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EXHIBIT 4.2

Kagoor Networks, Inc.

2003 Israel Stock Option Plan

     1. Adoption and Purpose of the Plan. This stock option plan, to be known as the
“Kagoor Networks, Inc. 2003 Israel Stock Option Plan” (but referred to herein as the “Plan”) has
been adopted by the Board of Directors (the “Board”) of Kagoor Networks, Inc., a Delaware
corporation (the “Company”), and is subject to the approval of its shareholders pursuant to section
7 below. The purpose of this Plan is to advance the interests of the Company and its shareholders
by enabling the Company to attract and retain qualified directors, officers, employees and certain
independent contractors, consultants and advisors who are Employees and Non-Employees (as defined
in Exhibit B attached hereto), by providing them with an opportunity for investment in the Company.
The options that may be granted hereunder (“Options”) represent the right by the grantee thereof
(each, including any permitted transferee pursuant to section 6.7 below, an “Optionee”) to acquire
shares of the Company’s common stock (“Shares” which if acquired pursuant to the exercise of an
Option will be referred to as “Option Shares”) subject to the terms and conditions of this Plan and
a written agreement between the Company and the Optionee to evidence each such Option (an “Option
Agreement”).

     2. Certain Definitions. The defined terms set forth in Exhibit A attached
hereto and incorporated herein (together with other capitalized terms defined elsewhere in this
Plan) will govern the interpretation of this Plan.

     3. Eligibility. The Company may grant Options under this Plan only to (i) Employees
and Non-Employees who, at the time of such grant, are directors, officers or employees of the
Company and/or any of its Subsidiaries, and (ii) Employees and Non-Employees who are natural
persons and who, at the time of such grant, are independent contractors, consultants or advisors to
the Company and/or any of its Subsidiaries and who perform bona fide services on its behalf other
than in connection with capital raising transactions (collectively, “Eligible Participants”). No
person will be an Eligible Participant following his or her Termination of Eligibility Status and
no Option may be granted to any person other than an Eligible Participant. There is no limitation
on the number of Options that may be granted to an Eligible Participant.

     4. Option Pool; Shares Reserved for Options. In no event (except as provided in
Section 8) will the Company issue, in the aggregate, more than one million two hundred twenty-three
thousand four hundred and fifty-eight (1,223,458) Shares (the “Option Pool”) pursuant to the
exercise of all Options granted under this Plan, inclusive of those Option Shares that have been
reacquired by the Company by repurchase or otherwise; provided that in order to comply with the
requirements of Section 260.140.45 of Title 10 of the California Code of Regulations (the “30%
Rule”), at no time will the total number of Shares that are issuable upon the exercise of all
outstanding Options granted under this Plan or under any other outstanding options or warrants
issued by the Company and the total number of Shares provided for under any stock bonus or similar
plan of the Company in the aggregate exceed 30% of the total number of then issued and outstanding
Shares (counting convertible preferred stock on an as if converted basis) of the Company (or such
higher percentage as has been approved by the holders of at least two-

 

 

thirds of the outstanding Shares (counting convertible preferred stock on an as if converted
basis) of the Company entitled to vote), as calculated in accordance with the conditions and
exclusions of the 30% Rule. At all times while Options granted under this Plan are outstanding,
the Company will reserve for issuance for the purposes hereof a sufficient number of authorized and
unissued Shares to fully satisfy the Company’s obligations under all such outstanding Options.

     5. Administration. This Plan will be administered and interpreted by the Board, or
by a committee consisting of two or more members of the Board, appointed by the Board for such
purpose (the Board, or such committee, referred to herein as the “Administrator”). Subject to the
express terms and conditions hereof, the Administrator is authorized to prescribe, amend and
rescind rules and regulations relating to this Plan, and to make all other determinations necessary
or advisable for its administration and interpretation. Specifically, the Administrator will have
full and final authority in its discretion, subject to the specific limitations on that discretion
as are set forth herein and in the Certificate of Incorporation and Bylaws of the Company, at any
time:

          (a) to select and approve the Eligible Participants to whom Options will be granted from time
to time hereunder;

          (b) to determine the Fair Market Value of the Shares as of the Grant Date for any Option that
is granted hereunder;

          (c) with respect to each Option it decides to grant, to determine the terms and conditions of
that Option, to be set forth in the Option Agreement evidencing that Option (the form of which also
being subject to approval by the Administrator) and in any amendment thereto, which may vary from
the “default” terms and conditions set forth in section 6 below, except to the extent otherwise
provided in this Plan, including, without limitation, as follows:

               (i) the total number of Option Shares that may be acquired by the Optionee pursuant to the
Option;

               (ii) if the Option satisfies the conditions under Section 422(b) of the Code, whether the
Option will be treated as an ISO to the maximum extent permissible under the Code;

               (iii) the per share purchase price to be paid to the Company by the Optionee to acquire the
Option Shares issuable upon exercise of the Option (the “Option Price”), provided that the Option
Price will not be less than 85% of the Fair Market Value of the Shares as of the Grant Date (not
less than 100% of the Fair Market Value of the Shares as of the Grant Date in the case of ISO’s),
unless the Optionee is a 10% Shareholder, in which case the Option Price will not be less than 110%
of such Fair Market Value;

               (iv) the maximum period or term during which the Option will be exercisable (the “Option
Term”), provided that in no event may the Option Term be longer than 10 years from the Grant Date;

               (v) the maximum period following any Termination of Eligibility Status, whether resulting
from an Optionee’s death, Disability or any other reason, during which period (the “Grace Period”)
the Option will be exercisable, subject to Vesting and to the expiration of

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the Option Term, provided that in no event may the Administrator designate a Grace Period that
is shorter than six (6) months after such Termination of Eligibility Status by reason of the
Optionee’s death or Disability, or thirty (30) days after such Termination of Eligibility for any
other reason, except in the event of a Termination for Cause, in which case no Grace Period will be
required (i.e., the Option would terminate immediately);

               (vi) whether to accept a promissory note or other form of legal consideration in addition to
cash as payment of all or a portion of the Option Price and/or Tax Withholding Liability to be paid
by the Optionee upon the exercise of an Option granted hereunder;

               (vii) the conditions (e.g., the passage of time or the occurrence of events), if any, that
must be satisfied prior to the vesting of the right to exercise all or specified portions of an
Option (such portions being described as the number of Option Shares, or the percentage of the
total number of Option Shares that may be acquired by the Optionee pursuant to the Option; the
vested portion being referred to as a “Vested Option” and the unvested portion being referred to as
an “Unvested Option”), provided that no such conditions (except an Optionee’s Termination of
Eligibility Status, after which no Unvested Option will become a Vested Option) may be imposed
which prevents an Optionee who is an employee, but who is neither an officer or director, of the
Company or any of its Subsidiaries, from purchasing at least 20% of the Option Shares initially
subject to the Option as of the first anniversary of the Grant Date, and as of each anniversary
thereafter, such that by the fifth anniversary of the Grant Date (assuming no such Termination of
Eligibility Status) the entire Option would be deemed a Vested Option; and

               (viii) in addition, or as an alternative, to imposing conditions on the right to exercise an
Option as provided in section 5(c)(vii) above, whether any portion of the Option Shares acquired by
an Optionee upon exercise of an Option will be subject to repurchase by the Company or its assigns
pursuant to section 6.8(c) below at the Option Price paid for such Shares or at some other price
that may be less than the Fair Market Value of such Shares (such Shares, if subject to repurchase
at less than Fair Market Value, being referred to as “Unvested Shares”) following a Termination of
Eligibility Status or other designated event, and the conditions (e.g., the passage of time or the
occurrence of events), if any, that must be satisfied for such Shares to be no longer subject to
such right of repurchase at less than Fair Market Value (such Shares being referred to as “Vested
Shares”); provided that no such conditions (except an Optionee’s Termination of Eligibility
Status, after which no Unvested Shares will become Vested Shares) may be imposed which prevent
Unvested Shares held by an employee, who is neither an officer or director, of the Company and/or
any of its Subsidiaries, from becoming Vested Shares at the rate of at least twenty percent (20%)
per year following the Grant Date, such that by the fifth anniversary of the Grant Date (assuming
no earlier Termination of Eligibility Status) all of the Shares would be deemed Vested Shares; and

          (d) to delegate all or a portion of the Administrator’s authority under sections 5(a), (b)
and (c) above to one or more members of the Board who also are executive officers of the Company,
subject to such restrictions and limitations as the Administrator may decide to impose on such
delegation.

          6. Default Terms and Conditions of Option Agreements. Unless otherwise expressly

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provided in an Option Agreement based on the Administrator’s determination pursuant to section
5(c) above, the following terms and conditions will be deemed to apply to each Option as if
expressly set forth in the Option Agreement:

               6.1 ISO. No portion of an Option will be treated as an ISO unless treatment as an
ISO is expressly provided for in an Option Agreement and such portion of the Option satisfies the
conditions of Section 422(b) of the Code.

               6.2 Option Term. The Option Term will be for a period of ten (10) years beginning on
the Grant Date, except that in the case of an ISO granted to a 10% Shareholder, the Option Term
will be for a period of five (5) years beginning on the Grant Date.

               6.3 Grace Periods. Following a Termination of Eligibility Status:

                    (a) the Grace Period will be ninety (90) days, unless the Termination of Eligibility Status
is a result of a Termination for Cause or the death or Disability of the Optionee;

                    (b) the Grace Period will be one year if the Termination of Eligibility Status is a result of
the death or Disability of the Optionee; and

                    (c) the Grace Period will be ten (10) days if the Termination of Eligibility Status is the
result of a Termination for Cause of the Optionee.

The Company will have no obligation to inform an Optionee as to when a relevant Grace Period will
terminate; it will be the responsibility of the Optionee to determine the dates of the relevant
Grace Period.

               6.4 Vesting. The Option initially will be deemed an entirely Unvested Option, but
portions of the Option will become a Vested Option on the following schedule: Twenty-five percent
(25%) of the Option will become a Vested Option as of the first anniversary of the “Vesting Start
Date” specified in the Option Agreement (which may be earlier but may not be later than the Grant
Date specified therein) and the balance of the Option will become a Vested Option pro rata monthly
(based on monthly anniversary dates of the day of the month of the Vesting Start Date) over the
three year period immediately following such first anniversary; provided that there will be no
further vesting once the Optionee suffers a Termination of Eligibility Status and provided further
that additional vesting will be suspended during any period while the Optionee is on a leave of
absence from the Company or its Subsidiaries, as determined by the Administrator.

               6.5 Exercise of the Option; Issuance of Share Certificate.

                    (a) The portion of the Option that is a Vested Option may be exercised by giving written
notice thereof to the Company, on such form as may be specified by the Administrator, but in any
event stating: the Optionee’s intention to exercise the Option; the date of exercise; the number
of full Option Shares to be purchased (which number will be no less than 100 Shares, without regard
to adjustments to the number of Shares subject to the Option pursuant to section 8 below, or, if
less, all of the remaining Shares subject to the Option); the amount and form of payment of the
Option Price; and such assurances of the Optionee’s investment intent as

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the Company may require to ensure that the transaction complies in all respects with the
requirements of the 1933 Act and other applicable securities laws. The notice of exercise will be
signed by the person or persons exercising the Option. In the event that the Option is being
exercised by the representative of the Optionee, the notice will be accompanied by proof
satisfactory to the Company of the representative’s right to exercise the Option. The notice of
exercise will be accompanied by full payment of the Option Price for the number of Option Shares to
be purchased, in United States dollars, in cash, by check made payable to the Company, or by
delivery of such other form of payment (if any) as may be approved by the Administrator in the
particular case. The portion of the Option that is an Unvested Option may not be exercised until
after the one year anniversary of the Vesting Start Date unless otherwise set forth in the Option
Agreement. To the extent that any portion of the Option that is an Unvested Option is exercised,
the Option Shares so purchased will be Unvested Shares as provided in Section 5(c)(viii), and will
be subject to repurchase per Section 5(c)(viii), so long as continuing to be Unvested Options, at
the Option Price paid for such Shares. Any such Unvested Shares will become Vested Shares at the
same rate and on the same time schedule as the Option underlying such Unvested Shares would have
become a Vested Option (allocating vesting to Unvested Shares as opposed to unexercised Unvested
Options to the maximum extent available).

                    (b) To the extent required by applicable federal, state, local or foreign law, and as a
condition to the Company’s obligation to issue any Shares upon the exercise of the Option in full
or in part, the Optionee will make arrangements satisfactory to the Company for the payment of any
applicable Tax Withholding Liability that may arise by reason of or in connection with such
exercise. Such arrangements may include, in the Company’s sole discretion, that the Optionee
tender to the Company the amount of such Tax Withholding Liability, in cash, by check made payable
to the Company, or by delivery of such other form of payment (if any) as may be approved by the
Administrator in the particular case.

                    (c) After receiving a proper notice of exercise and payment of the applicable Option Price
and Tax Withholding Liability, the Company will cause to be issued a certificate or certificates
for the Option Shares as to which the Option has been exercised, registered in the name of the
person rightfully exercising the Option and the Company will cause such certificate or certificates
to be delivered to such person or into escrow as provided in section 6.8(d), below.

               6.6 Compliance with Law. Notwithstanding any other provision of this Plan, Options
may be granted pursuant to this Plan, and Option Shares may be issued pursuant to the exercise
thereof by an Optionee, only after and on the condition that there has been compliance with all
applicable securities laws. The Company will not be required to list, register or qualify any
Option Shares upon any securities exchange, under any applicable state, federal or foreign law or
regulation, or with the Securities and Exchange Commission or any state agency, or secure the
consent or approval of any governmental regulatory authority, except that if at any time the Board
determines, in its discretion, that such listing, registration or qualification of the Option
Shares, or any such consent or approval, is necessary or desirable as a condition of or in
connection with the exercise of an Option and the purchase of Option Shares thereunder, that Option
may not be exercised, in whole or in part, unless and until such listing, registration,
qualification, consent or approval is effected or obtained free of any conditions that are not
acceptable to the Board, in its discretion. However, the Company will seek to register or qualify

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with, or as may be provided by applicable local law, file for and secure an exemption from
such registration or qualification requirements from, the applicable securities administrator and
other officials of each jurisdiction in which an Eligible Participant would be granted an Option
hereunder prior to such grant.

