agent and the Banks to enter into this Agreement, to grant the Commitments and
to make Loans hereunder, the Borrower represents and warrants to the Agent and the Banks:

     Section 7.1 Organization, Standing, Etc. The Borrower and each of its corporate
Material Subsidiaries are corporations duly incorporated and validly existing and in good standing
under the laws of the jurisdiction of their respective incorporation and have all requisite
corporate power and authority to carry on their respective businesses as now conducted, to (in the
instance of the Borrower) enter into the Loan Documents and to perform its obligations under the
Loan Documents. The Borrower and each of the Material Subsidiaries are duly qualified and in good
standing as a foreign corporation in each jurisdiction in which the character of the properties
owned, leased or operated by it or the business conducted by it makes such qualification necessary,
and failure to so qualify or remain in good standing would constitute an Adverse Event.

     Section 7.2 Authorization and Validity. The execution, delivery and performance by
the Borrower of the Loan Documents have been duly authorized by all necessary corporate action by
the Borrower, and the Loan Documents constitute the legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their respective terms, subject to
limitations as to enforceability which might result from bankruptcy, insolvency, moratorium and
other similar laws affecting creditors’ rights generally and subject to limitations on the
availability of equitable remedies.

     Section 7.3 No Conflict; No Default. The execution, delivery and performance by the
Borrower of the Loan Documents will not (a) violate any provision of any law, statute, rule or
regulation or any order, writ, judgment, injunction, decree, determination or award of any court,
governmental agency or arbitrator presently in effect having applicability to the Borrower, (b)
violate or contravene any provisions of the Articles (or Certificate) of Incorporation or by-laws
of the Borrower, or (c) result in a breach of or constitute a default under any indenture, loan or
credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by
which

27

 

it or any of its properties may be bound or result in the creation of any Lien on any asset
of the Borrower or any Material Subsidiary, which in any such case under this subsection (c) would
constitute an Adverse Event. Neither the Borrower nor any Material Subsidiary is in default under
or in violation of any such law, statute, rule or regulation, order, writ, judgment, injunction,
decree, determination or award or any such indenture, loan or credit agreement or other agreement,
lease or instrument in any case in which the consequences of such default or violation could
constitute an Adverse Event. No Default or Event of Default has occurred and is continuing.

     Section 7.4 Government Consent. No order, consent, approval, license, authorization
or validation of, or filing, recording or registration with, or exemption by, any governmental or
public body or authority is required on the part of the Borrower to authorize, or is required in
connection with the execution, delivery and performance of, or the legality, validity, binding
effect or enforceability of, the Loan Documents, provided, however, the Borrower is
required to make an
annual filing of its Capital Structure with the Minnesota Public Utilities Commission, and such
Commission may thereafter issue orders approving or disapproving of the Borrower’s capital
structure.

     Section 7.5 Financial Statements and Condition. The Borrower’s audited consolidated
financial statements as at December 31, 2007, and the Borrower’s unaudited quarterly financial
statements as at March 31, 2008, as heretofore furnished to the Banks, have been prepared in
accordance with GAAP on a consistent basis and fairly present the financial condition of the
Borrower and the Subsidiaries as at such dates and the results of their operations for the fiscal
year then ended. As of the dates of such consolidated financial statements, neither the Borrower
nor any Material Subsidiary had any material obligation, contingent liability, liability for taxes
or long-term lease obligation which is not reflected in such consolidated financial statements or
in the notes thereto. Since December 31, 2007, no Adverse Event has occurred.

     Section 7.6 Litigation and Contingent Liabilities. Except as described in
Schedule 7.6, there are no actions, suits or proceedings pending or, to the knowledge of
the Borrower, threatened against or affecting the Borrower or any Material Subsidiary or any of
their properties before any court or arbitrator, or any governmental department, board, agency or
other instrumentality which, if determined adversely to the Borrower or such Material Subsidiary,
could constitute an Adverse Event. Except as described in Schedule 7.6, neither the
Borrower nor any Material Subsidiary has any contingent liabilities which are material to the
Borrower and the Subsidiaries as a consolidated enterprise.

     Section 7.7 Compliance. The Borrower and the Material Subsidiaries are in material
compliance with all statutes and governmental rules and regulations applicable to them.

     Section 7.8 Environmental, Health and Safety Laws. To the best of the Borrower’s
knowledge after due inquiry, there does not exist any violation by the Borrower or any Material
Subsidiary of any applicable federal, state or local law, rule or regulation or order of any
government, governmental department, board, agency or other instrumentality relating to
environmental, pollution, health or safety matters which will or threatens to impose a material
liability on the Borrower or a Material Subsidiary or which would require a material expenditure by

28

 

the Borrower or such Material Subsidiary to cure. Neither the Borrower nor any Material Subsidiary
has received any notice to the effect that any part of its operations or properties is not in
material compliance with any such law, rule, regulation or order or notice that it or its property
is the subject of any governmental investigation evaluating whether any remedial action is needed
to respond to any release of any toxic or hazardous waste or substance into the environment, the
consequences of which non-compliance or remedial action could constitute an Adverse Event.

     Section 7.9 ERISA. Each Plan complies with all material applicable requirements of
ERISA and the Code and with all material applicable rulings and regulations issued under the
provisions of ERISA and the Code setting forth those requirements. No Reportable Event, other than
a Reportable Event for which the reporting requirements have been waived by regulations of the
PBGC, has occurred and is continuing with respect to any Plan. All of the minimum funding
standards applicable to such Plans have been satisfied and there exists no event or condition which
would permit the institution of proceedings to terminate any Plan under Section 4042 of ERISA. The
current value of the Plans’ benefits guaranteed under Title IV or ERISA does not exceed the current
value of the Plans’ assets allocable to such benefits.

     Section 7.10 Regulation U. The Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (as defined in Regulation U of the
Board of Governors of the Federal Reserve System) and no part of the proceeds of any Loan will be
used to purchase or carry margin stock or for any other purpose which would violate any of the
margin requirements of the Board of Governors of the Federal Reserve System.

     Section 7.11 Ownership of Property; Liens. Each of the Borrower and the Material
Subsidiaries has good and marketable title to its real properties and good and sufficient title to
its other properties, including all properties and assets referred to as owned by the Borrower and
the Material Subsidiaries in the audited consolidated financial statement of the Borrower referred
to in Section 7.5 (other than property disposed of since the date of such financial
statement in the ordinary course of business). None of the properties, revenues or assets of the
Borrower or any of the Material Subsidiaries is subject to a Lien, except for (a) Liens disclosed
in the consolidated financial statements referred to in Section 7.5, (b) Liens listed on
Schedule 7.11, or (c) Liens allowed under Section 9.8.

     Section 7.12 Taxes. Each of the Borrower and the Material Subsidiaries has filed all
federal, state and local tax returns required to be filed and has paid or made provision for the
payment of all taxes due and payable pursuant to such returns and pursuant to any assessments made
against it or any of its property and all other taxes, fees and other charges imposed on it or any
of its property by any governmental authority (other than taxes, fees or charges the amount or
validity of which is currently being contested in good faith by appropriate proceedings and with
respect to which reserves in accordance with GAAP have been provided on the books of the Borrower).
No tax Liens have been filed and no material claims are being asserted with respect to any such
taxes, fees or charges. The charges, accruals and reserves on the books of the Borrower in respect
of taxes and other governmental charges are adequate.

29

 

     Section 7.13 Trademarks, Patents. Each of the Borrower and the Material Subsidiaries
possesses or has the right, by way of ownership or license, to use all of the patents, trademarks,
trade names, service marks and copyrights, and applications therefor, and all technology, know-how,
processes, methods and designs used in or necessary for the conduct of its business, without known
conflict with the rights of others.

     Section 7.14 Investment Company Act. Neither the Borrower nor any Subsidiary is an
“investment company” or a company “controlled” by an investment company within the meaning of the
Investment Company Act of 1940, as amended.

     Section 7.15 Subsidiaries. Schedule 7.15 sets forth as of the date of this
Agreement a list of all Subsidiaries and the number and percentage of the shares of each class of
capital stock owned
beneficially or of record by the Borrower or any Subsidiary therein, and the jurisdiction of
incorporation of each Subsidiary.

     Section 7.16 Partnerships and Joint Ventures. Schedule 7.16 sets forth as
of the date of this Agreement a list of all partnerships or joint ventures in which the Borrower or
any Subsidiary is a partner (limited or general) or joint venturer.

     Section 7.17 Senior Debt. The Loans are senior unsecured Indebtedness of the
Borrower, and are pari passu and of equal rank and seniority with all senior unsecured Indebtedness
of the Borrower.

ARTICLE VIII AFFIRMATIVE COVENANTS

     From the date of this Agreement and thereafter until the Commitments are terminated or expire
and the Loans and all other liabilities of the Borrower to the Banks hereunder and under the Note
have been paid in full, unless the Required Banks shall otherwise expressly agree in writing the
Borrower will do, and will cause each Material Subsidiary (except in the instance of Section
8.1) to do, all of the following:

     Section 8.1 Financial Statements and Reports. Furnish to the Agent for distribution
to the Banks:

(a) As soon as available and in any event within 120 days after the end of each fiscal year
of the Borrower, the annual audit report of the Borrower and its Subsidiaries prepared on a
consolidated basis and in conformity with GAAP, consisting of at least statements of income,
cash flow, and a consolidated balance sheet as at the end of such year, setting forth in
each case in comparative form corresponding figures from the previous annual audit,
certified without qualification by independent certified public accountants of recognized
standing selected by the Borrower and acceptable to the Bank, together with any related
management letters.

(b) As soon as available and in any event within 45 days after the end of each quarter of
each fiscal year, a copy of the unaudited financial statement of the Borrower and its
subsidiaries

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prepared in the same manner as the audit report referred to in Section
8.1(a), signed by the Borrower’s chief financial officer, consisting of at least
consolidated statements of income and cash flow for the Borrower and the Subsidiaries for
such quarter and for the period from the beginning of such fiscal year to the end of such
quarter, and a consolidated balance sheet of the Borrower as at the end of such quarter.

(c) Together with the consolidated financial statements furnished by the Borrower under
Sections 8.1(a) and 8.1(b), a Compliance Certificate signed by the chief
financial officer of the Borrower, which shall (i) confirm the Borrower’s Long Term Debt
Rating; (ii) confirm compliance with the Borrower’s covenants in Sections 9.13 and
9.14 (including the calculations with respect thereto); and (iii) confirm either
that as at the date of each such
financial statement there did not exist any Default or Event of Default or, that a Default
or Event of Default existed, in which case it shall specify the nature and period of
existence thereof and what action the Borrower proposes to take with respect thereto.

(d) Immediately upon becoming aware of any Default or Event of Default, a notice describing
the nature thereof and what action the Borrower proposes to take with respect thereto.

(e) Immediately upon becoming aware of the occurrence, with respect to any Plan, of any
Reportable Event (other than a Reportable Event for which the reporting requirements have
been waived by PBGC regulations) or any “prohibited transaction” (as defined in Section 4975
of the Code), a notice specifying the nature thereof and what action the Borrower proposes
to take with respect thereto, and, when received, copies of any notice from PBGC of
intention to terminate or have a trustee appointed for any Plan.

(f) Promptly upon the mailing or filing thereof, copies of all financial statements, reports
and proxy statements mailed to the Borrower’s shareholders, and copies of all registration
statements, periodic reports and other documents filed with the Securities and Exchange
Commission (or any successor thereto) or any national securities exchange.

(g) Copies of any order issued by the Minnesota Public Utilities Commission regarding the
Borrower’s capital structure.

(h) Immediately upon becoming aware of the occurrence thereof, notice of the institution of
any litigation, arbitration or governmental proceeding, or the rendering of a judgment or
decision in such litigation or proceeding, which is material to the Borrower and its
Subsidiaries as a consolidated enterprise, and the steps being taken by the Person(s)
affected by such proceeding.

(i) Immediately upon becoming aware of the occurrence thereof, notice of any violation as to
any environmental matter by the Borrower or any Material Subsidiary and of the commencement
of any judicial or administrative proceeding relating to health, safety or environmental
matters (i) in which an adverse determination or result could result in the revocation of or
have a material adverse effect on any operating permits, air emission

31

 

permits, water
discharge permits, hazardous waste permits or other permits held by the Borrower or any
Material Subsidiary which are material to the operations of the Borrower or such Material
Subsidiary, or (ii) which will or threatens to impose a material liability on the Borrower
or such Material Subsidiary to any Person or which will require a material expenditure by
the Borrower or such Material Subsidiary to cure any alleged problem or violation.

(j) From time to time, such other information regarding the business, operation and
financial condition of the Borrower and the Subsidiaries as any Bank may reasonably request.

     Section 8.2 Corporate Existence. Subject to Sections 9.1, 9.2 and
9.4 in the instance of a Material Subsidiary, maintain its corporate existence in good
standing under the laws of its jurisdiction of incorporation and its qualification to transact
business in each jurisdiction in which the character of the properties owned, leased or operated by
it or the business conducted by it makes such qualification necessary, provided, that the
Borrower may cause any Material Subsidiary to be dissolved that has substantially no assets,
revenues or operations.

