TERM LOAN AGREEMENT

Exhibit 4.1

TERM LOAN AGREEMENT

Dated as of May 22, 2009

among

OTTER TAIL CORPORATION,
d/b/a OTTER TAIL POWER COMPANY,

various financial institutions,

KEYBANK NATIONAL ASSOCIATION,
as Syndication Agent,

UNION BANK, N.A.,
as Documentation Agent,

and

JPMORGAN CHASE BANK, N.A..
as Administrative Agent

JPMORGAN SECURITIES INC.,
KEYBANK NATIONAL ASSOCIATION
and
UNION BANK, N.A.,
Joint Lead Arrangers

TERM LOAN AGREEMENT

     THIS TERM LOAN AGREEMENT dated as of May 22, 2009 is among OTTER TAIL CORPORATION, d/b/a OTTER TAIL POWER COMPANY, a Minnesota corporation (the “ Borrower ”), the financial institutions listed on the signature pages hereof or that hereafter become parties hereto by means of assignment and assumption as described below (each individually a “ Bank ” and collectively the “ Banks ”), KEYBANK NATIONAL ASSOCIATION, as Syndication Agent, UNION BANK, N.A., as Documentation Agent, and JPMORGAN CHASE BANK, N.A., as Administrative Agent.

     WHEREAS, the Banks have agreed to make term loans to the Borrower in an aggregate principal amount up to $75,000,000.

     NOW, THEREFORE, the parties hereto agree as follows:

ARTICLE 1.
DEFINITIONS AND INTERPRETATION

     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 forms of the terms defined, as the context may require):

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

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

     “ Agent ” means JPMorgan Chase Bank, N.A., as administrative agent for the Banks hereunder, and each successor thereto in such capacity.

     “ Agent’s Fee Letter ” means the letter agreement dated as of April 8, 2009 between the Borrower and the Agent respecting certain fees payable to the Agent for its own account.

     “ Agreement ” means this Term Loan Agreement.

     “ Applicable Margin ” means the applicable percentage set forth below, determined based on the applicable Level:

The Applicable Margin shall be based on Level III as of the date of this Agreement. The Applicable Margin shall be adjusted ten 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 (subject to the last sentence of this definition):

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

      Level II shall apply if (a) Level I status does not apply and (b) the Borrower’s Long Term Debt Rating is BBB+ or better (S&P) or Baa1 or better (Moody’s).

      Level III shall apply if (a) neither Level I nor Level II status applies and (b) the Borrower’s Long Term Debt Rating is BBB or better (S&P) or Baa2 or better (Moody’s).

      Level IV shall apply if (a) none of Level I, Level II or Level III status applies and (b) the Borrower’s Long Term Debt Rating is BBB- or lower (S&P) or Baa3 (Moody’s) or lower.

If the Borrower does not have Long Term Debt Ratings from S&P and Moody’s then Level IV shall apply. 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 shall be based on the Long Term Debt Rating one Level higher than the lower of the two Long Term Debt Ratings.

     “ Assumed Liabilities ” is defined in Section 12.1 .

     “ Base Rate ” means, for any day, a fluctuating rate per annum as determined by the Agent to equal the greatest of (a) the Prime Rate in effect on such day, or (b) the Federal Funds Effective Rate in effect on such day plus 0.50% per annum , or (c) the LIBOR Rate (Reserve Adjusted) Daily Floating in effect on such day plus 1.00% per annum . If for any reason 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 or the LIBOR Rate (Reserve Adjusted) Daily Floating for any reason (including the inability or failure of the Agent to obtain sufficient bids or publications in accordance with the terms hereof), the Base Rate shall be

determined based on the other rate or rates set forth above 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 Illinois) on which national banks are permitted to be open in Chicago, Illinois 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 London interbank market.

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

     “ Closing Date ” has the meaning specified in Section 6.1 .

     “ Code ” means the Internal Revenue Code of 1986.

     “ Commitment ” means, with respect to any Bank, the obligation of such Bank to make a Loan on the Closing Date. The amount of the Commitment of each Bank (subject to any Assignment and Assumption Agreement entered into prior to the making of the Loans) is set forth on Schedule 1.1(a) .

     “ 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, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default.

     “ EBIT ” means, for any period of determination, the consolidated net income of the Borrower and its Subsidiaries before provision for income taxes, plus , to the extent subtracted in determining consolidated net income, Interest Expense, all as determined in accordance with GAAP, excluding (to the extent included): (a) non-operating gains (including extraordinary or nonrecurring gains, gains from discontinuance of operations and gains arising from the sale of assets other than inventory), except for gains resulting from sale of fixed assets, during the applicable period; (b) similar non-operating losses, except for losses from sale of fixed assets, during such period, and (c) payments of any premiums and any other costs, fees and expenses required to be paid by the terms thereof in connection with the repayment or redemption of Interest-bearing Debt existing as of the date of this Agreement and of Preferred Stock existing as of the date of this Agreement; provided that if the Borrower or any Subsidiary acquires a Person (an “ Acquired Person ”) in an Acquisition in such period, then all of the Acquired Person’s EBIT (calculated for such Person as set forth above) for the period of determination shall be added to EBIT, and if the Borrower or any Subsidiary sells all or substantially all of the stock or assets of any Subsidiary in any such period, then the EBIT of such Subsidiary (calculated for such Person as set forth above) shall be deducted from EBIT.