               6.7 Restrictions on Transfer.

                    (a) Options Nontransferable. No Option will be transferable by an Optionee other
than by will, by the laws of descent and distribution, or as provided under Section 4.1 of Exhibit
B. During the lifetime of a natural person who is granted an Option under this Plan, the Option
will be exercisable only by him or her. Notwithstanding anything else in this Plan to the
contrary, no Option Agreement will contain any provision which is contrary to, or which modifies,
the provisions of this section 6.7(a).

                    (b) Prohibited Transfers. Prior to the Initial Public Offering, a Holder of Option
Shares may Transfer such Shares, or any interest therein only: (i) after compliance with Sections
6.8 and 6.10 hereof to the extent applicable; and (ii) after full compliance with all applicable
securities laws and any applicable restrictions on Transfer provided in the Company’s Certificate
of Incorporation and/or Bylaws, which will be deemed incorporated by reference into this Plan. All
Transfers of Option Shares not complying with the specific limitations and conditions set forth in
this section 6.7 and section 6.8 below are expressly prohibited. Any prohibited Transfer is void
and of no effect, and no purported transferee in connection therewith will be recognized as a
Holder of Option Shares for any purpose whatsoever. Should such a Transfer purport to occur, the
Company may refuse to carry out the Transfer on its books, attempt to set aside the Transfer,
enforce any undertakings or rights under this Plan, or exercise any other legal or equitable
remedy.

                    (c) Permitted Transfers. In the case of a Permitted Transfer, the rights of first
refusal and purchase of the Company set forth in sections 6.8(a) and 6.8(b) below will not apply.
For such purposes, a “Permitted Transfer” means any of the following: (i) a Transfer by will or
under the laws of descent and distribution; (ii) a Transfer by a Holder of Option Shares to his or
her ancestors, descendants or spouse (other than pursuant to a decree of divorce, dissolution or
separate maintenance, a property settlement, or a separation agreement or any similar agreement or
arrangement with a spouse, except for bona fide estate planning purposes), or to a trust,
partnership, limited liability company, custodianship or other fiduciary account for the benefit of
the Holder and/or such ancestors, descendants or spouse, including any Transfer in the form of a
distribution from any such trust, partnership, limited liability company, custodianship or other
fiduciary account to any of the foregoing permitted beneficial owners or beneficiaries thereof; or
(iii) a Transfer as to which Section 4.1 of Exhibit B applies.

                    (d) Conditions to Transfer. It will be a condition to any Transfer of any Option
Shares that:

                         (i) the transferee of the Shares will execute such documents as the Company may reasonably
require to ensure that the Company’s rights under this Plan, and any applicable Option Agreement,
are adequately protected with respect to such Shares, including,

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without limitation, the transferee’s agreement to be bound by all of the terms and conditions
of this Plan and such Agreement, as if he or she were the original Holder of such Shares; and

                         (ii) the Company is satisfied that such Transfer complies in all respects with the
requirements imposed by applicable securities laws and regulations.

                    (e) Market Standoff. If in connection with any public offering of securities of the
Company (or any Successor Entity), the underwriter or underwriters managing such offering so
requests, then each Optionee and each Holder of Option Shares will agree to not sell or otherwise
Transfer any such Shares (other than Shares if and to the extent included in such underwriting)
without the prior written consent of such underwriter, for such period of time as may be requested
by the underwriter commencing on the effective date of the registration statement filed with the
Securities and Exchange Commission in connection with such offering. By accepting an Option and/or
Option Shares under this Plan, the Optionee will be deemed to agree to execute such documents to
further evidence such market standoff agreement as may be requested by such underwriter.

               6.8 Rights of Purchase and First Refusal. The Company will have the following rights
of purchase and first refusal with respect to Option Shares:

                    (a) Right of First Refusal. If any Holder proposes to Transfer any Option Shares
prior to the Initial Public Offering, other than in the case of a Permitted Transfer pursuant to
section 6.7(c) above or an Involuntary or Donative Transfer subject to section 6.8(b) below, the
Company will have an assignable right of first refusal to purchase such Shares on the terms and
conditions set out in this section 6.8(a). If the Company (or its assignee) elects to exercise all
or part of such right, it will do so with respect to any particular Transfer of Shares in the
following manner:

                         (i) Before any such Transfer, the Holder proposing to Transfer such Shares will deliver a
notice of proposed Transfer (a “Proposed Transfer Notice”) to the Company stating: the number of
Option Shares that the Holder proposes to Transfer and the Holder’s bona fide intention to Transfer
such Shares; the names and addresses of the Holder, the proposed transferee and subsequently such
other information regarding such transferee as the Company reasonably requests; the manner and date
of such proposed Transfer; and the bona fide cash price and/or other consideration (and the fair
market value thereof) per share, if any, that such Transferee has offered to pay Holder for such
Shares (the “Offered Price”) as well as such other terms, including payment terms, and conditions,
if any, as were included in such offer (the “Offered Terms”).

                         (ii) The Company (or its assignee) may exercise its right of first refusal under this section
6.8(a) at any time not more than twenty (20) days after the Company has received the Proposed
Transfer Notice with respect to such Shares. If the Company (or its assignee) elects to exercise
such purchase rights it will do so by delivering to the Holder of such Shares a notice of such
election, specifying the number of Shares to be purchased and a closing date that is no more than
thirty (30) days after receipt of the Proposed Transfer Notice (or such later date as the
transferee may have offered or on which the Transfer is otherwise scheduled to occur).

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                         (iii) At the closing of the sale of the Shares to the Company (or its assignee), to be held
at its principal executive offices, the Company (or its assignee) will pay the Holder of the
Shares, in cash, the purchase price equal to the Offered Price (provided, however, that if the
Shares being transferred are Unvested Shares, the purchase price will equal the Option Price per
Share paid upon the exercise of the Option to purchase such Unvested Shares), subject to an
appropriate adjustment as determined in good faith by the Company to take into account any deferred
payment terms that were included in the Offered Terms, except in the case of a Transfer of Option
Shares without consideration; provided that if the Offered Price includes any non-cash
consideration, the value thereof for purposes of this section 6.8(a) will be determined in good
faith by the Board.

                         (iv) If the Company (including its assignees) fails or refuses to exercise its rights under
this section 6.8(a) with respect to any Shares that are the subject of any Proposed Transfer
Notice, then the Holder will have the right to Transfer such Shares to the transferee named in such
Notice at the Offered Price and upon such Offered Terms as were set forth in such Notice; provided
that such Transfer must be completed within ninety (90) days after the Company has received the
Proposed Transfer Notice with respect to such Shares.

                    (b) Following an Involuntary or Donative Transfer. Following any Involuntary
Transfer or Donative Transfer (other than a Permitted Transfer) of Option Shares (the “Transferred
Shares”) prior to the Initial Public Offering, the Company will have the assignable right to
purchase from the transferee of the Transferred Shares (“Transferee”) all or a portion of such
Shares for a purchase price that is equal to the Fair Market Value of those Shares as of the date
of such Transfer (provided, however, that if the Shares being transferred are Unvested Shares, the
purchase price will equal the Option Price per Share paid upon the exercise of the Option to
purchase such Unvested Shares). If the Company (or its assignee) elects to exercise such right, it
will do so in the following manner:

                         (i) Promptly after such Transfer, the transferor of the Transferred Shares will deliver, or
will cause the Transferee to deliver, a notice (a “Completed Transfer Notice”) to the Company
stating: the number of Transferred Shares; the names and addresses of the transferor and the
Transferee, and subsequently such other information regarding the Transferee as the Company
reasonably requests; and the manner, circumstances and date of such Transfer.

                         (ii) The Company (or its assignee) may exercise its purchase rights under this section 6.8(b)
at any time not more than ninety (90) days after the Company has received the Completed Transfer
Notice with respect to the Transferred Shares. If the Company (or its assignee) elects to exercise
such purchase rights it will do so by delivering to the Transferee a notice of such election,
specifying the number of Transferred Shares to be purchased and a closing date that is no more than
sixty (60) days after the giving of such notice.

                         (iii) At such closing, to be held at the Company’s principal executive offices, the Company
(or its assignee) will pay the Transferee the purchase price specified in this section 6.8(b).

                    (c) Following a Termination of Eligibility Status. Following any

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Termination of Eligibility Status of the original Holder of any Option Shares, the Company
will have the assignable right (but not the obligation) to purchase from the current Holder of
those Option Shares (except to the extent that such Shares previously were transferred in a
transaction as to which section 6.8(a) or (b) applied), all or a portion of such Shares, if any,
that are Unvested Shares as of the date of Termination of Eligibility Status for a purchase price
that is equal to the Option Price per Share paid for those Shares upon the exercise of the Option.
Such right will be exercisable in the following manner:

                         (i) The Company (or its assignee) may exercise its right of repurchase under this section
6.8(c) at any time not more than ninety (90) days after the effective date of such Termination of
Eligibility Status (or in the case of Shares issued upon the exercise of Options after such
Termination of Eligibility Status, a period of ninety (90) days after the date of the exercise).
If the Company (or its assignee) elects to exercise such purchase rights it will do so by
delivering to the Holder of such Shares a notice of such election, specifying the number of Shares
to be purchased and a closing date that is within such ninety (90) day period, provided that if the
Holder of the Shares is not an employee of the Company or any of its Subsidiaries, or is an
officer, director or affiliate thereof, the Option Agreement may provide that the period during
which such purchase of the Shares must take place may be longer than ninety (90) days.

                         (ii) At such closing, the Company (or its assignee) will pay the Holder of the Shares, the
purchase price, as specified in this section 6.8(c), in cash, or by cancellation of indebtedness to
the Company, if any, incurred by the original Holder of the Option Shares to purchase such Shares,
or both, at a closing to be held at the Company’s principal executive offices on the date specified
in such notice, provided that if the Holder of the Shares is not an employee of the Company or any
of its Subsidiaries, or is an officer, director or affiliate thereof, the Option Agreement may
provide that the purchase price may be paid, in whole or in part, with a promissory note from the
Company (or its assignee).

                    (d) Escrow. For purposes of facilitating the enforcement of the restrictions on
Transfer set forth in this Plan or in any Option Agreement, the Administrator may, at its
discretion, require the Holder of Option Shares to deliver the certificate(s) for such Shares with
a stock power executed by him or her and by his or her spouse (if required for Transfer), in blank,
to the Secretary of the Company or his or her designee, to hold said certificate(s) and stock
power(s) in escrow and to take all such actions and to effectuate all such Transfers and/or
releases as are in accordance with the terms of this Plan. The certificates may be held in escrow
so long as the Option Shares whose ownership they evidence are subject to any right of repurchase
or first refusal under this Plan or under an Option Agreement, and will be released by the escrow
holder to an Optionee (or to any permitted transferee of the Optionee) when they are no longer
subject to any right of repurchase or first refusal under this Plan or under the Option Agreement.
Each Optionee, by exercising an Option, thereby acknowledges that the Secretary of the Company (or
his or her designee) is so appointed as the escrow holder with the foregoing authorities as a
material inducement to the grant of an Option under this Plan, that the appointment is coupled with
an interest, and that it accordingly will be irrevocable. The escrow holder will not be liable to
any party to an Option Agreement (or to any other party) for any actions or omissions unless the
escrow holder is grossly negligent relative thereto. The escrow holder may rely upon any letter,
notice or other document executed by any signature purported to be genuine.

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                    (e) Resolution of Disputes. If there is a dispute concerning the fair market value
of the consideration offered or accepted for the Option Shares or the Fair Market Value of the
Option Shares, in connection with the exercise by the Company of its rights under this section 6.8,
the dispute will be resolved by the independent certified public accounting firm that audited or
prepared without audit the Company’s last regular annual financial statement and the determination
of that firm will be binding on the parties in the absence of fraud.

               6.9 Change of Control Transactions. In the event of a Change of Control Transaction,
the Company shall endeavor to cause the Successor Entity in such transaction either to assume all
of the Options which have been granted hereunder and which are outstanding as of the consummation
of such transaction (“Closing”), or to issue (or cause to be issued) in substitution thereof
comparable options of such Successor Entity (or of its parent or its Subsidiary); in each case
each Option Agreement automatically will be deemed amended to conform to any such assumption or
substitution. If the Successor Entity is unwilling to either assume such Options or grant
comparable options in substitution for such Options, on terms that are acceptable to the Company as
determined by the Board in the exercise of its discretion, then the Board may cancel all
outstanding Options, and terminate this Plan, effective as of the Closing, provided that it will
notify all Optionees of the proposed Change of Control Transaction a reasonable amount of time
prior to the Closing so that each Optionee will be given the opportunity to exercise the Vested
portion of his or her Option prior to the Closing; in such event, the Company or the Successor
Entity will have the right to repurchase all Unvested Shares as of the Closing per the terms of
Section 6.8(c) as if a Termination of Eligibility Status. For purposes of this section 6.9, the
term “Change of Control Transaction” means a Business Combination in which less than fifty percent
(50%) of the outstanding voting securities of the Successor Entity immediately following the
Closing of the Business Combination transaction are beneficially held by those persons and entities
who beneficially held the voting securities of the Company immediately prior to such transaction as
a result of or in exchange for such voting securities of the Company held immediately prior to such
transaction; the term “Business Combination” means a transaction or series of related transactions
consummated within any period of ninety (90) days resulting in (A) the sale of all or substantially
all of the assets of the Company, or (B) a merger or consolidation or other reorganization in which
the Company or a Subsidiary is a party.