     Section 8.3 Insurance. Maintain with financially sound and reputable insurance
companies such insurance as may be required by law and such other insurance in such amounts and
against such hazards as is customary in the case of reputable corporations engaged in the same or
similar business and similarly situated.

     Section 8.4 Payment of Taxes and Claims. File all tax returns and reports which are
required by law to be filed by it and pay before they become delinquent all taxes, assessments and
governmental charges and levies imposed upon it or its property and all claims or demands of any
kind (including, without limitation, those of suppliers, mechanics, carriers, warehouses, landlords
and other like Persons) which, if unpaid, might result in the creation of a Lien upon its property;
provided that the foregoing items need not be paid if they are being contested in good
faith by appropriate proceedings, and as long as the Borrower’s or such Material Subsidiary’s title
to its property is not materially adversely affected, its use of such property in the ordinary
course of its business is not materially interfered with and adequate reserves with respect thereto
have been set aside on the Borrower’s or such Material Subsidiary’s books in accordance with GAAP.

     Section 8.5 Inspection. Permit any Person designated by any Bank to visit and
inspect any of its properties, corporate books and financial records, to examine and to make copies
of its books of accounts and other financial records, and to discuss the affairs, finances and
accounts of the Borrower and the Subsidiaries with, and to be advised as to the same by, its
officers at such reasonable times and intervals as such Bank may designate. So long as no Event of
Default exists, the expenses of the Banks for such visits, inspections and examinations shall be at
the expense of the Banks, but any such visits, inspections, and examinations made while any Event
of Default is continuing shall be at the expense of the Borrower.

     Section 8.6 Maintenance of Properties. Maintain its properties used or useful in the
conduct of its business in good condition, repair and working order, and supplied with all
necessary equipment, and make all necessary repairs, renewals, replacements, betterments and
improvements

32

 

thereto, all as may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times.

     Section 8.7 Books and Records. Keep adequate and proper records and books of account
in which full and correct entries will be made of its dealings, business and affairs.

     Section 8.8 Compliance. Comply in all material respects with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject.

     Section 8.9 ERISA. Maintain each Plan in compliance with all material applicable
requirements of ERISA and of the Code and with all material applicable rulings and regulations
issued under the provisions of ERISA and of the Code.

     Section 8.10 Environmental Matters. Observe and comply with all laws, rules,
regulations and orders of any government or government agency relating to health, safety,
pollution, hazardous materials or other environmental matters to the extent non-compliance could
result in a material liability or otherwise constitute or result in an Adverse Event.

     Section 8.11 Failure to Approve Capital Structure. If the Minnesota Public Utilities
Commission or any other governmental authority of appropriate jurisdiction shall issue an order
finally determining not to approve, or finally disapproving of, this Agreement, the Borrower will
terminate the Commitments and repay the Loans within sixty (60) days after such order becoming
final (or within such shorter period as such order shall provide for such termination and
repayment).

     Section 8.12 Senior Debt. Take all actions necessary to assure that the Loans are
senior unsecured Indebtedness of the Borrower, and are and remain pari passu and of equal rank and
seniority with all senior unsecured Indebtedness of the Borrower (without limiting the obligation
of the Borrower to deliver collateral under certain circumstances, as specifically provided
herein).

     Section 8.13 Ratings Triggers. If documentation applicable to any Indebtedness of
the Borrower or any Subsidiary shall hereafter include a Ratings Trigger, the Borrower shall
promptly notify the Agent of such Ratings Trigger. If any Ratings Trigger shall apply to the
Borrower or any Subsidiary and if the Agent shall so request of the Borrower, the Borrower agrees
to enter into an amendment to this Agreement to include a substantively similar Ratings Trigger in
this Agreement (subject to approval of the Required Banks, it being agreed that if the Required
Banks shall not enter into such an amendment, the Borrower shall not be deemed to have failed to
comply with this Section). For such purpose, a “Ratings Trigger” shall mean any provision in any
document applicable to any Indebtedness of the Borrower or any Subsidiary stating that if the
Borrower or any Subsidiary shall not maintain a minimum debt rating by S&P, Moody’s or any other
ratings agency: (i) the Borrower or such Subsidiary shall be deemed not to have complied with such
document, (ii) a default or event of default or other acceleration event shall be deemed to have
occurred under such document, or (iii) Indebtedness governed by such document shall be prepaid or
the holder of such Indebtedness shall have the option to require such prepayment (whether
immediately or with the giving of notice, passage of time or both).

33

 

ARTICLE IX NEGATIVE COVENANTS

     From the date of this Agreement and thereafter until the Commitments are terminated or expire
and the Loans and all other liabilities of the Borrower to the Banks hereunder and under the Note
have been paid in full, unless the Required Banks shall otherwise expressly agree in writing the
Borrower will not, and will not permit any Material Subsidiary to, do any of the following:

     Section 9.1 Merger. Merge or consolidate or enter into any analogous reorganization
or transaction with any Person; provided, however, that (a) any wholly-owned
Subsidiary may be merged with or liquidated into the Borrower (if the Borrower is the surviving
corporation) or any other wholly-owned Subsidiary; (b) the Borrower and Material Subsidiaries may
enter Permitted Divestitures; and (c) the Borrower may enter into the Permitted Reorganization.

     Section 9.2 Sale of Assets. Sell, transfer, lease or otherwise convey all or any
substantial part of its assets except for:

(a) sales, leases and licensing of assets in the ordinary course of business;

(b) sales or other transfers by a wholly-owned Subsidiary to the Borrower or another
wholly-owned Subsidiary;

(c) Permitted Divestitures;

(d) Permitted Securitization Transactions;

(e) the Permitted Reorganization;

(f) sales of used, obsolete, worn out or surplus equipment;

(g) sales of permitted cash equivalents for cash or cash equivalents;

(h) off-balance sheet liabilities included as Interest-bearing Debt as provided in
subsection (h) of the definition thereof;

(i) abandonment of non-material intellectual property assets in the ordinary course of
business; and

(j) surrender, release or waiver of contract rights in the ordinary course of business.

     Section 9.3 Plans. Permit any condition to exist in connection with any Plan which
might constitute grounds for the PBGC to institute proceedings to have such Plan terminated or a
trustee appointed to administer such Plan, permit any Plan to terminate under any circumstances
which would cause the lien provided for in Section 4068 of ERISA to attach to any property, revenue
or

34

 

asset of the Borrower or any Subsidiary or permit the underfunded amount of Plan benefits
guaranteed under Title IV of ERISA to exceed $500,000.

     Section 9.4 Ownership of Stock. Take any action, or permit any Material Subsidiary
to take any action, which would result in a decrease in the Borrower’s or any Material Subsidiary’s
ownership interest in any Subsidiary (including, without limitation, decrease in the percentage of
the shares of any class of stock owned), other than: (a) Permitted Divestitures; and (b) the
Permitted Reorganization.

     Section 9.5 Other Agreements. Enter into any agreement, bond, note or other
instrument with or for the benefit of any Person other than the Banks which would: (a) be violated
or breached by the Borrower’s performance of its obligations under the Loan Documents, or (b)
prohibit any Subsidiary of the Borrower from paying dividends or distributions on, or redeeming,
acquiring or retiring for value, any shares of stock or other ownership interest that the Borrower
holds in such Subsidiary, except for any such prohibition that applies only when a default
shall exist under such agreement or shall result from such payment, acquisition or retirement.

     Section 9.6 Restricted Payments. Either: (a) make any Restricted Payment if any
Default or Event of Default shall exist or shall result from the making of such Restricted Payment;
or (b) directly or indirectly make any payment on, or redeem, repurchase, defease, or make any
sinking fund payment on account of, or any other provision for, or otherwise pay, acquire or retire
for value, any Indebtedness of the Borrower or any Subsidiary that is subordinated in right of
payment to the Loans (whether pursuant to its terms or by operation of law), except for (i)
regularly-scheduled payments of interest and principal (which shall not include payments
contingently required upon occurrence of a change of control or other event) that are not otherwise
prohibited hereunder or under the document or agreement stating the terms of such subordination,
and (ii) refinancing of Indebtedness of the Borrower or any Subsidiary that is subordinated in
right of payment to the Loans (whether pursuant to its terms or by operation of law) by the
incurrence of Indebtedness that is similarly subordinated in right of payment to the Loans.

     Section 9.7 Investments. Acquire for value, make, have or hold any Investments,
except:

(a) Investments outstanding on the date hereof and listed on Schedule 9.7, and any
increases or decreases in the value thereof or write-ups, write-downs or write-offs with
respect to such Investments;

(b) travel advances to officers and employees in the ordinary course of business;

(c) Investments in readily marketable direct obligations of the United States of America
having maturities of one year or less from the date of acquisition;

(d) certificates of deposit or bankers’ acceptances, each maturing within one year from the
date of acquisition, issued by any commercial bank organized under the laws of the United
States or any State thereof which has (i) combined capital, surplus and undivided profits of
at

35

 

least $100,000,000, and (ii) a credit rating with respect to its unsecured indebtedness
from a nationally recognized rating service that is satisfactory to the Bank;

(e) commercial paper maturing within 270 days from the date of issuance and given the
highest rating by a nationally recognized rating service;

(f) repurchase agreements relating to securities issued or guaranteed as to principal and
interest by the United States of America;

(g) extensions of credit in the nature of accounts receivable or notes receivable arising
from the sale of goods and services in the ordinary course of business;

(h) share of stock, obligations or other securities received in settlement of claims arising
in the ordinary course of business;

(i) Investments consisting of loans from any Subsidiary to the Borrower; and

(j) Permitted Investments.

     Section 9.8 Liens. Create, incur, assume or suffer to exist any Lien with respect to
any property, revenues or assets now owned or hereafter arising or acquired, except:

(a) Liens in connection with the acquisition of property by way of purchase money mortgage
and security interests, conditional sale or other title retention agreement, Capitalized
Lease or other deferred payment contract, and attaching only to the property being acquired;

(b) Liens existing on assets of Material Subsidiaries acquired after December 31, 2007,
which existed at the time of such acquisition and attach only to the assets of such Material
Subsidiaries;

(c) Liens existing on the date of this Agreement and disclosed on Schedule 7.11
hereto and Liens securing any extension, renewal, restatement or replacement of the credit
facilities described on Schedule 7.11, provided, that Liens securing such
extensions, renewals, restatements or replacement credit facilities shall not attach to
materially different assets than the Liens disclosed on such Schedule 7.11 and shall
not secure indebtedness exceeding the amount of credit facilities described on Schedule
7.11;

(d) Deposits or pledges to secure payment of workers’ compensation, unemployment insurance,
old age pensions or other social security obligations, in the ordinary course of business of
the Borrower or a Subsidiary;

(e) Liens for taxes, fees, assessments and governmental charges not delinquent or to the
extent that payments therefor shall not at the time be required to be made in accordance
with the provisions of Section 8.4;

36

 

(f) Liens of carriers, warehousemen, mechanics and materialmen, and other like Liens arising
in the ordinary course of business, for sums not due or to the extent that payment therefor
shall not at the time be required to be made in accordance with the provisions of
Section 8.4;

(g) Deposits to secure the performance of bids, trade contracts, leases, statutory
obligations and other obligations of a like nature incurred in the ordinary course of
business;

(h) Liens granted to secure obligations to any other holder of senior Indebtedness of the
Borrower (including without limitation obligations to insurers of bond obligations of the
Borrower), provided, that (i) such Liens were required to be granted pursuant to agreements
and instruments entered into by the Borrower prior to the date of this Agreement, and (ii)
the Agent is granted a pari passu Lien, not subordinate in priority (whether due to time of
filing or otherwise) to such Lien attaching to either (x) the same assets and rights as the
Lien in favor of such other holder of senior Indebtedness (in which case if the Agent shall
so notify the Borrower, the holder of such senior Indebtedness shall enter into an
inter-creditor agreement satisfactory to the Agent confirming such respective priorities of
such Liens), or (y) other assets that are acceptable to the Required Banks in their sole
discretion to secure all Indebtedness and obligations of the Borrower hereunder, whether
then existing or thereafter arising;

(i) Liens arising under or related to any statutory or common law provisions 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;

(j) Liens of lessors of real property on which facilities owned or leased by the Borrower 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
to the Borrower or any Subsidiary under any operating lease, and of licensor of intellectual
property or other rights to the Borrower or any Subsidiary;

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

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

37

 

(n) Liens not otherwise permitted by this Section securing Indebtedness not to exceed
$10,000,000 in the aggregate at any time outstanding.

In no case shall Liens permitted hereunder apply to the stock of any Subsidiary and in no case
shall Liens under (d), (f),(g), (i), (j), (k), (l) or (m) secure any Indebtedness for borrowed
money or Indebtedness constituting obligations to issuers of letters of credit.