               6.10 Additional Restrictions on Transfer; Investment Intent. By accepting an Option
and/or Option Shares under this Plan, the Optionee will be deemed to represent, warrant and agree
that, unless a registration statement is in effect with respect to the offer and sale of Option
Shares: (i) neither the Option nor any such Shares will be freely tradable and must be held
indefinitely unless such Option and such Shares are either registered under the 1933 Act or an
exemption from such registration is available; (ii) the Company is under no obligation to register
the Option or any such Shares; (iii) upon exercise of the Option, the Optionee will purchase the
Option Shares for his or her own account and not with a view to distribution within the meaning of
the 1933 Act, other than as may be effected in compliance with the 1933 Act and the rules and
regulations promulgated thereunder; (iv) no one else will have any beneficial interest in the
Option Shares; (v) the Optionee has no present intention of disposing of the Option Shares at any
particular time; and (vi) neither the Option nor the Shares have been qualified under applicable
securities laws of any state or other governmental authority and may only be

10

 

offered and sold pursuant to an exception from qualification under applicable state and other
governmental authority securities laws.

               6.11 Stock Certificates; Legends. Certificates representing Option Shares will bear
all legends required by law and necessary or appropriate in the Administrator’s discretion to
effectuate the provisions of this Plan and of the applicable Option Agreement. The Company may
place a “stop transfer” order against Option Shares until full compliance with all restrictions and
conditions set forth in this Plan, in any applicable Option Agreement and in the legends referred
to in this section 6.11.

               6.12 Notices. Any notice to be given to the Company under the terms of an Option
Agreement will be addressed to the Company at its principal executive office, Attention: Corporate
Secretary, or at such other address as the Company may designate in writing. Any notice to be
given to an Optionee will be addressed to him or her at the address provided to the Company by the
Optionee. Any such notice will be deemed to have been duly given if and when enclosed in a
properly sealed envelope, addressed as aforesaid, deposited, postage prepaid, in a post office or
branch post office regularly maintained by the local postal authority.

               6.13 Other Provisions. Each Option Agreement and any amendment thereto may contain
such other terms, provisions and conditions, including restrictions on the Transfer of Option
Shares, and rights of the Company to repurchase such Shares, not inconsistent with this Plan and
applicable law, as may be determined by the Administrator in its sole discretion.

               6.14 Specific Performance. Under those circumstances in which the Company chooses to
timely exercise its rights to repurchase Option Shares as provided herein or in any Option
Agreement, the Company will be entitled to receive such Shares in specie in order to have the same
available for future issuance without dilution of the holdings of other shareholders of the
Company. By accepting Option Shares, the Holder thereof therefore acknowledges and agrees that
money damages will be inadequate to compensate the Company and its shareholders if such a
repurchase is not completed as contemplated hereunder and that the Company will, in such case, be
entitled to a decree of specific performance of the terms hereof or to an injunction restraining
such holder (or such Holder’s personal representative) from violating this Plan or the relevant
Option Agreement, in addition to any other remedies that may be available to the Company at law or
in equity.

               6.15 Special Israel Provisions. If the Optionee, at the time of grant of the Option,
is resident of the State of Israel or deemed to be an Israeli resident for Israeli tax purposes,
then the provisions of Exhibit B will apply to such Option.

     7. Term of the Plan. This Plan will become effective on the date of its adoption by
the Board, provided that this Plan is approved by the shareholders of the Company (excluding Option
Shares issued by the Company pursuant to the exercise of Options granted under this Plan) within 12
months before or after that date. If this Plan is not so approved by the shareholders of the
Company within that 12-month period of time, any Options granted under this Plan will be rescinded
and will be void. This Plan will expire on the tenth (10th) anniversary of the date of its
adoption by the Board or its approval by the shareholders of the Company, whichever is earlier,
unless it is terminated earlier pursuant to section 11 of this Plan, after which

11

 

no more Options may be granted under this Plan, although all outstanding Options granted prior
to such expiration or termination will remain subject to the provisions of this Plan, and no such
expiration or termination of this Plan will result in the expiration or termination of any such
Option prior to the expiration or early termination of the applicable Option Term.

     8. Adjustments Upon Changes in Stock. In the event of any change in the outstanding
Shares of the Company as a result of a stock split, reverse stock split, stock bonus or
distribution, recapitalization, combination or reclassification, appropriate proportionate
adjustments will be made in: (i) the aggregate number of Shares that are reserved for issuance in
the Option Pool pursuant to section 4 above, under outstanding Options or future Options granted
hereunder; (ii) the Option Price and the number of Option Shares that may be acquired under each
outstanding Option granted hereunder; and (iii) other rights and matters determined on a per share
basis under this Plan or any Option Agreement evidencing an outstanding Option granted hereunder.
Any such adjustments will be made only by the Board, and when so made will be effective, conclusive
and binding for all purposes with respect to this Plan and all Options then outstanding. No such
adjustments will be required by reason of the issuance or sale by the Company for cash or other
consideration of additional Shares or securities convertible into or exchangeable for Shares.

     9. Modification, Extension and Renewal of Options. Subject to the terms and
conditions and within the limitations of this Plan, the Administrator may modify, extend or renew
outstanding Options granted under this Plan, or accept the surrender of outstanding Options (to the
extent not theretofore exercised) and authorize the granting of new Options in substitution
therefor (to the extent not theretofore exercised). Notwithstanding the foregoing, however, no
modification of any Option will, without the consent of the Optionee, alter or impair any rights or
obligations under any outstanding Option.

     10. Governing Law; Venue. The internal laws of the State of California
(irrespective of its or any other jurisdiction’s choice of law principles) will govern the validity
of this Plan, the construction of its terms and the interpretation of the rights and duties of the
parties hereunder and under any Option Agreement. Any party may seek to enforce its rights under
this Plan or any Option Agreement entered into under this Plan in any court of competent
jurisdiction located within the judicial district in which the Company has its principal place of
business.

     11. Amendment and Discontinuance. The Board may amend, suspend or discontinue this
Plan at any time or from time to time; provided that no action of the Board will, without the
approval of the shareholders of the Company, materially increase (other than by reason of an
adjustment pursuant to section 8 hereof) the maximum aggregate number of Option Shares in the
Option Pool, materially increase the benefits accruing to Eligible Participants, or materially
modify the category of, or eligibility requirements for persons who are Eligible Participants.
However, no such action may alter or impair any Option previously granted under this Plan without
the consent of the Optionee, nor may the number of Option Shares in the Option Pool be reduced to a
number that is less than the aggregate number of Option Shares (i) that may be issued pursuant to
the exercise of all outstanding and unexpired Options granted hereunder, and (ii) that have been
issued and are outstanding pursuant to the exercise of Options granted hereunder.

12

 

     12. Information Provided by Company. Prior to the date on which the Company is
required to file its annual financial statements with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, the Company annually will provide the Company’s financial
statements (which statements need not be audited) to each Optionee who is an employee of the
Company or any of its Subsidiaries, and each Optionee will, by virtue of entering into an Option
Agreement, be deemed to have agreed (and to cause any investment advisors to whom the Optionee
proposes to make such information available to agree) to keep such information confidential and not
to use, disclose or copy such information for any purpose whatsoever other than determining whether
to exercise an Option. The Company deems such financial statements to be the valuable trade
secrets of the Company, and in the event of any wrongful use, disclosure or other breach of the
obligation to maintain the confidentiality of such financial information, the Company may seek to
enforce all of its available legal and equitable rights and remedies, and may notify local law
enforcement officials that a criminal misappropriation of the Company’s trade secrets has taken
place.

     13. No Shareholder Rights. No rights or privileges of a shareholder in the Company
are conferred by reason of the granting of an Option. No Optionee will become a shareholder in the
Company with respect to any Option Shares unless and until the Option has been properly exercised
and the Option Price fully paid as to the portion of the Option exercised.

     14. Copies of Plan. A copy of this Plan will be delivered to each Optionee at or
before the time he, she or it executes an Option Agreement.

13

 

Kagoor Networks, Inc.

2003 Israel Stock Option Plan

Exhibit A

Definitions

     1. “10% Shareholder” means a person who owns, either directly or indirectly by virtue of the
ownership attribution provisions set forth in Section 424(d) of the Code at the time he or she is
granted an Option, stock possessing more than 10% of the total combined voting power or value of
all classes of stock of the Company and/or of its Subsidiaries.

     2. “1933 Act” means the Securities Act of 1933, as amended.

     3. “Administrator” has the meaning set forth in section 5 of the Plan.

     4. “Board” has the meaning set forth in section 1 of the Plan.

     5. “Business Combination” has the meaning set forth in section 6.9 of the Plan.

     6. “Change of Control Transaction” has the meaning set forth in section 6.9 of the Plan.

     7. “Closing” has the meaning set forth in section 6.9 of the Plan.

     8. “Code” means the Internal Revenue Code of 1986, as amended (references herein to Sections
of the Code are intended to refer to Sections of the Code as enacted at the time of the Plan’s
adoption by the Board and as subsequently amended, or to any substantially similar successor
provisions of the Code resulting from recodification, renumbering or otherwise).

     9. “Company” has the meaning set forth in section 1 of the Plan.

     10. “Completed Transfer Notice” has the meaning set forth in section 6.8(b) of the Plan.

     11. “Disability” means any physical or mental disability which prevents or likely would
prevent (with or without reasonable accommodation), as determined in good faith by the Company, a
relevant person from continuing to provide the essential functions of their position to the Company
for a period of at least six consecutive months.

     12. “Donative Transfer” with respect to Option Shares means any voluntary Transfer with
donative or charitable intent by a transferor other than for value or the payment of consideration
to the transferor.

     13. “Eligible Participants” has the meaning set forth in section 3 of the Plan.

     14. “Fair Market Value” means, with respect to the Shares and as of the date that is relevant
to such a determination (e.g., on the Grant Date), the market price per share of such Shares
determined by the Administrator, consistent with the requirements of Section 422 of the Code and to
the extent consistent therewith, as follows: (a) if the Shares are traded on a stock exchange on
the date in question, then the Fair Market Value will be equal to the closing price

14

 

reported by the applicable composite-transactions report for such date; (b) if the Shares are
traded over-the-counter on the date in question and are classified as a national market issue, then
the Fair Market Value will be equal to the last-transaction price quoted by the NASDAQ system for
such date; (c) if the Shares are traded over-the-counter on the date in question but are not
classified as a national market issue, then the Fair Market Value will be equal to the mean between
the last reported representative bid and asked prices quoted by the NASDAQ system for such date;
and (d) if none of the foregoing provisions is applicable, then the Fair Market Value will be
determined by the Administrator in good faith on such basis as it deems appropriate, taking into
consideration the provisions of Section 260.140.50 of Title 10 of the California Code of
Regulations.

     15. “Grace Period” has the meaning set forth in section 5(c)(v) of the Plan.

     16. “Grant Date” means, with respect to an Option, the date on which the Option Agreement
evidencing that Option is entered into between the Company and the Optionee, or such other date as
may be set forth in that Option Agreement as the “Grant Date” which will be the effective date of
that Option Agreement.

     17. “Holder” means the holder of any Option Shares.

     18. “Initial Public Offering” means the closing of the first sale of securities of the
Company, or of any Successor Entity, to the public, through a firm commitment underwriting, for an
aggregate price (exclusive of underwriters’ discounts and commissions and expenses of the offering)
of at least fifteen million dollars ($15,000,000), pursuant to an effective registration statement
filed with the Securities and Exchange Commission under the 1933 Act.

     19. “Involuntary Transfer” with respect to Option Shares means any of the following: (A) an
assignment of the Shares for the benefit of creditors of the transferor; (B) a Transfer by
operation of law; (C) an execution of judgment against the Shares or the acquisition of record or
beneficial ownership of Shares by a lender or creditor; (D) a Transfer pursuant to any decree of
divorce, dissolution or separate maintenance, any property settlement, any separation agreement or
any other agreement with a spouse (except for bona fide estate planning purposes) under which any
Shares are Transferred or awarded to the spouse of the transferor or are required to be sold; (E) a
Transfer resulting from the filing by the transferor of a petition for relief, or the filing of an
involuntary petition against the transferor, under the bankruptcy laws of the United States or of
any other nation; or (F) a Transfer (even if volitional) constituting a pledge or the imposition of
an encumbrance.

     20. “ISO” means an “incentive stock option” as defined in Section 422 of the Code.

     21. “Offered Price” has the meaning set forth in section 6.8(a) of the Plan.

     22. “Offered Terms” has the meaning set forth in section 6.8(a) of the Plan.

     23. “Option Agreement” has the meaning set forth in section 1 of the Plan.

     24. “Option Pool” has the meaning set forth in section 4 of the Plan.

15

 

     25. “Option Price” has the meaning set forth in section 5(c)(iii) of the Plan.

     26. “Option Shares” has the meaning set forth in section 1 of the Plan, provided that for
purposes of section 6.7 and section 6.8 of the Plan, the term “Option Shares” includes all Shares
issued by the Company to a Holder (or his, her or its predecessor) by reason of such holdings,
including any securities which may be acquired as a result of a stock split, stock dividend, and
other distributions of Shares in the Company made upon, or in exchange for, other securities of the
Company.

     27. “Option Term” has the meaning set forth in section 5(c)(iv) of the Plan.

     28. “Optionee” has the meaning set forth in section 1 of the Plan.

     29. “Options” has the meaning set forth in section 1 of the Plan.

     30. “Permitted Transfer” has the meaning set forth in section 6.7(c) of the Plan.

     31. “Plan” has the meaning set forth in section 1 of the Plan.

     32. “Proposed Transfer Notice” has the meaning set forth in section 6.8(a) of the Plan.

     33. “Shares” has the meaning set forth in section 1 of the Plan.

     34. “Subsidiary” has the same meaning as “subsidiary corporation” as defined in Section
424(f) of the Code.