     Section 9.9 Contingent Liabilities. 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 Borrower or any Material Subsidiary of obligations of any Material
Subsidiary as lessee under any lease that is not a Capitalized Lease;

(ii) guaranties by Subsidiaries of the Borrower of obligations of the Borrower in respect of
Indebtedness permitted by Section 9.8;

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

(iv) guaranties by any Material Subsidiary of the obligations of the Borrower under that
certain Note Purchase Agreement, dated as of December 1, 2001, among the Borrower and the
various purchasers which are parties thereto in respect of up to $90,000,000 of 6.63% notes;

(v) guaranty by any Material Subsidiary of the obligations of the Borrower in respect of up
to $50,000,000 of 5.778% senior notes due November 30, 2017;

(vi) guaranties by the Borrower of the obligations of a Subsidiary under any Agreement
involving the sale of accounts receivable permitted by Section 9.2(h),
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) guaranties by any Material Subsidiary that are Subsidiaries of Varistar Corporation
of the obligations of Varistar Corporation under that certain Credit Agreement, dated as of
October 2, 2007 (as thereafter amended, renewed or replaced from time to time), among
Varistar Corporation, the Banks named 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 and Lead Arranger.

     Section 9.10 Unconditional Purchase Obligations. Enter into or be a party to any
contract for the purchase or lease of materials, supplies or other property or services if such
contract requires

38

 

that payment be made by it regardless of whether or not delivery is ever made of
such materials, supplies or other property or services.

     Section 9.11 Transactions with Related Parties. Enter into or be a party to any
transaction or arrangement, including, without limitation, the purchase, sale, lease or exchange of
property or the rendering of any service, with any Related Party, except in the ordinary course of
and pursuant to the reasonable requirements of the Borrower’s or the applicable Material
Subsidiary’s business and upon fair and reasonable terms no less favorable to the Borrower or such
Material Subsidiary than would obtain in a comparable arm’s-length transaction with a Person not a
Related Party, and excluding the Permitted Reorganization.

     Section 9.12 Use of Proceeds. Permit any proceeds of the Loans to be used for
purposes other than those set forth in Section 2.10, or permit any proceeds of the Loans to
be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate,
of “purchasing or carrying any margin stock” within the meaning of Regulation U of the Federal
Reserve Board, as amended from time to time, and furnish to any Bank, upon its request, a statement
in conformity with the requirements of Federal Reserve Form U-1 referred to in Regulation U.

     Section 9.13 Interest-bearing Debt to Total Capitalization. Permit the ratio, as of
the last day of any fiscal quarter of the Borrower, of (a) Interest-bearing Debt, to (b) Total
Capitalization to be greater than 0.60 to 1.00.

     Section 9.14 Interest and Dividend Coverage Ratio. Permit the Interest and Dividend
Coverage Ratio for any period of four consecutive fiscal quarters to be less than 1.50 to 1.00.

ARTICLE X EVENTS OF DEFAULT AND REMEDIES

     Section 10.1 Events of Default. The occurrence of any one or more of the following
events shall constitute an Event of Default:

(a) The Borrower shall fail to make when due, whether by acceleration or otherwise, any
payment of principal of or interest on the Note or any fee or other amount required to be
made to the Banks pursuant to the Loan Documents;

(b) Any representation or warranty made or deemed to have been made by or on behalf of the
Borrower or any Material Subsidiary by any of the Loan Documents or by or on behalf of the
Borrower or any Material Subsidiary in any certificate, statement, report or other writing
furnished by or on behalf of the Borrower to the Banks pursuant to the Loan Documents shall
prove to have been false or misleading in any material respect on the date as of which the
facts set forth are stated or certified or deemed to have been stated or certified;

(c) The Borrower shall fail to comply with Section 8.2 hereof or any Section of
Article IX hereof;

39

 

(d) The Borrower shall fail to comply with any agreement, covenant, condition, provision or
term contained in the Loan Documents (and such failure shall not constitute an Event of
Default under any of the other provisions of this Section 10.1) and such failure to
comply shall continue for thirty (30) calendar days after notice thereof to the Borrower by
the Bank;

(e) The Borrower or any Material Subsidiary shall become insolvent or shall generally not
pay its debts as they mature or shall apply for, shall consent to, or shall acquiesce in the
appointment of a custodian, trustee or receiver of the Borrower or such Material Subsidiary
or for a substantial part of the property thereof or, in the absence of such application,
consent or acquiescence, a custodian, trustee or receiver shall be appointed for the
Borrower or a Material Subsidiary or for a substantial part of the property thereof and
shall not be discharged within 30 days;

(f) Any bankruptcy, reorganization, debt arrangement or other proceedings under any
bankruptcy or insolvency law shall be instituted by or against the Borrower or a Material
Subsidiary, and, if instituted against the Borrower or a Material Subsidiary, shall have
been consented to or acquiesced in by the Borrower or such Material Subsidiary, or shall
remain undismissed for 30 days, or an order for relief shall have been entered against the
Borrower or such Material Subsidiary, or the Borrower or any Material Subsidiary shall take
any corporate action to approve institution of, or acquiescence in, such a proceeding;

(g) Any dissolution or liquidation proceeding shall be instituted by or against the Borrower
or a Material Subsidiary and, if instituted against the Borrower or such Material
Subsidiary, shall be consented to or acquiesced in by the Borrower or such Material
Subsidiary or shall remain for 30 days undismissed, or the Borrower or any Material
Subsidiary shall take any corporate action to approve institution of, or acquiescence in,
such a proceeding;

(h) A judgment or judgments for the payment of money in excess of the sum of $10,000,000 in
the aggregate shall be rendered against the Borrower or a Material Subsidiary and the
Borrower or such Material Subsidiary shall not discharge the same or provide for its
discharge in accordance with its terms, or procure a stay of execution thereof, prior to any
execution on such judgments by such judgment creditor, within 30 days from the date of entry
thereof, and within said period of 30 days, or such longer period during which execution of
such judgment shall be stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal;

(i) The institution by the Borrower or any ERISA Affiliate of steps to terminate any Plan if
in order to effectuate such termination, the Borrower or any ERISA Affiliate would be
required to make a contribution to such Plan, or would incur a liability or obligation to
such Plan, in excess of $5,000,000, or the institution by the PBGC of steps to terminate any
Plan;

(j) The maturity of any Indebtedness of the Borrower (other than Indebtedness under this
Agreement) or a Material Subsidiary in the aggregate in excess of $10,000,000 shall be
accelerated, or the Borrower or a Material Subsidiary shall fail to pay any such
Indebtedness
(in excess of such amount) when due or, in the case of such Indebtedness payable on

40

 

demand,
when demanded, or any event shall occur or condition shall exist and shall continue for more
than the period of grace, if any, applicable thereto and shall have the effect of causing,
or permitting (any required notice having been given and grace period having expired) the
holder of any such Indebtedness (in excess of such amount) or any trustee or other Person
acting on behalf of such holder to cause, such Indebtedness to become due prior to its
stated maturity or to realize upon any collateral given as security therefor;

(k) Any Loan Document shall not be, or shall cease to be, enforceable and binding in
accordance with its terms, or the Borrower, any Material Subsidiary, or any other obligor
thereunder (except for the Agent or the Banks) shall disavow or contest, or attempt to
disavow or contest, its obligations under such Loan Document; or

(l) Except as a part of the Permitted Reorganization, any Person, or group of Persons
acting in concert, that owned less than 5% of the shares of any voting class of stock of the
Borrower shall have acquired more than 25% of the shares of such voting stock, or after
consummation of the Permitted Reorganization, either (i) any Person, or group of Persons
acting in concert, that owned less than 5% of the shares of any voting class of stock of New
OTC shall have acquired more than 25% of the shares of such voting stock, or (ii) New OTC
shall cease to own all of the shares of the Borrower.

     Section 10.2 Remedies. If (a) any Event of Default described in Sections
10.1(e), (f) or (g) shall occur with respect to the Borrower, the Commitments
shall automatically terminate and the outstanding unpaid principal balance of the Notes, the
accrued interest thereon and all other obligations of the Borrower to the Banks and the Agent under
the Loan Documents shall automatically become immediately due and payable; or (b) any other Event
of Default shall occur and be continuing, then the Agent may take any or all of the following
actions (and shall take any or all of the following actions on direction of the Required Banks):
(i) declare the Commitments terminated, whereupon the Commitments shall terminate, (ii) declare
that the outstanding unpaid principal balance of the Notes, the accrued and unpaid interest thereon
and all other obligations of the Borrower to the Banks and the Agent under the Loan Documents to be
forthwith due and payable, whereupon the Notes, all accrued and unpaid interest thereon and all
such obligations shall immediately become due and payable, in each case without demand or notice of
any kind, all of which are hereby expressly waived, anything in this Agreement or in the Notes to
the contrary notwithstanding, (iii) exercise all rights and remedies under any other instrument,
document or agreement between the Borrower and the Agent or the Banks, and (iv) enforce all rights
and remedies under any applicable law.

     Section 10.3 Letters of Credit. In addition to the foregoing remedies, if any Event
of Default described in Section 10.1(e), (f) or (g) shall have occurred, or
if any other Event of Default shall have occurred and the Agent shall have declared that the
principal balance of the Notes is due and payable, the Borrower shall pay to the Agent an amount
equal to all Letter of Credit Obligations. Such payment shall be in immediately available funds or
in similar cash collateral
acceptable to the Agent and shall be pledged to the Agent for the ratable benefit of the Banks.
Such amount shall be held by the Agent in a cash collateral account until the outstanding Letters
of Credit are terminated without payment or are paid and Letter of Credit Obligations with respect
thereto are payable. In the

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event the Borrower defaults in the payment of any Letter of Credit
Obligations, the proceeds of the cash collateral account shall be applied to the payment thereof.
The Borrower acknowledges and agrees that the Banks would not have an adequate remedy at law for
failure by the Borrower to pay immediately to the Agent the amount provided under this Section, and
that the Agent shall, on behalf of the Banks, have the right to require the Borrower to perform
specifically such undertaking whether or not any of the Letter of Credit Obligations are due and
payable. Upon the failure of the Borrower to make any payment required under this Section, the
Agent, on behalf of the Banks, may proceed to use all remedies available at law or equity to
enforce the obligation of the Borrower to pay or reimburse the Agent. The balance of any payment
due under this Section shall bear interest payable on demand until paid in full at a per annum rate
equal to the Base Rate plus 2.00%.

     Section 10.4 Security Agreement in Accounts and Setoff. As additional security for
the payment of all of the Obligations, the Borrower grants to the Agent, each Bank and each holder
of a Note a security interest in, a lien on, and an express contractual right to set off against,
each deposit account and all deposit account balances, cash and any other property of the Borrower
now or hereafter maintained with, or in the possession of, the Agent, such Bank or such other
holder of a Note. Upon the occurrence of any Event of Default, upon written direction by the Agent
to such effect, the Agent, each such Bank and each such holder of a Note may: (a) refuse to allow
withdrawals from any such deposit account; (b) apply the amount of such deposit account balances
and the other assets of the Borrower described above to the Obligations; and (c) offset any other
obligation of the Agent, such Bank or such holder of a Note against the Obligations; all whether or
not the Obligations are then due or have been accelerated and all without any advance or
contemporaneous notice or demand of any kind to the Borrower, such notice and demand being
expressly waived.

ARTICLE XI THE AGENT

     Section 11.1 Appointment and Grant of Authority. Each Bank hereby appoints the
Agent, and the Agent hereby agrees to act, as agent under the Loan Documents. The Agent shall have
and may exercise such powers under the Loan Documents as are specifically delegated to the Agent by
the terms hereof and thereof, together with such other powers as are reasonably incidental thereto.
Each Bank hereby authorizes, consents to, and directs the Borrower to deal with the Agent as the
true and lawful agent of such Bank to the extent set forth in the Loan Documents.

     Section 11.2 Non-Reliance on Agent. Each Bank agrees that it has, independently and
without reliance on the Agent or any other Bank, and based on such documents and information as it
has deemed appropriate, made its own credit analysis of the Borrower and decision to enter into
this Agreement and that it will, independently and without reliance upon the Agent, and based on
such documents and information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement. The Agent shall not be
required to keep informed as to the performance or observance by the Borrower of this Agreement and
the Loan Documents or to inspect the properties or books of the Borrower. Except for notices,
reports and other documents and information expressly required to be furnished to the Banks by the
Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any

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credit or other information concerning the affairs, financial condition or business of the Borrower
(or any of its related companies) which may come into the Agent’s possession.

     Section 11.3 Responsibility of the Agent and Other Matters.

(a) The Agent shall have no duties or responsibilities except those expressly set forth in
this Agreement and those duties and liabilities shall be subject to the limitations and
qualifications set forth in this Section. The duties of the Agent shall be mechanical and
administrative in nature.

(b) Neither the Agent nor any of its directors, officers or employees shall be liable for
any action taken or omitted (whether or not such action taken or omitted is within or
without the Agent’s responsibilities and duties expressly set forth in this Agreement) under
or in connection with this Agreement, or any other instrument or document in connection
herewith, except for gross negligence or willful misconduct. Without limiting the
foregoing, neither the Agent nor any of its directors, officers or employees shall be
responsible for, or have any duty to examine: (i) the genuineness, execution, validity,
effectiveness, enforceability, value or sufficiency of the Loan Agreements; (ii) the
collectibility of any amounts owed by the Borrower; (iii) any recitals or statements or
representations or warranties in connection with this Agreement or the Notes; (iv) any
failure of any party to this Agreement to receive any communication sent; or (v) the
assets, liabilities, financial condition, results of operations, business or
creditworthiness of the Borrower.

(c) The Agent shall be entitled to act, and shall be fully protected in acting upon, any
communication in whatever form believed by the Agent in good faith to be genuine and correct
and to have been signed or sent or made by a proper person or persons or entity. The Agent
may consult counsel and shall be entitled to act, and shall be fully protected in-any
action taken in good faith, in accordance with advice given by counsel. The Agent may
employ agents and attorneys-in-fact and shall not be liable for the default or misconduct of
any such agents or attorneys-in-fact selected by the Agent with reasonable care. The Agent
shall not be bound to ascertain or inquire as to the performance or observance of any of the
terms, provisions or conditions of this Agreement or the Notes on the Borrower’s part.

     Section 11.4 Action on Instructions. The Agent shall be entitled to act or refrain
from acting, and in all cases shall be fully protected in acting or refraining from acting under
this Agreement or the Notes or any other instrument or document in connection herewith or therewith
in accordance with instructions in writing from (i) the Required Banks except for instructions
which under the express provisions hereof must be received by the Agent from all the Banks, and
(ii) in the case of such instructions, from all the Banks.

     Section 11.5 Indemnification. To the extent the Borrower does not reimburse and save
the Agent harmless according to the terms hereof for and from all costs, expenses and disbursements
in connection herewith or with the other Loan Documents, such costs, expenses and disbursements to
the extent reasonable shall be borne by the Banks ratably in accordance with their

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Percentages and
the Banks hereby agree on such basis (a) to reimburse the Agent for all such reasonable costs,
expenses and disbursements on request and (b) to indemnify and save harmless the Agent against and
from any and all losses, obligations, penalties, actions, judgments and suits and other reasonable
costs, expenses and disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against the Agent, other than as a consequence of actual gross negligence
or willful misconduct on the part of the Agent, arising out of or in connection with this Agreement
or the Notes or any instrument or document in connection herewith or therewith, or any request of
the Banks, including without limitation the reasonable costs, expenses and disbursements in
connection with defending itself against any claim or liability, or answering any subpoena, related
to the exercise or performance of any of its powers or duties under this Agreement or the other
Loan Documents or the taking of any action under or in connection with this Agreement or the Notes.

     Section 11.6 U.S. Bank National Association and Affiliates. With respect to U.S. Bank
National Association’s Commitment and any Loans by U.S. Bank National Association under this
Agreement and any Note and any interest of U.S. Bank National Association in any Note, U.S. Bank
National Association shall have the same rights, powers and duties under this Agreement and such
Note as any other Bank and may exercise the same as though it were not the Agent. U.S. Bank
National Association and its affiliates may accept deposits from, lend money to, and generally
engage, and continue to engage, in any kind of business with the Borrower as if U.S. Bank National
Association were not the Agent.

     Section 11.7 Notice to Holder of Notes. The Agent may deem and treat the payees of
the Notes as the owners thereof for all purposes unless a written notice of assignment, negotiation
or transfer thereof has been filed with the Agent. Any request, authority or consent of any holder
of any Note shall be conclusive and binding on any subsequent holder, transferee or assignee of
such Note.

     Section 11.8 Successor Agent. The Agent may resign at any time by giving at least 30
days written notice thereof to the Banks and the Borrower. Upon any such resignation, the Required
Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been
appointed by the Required Banks and shall have accepted such appointment within 30 days after the
retiring Agent’s giving notice of resignation, then the retiring Agent may, but shall not be
required to, on behalf of the Banks, appoint a successor Agent.

     Section 11.9 Syndication Agent. The Syndication Agent shall have no duties,
responsibilities or liabilities in such capacity.

ARTICLE XII PERMITTED REORGANIZATION

     Section 12.1 Proposed Transaction. Without any representation or warranty that the
following transaction will be consummated, the Borrower has informed the Agent and the Banks that
it is planning the following transaction (the “Permitted Reorganization”):

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

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

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

(d) assumption by New OTC of all liabilities and obligations of the Borrower except (i)
those under this Agreement and the Notes issued hereunder, (ii) those under the Senior
Indebtedness Agreements listed on Schedule 12.1 and the Notes described on such
Schedule 12.1, and (iii) all liabilities and obligations that pertain to the
Borrower’s electric generation and transmission business and do not pertain to the operation
of the Borrower as a holding company (such liabilities and obligations other than those
described in (i), (ii) and (iii) hereof are called the “Assumed Liabilities”);

(e) release of the Borrower from the Assumed Liabilities by each holder thereof;

(f) release of Varistar Corporation and its Subsidiaries from guaranties of Senior
Indebtedness Agreements listed on Schedule 12.1 and the Notes described on such
Schedule 12.1;

(g) exchange of the stock of New OTC for the stock of the Borrower, which will be held by
New OTC;

(h) merger of the Borrower with Merger Sub (the “Merger”), where the surviving
corporation in the Merger will be the Borrower and will have the name Otter Tail Power
Company;

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

(j) the Borrower (now named Otter Tail Power Company and sometimes referred to herein as
the “Power Company”) will remain obligated under this Agreement and the other Loan
Documents.

     Section 12.2 Conditions to Permitted Reorganization. The following shall constitute
terms and conditions (in addition to those set forth in Section 12.1) that must be
satisfied for the proposed transaction to constitute the Permitted Reorganization under this
Agreement:

(a) New OTC and Merger Sub shall have been duly incorporated as Minnesota corporations.

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(b) the Power Company Assets shall be owned by the Borrower, and all assets of the Borrower
that are not Power Company Assets shall have been assigned or contributed to the capital of
New OTC.

(c) the stock of the Borrower shall be owned by New OTC;

(d) the Permitted Reorganization shall not result in ownership by any Person or group of
Persons acting in concert that owned less than 5% of the shares of any voting class of stock
of the Borrower of more than 25% of the shares of voting stock of New OTC;

(e) New OTC shall have submitted copies of its Articles of Incorporation and By-laws to the
Agent, and such Articles of Incorporation and By-laws shall be satisfactory to the Agent in
form and substance. Pursuant to such documents, New OTC shall have elected a board of
directors and New OTC shall have elected and qualified officers authorized to act for New
OTC. New OTC shall have received a tax identification number from the Internal Revenue
Service.

(f) New OTC and the Borrower shall have received approval of the reorganization from the
Minnesota Public Utilities Commission.

(g) The Agent shall have received all of the following, in form and substance satisfactory
to the Agent, each duly executed by all necessary parties:

(i) 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 Borrower filed or made in connection with the Permitted
Reorganization, including amendment to change the Borrower’s name to Otter Tail
Power Company;

(ii) certified copies of the articles of incorporation and bylaws of New OTC;

(iii) certificate of Good Standing for the Borrower and New OTC in the jurisdictions
of their incorporation, certified by the appropriate governmental officials;

(iv) copies of the instruments or documents entered into by all necessary parties
(1) pertaining to the transfer by the Borrower of all assets other than the Power
Company Assets to New OTC, (2) pertaining to transfer to New OTC of the Assumed
Liabilities and assumption thereof by New OTC, (3) constituting the release of the
Borrower from the Assumed Liabilities by the holders of the Assumed Liabilities as
provided in Section 12.1(e), and (4) constituting the release of the
guaranties by Varistar Corporation and its Subsidiaries of guaranties, as provided
in Section 12.1(f);

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(v) an instrument or agreement by the Borrower confirming to the Agent that the
Permitted Reorganization has been consummated in accordance with the terms and
condition of this Article XII, confirming the name change of the Borrower and
confirming that the Borrower, under such new name, remains obligated under this
Agreement, the Notes and the Agent’s Fee Letter, and that this Agreement, the Notes
and the Agent’s Fee Letter remain in full force and effect, enforceable against the
Borrower in accordance with their respective terms;

(vi) an opinion of counsel to the Borrower, addressed to the Bank, in substantially
the form of Exhibit D;

(vii) a balance sheet of the Borrower giving effect to the Permitted Reorganization,
prepared in accordance with GAAP, and projections and budgets for the Borrower
following the Permitted Reorganization, prepared in good faith by the Borrower; and

(viii) any necessary revised versions of Schedules 1.1(b), 7.6,
7.11, 7.15 and 7.16. as provided in Section
12.2(f)(i).

Upon delivery, the instruments or documents described in (iv) and (v) above shall be deemed
to be “Loan Documents” under this Agreement.

(h) No Default or Event of Default shall have occurred and shall have continued hereunder.
Upon and after consummation of the Permitted Reorganization:

(i) all representations and warranties of the Borrower hereunder, as applied to the
Borrower shall be true and correct, except the Borrower shall prepare and submit to
the Agent revised drafts of Schedules 7.6, 7.11, 7.15 and
7.16, which shall, for purposes of the representations and warranties, be
deemed to replace the corresponding Schedules to the Credit Agreement. Such revised
Schedule 7.15 shall include all Subsidiaries included in the Power Company
Assets;

(ii) no Default or Event of Default shall have occurred after giving effect to the
Permitted Reorganization; and

(iii) the Subsidiaries and Material Subsidiaries of the Borrower prior to the
Permitted Reorganization which do not constitute Power Company Assets shall be
deemed to no longer be Subsidiaries or Material Subsidiaries for purposes of
reference thereto in this Agreement.

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

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(j) The Agent shall have received satisfactory evidence that upon consummation of the
transactions described herein, the unsecured long term debt of the Borrower shall be rated
no lower than BBB by S&P and Baa2 by Moody’s.

     Section 12.3 Acknowledgement of No Liability of New OTC. The Banks and the Agent
acknowledge and agree that if the Permitted Reorganization is conducted as described in Section
12.1, and the terms and conditions set forth in Section 12.2 are satisfied, that New
OTC will have no obligations or liabilities to the Banks or the Agent under this Agreement, the
Notes or the Agent’s Fee letter, and such entity shall not be deemed to have assumed such
obligations and liabilities under Section 12.1(d).

ARTICLE XIII MISCELLANEOUS

     Section 13.1 No Waiver and Amendment. No failure on the part of the Banks or the
holder of the Notes to exercise and no delay in exercising any power or right hereunder or under
any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise
of any power or right preclude any other or further exercise thereof or the exercise of any other
power or right. The remedies herein and in any other instrument, document or agreement delivered
or to be delivered to the Banks hereunder or in connection herewith are cumulative and not
exclusive of any remedies provided by law. No notice to or demand on the Borrower not required
hereunder or under the Notes shall in any event entitle the Borrower to any other or further notice
or demand in similar or other circumstances or constitute a waiver of the right of the Banks or the
holder of the Notes to any other or further action in any circumstances without notice or demand.

     Section 13.2 Amendments, Etc. No amendment or waiver of any provision of this
Agreement, nor consent to any departure by the Borrower therefrom, shall in any event be effective
unless the same shall be in writing and signed by the Borrower and the Agent upon direction of the
Required Banks and then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given; provided, however, that no amendment,
waiver or consent shall, unless agreed to by the Agent and all of the Banks:

(a) increase the amounts of (except as provided in Section 2.9) or extend the terms
of the Commitments or subject the Banks to any additional obligations;

(b) change the principal of, or interest on, the Notes or any fees or other amounts payable
hereunder;

(c) postpone any date fixed for any payment of principal of, or interest on, the Notes or
any fees or other amounts payable hereunder;

(d) release any collateral held subject to Section 10.3, except as contemplated by
such Section; or

(e) change the definition of Required Banks or amend this Section 13.2

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provided, further that amendments, waivers or consents affecting the rights of the
Agent shall also require the consent of the Agent.

     Section 13.3 Assignments and Participations.

(a) Assignments. Each Bank shall have the right, subject to the further provisions
of this Sections 13.3, to sell or assign all or any part of its Commitments, Loans,
Notes, and other rights and obligations under this Agreement and related documents (such
transfer, and “Assignment”) to any commercial lender, other financial institution or
other entity (an “Assignee”). Upon such Assignment becoming effective as provided
in Section 13.3(b), the assigning Bank shall be relieved from the portion of its
Commitment, obligations to indemnify the Agent and other obligations hereunder to the extent
assumed and undertaken by the Assignee, and to such extent the Assignee shall have the
rights and obligations of a “Bank” hereunder. Notwithstanding the foregoing, unless
otherwise consented to by the Borrower and the Agent, each Assignment shall be in the
initial principal amount of not less than $5,000,000 in the aggregate for all Loans and
Commitments assigned, or an integral multiple of $1,000,000 if above such amount Each
Assignment shall be documented by an agreement between the assigning Bank and the Assignee
(an “Assignment and Assumption Agreement”) substantially in the form of Exhibit
E attached hereto.