     35. “Successor Entity” means a corporation or other entity that acquires all or substantially
all of the assets of the Company, or which is the surviving or parent entity resulting from a
Business Combination, as that term is defined in section 6.9 of the Plan.

     36. “Tax Withholding Liability” in connection with the exercise of any Option means all
federal and state income taxes, social security tax, and any other taxes applicable to the
compensation income arising from such exercise required by applicable law to be withheld by the
Company.

     37. “Termination for Cause” means (i) in the case of an Optionee who is an employee of the
Company and/or any of its Subsidiaries, a termination by the employer of the Optionee’s employment
for “cause” as defined by any contract of employment with the Optionee or in the Option Agreement,
or if not defined therein, pursuant to the “For Cause Standard” set forth below, (ii) in the case
of an Optionee who is an advisor, consultant or independent contractor to the Company and/or any of
its Subsidiaries, a termination of the services relationship by the hiring party for “cause” or
breach of contract, as defined by any contract between the parties or the Option Agreement, or if
not defined therein, pursuant to the “For Cause Standard” set forth below, and (iii) in the case of
an Optionee who is a director of the Company and/or any of its Subsidiaries, removal of him or her
from the board of directors by action of the shareholders or, if permitted by applicable law and
the certificate, bylaws or other organic documents of the Company or the Subsidiary, as the case
may be, or pursuant to applicable law, by the other directors), in connection with the good faith
determination of the board of directors (or of the

16

 

Company’s or Subsidiary’s shareholders if so required, but in either case excluding the vote
of the subject individual if he or she is a director or a shareholder) that the Optionee has (all
of the following defined as the “For Cause Standard”): engaged in any acts which breach any
fiduciary duty, employment or service obligation (including to provide services to the Company in a
high quality and professional manner) or contractual obligation to the Company, any of its
Subsidiaries or their shareholders, or in any acts involving dishonesty or moral turpitude or in
any acts that materially and adversely affect the business, affairs or reputation of the Company or
any of its Subsidiaries.

     38. “Termination of Eligibility Status” means (i) in the case of any employee of the Company
and/or any of its Subsidiaries, a termination of his or her employment, whether by the employee or
employer, and whether voluntary or involuntary, including without limitation as a result of the
death or Disability of the employee, (ii) in the case of any advisor, consultant, or independent
contractor to the Company and/or any of its Subsidiaries, the termination of the services
relationship pursuant to any agreement between the parties or otherwise, and (iii) in the case of
any director of the Company and/or any of its Subsidiaries, the death of or resignation by the
director or his or her removal from or ceasing to serve on the Board in the manner provided by the
certificate of incorporation, bylaws or other organic instruments of the Company or Subsidiary or
otherwise in accordance with applicable law.

     39. “Transfer” with respect to Option Shares means a voluntary or involuntary sale,
assignment, transfer, conveyance, pledge, hypothecation, encumbrance, disposal, loan, gift,
attachment or levy of those Shares, including any Involuntary Transfer, Donative Transfer or
transfer by will or under the laws of descent and distribution.

     40. “Transferee” has the meaning set forth in section 6.8(b) of the Plan.

     41. “Transferred Shares” has the meaning set forth in section 6.8(b) of the Plan.

     42. “Unvested Option” has the meaning set forth in section 5(c)(vii) of the Plan.

     43. “Unvested Shares” has the meaning set forth in section 5(c)(viii) of the Plan.

     44. “Vested Option” has the meaning set forth in section 5(c)(vii) of the Plan.

     45. “Vested Shares” has the meaning set forth in section 5(c)(viii) of the Plan.

17

 

Kagoor Networks, Inc. 

2003 ISRAEL STOCK OPTION PLAN

Exhibit B

Provisions Applicable to Israeli Residents

NOTE: The arrangements set forth below are intended to constitute a written compensatory benefit plan established by the Company. The use of a trustee to hold shares for the benefit of Eligible Participants is created to satisfy certain Israel tax requirements, while continuing to qualify under Rule 701, promulgated under the Securities Act of 1933, as amended.

	1.  	GENERAL

	 	1.1.  	The provisions specified hereunder shall form an integral part of the Kagoor
Networks, Inc. 2003 Israel Stock Option Plan (the “Plan”). Any requirements provided
in this Exhibit B shall be in addition to the requirements provided in the Plan and in
the applicable Option Agreement. In any case of contradiction, whether explicit or
implied, between the provisions of this Exhibit B, the Plan and the applicable Option
Agreement, the provisions set out in this Exhibit B shall prevail.
	 
	 	1.2  	This Exhibit B shall apply only to Optionees who, at the time of Option grant,
are residents of the State of Israel or deemed to be Israeli residents for tax
purposes and to Options granted after January 1st, 2003.
	 
	 	1.3  	Any capitalized term not specifically defined in this Exhibit B shall be
construed according to the interpretation given to it in the Plan or in the applicable
Option Agreement.

	 	2.  	DEFINITIONS

	 	2.1  	“Applicable Laws” means the governing law set forth in Section 10 of the Plan,
and any applicable Israeli tax laws, Israel’s securities laws and any other applicable
Israeli law.
	 
	 	2.2  	“Approved 102 Option” means an Option granted pursuant to Section 102(b) of the
Ordinance and held in trust by a Trustee in accordance with the provisions of the
Ordinance.
	 
	 	2.3  	“Capital Gain Option” or “CGO” mean an Approved 102 Option elected and
designated by the Company to qualify under the capital gain tax treatment in accordance
with the provisions of Section 102(b)(2) of the Ordinance.
	 
	 	2.4  	“Controlling Shareholder” shall have the meaning ascribed to it in Section
32(9) of the Ordinance.

18

 

	 	2.5  	“Employee” means a person who is employed by an Employer, including any
individual who is serving as a director or an officer, but excluding a Controlling
Shareholder in the Company.
	 
	 	2.6  	“Employer” means any Israeli subsidiary of the Company and any other Israeli
entity that is controlled by the Company as defined in section 32(9) of the Ordinance
and any Israeli entity that is under common control as defined in section 32(9) of the
Ordinance as the Company.
	 
	 	2.7  	“Non-Employee” means (i) a person or entity that acts as a consultant, an
adviser or a service provider, to an Employer, provided that such person is not an
Employee, or (ii) a Controlling Shareholder in the Company who is employed by an
Employer.
	 
	 	2.8  	“Ordinance” means the Israeli Income Tax Ordinance [New Version] 1961, as now
in effect or as hereafter amended and regulations, rules and orders of procedure
promulgated thereunder from time to time.
	 
	 	2.9  	“Ordinary Income Option” or “OIO” means an Approved 102 Option elected and
designated by the Company to qualify under the ordinary income tax treatment in
accordance with the provisions of Section 102(b)(1) of the Ordinance.
	 
	 	2.10  	“Section 102” means Section 102 of the Ordinance, as amended from time to
time, and any regulations, rules, orders or procedures promulgated thereunder, as now
in effect or as hereafter amended from time to time.
	 
	 	2.11  	“Trustee” means a trustee designated by the Administrator pursuant to the
requirements of Section 102 that has executed a trust agreement with the Company or a
relevant Employer.
	 
	 	2.12  	“Unapproved 102 Option” means an Option granted pursuant to Section 102(c) of
the Ordinance and not held in trust by a Trustee.
	 
	 	2.13  	“3(i) Option” means an Option that does not contain such terms as will qualify
it for the special tax treatment under Section 102.

	3.  	ISSUANCE OF OPTIONS

	 	3.1  	Employees may only be granted 102 Options, and Non-Employees may only be
granted 3(i) Options.
	 
	 	3.2  	The Administrator may designate Options granted to Employees pursuant to
Section 102 as Approved 102 Options or as Unapproved 102 Options.

19

 

	 	3.3  	Approved 102 Options may either be classified, in advance, by the
Administrator as Capital Gain Options or Ordinary Income Options.
	 
	 	3.4  	The Company’s election of the type of Approved 102 Options as a CGO or an OIO
(the “Election”) shall be appropriately filed with the Israeli tax authorities at
least thirty days before the first grant of an Approved 102 Option pursuant to such
Election and shall remain in effect until the end of the subsequent year following the
year during which an Employee was first granted such grant after the Company’s
previous Election, if any. During the period indicated in the sentence above, the
Company may grant only the type of Approved 102 Option it has elected, and the
Election shall apply to all Optionees who were granted Approved 102 Options during the
period indicated herein, all in accordance with the provisions of Section 102(g) of
the Ordinance. For the avoidance of doubt, such Election shall not prevent the
Company, subject to the Administrator sole discretion, from granting, at all times,
Unapproved 102 Options to Employees or 3(i) Options to Non-Employees. The designation
as to the type of Option granted to each Optionee shall be specified in each Option
Agreement.
	 
	 	3.5  	The designation of Options as Unapproved 102 Options shall be subject to the
terms and conditions set forth in Section 102.
	 
	 	3.6  	If the requirements for Approved 102 Options are not met, then the Approved
102 Options shall be deemed to be Unapproved 102 Options, all in accordance with the
provisions of Section 102.

	4.  	TRUSTEE

	 	4.1  	All Approved 102 Options, Shares issued upon exercise of Approved 102 Options
and other Shares received subsequently following any realization of rights in
connection with such Options or Shares and all rights attached to any of the shares
described above or Approved 102 Options, shall be allocated or issued to the Trustee
and held for the benefit of the Optionee for such period of time as required by
Section 102 (the “Section 102 Period”). All of the rights attached to Approved 102
Options and Shares issued upon exercise thereof, including without limitation
dividends in shares, shall be subject to the same tax treatment as the treatment to
which such Options are subject to. During the Section 102 Period, an Employee may not
transfer the Approved 102 Options or Shares issued upon exercise thereof from the
Trustee to himself or herself or sell such options or shares while they are held by
the Trustee. At any time thereafter each Optionee may require (but shall not be
obligated to require) the Trustee to sell or transfer to the Optionee such Approved
102 Options or any Shares issued upon exercise of such Approved 102 Options; provided
that (1) such transfer is in compliance with all applicable securities laws, and (2)
(i) such Optionee has deposited with the Trustee an amount of money which, in the
Trustee’s opinion, is necessary to discharge such Optionee’s tax obligations with
respect to such Approved 102 Options, or Shares issued pursuant to the exercise of
such Approved 102 Options, or (ii) the Trustee has received an acknowledgment from the
Israeli tax

20

 

	 	   	authorities that the Optionee has paid any applicable tax due pursuant to the
Ordinance, or (iii) the Company has made other arrangements for the deduction of
tax at source acceptable to the Trustee, or (iv) upon the sale by the Trustee of
any securities held in the Trust, the Company or the Trustee have withheld from the
proceeds of such sale all applicable taxes, has remitted the amount withheld to the
appropriate Israeli tax authorities, has paid the balance thereof directly to such
Optionee, and has reported to such Optionee the amount so withheld and paid to such
tax authorities.
	 
	 	4.2  	Notwithstanding anything to the contrary, the Trustee shall not
make any transaction or take any action with respect to Approved 102
Options or Shares issued upon exercise thereof, will not transfer, assign,
release, pledge, mortgage voluntary or grant in connection therewith any
proxy or assignment deed, whether immediately effective or effective at a
future date, other than by will or by operation of law, until after the
full payment of the Optionee’s tax liabilities arising from the grant of
such Options or their exercise, release, or transfer by the Trustee or
after guaranteeing the payment of said taxes. If such Options or Shares
have been transferred by will or by operation of law, the provisions of
Section 102 will apply with respect to heirs or the transferees of the
Optionee or Shareholder, as the case may be.
	 
	 	4.3  	Upon receipt of an Approved 102 Option, the Optionee will sign an undertaking
to release the Trustee from any liability in respect of any action or decision duly
taken and bona fide executed by the Trustee (or any person on its behalf) in relation
with this Exhibit B, or any Approved 102 Option or Share held, released or transferred
by the Trustee, in accordance with the terms of Section 102.
	 
	 	4.4  	Notwithstanding anything herein to the contrary, as long as Approved 102
Options or shares issued upon exercise thereon are held by the Trustee, all rights
which the Optionee possesses pursuant to such Options or Shares can not be transferred,
assigned, pledged or mortgaged by the Optionee voluntary, other than by will or by
operation of law, and the Optionee will not grant in connection therewith any proxy or
assignment deed, whether immediately effective or effective at a future date.

	5.  	FAIR MARKET VALUE

	 	   	Without derogating from any provisions of the Plan and solely for the purpose of determining
the tax liability pursuant to Section 102(b)(3) of the Ordinance, if at the Grant Date of a
CGO, the Company’s Shares are listed on any established stock exchange or a national market
system or if the Company’s Shares will be registered for trading within ninety (90) days
following the Grant Date of the CGO, the fair market value of the Shares at such Grant Date
shall be determined in accordance with the average value of the Company’s Shares on the
thirty (30) trading days preceding such the Grant Date or on the thirty (30) trading days
following the date of registration for trading, as the case may be.

21

 

	6.  	INTEGRATION OF SECTION 102

	 	   	With regard to Approved 102 Options, the provisions of the Plan, this Exhibit B and any
applicable Option Agreement shall be subject to the provisions of Section 102, and the said
provisions shall be deemed an integral part of the Plan, this Exhibit B and the applicable
Option Agreement.

	7.  	TAX CONSEQUENCES

	 	   	Any tax consequences arising from the grant or exercise of any Option, the payment for
Shares subject to any Option, the release or transfer of Shares by the Trustee, or from any
other event or act (of the Company, its Subsidiaries, the Trustee or the Optionee)
hereunder, shall be borne solely by the Optionee. The Company, its Subsidiaries and/or the
Trustee (if applicable) shall withhold taxes according to the requirements under the
Applicable Laws, and corresponding rules and regulations, including withholding taxes at
source.
	 