(b) Effectiveness of Assignments. An Assignment shall become effective hereunder
when all of the following shall have occurred: (i) except in the instance of an assignment
to an affiliate of the assigning Bank, the Agent and the Borrower (or, following occurrence
and during continuance of an Event of Default, the Agent only and not the Borrower) shall
consent to such Assignment (which consent shall not be unreasonably withheld), by either
notice of such consent or by executing and delivering such Assignments, (ii) either the
assigning Bank or the Assignee shall have paid a processing fee of $3,500 to the Agent for
its own account, (iii) the Assignee shall have submitted the Assignment and Assumption
Agreement to the Agent with a copy for the Borrower, and shall have provided to the Agent
information the Agent shall have reasonably requested to make payments to the Assignee, and
(iv) the assigning Bank and the Agent shall have agreed upon a date upon which the
Assignment shall become effective. Upon the Assignment becoming effective, (x) if requested
by the assigning Bank, the Agent and the Borrower shall make appropriate arrangements so
that new Notes are issued to the
assigning Bank and the Assignee; and (y) the Agent shall forward all payments of interest,
principal, fees and other amounts that would have been made to the assigning Bank, in
proportion to the percentage of the assigning Bank’s rights transferred, to the Assignee.

(c) Participations. Each Bank shall have the right, subject to the further
provisions of this Section 13.3, to grant or sell a participation in all or any part
of its Loans, Notes and Commitments (a “Participation”) to any commercial lender, other
financial institution or other entity (a “Participant”) without the consent of the Borrower,
the Agent of any other

49

 

party hereto. The Borrower agrees that if amounts outstanding under
this agreement and the Notes are due and unpaid, or shall have been declared or shall have
become due and payable upon the occurrence of an Event of Default, each Participant shall be
deemed to have the right of setoff in respect of its Participation in amounts owing under
this Agreement and any Note to the same extent as if the amount of its Participation were
owing directly to it as a Bank under this agreement or any note; provided, that such right
of setoff shall be subject to the obligation of such Participant to share with the Banks,
and the Banks agree to share with such Participant, as provided in Section 4.5
hereof. The Borrower also agrees that each Participant shall be entitled to the benefits of
Article V with respect to its Participation, provided, that no Participant shall be
entitled to receive any greater amount pursuant to such Sections than the transferor Bank
would have been entitled to receive in respect of the amount of the Participation
transferred by such transferor Bank to such Participant had no such transfer occurred.

(d) Limitation of Rights of any Assignee or Participant. Notwithstanding anything
in the foregoing to the contrary, except in the instance of an Assignment that has become
effective as provided in Section 13.3(b), (i) no Assignee or Participant shall have
any direct rights hereunder, (ii) the Borrower, the Agent and the Banks other than the
assigning or selling Bank shall deal solely with the assigning or selling Bank and shall not
be obligated to extend any rights or make any payment to, or seek any consent of, the
Assignee or Participant, (iii) no Assignment or Participation shall relieve the assigning or
selling Bank from its Commitment to make Loans hereunder or any of its other obligations
hereunder and such Bank shall remain solely responsible for the performance hereof, the (iv)
no Assignee or Participant, other than an affiliate of the assigning or selling Bank, shall
be entitled to require such Bank to take or omit to take any action hereunder, except that
such Bank may agree with such Assignee or Participant that such Bank will not, without such
Assignee’s or Participant’s consent, take any action which would, in the case of any
principal, interest or fee in which the Assignee or Participant has an ownership or
beneficial interest: (w) extend the final maturity of any Loans or extend the Termination
Date, (x) reduce the interest rate on the Loans or the rate of Utilization and Facility
Fees, (y) forgive any principal of, or interest on, the Loans or any fees, or (z) release
all or substantially all of the Collateral for the Loans.

(e) Tax Matters. No Bank shall be permitted to enter into any Assignment or
Participation with any Assignee or Participant who is not a United States Person unless
such Assignee or Participant represents and warrants to such Bank that, as at the date of
such Assignment or Participation, it is entitled to receive interest payments without
withholding or deduction of any taxes and such Assignee or Participant executes and delivers
to such Bank on or before the date of execution and delivery of documentation of such
Participation or Assignment, a United States Internal Revenue Service Form W8BEN or W8ECI,
or any successor to either of such forms, as appropriate, properly completed an claiming
complete exemption from withholding and deduction of all Federal Income Taxes. A “United
States Person” means any citizen, national or resident of the United States, any corporation
or other entity created or organized in or under the laws of the United States or any
political subdivision hereof or any estate or trust, in each

50

 

case that is not subject to
withholding of United States Federal income taxes or other taxes on payment of interest,
principal of fees hereunder.

(f) Information. Each Bank may furnish any information concerning the Borrower in
the possession of such Bank from time to time to Assignees and Participants and potential
Assignees and Participants.

(g) Federal Reserve Bank. Nothing herein stated shall limit the right of any Bank
to assign any interest herein and in any Note to a Federal Reserve Bank.

Section 13.4 Costs, Expenses and Taxes; Indemnification.

(a) The Borrower agrees, whether or not any Advance is made hereunder, to pay on demand:
(i) all costs and expenses of the Agent (including the reasonable fees and expenses of
counsel and paralegals for such persons who may be employees of such persons) incurred in
connection with the preparation, execution and delivery of the Loan Documents and the
preparation, negotiation and execution of any and all amendments to each thereof, and (ii)
all costs and expenses of the Agent and each of the Banks incurred after the occurrence of
an Event of Default in connection with the enforcement of the Loan Documents. The Borrower
agrees to pay, and save the Banks harmless from all liability for, any stamp or other taxes
which may be payable with respect to the execution or delivery of the Loan Documents. The
Borrower agrees to indemnify and hold the Banks harmless from any loss or expense which may
arise or be created by the acceptance in good faith by the Agent of telephonic or other
instructions for making Advances or disbursing the proceeds thereof.

(b) The Borrower agrees to defend, protect, indemnify, and hold harmless the Agent and each
and all of the Banks, each of their respective Affiliates and each of the respective
officers, directors, employees and agents of each of the foregoing (each an “Indemnified
Person” and, collectively, the “Indemnified Persons”) from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including, without
limitation, the fees and disbursements of counsel to such Indemnified Persons in connection
with any investigative, administrative or judicial proceeding, whether direct,
indirect or consequential and whether based on any federal or state laws or other statutory
regulations, including, without limitation, securities and commercial laws and regulations,
under common law or at equitable cause, or on contract or otherwise, the capitalization of
the Borrower, the Commitments, the making of, management of and participation in the
Advances or the use or intended use of the proceeds of the Advances, provided that the
Borrower shall have no obligation under this Section 13.4(b) to an Indemnified
Person with respect to any of the foregoing to the extent resulting from the gross
negligence or willful misconduct of such Indemnified Person or arising solely from claims
between one such Indemnified Person and another such Indemnified Person. The indemnity set
forth herein shall be in addition to any other obligations or liabilities of the Borrower to
each Indemnified Person under the Loan Documents or at common law or otherwise.

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(c) The obligations of the Borrower under this Section 13.4 shall survive any
termination of this Agreement.

Section 13.5 Notices.

(a) Except when telephonic or electronic notice is expressly authorized by this Agreement,
any notice or other communication to any party in connection with this Agreement shall be in
writing and shall be sent by manual delivery, facsimile transmission, overnight courier or
United States mail (postage prepaid) addressed to such party at the address specified on the
signature page hereof, or at such other address as such party shall have specified to the
other party hereto in writing. All periods of notice shall be measured from the date of
delivery thereof if manually delivered, from the date of sending thereof if sent by
facsimile transmission, from the first Business Day after the date of sending if sent by
overnight courier, or from four days after the date of mailing if mailed; provided,
however, that any notice to the Agent under Article II hereof shall be
deemed to have been given only when received by the Agent.

(b) Financial statements, reports and letters under Section 8.1(a), (b), (c), (f) and (g)
and other ordinary course requests or communications by the Borrower to the Agent may be
sent by the Borrower to the Agent by e-mail, and may be distributed by the Agent to the Bank
by similar means or by posting to Intralinks®, or other coded commercial service selected
for such purpose by the Agent.

     Section 13.6 Successors. This Agreement shall be binding upon the Borrower, the
Banks and the Agent and their respective successors and assigns, and shall inure to the benefit of
the Borrower, the Banks and the Agent and the successors and assigns of the Banks. The Borrower
shall not assign its rights or duties hereunder without the written consent of the Banks.

     Section 13.7 Severability. Any provision of the Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such
prohibition or unenforceability without invalidating the remaining provisions hereof or affecting
the validity or enforceability of such provision in any other jurisdiction.

     Section 13.8 Subsidiary References. The provisions of this Agreement relating to
Subsidiaries shall apply only during such times as the Borrower has one or more Subsidiaries.

     Section 13.9 Captions. The captions or headings herein and any table of contents
hereto are for convenience only and in no way define, limit or describe the scope or intent of any
provision of this Agreement.

     Section 13.10 Entire Agreement. The Loan Documents embody the entire agreement and
understanding between the Borrower, the Banks and the Agent with respect to the subject matter
hereof and thereof. This Agreement supersedes all prior agreements and understandings relating to
the subject matter hereof.

52

 

     Section 13.11 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same instrument, and either
of the parties hereto may execute this Agreement by signing any such counterpart.

     Section 13.12 Governing Law. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS
AGREEMENT AND THE NOTES SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT
GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE
UNITED STATES APPLICABLE TO NATIONAL BANKS.

     Section 13.13 Consent to Jurisdiction. AT THE OPTION OF THE BANKS, THIS AGREEMENT
AND THE NOTES MAY BE ENFORCED IN ANY FEDERAL COURT SITTING IN MINNEAPOLIS OR ST. PAUL, MINNESOTA;
AND THE BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT
THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE BORROWER COMMENCES ANY ACTION IN
ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM
THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE BANKS AT ITS OPTION SHALL BE ENTITLED TO HAVE THE
CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT
BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.

     Section 13.14 Waiver of Jury Trial. THE BORROWER, THE BANKS AND THE AGENT EACH WAIVE
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (a) UNDER
THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN
THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (b) ARISING FROM ANY BANKING RELATIONSHIP
EXISTING IN
CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE
A COURT AND NOT BEFORE A JURY.

     Section 13.15 Customer Identification — USA PATRIOT Act Notice. Each Bank (for
itself and not on behalf of any other party) hereby notifies the Borrower that, pursuant to the
requirements of the USA PATRIOT Act, Title III of Pub. L. 107-56, signed into law October 26, 2001
(the “Act”), it is required to obtain, verify and record information that identifies the Borrower,
which information includes the name and address of the Borrower and other information that will
allow such Bank, as applicable, to identify the Borrower in accordance with the Act.

     Section 13.16 OFAC and Asset Control Regulations. The Borrower shall (a) ensure, and
cause each Subsidiary to ensure, that no Person who owns a controlling interest in or otherwise
controls the Borrower or any Subsidiary is or shall be listed on the Specially Designated Nationals
and Blocked Person List or other similar lists maintained by the Office of Foreign

53

 

Assets Control
(“OFAC”), the Department of the Treasury, or included in any Executive Orders, and (b) not use or
permit the use of the proceeds of the Loans to violate any of the foreign asset control regulations
of OFAC or any enabling statute or Executive Order relating thereto.

(signature pages follows)

54

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the
date first above.