	 	   	Furthermore, the Optionee shall agree to indemnify the Company and its Subsidiaries and
hold them harmless against and from any and all liabilities for any such tax or interest or
penalty thereon, including without limitation, liabilities relating to the necessity to
withhold, or to have withheld, any such tax or social security due by the Optionee, from
any payment made to the Optionee.
	 
	 	   	The Administrator shall not be required to release any stock certificate until all payments
required under Applicable Laws and corresponding rules and regulations, have been fully
made.
	 
	 	   	Without derogating from any other provision in this Exhibit B, in the event that
Employee’s employment with the Employer has ceased and such Employee was granted an
Unapproved 102 Option pursuant to Section 102 (c)(2) of the Ordinance, then upon such
termination of employment such Employee shall be required to deposit with the Company an
amount of money or such guarantee which is necessary to discharge such Employee’s tax
obligations with respect to such Unapproved 102 Option.

	8.  	DIVIDEND

	 	   	During the period in which Shares issued to the Trustee on behalf of an Optionee upon
exercise of an Approved 102 Option, are held by the Trustee, anydividends payable in
securities that are declared on Approved 102 Options or on Shares held by the Trustee shall
be (i) subject to the provisions of Section 102 and the provisions of this Exhibit B and
(ii) shall be held in trust by the Trustee.

22

 

Stock Option Agreement

Under the Kagoor Networks, Inc.

2003 Israel Stock Option Plan

[For Israeli Employees]

     This
Agreement is made effective as of                     ___, 200___ (the “Grant Date”), by
and between Kagoor Networks, Inc., a Delaware corporation (the “Company”), and                     
(“Optionee”).

Now therefore, the parties agree as follows:

1. Option Grant. Subject to all of the terms and conditions of this Agreement and of the
Kagoor Networks, Inc. 2003 Israel Stock Option Plan (the “Option Plan”), attached hereto as
Attachment B, including Exhibit B to the Option Plan, Optionee will have an option (the “Option”)
to purchase shares of the Company’s common stock (the “Option Shares”) on the following terms:

	 	 	 	 	 
	

	 	Number of Option Shares:
	 	                                        
	 
	 	 	 	 
	

	 	Designation of Option
for Israeli Tax Purposes:
	 	o Capital Gain Option (“CGO”)
	 
	 	 	 	 
	

	 	 	 	o Section 3(i) Option (Israeli Income Tax
Ordinance)
	 
	 	 	 	 
	

	 	 	 	o Unapproved 102 Option
	 
	 	 	 	 
	

	 	Designation of Option
for U.S. Tax Purposes:
	 	o Option will be an ISO to the maximum extent permitted under the
Code
	 
	 	 	 	 
	

	 	 	 	o Option will not be an ISO
	 
	 	 	 	 
	

	 	Option Exercise Price:
	 	$                    /share
	 
	 	 	 	 
	

	 	Expiration Date:
	 	Ten years from the Grant Date
	 
	 	 	 	 
	

	 	Vesting Start Date:
	 	                     ___, 200_

The Option will be subject to vesting as set forth in Section 6.4 of the Option Plan. Section 6.4
of the Option Plan provides that the Option initially will be deemed an entirely Unvested Option,
but portions of the Option will become a Vested Option on the following schedule: Twenty-five
percent (25%) of the Option will become a Vested Option as of the first anniversary of the “Vesting
Start Date” specified above and the balance of the Option will become a Vested Option pro rata
monthly (based on monthly anniversary dates of the day of the month of the Vesting Start Date) over
the three year period immediately following such first anniversary; provided

23

 

that there will be no further vesting once the Optionee suffers a Termination of Eligibility Status
and provided further that additional vesting will be suspended during any period while the Optionee
is on a leave of absence from the Company or its Subsidiaries, as determined by the Administrator.

2. Representations and Warranties of Optionee. Optionee represents and warrants that
Optionee is acquiring the Option, and will acquire any Option Shares obtained upon exercise of the
Option, for investment purposes only, for Optionee’s own account, and with no view to the
distribution thereof.

3. No Employment or Independent Contractor Rights. This Agreement gives Optionee no right
to be retained as an employee of or independent contractor to the Company and/or its Subsidiaries.

4. Terms of the Option Plan. Optionee understands that the Option Plan includes important
terms and conditions that apply to the Option. Those terms include: important conditions to the
right of Optionee to exercise the Option; important restrictions on the ability of Optionee to
transfer the Option or to transfer any of the Option Shares received upon exercise of the Option;
and early termination of the Option following the occurrence of certain events. The Optionee
hereby acknowledges that he/she is familiar with the provisions of Section 102 and the regulations
and rules promulgated thereunder, including without limitations the Income Tax Rules (Tax Relieves
for Share Issuances to Employees), 2003, and the type of Option granted hereunder and the tax
implications applicable to such grant. The Optionee accepts the provisions of the trust agreement
signed between the Company and the Trustee, attached hereto as Attachment C, and agrees to be bound
by its terms. Optionee has read the Option Plan, agrees to be bound by its terms, and makes
each of the representations required to be made by Optionee under it. Optionee further
acknowledges that the Company has given no legal or tax advice concerning the Option and has
advised Optionee to consult with Optionee’s own tax or financial advisor about the tax treatment of
the Option and its exercise.

5. Arbitration. In the event of any dispute concerning the enforcement of this Agreement,
the dispute will be submitted to binding arbitration before a single arbitrator in accordance with
the Commercial Arbitration Rules of the American Arbitration Association provided that: (i) the
arbitrator will be instructed and empowered to take whatever steps to expedite the arbitration as
he or she deems reasonable; (ii) each party will bear its own costs in connection with the
arbitration, provided that the costs of the arbitrator will be borne by the party who the
arbitrator determines not to have prevailed in the matter (unless applicable law requires the
Company, as a condition to enforcement of this arbitration clause or otherwise to bear such costs,
in which case the Company will bear such costs); (iii) the arbitrator’s judgment will be final and
binding upon the parties, except that it may be challenged on the grounds of fraud or gross
misconduct; and (iv) the arbitration will be held in San Francisco, California. Judgment upon any
verdict in arbitration may be entered in any court of competent jurisdiction.

6. Voting Rights. With respect to the Option Shares held by the Trustee for the benefit of
the Optionee, the Trustee shall execute an irrevocable proxy (the “Proxy”) attached hereto as

24

 

Attachment D in order to assign to the Optionee the voting rights of the Option Shares held in
trust on his/her behalf.

7. Residency. If during the Section 102 Period an Optionee ceases to be an Israeli
resident, then the provisions of Section 102 shall apply.

8. Provisions for Unapproved 102 Options. With respect to Unapproved 102 Options, if the
Optionee ceases to be employed by the Company or any Affiliate, the Optionee shall extend to the
Company and/or its Affiliate a security interest or a guarantee for the payment of tax due at the
time of sale of the Option Shares, all in accordance with the provisions of Section 102.

9. Notice of Exercise to Trustee; Stock Certificates. If applicable, the Company will
notify the Trustee of any exercise of any Approved 102 Option. Stock certificates evidencing the
Option Shares for which this option has been exercised shall be registered under the name of the
Trustee, except that if this option is a 3(i) Option or Unapproved 102 Option, such Option Shares
shall be registered in the name of the Optionee and the Company shall cause such certificates to be
delivered to the Optionee.

10. Miscellaneous.

     (a) Governing Law; Interpretation. This Agreement will be governed by the substantive
laws of the State of California applicable to contracts entered into and fully performed in
California. The headings and captions of the Sections of this Agreement are for convenience only
and in no way define, limit or extend the scope or intent of this Agreement or any provision
hereof. This Agreement will be construed as a whole, according to its fair meaning, and not in
favor of or against any party, regardless of which party may have initially drafted certain
provisions set forth herein. Capitalized terms and phrases that are not otherwise defined herein
will have the meanings given them in the Option Plan. The terms and conditions of this Agreement
will prevail over any expressly conflicting terms and conditions in the Option Plan except to the
extent expressly set forth in the Option Plan.

     (b) Assignment. This Agreement is personal to Optionee and Optionee may not assign
any of Optionee’s rights or delegate any of Optionee’s obligations hereunder without first
obtaining the prior written consent of the Company, except as expressly set forth in the Option
Plan.

     (c) Severability. In the event any provision of this Agreement or the application of
any such provision to either of the parties is held by a court of competent jurisdiction to be
contrary to law, such provision will be deemed amended to the extent necessary to comply with such
law, and the remaining provisions of this Agreement will remain in full force and effect.

     (d) Entire Agreement; Amendments. This Agreement constitutes the final and complete
expression of all of the terms of the understanding and agreement between the parties hereto with
respect to the subject matter hereof, and this Agreement replaces and supersedes any and all prior
or contemporaneous negotiations, communications, understandings, obligations, commitments,
agreements or contracts, whether written or oral, between the parties respecting the subject matter
hereof, including, without limitation, any negotiations, understandings or agreements with respect
to participating in the equity (including options thereon) in the

25

 

Company except to the extent reflected in a share certificate heretofore issued in the name of
Optionee or in a fully executed written option agreement under an established option plan with the
Company. This Agreement may not be modified, amended, altered or supplemented except by means of
the execution and delivery of a written instrument mutually executed by both parties.

The parties hereby have entered into this Agreement as of the Grant Date.

	 	 	 	 	 	 	 
	 	 	 	 	KAGOOR NETWORKS, INC.
	 	 	 	 	 	 
	Optionee Signature
	 	 	 	 	 
	 
	 	 	 	 	 	 
	

	 	 	 	By:	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	

	 	 	 	Title:	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 
	Optionee Name
	 	 	 	 	 
	 
	 	 	 	 	 	 
	Address:  
	 	 	 	Address:	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 

	 	 	 
	Attachments:

	 	(A) Spousal Consent
	  
	

	 	(B) 2003 Israel Stock Option Plan
	  
	

	 	(C) Trust Agreement
	  
	

	 	(D) Irrevocable Proxy
	  
	

	 	(E) Stock Option Exercise Notice

26

 

ATTACHMENT A

CONSENT OF SPOUSE

     I am the spouse of ___, who, together with Kagoor Networks, Inc. (the
“Company”), has entered into the Stock Option Agreement to which this Consent is attached.
Capitalized terms not defined herein will have the meaning set forth in such agreement.

     I have read and understand the Stock Option Agreement and the Kagoor Networks, Inc. 2003
Israel Stock Option Plan (the “Option Plan”). I acknowledge that, by execution hereof, I am
bound by the Stock Option Agreement and the Option Plan, as to any and all interests I may
have, if any, in the Option and the Option Shares. In particular, I understand and agree that
the Option and the Option Shares (including any interest that I may have therein) are subject
to certain repurchase rights in the Company and certain restrictions on transfer.

     I agree with my spouse and the Company that if my spouse and I ever get divorced or enter
into any marital property settlement agreement, or if my spouse or I ever seek a decree of
separate maintenance, (i) to the extent my spouse has or can obtain assets other than the
Option and the Option Shares in amounts and of value sufficient to settle or satisfy any
marital property claims I may have in the value of the Option and the Option Shares, I will
accept such other assets in settlement of those claims and (ii) to the extent my spouse cannot
obtain assets other than the Option or the Option Shares in amounts and of value sufficient to
settle or satisfy any martial property claims I may have, I will not have or will be able to
obtain any portion of the Option or the Option Shares until my spouse has exercised the Option,
if and to the extent that my spouse has determined, in his sole discretion, to exercise the
Option.

     It is my desire and intent that the provisions of this Spousal Consent shall be enforced
to the fullest extent permissible under applicable law, and accordingly, if any particular
portion of this Spousal Consent shall be adjudicated to be invalid or unenforceable, it shall
be deemed to be amended as necessary to become valid or enforceable.

     I agree that I will not do anything to try to prevent the operation of any part of the
Stock Option Agreement or the Option Plan. I acknowledge that I have had an opportunity to
obtain independent counsel to advise me concerning the matters contained herein.

	 	 	 	 	 	 	 
	 	 	 	 	 
	

	 	Signature
	 	 	 	 
	 
	 	 	 	 	 	 
	

	 	Name:	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	

	 	Date:	 	 	 	 
	 	 	 	 	 	 	 

27

 

ATTACHMENT B

2003 ISRAEL STOCK OPTION PLAN

28

 

ATTACHMENT C

TRUST AGREEMENT

29

 

ATTACHMENT D

IRREVOCABLE PROXY

     A. Appointment of Proxy. The undersigned Trustee does hereby irrevocably constitute
and appoint                      (the “Optionee”) as attorney and proxy of the undersigned, with full power
of substitution for, and in the name and stead of the undersigned to receive notices, attend
meetings and vote the Option Shares (and any and all shares or other securities issued in respect
of such Option Shares) in the name of the Trustee that are held on behalf of Optionee in any vote
or consent of the stockholders of the Company. This appointment shall expire at such time as the
Trustee no longer holds the Option Shares on behalf of the Optionee.

     B. General. This Proxy is coupled with an interest, and thus is irrevocable. It is
the desire and intent of the parties that the provisions of this Proxy shall be enforced to the
fullest extent permissible under the laws in the jurisdiction in which enforcement is sought. To
the extent that a restriction contained in this Proxy is more restrictive than permitted by law,
the terms of such restriction shall be the maximum restriction allowed by law. Any provision of
this Proxy that is prohibited or unenforceable shall not invalidate any other provision contained
herein. All the terms and provisions of this Proxy shall be binding upon, and shall inure to the
benefit of, the parties and their respective successors and assigns.

			
	TRUSTEE
	 	DATE:                                         

                                                            

Mr.                      (Trustee for the benefit of

                    
[name of Optionee]) pursuant to

Section 102 and the Kagoor Networks, Inc.

2003 Israel Stock Option Plan

Number of Option Shares:                     

30

 

ATTACHMENT E

NOTICE OF EXERCISE OF STOCK OPTION

KAGOOR NETWORS, INC

To: Secretary, Kagoor Networks, Inc.