	 	 	 	 	 	 	 
	 	 	OTTER TAIL CORPORATION, dba	 	 
	 	 	OTTER TAIL POWER COMPANY	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Kevin G. Moug                       
	 	                         
	 

	 	 	 	 	 	 
	 

	 	Title:
	 	Chief Financial Officer	 	 
	 
	 	 	 	 	 	 
	 	 	P.O. Box 496	 	 
	 	 	Fergus Falls, MN 56538-0496	 	 
	 	 	Attention: Mr. Kevin G. Moug	 	 
	 	 	                   Chief Financial Officer	 	 
	 	 	Telephone: (701) 451-3562	 	 
	 	 	Fax: (701) 232-4108	 	 

 

 

	 	 	 	 	 	 	 
	 	 	U.S. BANK NATIONAL ASSOCIATION, 

as Agent and a Bank	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Delton Steele                       
	 	                          
	 

	 	 	 	 	 	 
	 

	 	Title:
	 	 Vice President	 	 
	 
	 	 	 	 	 	 
	 	 	505 Second Avenue North	 	 
	 	 	Mail Code EP-ND-0630	 	 
	 	 	Fargo, ND 58102	 	 
	 	 	Attention: Mr. Delton Steele	 	 
	 	 	                   Vice President	 	 
	 	 	Telephone: (701) 280-3553	 	 
	 	 	Fax: (701) 280-3580	 	 

 

 

	 	 	 	 	 	 	 
	 	 	BANK OF AMERICA, N.A., as Syndication 

Agent and as a Bank	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ A. Quinn Richardson                 
	 	                 
	 

	 	 	 	 	 	 
	 

	 	Title:
	 	 Senior Vice President	 	 
	 
	 	 	 	 	 	 
	 	 	135 S. LaSalle Street	 	 
	 	 	Chicago, IL 60603	 	 
	 	 	Attention: A. Quinn Richardson	 	 
	 	 	Telephone: (312) 992-2160	 	 
	 	 	Fax: (312) 904-6546	 	 

 

 

	 	 	 	 	 	 	 
	 	 	JPMORGAN CHASE BANK, N.A., as a Bank	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Helen D. Davis                      
	 	                            
	 

	 	 	 	 	 	 
	 

	 	Title:
	 	 Vice President	 	 
	 
	 	 	 	 	 	 
	 	 	10 South Dearborn, 9th Floor, IL1-0090	 	 
	 	 	Chicago, IL 60603	 	 
	 	 	Attention: Helen Davis	 	 
	 	 	Telephone: (312) 732-1759	 	 
	 	 	Fax: (312) 732-1762	 	 

 

 

	 	 	 	 	 	 	 
	 	 	WELLS FARGO BANK, NATIONAL

ASSOCIATION, as a Bank	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Patrick McCue                
	 	                        
	 

	 	Title:
	 	 Vice President	 	 
	 
	 	 	 	 	 	 
	 	 	Sixth & Marquette, 3rd Floor	 	 
	 	 	MAC: N9305-031	 	 
	 	 	Minneapolis, MN 55479	 	 
	 	 	Attention: Patrick McCue	 	 
	 	 	Vice President	 	 
	 	 	Tel: 612-667-0700	 	 
	 	 	Fax: 612-667-2276	 	 

 

 

	 	 	 	 	 	 	 
	 	 	MERRILL LYNCH BANK USA, as a Bank	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Derek Befus	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:
	 	 Vice President	 	 
	 
	 	 	 	 	 	 
	 	 	201 S. Main St. STE 200	 	 
	 	 	Salt Lake City, UT 84111	 	 
	 	 	Attention: Derek Befus	 	 
	 	 	Vice President	 	 
	 	 	Tel: 801-526-6814	 	 
	 	 	Fax: 801-531-7470	 	 

 

 

EXHIBITS

	 	 	 
	Exhibit	 	Contents
	A-1

	 	Revolving Note
	 

	A-2

	 	Swing Line Note
	 
	 	 
	B

	 	Compliance Certificate
	 
	 	 
	C

	 	Form of Legal Opinion
	 
	 	 
	D

	 	Form of Legal Opinion of Counsel to Power Company
	 
	 	 
	E

	 	Assignment and Assumption

	 	 	 
	Schedules	 	 
	1.1(a)

	 	Commitments and Percentages
	 
	 	 
	1.1(b)

	 	Material Subsidiaries
	 
	 	 
	2.6

	 	Existing Letters of Credit (Section 2.6)
	 
	 	 
	7.6

	 	Litigation (Section 7.6) 

Contingent Liabilities (Section 7.6)
	 
	 	 
	7.11

	 	Existing Liens (Sections 7.11 and 9.8)
	 
	 	 
	7.15

	 	Subsidiaries (Section 7.15)
	 
	 	 
	7.16

	 	Partnerships/Joint Ventures (Section 7.16)
	 
	 	 
	9.7

	 	Investments (Section 9.7)
	 
	 	 
	12.1

	 	Senior Indebtedness Agreements and Notes to be
Retained as Obligations of the Borrower following
Permitted Reorganization

 

 

      

      

CREDIT AGREEMENT

Dated as of July 30, 2008

Among

OTTER TAIL CORPORATION dba

OTTER TAIL POWER COMPANY,

THE BANKS,

as defined herein,

BANK OF AMERICA, N.A.,

as Syndication Agent,

and

U.S. BANK NATIONAL ASSOCIATION,

as Agent

      

      

 

 

EXHIBIT A-1

PROMISSORY NOTE

			
	 	 	 
	$[Commitment]
	 	Minneapolis, Minnesota: July 30, 2008

     FOR VALUE RECEIVED, the undersigned OTTER TAIL CORPORATION, dba OTTER TAIL POWER COMPANY, a
Minnesota corporation (the “Borrower”), promises to pay to the order of [BANK] (the “Bank”), on the
Termination Date, or other due date or dates determined under the Credit Agreement hereinafter
referred to, the principal sum of                      DOLLARS ($[Commitment]), or if
less, the then aggregate unpaid principal amount of the Revolving Loans (as such terms are defined
in the Credit Agreement) as may be borrowed by the Borrower from the Bank under the Credit
Agreement. All Revolving Loans and all payments of principal shall be recorded by the holder in
its records which records shall be conclusive evidence of the subject matter thereof, absent
manifest error.

     The Borrower further promises to pay to the order of the Bank interest on the aggregate unpaid
principal amount hereof from time to time outstanding from the date hereof until paid in full at
the rates per annum which shall be determined in accordance with the provisions of the Credit
Agreement. Accrued interest shall be payable on the dates specified in the Credit Agreement.

     All payments of principal and interest under this Note shall be made in lawful money of the
United States of America in immediately available funds at the office of U.S. Bank National
Association, at 800 Nicollet Mall, Minneapolis, Minnesota 55402, or at such other place as may be
designated by the Agent to the Borrower in writing.

     This Note is the Note referred to in, and evidences indebtedness incurred under, a Credit
Agreement dated as of July 30, 2008 (herein, as it may be amended, modified or supplemented from
time to time, called the “Credit Agreement”) among the Borrower, the Banks, as defined therein
(including the Bank) and U.S. Bank National Association, as Agent, to which Credit Agreement
reference is made for a statement of the terms and provisions thereof, including those under which
the Borrower is permitted and required to make prepayments and repayments of principal of such
indebtedness and under which such indebtedness may be declared to be immediately due and payable.

     All parties hereto, whether as makers, endorsers or otherwise, severally waive presentment,
demand, protest and notice of dishonor in connection with this Note.

     This Note is made under and governed by the internal laws of the State of Minnesota.

	 	 	 	 	 
	 	 	OTTER TAIL CORPORATION, dba
	 	 	OTTER TAIL POWER COMPANY
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 

 

 

EXHIBIT A-2

PROMISSORY NOTE

			
	 	 	 
	$20,000,000
	 	Minneapolis, Minnesota: July 30, 2008

     FOR VALUE RECEIVED, the undersigned OTTER TAIL CORPORATION, dba OTTER TAIL POWER COMPANY, a
Minnesota corporation (the “Borrower”), promises to pay to the order of U.S. BANK NATIONAL
ASSOCIATION (the “Bank”), on the Termination Date, or other due date or dates determined under the
Credit Agreement hereinafter referred to, the principal sum of TWENTY MILLION DOLLARS
($20,000,000), or if less, the then aggregate unpaid principal amount of the Swing Line Loans (as
such terms are defined in the Credit Agreement) as may be borrowed by the Borrower from the Bank
under the Credit Agreement. All Swing Line Loans and all payments of principal shall be recorded
by the holder in its records which records shall be conclusive evidence of the subject matter
thereof, absent manifest error.

     The Borrower further promises to pay to the order of the Bank interest on the aggregate unpaid
principal amount hereof from time to time outstanding from the date hereof until paid in full at
the rates per annum which shall be determined in accordance with the provisions of the Credit
Agreement. Accrued interest shall be payable on the dates specified in the Credit Agreement.

     All payments of principal and interest under this Note shall be made in lawful money of the
United States of America in immediately available funds at the office of U.S. Bank National
Association, at 800 Nicollet Mall, Minneapolis, Minnesota 55402, or at such other place as may be
designated by the Agent to the Borrower in writing.

     This Note is the Note referred to in, and evidences indebtedness incurred under, a Credit
Agreement dated as of July 30, 2008 (herein, as it may be amended, modified or supplemented from
time to time, called the “Credit Agreement”) among the Borrower, the Banks, as defined therein
(including the Bank) and U.S. Bank National Association, as Agent, to which Credit Agreement
reference is made for a statement of the terms and provisions thereof, including those under which
the Borrower is permitted and required to make prepayments and repayments of principal of such
indebtedness and under which such indebtedness may be declared to be immediately due and payable.

     All parties hereto, whether as makers, endorsers or otherwise, severally waive presentment,
demand, protest and notice of dishonor in connection with this Note.

     This Note is made under and governed by the internal laws of the State of Minnesota.

	 	 	 	 	 
	 	 	OTTER TAIL CORPORATION, dba
	 	 	OTTER TAIL POWER COMPANY
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 

 

 

Exhibit B

Compliance Certificate

                    , 20___

U.S. Bank National Association

505 Second Avenue North

EP-ND-0630

Fargo, ND 58102

Attention: Delton Steele

               Vice President

Ladies/Gentlemen:

     Reference is made to that certain Credit Agreement, dated as of July 30, 2008 (as amended from
time to time, the “Credit Agreement”), among OTTER TAIL CORPORATION (the “Borrower”), the Banks
named therein and U.S. BANK NATIONAL ASSOCIATION, as Agent (the “Agent”). Terms not otherwise
expressly defined herein shall have the meanings set forth in the Credit Agreement.

     As required pursuant to Section 8.1(d) of the Credit Agreement, the Borrower hereby certifies
that as of                     , 20___, the following is true, correct and accurate in all respects:

     1. The consolidated financial statements submitted herewith are fairly presented in all
material respects.

     2. No Default and no Event of Default, has occurred and continued.

     3. All representations and warranties of the Borrower contained in Article VII of the
Credit Agreement are true and correct, as though made on such date;

     4. The Borrower’s Long Term Debt Rating is:

	 	 	 	 	 
	Standard & Poor’s:
	 	 	                    	 
	 
	 	 	 	 
	Moody’s:
	 	 	                    .	 

     5. Covenant compliance is demonstrated as follows:

     Section 9.13 Interest-bearing Debt to Total Capitalization.

	 	 	 	 	 
	Interest-bearing Debt:
	 	$	                    	 
	 
	 	 	 	 
	to:
	 	 	 	 

 

 

	 	 	 	 	 
	Total Capitalization:
	 	$	                    	 

(Required: not greater than 0.60 to 1.00).

     Section 9.14 Interest and Dividend Coverage Ratio. For the four-quarter period
ending on the date of the enclosed consolidated financial statements:

	 	 	 	 	 
	EBIT:
	 	$	                    	 
	 
	 	 	 	 
	to:
	 	 	 	 
	 
	 	 	 	 
	sum of
	 	 	 	 
	Interest Expense:
	 	$	                    	 
	Dividends on Preferred Stock:
	 	$	                    	 
	 
	 	$	                    	 
	 
	 	 	 	 
	Ratio: ___ to 1.00
	 	 	 	 

(Required: not less than 1.50 to 1.00).

	 	 	 	 	 
	 	 	OTTER TAIL CORPORATION, dba
	 	 	OTTER TAIL POWER COMPANY
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 	 	[chief financial officer]

 

 

Exhibit C

Opinion of Counsel

[date]

To: The Banks party to the

Credit Agreement described herein

[address to each bank]

Ladies and Gentlemen:

     I have acted as counsel to Otter Tail Corporation, dba Otter Tail Power Company, a Minnesota
corporation (the “Company”), in connection with the transactions contemplated by that certain
Credit Agreement, dated as of July 30, 2008, entered into among the Company, the Banks, as defined
therein, and U.S. Bank National Association, as Agent (the “Credit Agreement”). This opinion is
being delivered to you pursuant to Section 6.1(e) of the Credit Agreement. Capitalized terms used
herein, except as otherwise specifically defined herein, are used with the same meaning as defined
in the Credit Agreement.

     In connection with this opinion, I have examined the following documents:

	 	(a)	 	The Articles or Certificate of Incorporation of the Company;
	 
	 	(b)	 	The Bylaws of the Company;
	 
	 	(c)	 	Resolutions of the Board of Directors of the Company;
	 
	 	(d)	 	An executed copy of the Credit Agreement; and
	 
	 	(e)	 	An executed copy of the Notes.

     I also have examined such other 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) 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 (other than officers of the Company) and, with respect to all parties to agreements or
instruments relevant hereto other than the Company, 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. As
to questions of fact material to my opinion, I have relied upon representations and certificates of
officers and other employees of the Company (known by me to have authority to make such
representations and certifications on behalf of the Company) and certificates of public officials.

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

     (i) The Company is a corporation duly organized, validly existing and in good standing under
the laws of the state of its incorporation, and is duly qualified and in good standing as a foreign
corporation in all other jurisdictions in which its respective present operations or properties
require such qualification, except where failure so to qualify or to be in good standing would not
constitute an Adverse Event.

     (ii) The Company has full corporate power and authority to (a) own and operate its properties
and assets and carry on its business as presently conducted, as described in the Company’s Annual
Report or Form 10-K for the year ended December 31, 2007, and (b) enter into and perform its
obligations under the Loan Documents to which it is a party.

     (iii) The execution and delivery of the Loan Documents, the borrowing by the Company under the
Credit Agreement and the performance by the Company of its obligations under the Loan Documents to
which it is a party have been duly authorized by all necessary corporate action, and the Loan
Documents have been duly executed and delivered on behalf of the Company, and constitute valid and
binding obligations of the Company, enforceable in accordance with their respective terms.

     (iv) There is no provision in (a) the Company’s Articles or Certificate of Incorporation or
Bylaws, (b) any indenture, mortgage, contract or agreement to which the Company is a party or by
which the Company or its properties are bound, (c) any law, statute, rule or regulation or (c) any
writ, order or decision of any court or governmental instrumentality binding on the Company which
would be contravened by the execution, delivery or performance by the Company of the Loan Documents
to which it is a party, except in the case of clauses (b) and (d) for any such contravention which
would not constitute an Adverse Event.

     (v) There are no actions, suits or proceedings pending or, to the best of my knowledge,
threatened against the Company before any court or arbitrator or by or before any administrative
agency or government authority, which, if adversely determined, could reasonably be expected to
constitute an Adverse Event.

     The opinions expressed above are limited to the laws of the States of Minnesota and the
federal laws of the United States and 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 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

 

 

Exhibit D

Opinion of Counsel

Otter Tail Power Company

[date]

To: The Banks party to the

Credit Agreement described herein

[address to each bank]

Ladies and Gentlemen:

     I have acted as counsel to Otter Tail Power Company, a Minnesota corporation (the “Company”),
in connection with the transactions contemplated by Article XII (the “Reorganization”) of that
certain Credit Agreement, dated as of July 30, 2008, entered into among Otter Tail Corporation dba
Otter Tail Power Company, the Banks, as defined therein, and U.S. Bank National Association, as
Agent (the “Credit Agreement”). This opinion is being delivered to you pursuant to Section
12.3(g)(vi) of the Credit Agreement. Capitalized terms used herein, except as otherwise
specifically defined herein, are used with the same meaning as defined in the Credit Agreement.

     In connection with this opinion, I have examined the following documents:

(a) The Articles or Certificate of Incorporation of the Company;

(b) The Bylaws of the Company;

(c) Resolutions of the Board of Directors of the Company; and

(d) Articles of Merger, dated as of                      (the “Articles of Merger”), pursuant to
which [Otter Tail Merger Sub, a Minnesota corporation] merged with Otter Tail
Corporation, with the Company being the surviving entity (the “Merger”);

(e) Instruments of assignment and assumption (the “Assumption Agreements”) pursuant
to which the Company has transferred to Otter Tail Holding Company, a Minnesota
corporation, the name of which corporation has been changed to Otter Tail
Corporation (“New OTC”) the Non-Power Company Asset, as defined in the Credit
Agreement, and New OTC has assumed the Assumed Liabilities, as defined in the Credit
Agreement; and

 

 

(f) Other instruments and document pertaining to the Reorganization.

     I also have examined such other 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) 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 (other than officers of the Company) and, with respect to all parties to agreements or
instruments relevant hereto other than the Company, 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. As to questions of fact material to my
opinion, I have relied upon representations and certificates of officers and other employees of the
Company (known by me to have authority to make such representations and certifications on behalf of
the Company) and certificates of public officials.

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

     (i) The Company is a corporation duly organized, validly existing and in good standing under
the laws of the state of its incorporation, and is duly qualified and in good standing as a foreign
corporation in all other jurisdictions in which its respective present operations or properties
require such qualification, except where failure so to qualify or to be in good standing would not
constitute an Adverse Event.

     (ii) The Company has full corporate power and authority to (a) own and operate its properties
and assets and carry on the business of electrical generation and transmission business as
presently conducted, as described in the Company’s Annual Report or Form 10-K for the year ended
December 31, 2007, and (b) enter into and perform its obligations under the additional Loan
Documents delivered in connection with the Reorganization to which it is a party.

     (iii) The execution and delivery of the Loan Documents (including the Assumption Agreements
and any other Loan Documents delivered in connection with the Reorganization), the borrowing by the
Company under the Credit Agreement and the performance by the Company of its obligations under the
Loan Documents to which it is a party have been duly authorized by all necessary corporate action,
and the Loan Documents have been duly executed and delivered on behalf of the Company, and
constitute valid and binding obligations of the Company, enforceable in accordance with their
respective terms.

     (iv) There is no provision in (a) the Company’s Articles or Certificate of Incorporation or
Bylaws, (b) any indenture, mortgage, contract or agreement to which the Company is a party or by
which the Company or its properties are bound, (c) any law, statute, rule or regulation or (c)
any writ, order or decision of any court or governmental instrumentality binding on the

 

 

Company
which would be contravened by the execution, delivery or performance by the Company of the Loan
Documents to which it is a party, except in the case of clauses (b) and (d) for any such
contravention which would not constitute an Adverse Event.

     (v) The Merger has been completed substantially in accordance with the Articles of Merger.

     (vi) There are no actions, suits or proceedings pending or, to the best of my knowledge,
threatened against the Company before any court or arbitrator or by or before any administrative
agency or government authority, which either (1) challenge or attempt to enjoin, prevent or
invalidate the Reorganization, or (2) if adversely determined, could reasonably be expected to
constitute an Adverse Event.

     The opinions expressed above are limited to the laws of the States of Minnesota and the
federal laws of the United States and 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 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

 

 

Exhibit E

Assignment and Assumption

ASSIGNMENT AND ASSUMPTION AGREEMENT

(Otter Tail Corporation)

     This Agreement, dated as of the date set forth in Item I (each reference to an
“Item” herein shall be deemed to refer to such Item on Schedule I hereto),
is made by the party named in Item II, (the “Assignor”) to the entity named in Item
III (the “Assignee”).

WITNESSETH

     The Assignor has entered into a Credit Agreement dated as of July 30, 2008, as amended
thereafter (the “Credit Agreement”) among OTTER TAIL CORPORATION (the “Borrower”), certain lenders
including the Assignor (collectively, the “Bank Group”) and U.S. BANK NATIONAL ASSOCIATION, as
Agent, under which the Assignor has agreed to make Revolving Loans, to issue or participate in the
risk of issuance of Letters of Credit, and to participate in Swing Line Loans, in each instance in
amounts of up to those set forth in Item IV (such amount equals the original commitment of
the Assignor and may have been, or may be, reduced or increased by other assignments by, or to, the
Assignor, and will be reduced by the assignment under this Agreement) and the Bank Group has agreed
to make Revolving Loans, to issue or participate in the risk of issuance of Letters of Credit, and
to participate in Swing Line Loans, in each instance in amounts of up to those set forth in
Item V. Such Revolving Loans are sometimes called the “Loans” hereinafter; such Letters of
Credit are sometimes called the “Letters of Credit” hereinafter; the Loans, the Bank’s
participation in the Letters of Credit, the Bank’s participation in any unreimbursed drawing under
any Letter of Credit or any advance or loans made in connection with drawings under any Letter of
Credit and the Bank’s participation in Swing Line Loans, are sometimes called the “Advances” or
each “Advance,, hereinafter. Unless the context clearly indicates otherwise, all other terms used
in this Agreement shall have the meanings given them by, and shall be construed as set forth in the
Credit Agreement.

     In consideration of the premises and the mutual covenants contained herein, the Assignor and
the Assignee hereby covenant and agree as follows:

     1. Assignment and Assumption. Subject to the terms and conditions of this Agreement,
the Assignor and the Assignee agree that:

(a) the Assignor hereby sells, transfers, assigns and delegates to the Assignee, in
consideration of entry by the Assignee into this Agreement [and of Payment by the
Assignee to the Assignor of the amount set forth in Item VI]; and

(b) the Assignee hereby purchases, assumes and undertakes from the Assignor, without
recourse and without representation or warranty (except as expressly provided in this
Agreement)

 

 

a share equal to the percentage set forth in Item VII (expressed as a percentage of the
aggregate Advances and Commitments of the Bank Group) of the Assignor’s commitments, loans,
participations, rights, benefits, obligations, liabilities and indemnities under and in connection
with the Credit Agreement and all of the Advances, including without limitation the right to
receive payment of principal, and interest on such percentage of the Assignor’s Advances, and the
obligation to fund all future Advances and drawings under the Letters of Credit in respect of such
assignment, and to indemnify the Agent or any other party under the Credit Agreement and to pay all
other amounts payable by a Bank (in such percentage of the aggregate obligations of the Bank Group)
under or in connection with the Credit Agreement.

     The interest of the Assignor under the Credit Agreement (including the portion of the
Assignor’s Advances and all such commitments, loans, participations, rights, benefits, obligations,
liabilities and indemnities) which the Assignee purchases and assumes hereunder is hereinafter
referred to as its “Assigned Share”. The day upon which the Assignee shall make the payment
described in the prior paragraph is hereinafter referred to as the “Funding Date”. Upon completion
of the assignment hereunder, the Assignor will have the revised share of the total Loans and
Commitments of the Bank Group set fort in Item VIII.

     2. Future Payments. The Assignor shall notify the Agent to make all payments with
respect to the Assigned Share after the Funding Date directly to the Assignee. The Assignor and
Assignee agree and acknowledge that all payment of interest, commitment fees, letter of credit
commissions and other fees accrued up to, but not including, the Funding Date are the property of
the Assignor, and not the Assignee. The Assignee shall, upon payment of any interest, commitment
fees, letter of credit commissions or other fees, remit to the Assignor all of such interest,
commitment fees, letter of credit commissions an other fees accrued u to, but not including, the
Funding Date.

     3. No Warranty or Recourse. The sale, transfer, assignment and delegation of the
Assigned Share is made without warranty or recourse against the Assignor of any kind, except that
the Assignor warrants that it has not sold or otherwise transferred any other interest in the
Assigned Share to any other party. The Assignor may, however, have sold and may hereafter sell
Participations in, or may have assigned or may hereafter assign, portions of its interest in the
Advances and the Credit Agreement that in the aggregate (together with the portion assigned
hereby), do not exceed 100% of the Assignor’s interest in the Advances and the Credit Agreement.

     4. Covenants and Warranties. To induce the other to enter into this Agreement, each
of the Assignee and the Assignor warrants and covenants with respect to itself that:

(a) Existence. It is, in the case of the Assignee, a                      organized
under the laws of                      and it is, in the case of the Assignor, a                     
duly existing under the laws of                     ;

(b) Authority. It is duly authorized to execute, deliver and perform this
Agreement;

 

 

(c) No Conflict. The execution, delivery and performance of this Agreement do not
conflict with any provision of law or of the charter or by-laws (or equivalent constituent
documents) of such party, or of any agreement binding upon it; and

(d) Valid and Binding. All acts, conditions and things required to be done and
performed and to have occurred prior to the execution, delivery and performance of this
Agreement, and to constitute the same the legal, valid and binding obligation of such party
enforceable against such party in accordance with its terms, have been done and performed
and have occurred in due and strict compliance with all applicable laws.

     5. Covenants and Warranties by the Assignee. To induce the Assignor to enter into
this Agreement, the Assignee warrants and covenants that (a) it is purchasing and assuming the
Assigned Share in the course of making loans in the ordinary course of its commercial lending
business, and (b) it has, independently and without reliance upon the Assignor, and based upon such
financial statements and other documents and information as it has deemed appropriate, made its own
credit analysis an decision to engage in this purchase and transfer of the Assigned Share. The
Assignee acknowledges that the Assignor has not made and does not make any representations or
warranties or assume any responsibility with respect to the validity, genuineness, enforceability
or collectibility of the Advances, the Credit Agreement or any related instrument, document or
agreement.

     6. Promissory Note. The Notes of the Assignor shall be delivered to the Agent or
Borrower at such time and by such means as the Assignor and the Agent or Borrower shall agree, with
the request by the Assignor that the Borrower issue new notes payable to the Assignor and to the
Assignee to reflect the assignment of the Assigned Share hereunder.

     7. Payments to the Assignor. All amounts payable to the Assignor in U.S. Dollars
shall be paid by transfer of federal funds to the Assignor, ABA No.
        , Account No.         Attention:         Reference: [Borrower].

     8. Other Transactions. The Assignee shall have no interest in any property in the
Assignor’s possession or control, or in any deposit held or other indebtedness owing by the
Assignor, which may be or become collateral for or otherwise available for payment of the Advances
by reason of the general description of secured obligations contained in any security agreement or
other agreement or instrument held by the Assignor or by reason of the right of set-off,
counterclaim or otherwise, except that if such interest is provided for in provisions of the Credit
Agreement regarding sharing of set-off, the Assignee shall have the same rights as any other lender
that is a party to the Credit Agreement. The Assignor and its affiliates may accept deposits from,
lend money to, act as trustee under indentures for an generally engage in any kind of business with
the Borrower, and any person who may do business with or own securities of the Borrower, or any of
the Borrower’s subsidiaries. The Assignee shall have no interest in any property taken as security
for any other loans or any other credits extended to the Borrower or any of its subsidiaries by the
Assignor to the Borrower.