     The undersigned, the holder of an Option to purchase shares of common stock of Kagoor
Networks, Inc. (the “Company”), hereby irrevocably elects to exercise the purchase rights
represented by such Option, and to purchase thereunder
                     shares of common stock of the
Company, herewith makes payment of $                     therefor in the form of a personal check or
wire transfer, and requests that the certificates for such shares be issued in the name of and
delivered to the undersigned at the address set forth below.

     The undersigned acknowledges that the shares being purchased by him/her (the “Shares”) are
subject to substantial restrictions on sale or transfer set forth in the 2003 Israel Stock Option
Plan (“Plan”) and agrees to be bound by the terms and conditions of said Plan and the Option
Agreement entered into by and between the Company and the undersigned on                      200___. The
undersigned further represents, warrants and acknowledges that, unless a registration statement is
in effect with respect to the sale of Shares: (i) those Shares are not freely tradable and must be
held indefinitely unless such Shares are either registered under the Securities Act of 1933, as
amended (the “1933 Act”), or an exemption from such registration is available; (ii) the Company is
under no obligation to register those Shares; (iii) the undersigned is purchasing the Shares for
his own account and not with a view to or for sale in connection with any distribution within the
meaning of the 1933 Act, other than as may be effected in compliance with the Act and the rules and
regulations promulgated thereunder; (iv) no one else will have any beneficial interest in the
Shares; and (v) he has no present intention of disposing of the Shares or any interest therein at
any particular time.

     In making the decision to acquire the Shares, the undersigned has relied solely on independent
investigation made by the undersigned or his/her representatives; the undersigned and his/her
representatives have been given all financial, business or other information they have requested
relating to the Company and have been given the opportunity to ask questions of, and to receive
answers from, persons acting on behalf of the Company concerning the terms and conditions of the
offering of the Shares, and to obtain any additional information, to the extent such persons
possess such information or can obtain it without unreasonable effort or expense, which the
undersigned deems necessary to evaluate the investment in the Shares.

DATED:             
        , 200__

	 	 	 	 	 
	 	 	 
	

	 	Signature	 	 
	 
	 	 	 	 
	 	 	 
	

	 	Print Name
	

	 	Address:	 	 
	

	 	 	 	 
	 
	 	 	 	 
	 	 	 

31exv4w1

 

Exhibit 4.1

	 	 	 
	 
	 
	 	 

	 	 	 
	 

CREDIT AGREEMENT

Dated as of April 27, 2005

Among

OTTER TAIL CORPORATION,

THE BANKS,

as defined herein,

JP MORGAN CHASE BANK, N.A.,

as Syndication Agent,

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Documentation Agent, and

U.S. BANK NATIONAL ASSOCIATION,

as Agent

	 	 	 
	 
	 
	 	 
	 
	 	 
	 

 

 

execution version

CREDIT AGREEMENT

     THIS CREDIT AGREEMENT, dated as of April 27, 2005, is by and between OTTER TAIL CORPORATION, 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”),
JPMORGAN CHASE BANK, N.A., as Syndication Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as Documentation Agent, and
U.S. BANK NATIONAL ASSOCIATION,
a national banking association, as agent for the Banks (in such capacity, the “Agent”) and as Lead
Arranger.

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”, “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 or the
Guarantor 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 12.8, 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:

2

 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Applicable Margin	 	Applicable
	 	 	LIBOR	 	Base Rate	 	Facility
	Level:	 	Advances	 	Advances	 	Fee Rate
	Level I:

	 	 	0.30	%	 	 	0.0	%	 	 	0.10	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Level II:

	 	 	0.375	%	 	 	0.0	%	 	 	0.125	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Level III:

	 	 	0.45	%	 	 	0.0	%	 	 	0.15	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Level IV

	 	 	0.60	%	 	 	0.0	%	 	 	0.20	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Level V

	 	 	0.75	%	 	 	0.0	%	 	 	0.25	%

The Applicable Facility Fee Rate and Applicable Margin shall be those shown for Level III 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 A1 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 A2 or better (Moody’s) but no numerically lower Level applies.

Level III shall apply if the Borrower’s Long Term Debt Rating is A- (S&P) or A3
(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 Baa1
(Moody’s)

Level V shall apply if the Borrower’s Long Term Debt Rating is below BBB+ (S&P) or
Baa1 (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.

     “Base Rate” means, for any day, a fluctuating rate per annum as determined by the
Agent to equal to 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 for any
reason

3

 

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.

     “Capital Expenditure” means any amount debited to the fixed asset account on the
consolidated balance sheet of the Borrower in respect of (a) the acquisition (including, without
limitation, acquisition by entry into a Capitalized Lease), construction, improvement, replacement
or betterment of land, buildings, machinery, equipment or of any other fixed assets or leaseholds,
and (b) to the extent related to and not included in (a) above, materials, contract labor and
direct labor (excluding expenditures properly chargeable to repairs or maintenance in accordance
with GAAP).

     “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 of all Banks which
may from time to time be outstanding hereunder, being initially $100,000,000, as the same may be
reduced from time to time pursuant to Section 4.3, or, if so indicated, the maximum unpaid
principal amount of Loans 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.

4

 

     “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, extraordinary or nonrecurring gains, gains from discontinuance of operations
and gains arising from the sale of assets other than inventory) during the applicable period; and
(b) similar non-operating losses during such period.

     “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.

     “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 Page 3750 of the Dow Jones Markets
(Telerate) screen 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 in lieu of determining the rate
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.

5

 

     “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 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 Eurocurrency 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.

     “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 statement of the Borrower referred to in Section 7.5.

     “Guarantor” means Varistar Corporation, a Minnesota corporation and each successor and
assign thereof.

     “Guaranty” means the Guaranty by the Guarantor in the form of Exhibit C
hereto, duly completed and executed by the Guarantor.

6

 

     “Indebtedness” means, without duplication, all obligations, contingent or otherwise,
which in accordance with GAAP should be classified upon the obligor’s balance sheet as liabilities,
but in any event including the following (whether or not they should be classified as liabilities
upon such balance sheet): (a) obligations secured by any mortgage, pledge, security interest, lien,
charge or other encumbrance existing on property owned or acquired subject thereto, whether or not
the obligation secured thereby shall have been assumed and whether or not the obligation secured is
the obligation of the owner or another party; (b) any obligation on account of deposits or
advances; (c) any obligation for the deferred purchase price of any property or services, except
trade accounts payable arising in the ordinary course of business, (d) any obligation as lessee
under any Capitalized Lease; (e) all guaranties, endorsements and other contingent obligations in
respect to Indebtedness of others; (f) undertakings or agreements to reimburse or indemnify issuers
of letters of credit; and (g) net liabilities under any interest rate swap, collar or other
interest rate hedging agreement. 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.

     “Intercreditor Agreement” means that certain Intercreditor Agreement, dated as of
April 30, 2002, among certain holders of the Borrower’s 6.63% Senior Notes, due December 1, 2011
and the Agent, as Agent for the Banks.

     “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.

     “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) any obligation 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) any obligation 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. and (g) undertakings or agreements to reimburse or indemnify
issuers of letters of credit other than commercial letters of credit.

     “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 (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’

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acceptance financings and (c) net costs under any interest rate swap, collar or other interest
rate hedging agreements, in each case determined in accordance with GAAP.

     “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.

     “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.

     “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).

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

     “Loan Documents” means this Agreement, the Notes, each Letter of Credit Agreement, the
Guaranty, the Intercreditor Agreement 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 after the date of this Agreement if the acquisition of such
Subsidiary has required consent of the Required Banks under Section 9.7(j) to be deemed
permitted under this Agreement.

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

     “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 date of payment for interest accrued on the principal amount of any Swing
Line Loan, but not less frequently than one time each month (on each day falling on one month
intervals) after the making of any Swing Line Loan, and (c) the last day of each March, June,
September and December of each year and the Termination Date 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 after December 31, 2004, shall
not result in the sale, transfer or other divestiture of stock or assets having a value in excess
of 15% of the consolidated assets of the Borrower and its Subsidiaries at the time of
determination.

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     “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.

     “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.

     “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.

     “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 equals at least 66 2/3%, or
if no Commitments remain in effect, whose share of principal of the Loans equals at least 66 2/3%
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 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).

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

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     “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.

     “Senior Indebtedness Agreement” means any agreement, instrument or indenture governing
senior unsecured Indebtedness of the Borrower (“Senior Indebtedness”), including without limitation
the Note Purchase Agreement, dated as of December 1, 2001, as thereafter amended (the “Note
Purchase Agreement”), 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.

     “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. Senior Indebtedness Prepayment
Events shall include, without limitation, any Transfer of Utility Assets Put Event or Debt
Prepayment Application under the Note Purchase 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 $10,000,000, 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).

     “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.

11

 

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

     “Termination Date” means the earliest of (a) April 26, 2006, (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.

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ARTICLE II TERMS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT

        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.

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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 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:

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(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

(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

15

 

(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 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. 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.

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(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 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) $20,000,000 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.

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(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.

(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 $20,000,000 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.

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(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
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

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documents presented which appear on their face to be in substantial compliance with
the terms of the Letter of Credit, the Agreement 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 letter of credit fee
referred to in this clause (v), an amount equal to 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. 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

20

 

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 Purpose of the Loans. The Loans shall be used for purposes of funding
working capital, capital expenditures, and other corporate purposes of the Borrower,
provided, that Loans shall be used only to support 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 determined by applying 0.10% per annum to an amount equal to the excess of Total Utilization
over 50% of the total Commitments.

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     Section 3.3 Facility Fee. The Borrower shall pay fees (the “Facility Fees”) to the
Agent for the account of the Banks (in according 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.

     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, 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

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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, pursuant to
the guaranty hereunder, 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 upon direction of the
Required Banks, shall, by written notice given to the Borrower, shall elect

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whether to require such a
reduction of the Commitments hereunder. In the absence of direction by the Required Banks,
the Agent shall require such a reduction.

(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 relevant Senior
Indebtedness that the Borrower is required to make or offer to make, and the denominator of
which is the aggregate principal amount of such Senior Indebtedness outstanding. In the
instance of a Transfer of Utility Assets Put Event under the Note Purchase Agreement, the
Ratable Portion shall be 100%.

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 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;

24

 

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;

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. 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 that
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.

     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.

25

 

     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 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) The Guaranty, duly executed by the Guarantor.

(c) A certificate or certificates of the Secretary or an Assistant Secretary of the
Borrower and the Guarantor, attesting to and attaching (i) a copy of the corporate
resolution of the Borrower and the Guarantor 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 and the Guarantor
authorized to execute the Loan Documents, (iii) a copy of the Articles or Certificate of
Incorporation of

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the Borrower and the Guarantor with all amendments thereto, and (iv) a copy of the By-Laws of
the Borrower and the Guarantor with all amendments thereto.

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

(e) An opinion of counsel to the Borrower and the Guarantor, addressed to the Bank, in
substantially the form of Exhibit D.

(f) 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

27

 

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 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, 2004, 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, 2004, 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.

28

 

     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
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.

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     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.

     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 Public Utility Holding Company Act. Neither the Borrower nor any
Subsidiary is a “holding company” or a “subsidiary company” of a holding company or an “affiliate”
of a holding company or of a subsidiary company of a holding company within the meaning of the
Public Utility Holding Company Act of 1935, as amended.

     Section 7.16 Subsidiaries. Schedule 7.16 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 7.17 Partnerships and Joint Ventures. Schedule 7.17 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 7.18 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.

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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 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 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; and (ii) 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.

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(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 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.

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     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 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.

33

 

     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 thirty (30) 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).

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, 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, and the Borrower and Material Subsidiaries may enter Permitted
Divestitures.

     Section 9.2 Sale of Assets. Sell, transfer, lease or otherwise convey all or any
substantial part of its assets except for (a) sales and leases of inventory in the ordinary course
of business, (b) sales or other transfers by a wholly-owned Subsidiary to the
Borrower or another
wholly-owned Subsidiary; and (c) Permitted Divestitures.

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     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 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 Permitted Divestitures.

     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.

     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
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.

     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;

35

 

(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 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 outstanding on the date hereof in Subsidiaries by the Borrower and other
Subsidiaries, and Investments by the Borrower or other Subsidiaries in Persons that will be
Subsidiaries upon completion of such Investments;

(j) Investments not otherwise permitted hereunder which shall not exceed (based on total
consideration paid by the Borrower or a Material Subsidiary): (i) $10,000,000 for any single
Investment or series of related Investments in any Person not engaged in one or more of the
Borrower’s and Subsidiaries’ present lines of business, or (ii) $20,000,000 for any single
Investment or series of related Investments in any Person that is engaged in one or more of
the Borrower’s and Subsidiaries’ present lines of business, provided that consent of
the Required Banks to such Investments in excess of such limit shall not be unreasonably
withheld; and

(k) Any Material Subsidiary may make Investments constituting Loans to the Borrower and
provided that no Default or Event of Default shall have occurred and continued, the Borrower
and any Material Subsidiary may make Investments constituting loans to (i) any Material
Subsidiaries, or (ii) any Subsidiaries that are not Material Subsidiaries, provided,
that such loans to any one Subsidiary shall not exceed $15,000,000 in aggregate principal
amounts outstanding at any time.

     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 after the date hereof 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;

36

 

(b) Liens existing on assets of Material Subsidiaries acquired after March 31, 2002, 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;

(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;

(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; and

(h) Liens not otherwise permitted by this Section securing Indebtedness not to exceed
$2,000,000 in the aggregate at any time outstanding.

In no case shall Liens permitted hereunder apply to the stock of the Guarantor.

     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) guaranty by the
Borrower of loans to leveraged Employee Stock Ownership Plans; (ii) a performance guaranty by the
Borrower of performance by DMI Industries, Inc. under a certain contract involving aggregate
payments of approximately $20,000,000; (iii) 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, (iv) other guaranties limited as to principal of recovery to not more than $10,000,000 in
the aggregate; (v) guaranties by the Guarantor 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

37

 

are parties thereto, and (vi) guaranty by the Guarantor of the obligations of the Borrower in
respect of up to $40,000,000 of Insured Senior Notes due October 1, 2017, as described in a
Prospectus dated September 11, 2002 and a prospectus supplement dated on or about September 19,
2002.

     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 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.

     Section 9.12 Use of Proceeds. Permit any proceeds of the Loans to be used for
purposes other than general corporate purposes (including acquisitions, to the extent permitted
hereunder) 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

38

 

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;

(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 $1,000,000 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;

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(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 $1,000,000, 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 $5,000,000 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 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) 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.

     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.

40

 

     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 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 this Agreement and under the Guaranty.
The Agent shall have and may exercise such powers under this Agreement and the Guaranty 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 herein and under the Guaranty.

41

 

     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
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

42

 

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 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.

43

 

     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, Documentation Agent and Lead Arranger. None of the
Syndication Agent, Documentation Agent or Lead Arranger shall have any duties, responsibilities or
liabilities in such capacities.

ARTICLE XII MISCELLANEOUS

     Section 12.1 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 12.2 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 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;

44

 

(d) release the Guaranty or 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 12.2

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

     Section 12.3 Assignments and Participations.

(a) Assignments. Each Bank shall have the right, subject to the further provisions
of this Sections 12.3, 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
12.3(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) 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.

45

 

(c) Participations. Each Bank shall have the right, subject to the further
provisions of this Section 12.3, 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 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 12.3(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

46

 

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 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 12.4 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

47

 

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 12.4(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.

(c) The obligations of the Borrower under this Section 12.4 shall survive any
termination of this Agreement.

     Section 12.5 Notices. Except when telephonic 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, telegram, telex, 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 telegram, telex
or 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.

     Section 12.6 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 12.7 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 12.8 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 12.9 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.

48

 

     Section 12.10 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.

     Section 12.11 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 12.12 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 12.13 Consent to Jurisdiction. AT THE OPTION OF THE BANKS, THIS AGREEMENT
AND THE NOTES MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE 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 12.14 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.

(signature pages follows)

49

 

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

	 	 	 	 	 
	 	 	OTTER TAIL CORPORATION
	 
	 	 	 	 
	

	 	By:
	 	/s/ Kevin G. Moug

	

	 	 	 	 
	 
	 	 	 	 
	

	 	Title:	 	CFO
	

	 	 	 	 
	 
	 	 	 	 
	 	 	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, Lead Arranger and a Bank
	 
	 	 	 	 
	

	 	By:
	 	/s/ Delton Steele
	

	 	 	 	 
	 
	 	 	 	 
	

	 	Title:
	 	Vice President/Senior Lender
	

	 	 	 	 
	 
	 	 	 	 
	 	 	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

 

 

	 	 	 	 	 
	 	 	JPMORGAN CHASE BANK, N.A. as Syndication Agent and as
a Bank
	 
	 	 	 	 
	

	 	By:
	 	/s/ Peter M. Ling
	

	 	 	 	 
	 
	 	 	 	 
	

	 	Title:
	 	Managing Director
	

	 	 	 	 
	 
	 	 	 	 
	 	 	270 Park Avenue
	 	 	New York, NY 10017
	 	 	Attention: Mr. Ivan Chan
	 	 	Telephone: (212) 270-0606
	 	 	Fax: (212) 270-0213

 

 

	 	 	 	 	 
	 	 	WELLS FARGO BANK, NATIONAL ASSOCIATION. as
Documentation Agent and as a Bank
	 
	 	 	 	 
	

	 	By:
	 	/s/ G. N. Ophaug
	

	 	 	 	 
	 
	 	 	 	 
	

	 	Title:
	 	VP
	

	 	 	 	 
	 
	 	 	 	 
	 	 	30 East 7th Street
	 	 	Suite 302
	 	 	St. Paul, MN 55101
	 	 	Attention: Mr. Gary Ophaug
	 	 	Telephone: (651) 205-5499
	 	 	Fax: (651) 205-8537

 

 

	 	 	 	 	 
	 	 	BANK HAPOALIM B.M., as a Bank
	 
	 	 	 	 
	

	 	By:
	 	/s/ James
Surless     /s/ Lenroy Hackett
	

	 	 	 	 
	 
	 	 	 	 
	

	 	Title:
	 	         VP         FVP
	

	 	 	 	 
	 
	 	 	 	 
	 	 	225 N. Michigan Ave.
	 	 	Suite 900
	 	 	Chicago, Illinois 60601-7601
	

	 	Attention:
	 	Mr. Thomas J. Hepperle
	

	 	 	 	Vice President
	 	 	Telephone: (312) 228-6420
	 	 	Fax: (312) 228-6490

 

 

EXHIBITS

	 	 	 
	Exhibit	 	Contents
	A-1

	 	Revolving Note
	 
	 	 
	A-2

	 	Swing Line Note
	 
	 	 
	B

	 	Compliance Certificate
	 
	 	 
	C

	 	Guaranty
	 
	 	 
	D

	 	Form of Legal Opinion
	 
	 	 
	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)
	 
	 	 
	7.16

	 	Subsidiaries (Section 7.16)
	 
	 	 
	7.17

	 	Partnerships/Joint Ventures (Section 7.17)
	 
	 	 
	9.7

	 	Investments (Section 9.7)

 

 

EXHIBIT A-1

PROMISSORY NOTE

			
	 	 	 
	$[Commitment]
	 	Minneapolis, Minnesota: April 27, 2005

     FOR VALUE RECEIVED, the undersigned OTTER TAIL CORPORATION, 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 April 27, 2005 (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
	 
	 	 	 	 
	

	 	By:	 	 
	

	 	 	 	 
	 
	 	 	 	 
	

	 	Title:
	

	 	 	 	 

 

 

EXHIBIT A-2

PROMISSORY NOTE

			
	 	 	 
	$10,000,000
	 	Minneapolis, Minnesota: April 27, 2005

     FOR VALUE RECEIVED, the undersigned OTTER TAIL CORPORATION, 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 TEN MILLION DOLLARS ($10,000,000), 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 April 27, 2005 (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
	 
	 	 	 	 
	

	 	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 April 27, 2005 (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
	 
	 	 	 	 
	

	 	By:	 	 
	

	 	 	 	 
	 
	 	 	 	 
	

	 	Title:	 	 
	

	 	 	 	 
	

	 	 	 	[chief financial officer]

 

 

Exhibit C

Guaranty

Guaranty

     FOR VALUE RECEIVED and in consideration of entry by the Banks (as defined in the Credit
Agreement) and U.S. BANK NATIONAL ASSOCIATION, as agent for the Banks (in such capacity, together
with it successors and assigns, called the “Agent”) into that certain Credit Agreement, dated as of
April 27, 2005 (as thereafter amended, modified, extended, renewed, restated or replaced from time
to time called the “Credit Agreement”) among the Banks, the Agent and OTTER TAIL CORPORATION, a
Minnesota corporation (hereinafter called the “Debtor”), VARISTAR CORPORATION, a Minnesota
corporation (the “Guarantor”) hereby unconditionally guarantees the full and prompt payment when
due, whether by acceleration or otherwise, and at all times thereafter, of all obligations of the
Debtor to the Banks or the Agent under the Credit Agreement, each Note issued thereunder, and each
other Loan Document (as defined therein), including without limitation all future advances, and all
obligations to reimburse the Agent for drawings under all Letters of Credit, and all of such
obligations that arise after the filing of a petition by or against the Debtor under the Bankruptcy
Code, even if the obligations do not accrue because of the automatic stay under Bankruptcy Code
Section 362 or otherwise (all such obligations being hereinafter collectively called the
“Liabilities”), and the            Guarantor further agrees to pay all expenses (including
attorneys’ fees and legal expenses) paid or incurred by the Banks or Agent in endeavoring to
collect the Liabilities, or any part thereof, and in enforcing this guaranty.

     The Guarantor agrees that, in the event of the dissolution or insolvency of the Debtor or the
Guarantor, or the inability of the Debtor or the Guarantor to pay debts as they mature, or an
assignment by the Debtor or the Guarantor for the benefit of creditors, or the institution of any
proceeding by or against the Debtor or the Guarantor alleging that the Debtor or the Guarantor is
insolvent or unable to pay debts as they mature, and if such event shall occur at a time when any
of the Liabilities may not then be due and payable, the Guarantor will pay to the Agent forthwith
the full amount which would be payable hereunder by the Guarantor if all Liabilities were then due
and payable.

     As additional security for the payment of all of the Liabilities and all obligations of the
Guarantor hereunder (collectively, the “Guaranty Obligations”), the Guarantor grants to the Agent
for the benefit of itself and the Banks 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 Guarantor now or hereafter maintained with, or in the possession of,
the Agent. Upon the occurrence of any default hereunder (as described in the immediately preceding
paragraph), the Agent 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 Guarantor described above
to the Guaranty Obligations; and (c) offset any other obligation of the Agent against the Guaranty
Obligations; all whether or not the Guaranty Obligations are then due or have been accelerated and
all without any advance or contemporaneous notice or demand of any kind to the Guarantor, such
notice and demand being expressly waived.

 

     This guaranty shall in all respects be a continuing, absolute and unconditional guaranty, and
shall remain in full force and effect (notwithstanding, without limitation, the dissolution of the
Guarantor or that at any time or from time to time all Liabilities may have been paid in full).

     The Guarantor further agrees that, if at any time all or any part of any payment theretofore
applied by the Agent or the Banks to any of the Liabilities is or must be rescinded or returned by
the Agent or the Banks for any reason whatsoever (including, without limitation, the insolvency,
bankruptcy or reorganization of the Debtor), such Liabilities shall, for the purposes of this
guaranty, to the extent that such payment is or must be rescinded or returned, be deemed to have
continued in existence, notwithstanding such application by the Agent or the Banks, and this
guaranty shall continue to be effective or be reinstated, as the case may be, as to such
Liabilities, all as though such application by the Agent or the Banks had not been made.

     The Agent and the Banks may, from time to time, at their sole discretion and without notice to
the Guarantor, take any or all of the following actions: (a) be granted a security interest in any
property to secure any of the Liabilities or the Guaranty Obligations, (b) retain or obtain the
primary or secondary obligation of any obligor or obligors, in addition to the Guarantor, with
respect to any of the Liabilities, (c) extend or renew for one or more periods (whether or not
longer than the original period), alter or exchange any of the Liabilities, or release or
compromise any obligation of any nature of any other obligor with respect to any of the
Liabilities, (d) release its security interest in, or surrender, release or permit any substitution
or exchange for, all or any part of any property securing any of the Liabilities or any obligation
hereunder, or extend or renew for one or more periods (whether or not longer than the original
period) or release, compromise, alter or exchange any obligations of any nature of any obligor with
respect to any such property, and (e) resort to the Guarantor for payment of any of the
Liabilities, whether or not the Agent and the Banks (i) shall have resorted to any property
securing any of the Liabilities or (ii) shall have proceeded against any other obligor primarily or
secondarily obligated with respect to any of the Liabilities (all of the actions referred to in
preceding clauses (i) and (ii) being hereby expressly waived by the Guarantor).

     Any amounts received by the Agent and the Banks from whatsoever source on account of the
Liabilities may be applied by it toward the payment of such of the Liabilities, and in such order
of application, as the Agent may from time to time elect.

     Until such time as this guaranty shall have been discontinued and the Agent and the Banks
shall have received payment of the full amount of all Liabilities and of all obligations of the
Guarantor hereunder, no payment made by or for the account of the Guarantor pursuant to this
guaranty shall entitle the Guarantor by subrogation or otherwise to any payment by the Debtor or
from or out of any property of the Debtor and the Guarantor shall not exercise any right or remedy
against the Debtor or any property of the Debtor by reason of any performance by the Guarantor of
this guaranty.

     The Guarantor hereby expressly waives: (a) notice of the acceptance by the Agent or the Banks
of this guaranty, (b) notice of the existence or creation or non-payment of all or any of the
Liabilities, (c) presentment, demand, notice of dishonor, protest, and all other notices
whatsoever,

 

 

and (d) all
diligence in collection or protection of or realization upon the Liabilities or any part thereof,
any obligation hereunder, or any security for, or guaranty of, any of the foregoing.

     Each Bank may from time to time without notice to the Guarantor, assign or transfer its
Percentage (as defined in the Credit Agreement) or any or all of the Liabilities or any interest
therein; and, notwithstanding any such assignment or transfer or any subsequent assignment or
transfer thereof, such Liabilities shall be and remain Liabilities for the purposes of this
guaranty, and each and every immediate and successive assignee or transferee of any of the
Liabilities or of any interest therein shall, to the extent of the interest of such assignee or
transferee in the Liabilities, be entitled to the benefits of this guaranty to the same extent as
if such assignee or transferee were such Bank.

     Unless the Agent shall otherwise consent in writing, the Agent shall have the sole right to
enforce this Guaranty, as Agent as provided in the Credit Agreement, for the benefit of the Agent
and the Banks (including any transferee, as provided in the prior paragraph).

     The Guarantor hereby warrants to the Agent and the Banks that the Guarantor now has, and will
continue to have independent means of obtaining information concerning the affairs, financial
condition and business of the Debtor. Neither the Agent nor the Bank shall have any duty or
responsibility to provide the Guarantor with any credit or other information concerning the
affairs, financial condition or business of the Debtor which may come into the Agent’s or the
Bank’s possession.