 

 

     9. Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Assignor and the Assignee.

     10. Expenses. In the event of any action to enforce the provisions of this Agreement
against a party hereto, the prevailing party shall be entitled to recover all costs and expenses
incurred in connection therewith including, without limitation, attorneys’ fees and expenses,
including allocable cost of in-house legal counsel and staff.

     11. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE 0F MINNESOTA.

     12. Amendments, Changes and Modifications. This Agreement may not be amended,
changed, modified, altered, or terminated except by an agreement in writing signed by the Assignor
and the Assignee or their permitted successors or assigns).

     13. Withholding Taxes. The Assignee (a) represents and warrants to the Assignor, the
Agent and the Borrower that under applicable law and treaties no tax will be required to be
withheld by the Assignor with respect to any payments to be made to the Assignee hereunder, (b)
agrees to furnish (if it is organized under the laws of any jurisdiction other than the United
States or any State thereof) to the Assignor, the Agent and the Borrower prior to the time that the
Agent or Borrower is required to make any payment of principal, interest or fees hereunder either
U.S. Internal Revenue Service Form W8ECI or W8BEN and agrees to provide new Forms upon the
expiration of any previously delivered form or comparable statements in accordance with applicable
U.S. law and regulations and amendments thereto, duly executed and completed by the Assignee, and
(c) agrees to comply with all applicable U.S. laws and regulations with regard to such withholding
tax exemption.

     14. Entire Agreement. This Agreement sets forth the entire understanding of the
parties except for the consents contemplated hereby, and supersedes any and all prior agreements,
arrangements, and understandings relating to the subject matter hereof. No representation,
promise, inducement or statement of intent has been made by any party which is not embodied in this
Agreement, and no party shall be bound by or liable for any alleged representation, promise,
inducement or statement of intention not expressly set forth herein.

     15. Counterparts. This Agreement may be executed by the Assignor and the Assignee in
separate counterparts, each of which when so executed and delivered shall be deemed to be an
original and all of which taken together shall constitute one and the same Agreement.

 

 

     IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on their behalf by
their duly authorized officers as of the date and year first above written.

	 	 	 	 	 	 	 
	Address:	 	[Assignor]	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 
(print name)
	 	
	 	 	 
	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	Address:	 	[Assignee]	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 
(print name)
	 	
	 	 	 
	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 

	 	 

[Consents required to become effective as provided in Section 13.3 of the Credit Agreement:

Consented to this ___day

of                     , 20___.

	 	 	 	 	 	 
	U.S. Bank National Association, as Agent	 
	 	 	 	 	 	 
	By:	 	 	 	 	 
	 	 	 
(print name)
	 	
	 
	 	 
	Title:	 	 	 	 	 
	 	 	 

	 	 	 

Consented to this ___day

of                     , 20___.

	 	 	 	 	 	 
	OTTER TAIL CORPORATION, as Borrower	 
	 	 	 	 	 	 
	By:	 	 	 	 	 
	 	 	 
(print name)
	 	
	 
	 	 
	Title:	 		]		 
	 	 	 

	 	 	 

 

 

Schedule I

to

Assignment and Assumption

	 	 	 
	Item I:

	 	Date of Assignment:
	 
	 	 
	Item II:

	 	Assigning Bank (the “Assignor”):
	 
	 	 
	Item III:

	 	Assignee (the “Assignee”):
	 
	 	 
	Item IV:

	 	Initial Total Commitment of the Assignor:
	 
	 	 
	Item V:

	 	Bank Group’s Initial Total Commitment:
	 
	 	 
	Item VI:

	 	Payment to the Assignor on Funding Date:
	 
	 	 
	Item VII:

	 	Percentage Assigned:                     %
	 
	 	 
	 

	 	(Expressed as a percentage of the total aggregate Commitments of the Bank Group,
carry out to 10 decimal places; upon effectiveness of the Assignment as provide in
the Credit Agreement, this will constitute the Assignee’s “Pro Rata Share”
	 
	 	 
	Item VIII:

	 	Revised Percentage of the Assignor:                                         %
	 
	 	 
	 

	 	(carry out to 10 decimal places; upon effectiveness of the Assignment as provided in
the Credit Agreement, this will constitute the Assignor’s “Pro Rata Share”)

 

 

Schedule 1.1(a)

Commitments and Percentages

	 	 	 	 	 	 	 	 	 
	Bank:	 	Initial Commitment:	 	Percentage:
	U.S. Bank
	 	$	60,000,000	 	 	 	35.294117648	%
	 
	 	 	 	 	 	 	 	 
	Bank of America
	 	$	30,000,000	 	 	 	17.647058823	%
	 
	 	 	 	 	 	 	 	 
	JPMorgan Chase
	 	$	30,000,000	 	 	 	17.647058823	%
	 
	 	 	 	 	 	 	 	 
	Wells Fargo
	 	$	25,000,000	 	 	 	14.705882353	%
	 
	 	 	 	 	 	 	 	 
	Merrill Lynch Bank USA
	 	$	25,000,000	 	 	 	14.705882353	%
	 
	 	 	 	 	 	 	 	 
	 	 	 
	Total:
	 	$	170,000,000	 	 	 	100.000000000	%

 

 

Schedule 1.1(b)

Material Subsidiaries of Otter Tail Corporation

(as of July 30, 2008)

Varistar Corporation

BTD Manufacturing, Inc.

DMI Industries, Inc.

DMS Health Technologies, Inc.

DMS Imaging, Inc.

Foley Company

Idaho Pacific Corporation

Idaho Pacific Holdings, Inc.

Midwest Construction Services, Inc.

Northern Pipe Products, Inc.

ShoreMaster, Inc.

Vinyltech Corporation

 

 

Schedule 2.6

Existing Letters of Credit (Section 2.6)

None

 

 

Schedule 7.6

Litigation (Section 7.6)

Contingent Liabilities (Section 7.6)

Sierra Club v. Otter Tail Corporation dba Otter Tail Power Company, MDU Resources, Inc. and
Northwestern Corporation dba Northwestern Energy

 

 

Schedule 7.11

Existing Liens (Sections 7.11 and 9.8)

All existing UCC filings as of July 30, 2008.

 

 

Schedule 7.15

Subsidiaries (Section 7.15)

	 	 	 	 	 	 	 
	 	 	 	 	Number and Class of Shares Issued and	 	 
	 	 	State of	 	Owned by Otter Tail Corporation or its	 	Footnote
	Company	 	Organization	 	Subsidiaries	 	Ref.
	AC Equipment, Inc.
	 	Minnesota	 	100 Shares Common	 	(3)
	AWI Acquisition Company Limited
	 	Prince Edward
 Island

Canada	 	1 Share Common	 	(8)
	Aerial Contractors, Inc.
	 	North Dakota	 	10 Shares Common	 	(3)
	AgraWest Investments Limited
	 	Prince Edward
 Island

Canada	 	5,000,000 Shares Common
1,500,000 Shares Class A Preferred
1,500,000 Shares Class B Preferred
1,500 Shares Class C Preferred

	 	(9)
	Aviva Sports, Inc.
	 	Minnesota	 	100 Shares Common	 	(6)
	BTD Manufacturing, Inc.
	 	Minnesota	 	200 Shares Common	 	(1)
	Chassis Liner Corporation**
	 	Minnesota	 	100 Shares Common	 	(1)
	DMI Industries, Inc.
	 	North Dakota	 	980 Shares Common	 	(1)
	DMI Canada, Inc.
	 	Canada	 	1 Share Common	 	(4)
	DMS Health Technologies, Inc.
	 	North Dakota	 	8,500 Shares Class A

5,100 Shares Class B	 	(1)
	DMS Imaging, Inc.
	 	North Dakota	 	1,606 Shares Common Voting	 	(2)
	DMS — Imaging Partners, LLC**
	 	Delaware	 	 	 	(10)
	DMS — Imaging Partners II, LLC**
	 	Delaware	 	 	 	(10)
	DMS Leasing Corporation**
	 	North Dakota	 	2,500 Shares Common	 	(2)
	E. W. Wylie Corporation
	 	North Dakota	 	100 Shares Common	 	(1)
	Foley Company
	 	Missouri	 	50,000 Shares Common	 	(1)
	Galva Foam Marine Industries, Inc.
	 	Missouri	 	100,000 Shares Common	 	(6)
	Green Hills Energy, LLC
	 	Minnesota	 	 	 	(5)
	Idaho Pacific Holdings, Inc.
	 	Delaware	 	10,002 Shares Class A Common (voting)	 	(1)
	Idaho-Pacific Corporation
	 	Idaho	 	400 Shares Common	 	(8)
	Idaho-Pacific Colorado Corporation
	 	Delaware	 	100 Shares Common	 	(8)
	Lynk3 Technologies, Inc.
	 	Minnesota	 	100 Shares Common	 	(3)
	Midwest Construction Services, Inc.
	 	Minnesota	 	100 Shares Common	 	(1)
	Miller Welding & Iron Works, Inc.
	 	Minnesota	 	1,000 Shares Common	 	(11)
	Moorhead Electric, Inc.
	 	Minnesota	 	80 Shares Common	 	(3)
	Northern Pipe Products, Inc.
	 	North Dakota	 	10,000 Shares Common	 	(1)
	Otter Tail Assurance Limited
	 	Cayman Islands	 	50,000 Shares Common	 	(7)
	Otter Tail Energy Services Company, Inc.
	 	Minnesota	 	1,000 Shares Common	 	(7)
	Overland Mechanical Services, Inc.
	 	Minnesota	 	100 Shares Common	 	(5)
	Sheridan Ridge I, LLC
	 	Minnesota	 	 	 	(5)
	Sheridan Ridge II, LLC
	 	Minnesota	 	 	 	(5)
	Shoreline Industries, Inc.
	 	Minnesota	 	1,000 Shares Common	 	(6)
	ShoreMaster, Inc.
	 	Minnesota	 	100 Shares Common	 	(1)
	ShoreMaster Costa Rica SRL
	 	Costa Rica	 	50 quotas	 	(6)
	St. George Steel Fabrication, Inc.**
	 	Utah	 	1,000 Shares Common	 	(1)
	T.O. Plastics, Inc.
	 	Minnesota	 	100 Shares Common	 	(1)
	Varistar Corporation
	 	Minnesota	 	100 Shares Common	 	(7)
	Ventus Energy Systems, Inc.
	 	Minnesota	 	100 Shares Common	 	(3)
	Vinyltech Corporation
	 	Arizona	 	100 Shares Common	 	(1)

 

 

 

			
	(1)	 	Subsidiary of Varistar Corporation
	 
	(2)	 	Subsidiary of DMS Health Technologies,
Inc.
	 
	(3)	 	Subsidiary of Midwest Construction
Services, Inc.
	 
	(4)	 	Subsidiary of DMI Industries, Inc.
	 
	(5)	 	Subsidiary of Otter Tail Energy Services
Company, Inc.
	 
	(6)	 	Subsidiary of ShoreMaster, Inc.
	 
	(7)	 	Subsidiary of Otter Tail Corporation
	 
	(8)	 	Subsidiary of Idaho Pacific Holdings, Inc.
	 
	(9)	 	Subsidiary of AWI Acquisition Company Limited
	 
	(10)	 	Subsidiary of DMS Imaging, Inc.
	 
	(11)	 	Subsidiary of BTD Manufacturing, Inc.
	 
	**	 	Inactive 

 

 

Schedule 7.16

Partnerships/Joint Ventures (Section 7.16)

None

 

 

Schedule 9.7

Investments (Section 9.7)

Otter Tail Corporation

Detail of Investments

	 	 	 	 	 
	 	 	6/30/2008	 
	Investment in Affordable Housing (OTC)
	 	$	1,631,886	 
	Investment in Loan Pools (OTP)
	 	 	588,087	 
	Investment in Otter Tail Ag (OTP)
	 	 	500,000	 
	Investment — Moorhead State Lighting (OTESCO)
	 	 	206,304	 
	Bank of Butterfield discretionary fixed income portfolio (OTAL)
	 	 	 	 
	Corporate Bonds
	 	 	3,849,751	 
	US Treasuries
	 	 	2,041,340	 
	CoBank (St Paul Bank for Coop’s) (VSC)
	 	 	183,819	 
	Other Miscellaneous (DMS, OTESCO-Overland Inv, OTP)
	 	 	199,068	 
	 
	 	 	 
	 
	 	$	9,200,255	 
	 
	 	 	 

 

 

Schedule 12.1

Senior Indebtedness Agreements and Notes

to be Retained as Obligations of the Borrower following

Permitted Reorganization

     1. Notes issued under the Note Purchase Agreement, dated as of August 20, 2007, as thereafter
amended, between the Borrower 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. $20,790,000, 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. $5,185,000, Grant County, South Dakota Pollution Control Refunding Revenue Bonds (otter
Tail Power Corporation Project) Series 2001.

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