     No delay on the part of the Agent or any Bank in the exercise of any right or remedy shall
operate as a waiver thereof, and no single or partial exercise by the Agent or any Bank of any
right or remedy shall preclude other or further exercise thereof or the exercise of any other right
or remedy; nor shall any modification or waiver of any of the provisions of this guaranty be
binding upon the Agent or any Bank except as expressly set forth in a writing duly signed and
delivered on behalf of the Agent and the Required Banks (as defined in the Credit Agreement). No
action of the Agent or the Banks permitted hereunder shall in any way affect or impair
the rights of the Agent or the Banks and the obligations of the Guarantor under this guaranty. For
the purposes of this guaranty, Liabilities shall include all obligations of the Debtor to the Agent
or the Banks specified as Liabilities, notwithstanding any right or power of the Debtor or anyone
else to assert any claim or defense as to the invalidity or unenforceability of any such
obligation, and no such claim or defense shall affect or impair the obligations of the Guarantor
hereunder. The obligations of the Guarantor under this guaranty shall be absolute and
unconditional irrespective of any circumstance whatsoever which might constitute a legal or
equitable discharge or defense of the Guarantor. The Guarantor hereby acknowledge that there are
no conditions to the effectiveness of this guaranty.

     This guaranty shall be binding upon the Guarantor, and upon the successors and assigns of the
Guarantor.

     Wherever possible, each provision of this guaranty shall be interpreted in such a manner as to
be effective and valid under applicable law, but if any provision of this guaranty shall be

 

 

prohibited by
or invalid under such law, such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the remaining provisions of
this guaranty.

     THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS GUARANTY 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.

     THE AGENT AND THE BANKS (BY ACCEPTING THIS GUARANTY) AND THE GUARANTOR HEREBY EXPRESSLY WAIVE
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS
GUARANTY OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY.

     AT THE OPTION OF THE AGENT, THIS GUARANTY MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA
STATE COURT SITTING IN MINNEAPOLIS OR ST. PAUL, MINNESOTA; AND THE GUARANTOR 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 GUARANTOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER
ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS
GUARANTY, THE AGENT, 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.

     SIGNED AND DELIVERED as of April 27, 2005.

	 	 	 	 	 
	 	 	VARISTAR CORPORATION
	 
	 	 	 	 
	

	 	By:
	 	/s/ Kevin Moug
	

	 	 	 	 
	 
	 	 	 	 
	

	 	Title:
	 	CFO
	

	 	 	 	 

 

 

Exhibit D

Opinion of Counsel

April __, 2005

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, a Minnesota corporation (the “Company”), in
connection with the transactions contemplated by that certain Credit Agreement, dated as of April
27, 2005, entered into among the Company, the Banks, as defined therein, and U.S. Bank National
Association, as Agent (the “Credit Agreement”), and to Varistar Corporation (the “Guarantor”) in
connection with that certain Guaranty dated as of April 27, 2005, entered into by the Guarantor
(the “Guaranty”). 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 and the Guarantor;

     (b) The Bylaws of the Company and the Guarantor;

     (c) Resolutions of the Board of Directors of the Guarantor;

     (d) An executed copy of the Credit Agreement and the Guaranty; 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 Guarantor) 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 the Guarantor) and,
with respect to all parties to agreements or instruments relevant hereto other than the Company and
the Guarantor, 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 and the Guarantor (known by me to have authority to make such representations and
certifications on behalf of the Company and the Guarantor) and certificates of public officials.

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

     (i) The Company and the Guarantor are each a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation, and each 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 and the Guarantor each 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, 2001, 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 and Guarantor of their respective 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 the Guarantor and the Loan Documents have been duly executed and delivered on behalf of
the Company and the Guarantor, as applicable and constitute valid and binding obligations of the
Company and the Guarantor, enforceable in accordance with their respective terms.

     (iv) There is no provision in (a) the Company’s or the Guarantor’s Articles or Certificate of
Incorporation or Bylaws, (b) any indenture, mortgage, contract or agreement to which the Company or
the Guarantor is a party or by which the Company or the Guarantor or its respective 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 or the Guarantor which would be contravened by
the execution, delivery or performance by the Company or the Guarantor 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 or the Guarantor 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 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 April 27, 2005, 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 and Term Loans, and to issue or
participate in the risk of issuance of Letters of Credit, 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 and Term Loans, and to issue or participate in the risk of issuance of Letters of
Credit, in each instance in amounts of up to those set forth in Item V. Such Revolving
Loans and Term 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, and 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 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:	 	[Assignor]
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	 	 	 	 	 
	

	 	 	 	 	 	(print name)
	 	 	 	 	 
	

	 	Title:	 	 	 
	 	 	 	 	 

[Consents required to become effective as provided in Section 12.3 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:
	 
	 	 
	

	 	Revolving Loans:
	 
	 	 
	

	 	Term Loans:
	 
	 	 
	

	 	Letters of Credit:
	 
	 	 
	Item V:

	 	Bank Group’s Initial Total Commitment:
	 
	 	 
	

	 	Revolving Loans:
	 
	 	 
	

	 	Term Loans:
	 
	 	 
	

	 	Letters of Credit:
	 
	 	 
	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
	 	$	40,000,000	 	 	 	40.00000	%
	 
	 	 	 	 	 	 	 	 
	JP Morgan Chase
	 	$	25,000,000	 	 	 	25.00000	%
	 
	 	 	 	 	 	 	 	 
	Wells Fargo
	 	$	25,000,000	 	 	 	25.00000	%
	 
	 	 	 	 	 	 	 	 
	Bank Hapoalim
	 	$	10,000,000	 	 	 	10.00000	%
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Total:
	 	$	100,000,000	 	 	 	100.00000	%

 

 

Schedule 1.1(b)

Material Subsidiaries

(as of date of this Credit Agreement)

	 	 	 	 	 
	1.

	 	BTD Manufacturing, Inc.
	 	corp.
	 
	 	 	 	 
	2.

	 	DMI Industries, Inc.
	 	corp.
	 
	 	 	 	 
	3.

	 	DMS Health Technologies, Inc
	 	corp.
	 
	 	 	 	 
	4.

	 	DMS Imaging, Inc.
	 	corp.
	 
	 	 	 	 
	5.

	 	E.W. Wylie Corporation
	 	corp.
	 
	 	 	 	 
	6.

	 	Northern Pipe Products, Inc.
	 	corp.
	 
	 	 	 	 
	7.

	 	Idaho Pacific Holdings, Inc
	 	corp.
	 
	 	 	 	 
	8.

	 	Varistar Corporation
	 	corp.
	 
	 	 	 	 
	9.

	 	Vinyltech Corporation.
	 	corp.

 

 

Schedule 2.6

Existing Letters of Credit (Section 2.6)

Amount; $12,000,000

Beneficiary: SAFECO Insurance Company, Seattle, WA

Expiry Date: 9/1/05

For Account of: Otter Tail Corporation

 

 

Schedule 7.6

Litigation (Section 7.6)

Contingent Liabilities (Section 7.6)

NONE

 

 

Schedule 7.11

Existing Liens

Varistar has pledged its common stock under term notes with U.S. Bank.

 

 

Schedule 7.16

	 	 	 	 	 	 	 	 	 
	 	 	 	 	Number and Class of Shares	 	 
	 	 	 	 	Issued and Owned by Otter Tail	 	 
	Company	 	State of Organization	 	Corporation or its Subsidiaries	 	Footnote Ref.
	 
	AC Equipment, Inc.

	 	Minnesota
	 	100 Shares Common
	 	 	(5	)
	AWI Acquisition Company Limited

	 	Prince Edward Island

Canada
	 	1 Share Common
	 	 	(11	)
	Aerial Contractors, Inc.

	 	North Dakota
	 	10 Shares Common
	 	 	(5	)
	AgraWest Investments Limited

	 	Prince Edward Island
	 	5,000,000 Shares Common
	 	 	(12	)
	

	 	Canada
	 	1,500,000 Shares Class A Preferred	 	 	 	 
	

	 	 	 	1,500,000 Shares Class B Preferred	 	 	 	 
	

	 	 	 	1,500 Shares Class C Preferred	 	 	 	 
	BTD Manufacturing, Inc.

	 	Minnesota
	 	200 Shares Common
	 	 	(1	)
	Chassis Liner Corporation

	 	Minnesota
	 	100 Shares Common
	 	 	(1	)
	Data Video Systems, Inc.

	 	Minnesota
	 	100,000 Shares Common
	 	 	(6	)
	DMI Industries, Inc.

	 	North Dakota
	 	980 Shares Common
	 	 	(1	)
	DMS Health Technologies, Inc.

	 	North Dakota
	 	8,500 Shares Class A
	 	 	(1	)
	

	 	 	 	5,100 Shares Class B	 	 	 	 
	DMS Imaging, Inc.

	 	North Dakota
	 	1,606 Shares Common Voting
	 	 	(3	)
	DMS Leasing Corporation**

	 	North Dakota
	 	2,500 Shares Common
	 	 	(3	)
	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
	 	 	(9	)
	Idaho Pacific Holdings, Inc.

	 	Delaware
	 	10,001 Shares Class A Common
(voting)
	 	 	(1	)
	Idaho-Pacific Corporation

	 	Idaho
	 	400 Shares Common
	 	 	(11	)
	 
	Idaho-Pacific Colorado Corporation

	 	Delaware
	 	100 Shares Common
	 	 	(11	)
	Lynk3 Technologies, Inc.

	 	Minnesota
	 	100 Shares Common
	 	 	(5	)
	Midwest Construction Services, Inc.

	 	Minnesota
	 	100 Shares Common
	 	 	(1	)
	Midwest Information Systems, Inc.

	 	Minnesota
	 	1,000 Shares Common
	 	 	(1	)
	Midwest Telephone Co.

	 	Minnesota
	 	479 Shares Common
	 	 	(6	)
	MIS Investments, Inc.

	 	Minnesota
	 	1,000 Shares Common
	 	 	(6	)
	Moorhead Electric, Inc.

	 	Minnesota
	 	80 Shares Common
	 	 	(5	)
	Northern Pipe Products, Inc.

	 	North Dakota
	 	10,000 Shares Common
	 	 	(1	)
	Osakis Telephone Company

	 	Minnesota
	 	250 Shares Common
	 	 	(7	)
	Otter Tail Assurance Limited

	 	Cayman Islands
	 	50,000 Shares Common
	 	 	(10	)
	Otter Tail Energy Services Company, Inc.

	 	Minnesota
	 	1,000 Shares Common
	 	 	(10	)
	 
	Overland Mechanical Services, Inc.

	 	Minnesota
	 	100 Shares Common
	 	 	(8	)
	Shoreline Industries, Inc.

	 	Minnesota
	 	1,000 Shares Common
	 	 	(9	)
	ShoreMaster, Inc.

	 	Minnesota
	 	100 Shares Common
	 	 	(1	)
	St. George Steel Fabrication, Inc.

	 	Utah
	 	1,000 Shares Common
	 	 	(1	)
	T.O. Plastics, Inc.

	 	Minnesota
	 	100 Shares Common
	 	 	(1	)
	The Peoples Telephone Co. of Big Fork

	 	Minnesota
	 	1,000 Shares Common
	 	 	(6	)
	Varistar Corporation

	 	Minnesota
	 	100 Shares Common
	 	 	(10	)
	Ventus Energy Systems, Inc.

	 	Minnesota
	 	100 Shares Common
	 	 	(5	)
	Vinyltech Corporation

	 	Arizona
	 	100 Shares Common
	 	 	(1	)

	(1)	 	Subsidiary of Varistar Corporation
	 
	(2)	 	Subsidiary of Chassis Liner Corporation
	 
	(3)	 	Subsidiary of DMS Health Technologies, Inc.
	 
	(4)	 	Subsidiary of DMS Imaging, Inc.
	 
	(5)	 	Subsidiary of Midwest Construction Services, Inc.
	 
	(6)	 	Subsidiary of Midwest Information Systems, Inc.
	 
	(7)	 	Subsidiary of Midwest Telephone Co.
	 
	(8)	 	Subsidiary of Otter Tail Energy Services Company,
Inc.
	 
	(9)	 	Subsidiary of ShoreMaster, Inc.
	 
	(10)	 	Subsidiary of Otter Tail Corporation
	 
	(11)	 	Subsidiary of Idaho Pacific Holdings, Inc.
	 
	(12)	 	Subsidiary of AWI Acquisition Company Limited
	 
	**	 	Inactive

 

 

Schedule 7.17

Partnerships/Joint Ventures (Section 7.17)

None

 

 

Otter Tail Corporation

Detail of Investments

Schedule 9.7

Investments as of December 31, 2004

	 	 	 	 	 
	 	 	12/31/2004	 
	Investment in Affordable Housing (OTC)
	 	$	3,789,859	 
	Investment in Loan Pools (OTP)
	 	 	1,665,340	 
	Investment in FM Redhawks
	 	 	—	 
	Investment - Moorhead State Lighting (OTESCO)
	 	 	1,091,266	 
	Investment - Bank of Butterfield Bond Fund (OTAL)
	 	 	1,703,343	 
	Investment - Bank of Butterfield Reserve Fund (OTAL)
	 	 	305,203	 
	Note Receivable – SMI – Aviva
	 	 	200,000	 
	Note Receivable – DMS
	 	 	272,193	 
	IPH Escrow account USB Corporate Trust
	 	 	6,017,229	 
	Telecommunication Investments (MIS)
	 	 	 	 
	CoBank (St Paul Bank for Coop’s)
	 	 	723,906	 
	ONVOY
	 	 	708,300	 
	Central MN Network Systems
	 	 	164,994	 
	West Central Transport Group, LLC
	 	 	163,166	 
	Central Transport Group, LLC
	 	 	207,265	 
	Central Transport Video Group, LLC
	 	 	25,000	 
	Northwest Minnesota Special Access, LLC
	 	 	6,724	 
	Independent Pinnacle Services, LLC
	 	 	73,131	 
	Northern Transport Group, LLC
	 	 	50,500	 
	Northern Fiber, Inc.
	 	 	2,687	 
	Notes Receivable
	 	 	144,567	 
	Other Miscellaneous (DMS, OTESCO-Overland Inv)
	 	 	161,996	 
	 
	 	 	 	 
	 
	 	 	 
	 
	 	$	17,476,669

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