     “ ERISA ” means the Employee Retirement Income Security Act of 1974.

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

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

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

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

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

     “ Guaranty ” means to (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, or other obligations of, any other Person.

     “ 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.

     “ 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) for the deferred purchase price of any property or services evidenced by a note, payment contract (other than an account payable arising in the ordinary course of business) or other instrument, (d) as lessee under any Capitalized Lease; (e) in respect of guaranties and contingent or other legal obligations in respect to Interest-bearing Debt of other Persons, excluding ordinary course endorsements; (f) in respect of interest rate swap, interest rate collar or other interest rate hedging agreements (but only the net liabilities under related agreements); (g) in respect of undertakings or agreements to reimburse or indemnify issuers of letters of credit other than commercial letters of credit; (h) in respect of synthetic leases (calculated as if such leases were Capitalized Leases); (i) in respect of Permitted Sales and Leasebacks; and (j) in respect of indebtedness attributable to Permitted Securitization Transactions (whether or not such transactions include recourse to the Borrower or a Subsidiary).

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

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

     “ 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.

     “ Lead Arrangers ” means JPMorgan Securities, Inc., KeyBank National Association and Union Bank, N.A. as joint lead arrangers.

     “ Lead Arrangers’ Fee Letter ” means the letter agreement dated as of April 8, 2009 between the Borrower and the Lead Arrangers respecting certain fees payable to each Arranger for its own account.

     “ 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 Daily Rate ” means, for any day, the offered rate for deposits in United States Dollars for interest periods of one month determined by the Agent from the Reuters Screen LIBOR01 page or any successor thereto as of approximately 11:00 a.m., London time, on such day (without taking into account the two-day future delivery convention applicable to such reports) or, if such day is not a Business Day, as so determined for the immediately preceding Business Day.

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

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

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 shall be conclusive in the absence of manifest error.

     “ LIBOR Rate (Reserve Adjusted) Daily Floating ” means a rate per annum calculated in accordance with the following formula:

     In such formula, “ LRRADF ” means “LIBOR Rate (Reserve Adjusted) Daily Floating” and “ LRR ” means “LIBOR Reserve Rate”. The Agent’s determination of all such rates shall be conclusive in the absence of manifest error.

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

     “ Lien ” means any security interest, mortgage, pledge, lien, hypothecation, judgment lien or similar legal process, charge, encumbrance, title retention agreement or analogous instrument or device (including the interest of the lessors under Capitalized Leases and the interest of a vendor under any conditional sale or other title retention agreement).

     “ Loans ” has the meaning specified in Section 2.1 .

     “ Loan Documents ” means this Agreement, any Note, the Agent’s Fee Letter, the Lead Arrangers’ Fee Letter 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, including any such document or agreement delivered pursuant to Section 12.2 .

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

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

     “ Merger Sub ” is defined in Section 12.1 .

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

     “ New OTC ” is defined in Section 12.1 .

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

     “ Note ” means a promissory note of the Borrower described in Section 2.5 , substantially in the form of Exhibit A .

     “ Payment Date ” means (a) the Termination Date, (b) for each LIBOR Advance, the last day of each Interest Period for such Advance and, if such Interest Period is in excess of three months, each three-month anniversary of the first day of such Interest Period, and (c) for each Base Rate Advance, the last day of each March, June, September and December.

     “ 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 or, after the making of the Loans, that the principal amount of such Bank’s Loan is of the aggregate principal amount of all Loans. The Percentages of the Banks as of the date of this Agreement are set forth on Schedule 1.1(a) .

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

     “ Permitted Reorganization ” means the transactions described in Article XII , which transactions shall be deemed the Permitted Reorganization only when completed in accordance with all of the requirements of Article XII and upon satisfaction, or waiver by the Required Banks, or if so required by Section 13.2 , all Banks, of all of the conditions provided therein.

     “ Permitted Sales and Leasebacks ” means sales and leasebacks of assets of the Borrower or a Subsidiary involving a sale price of assets of the Borrower and Subsidiaries not to exceed $20,000,000 in the aggregate for all transactions after the date of this Agreement, that give rise to Interest-bearing Debt calculated as if the relevant leases were Capitalized Leases (whether or not actually constituting Capitalized Leases).

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

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

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

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

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

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

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

     “ 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 Banks with Percentages aggregating more than 50.00%; provided that if there are five or more Banks, no group of Banks shall constitute Required Banks (regardless of their Percentages) unless such group includes three or more Banks.

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

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

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

     “ Senior Indebtedness Prepayment Event ” means the (a) occurrence of any event under any Senior Indebtedness Agreement that would require the Borrower to prepay, or offer to prepay, any Senior Indebtedness prior to its stated maturity, (b) occurrence of any event under any Senior Indebtedness Agreement that would give the holder of Senior Indebtedness any right to put such Senior Indebtedness to the Borrower or require the Borrower to repurchase or redeem such Senior Indebtedness in each case prior to its stated maturity, or (c) voluntary offer by the Borrower to prepay or purchase Senior Indebtedness prior to its stated maturity to remain in compliance with any covenant or agreement of a Senior Indebtedness Agreement, but not any other voluntary offer by the Borrower to prepay or purchase Senior Indebtedness prior to its stated maturity. Senior Indebtedness Prepayment Events shall include any Transfer of Utility Assets Put Event or Debt Prepayment Application, as defined in the Senior Indebtedness Agreements (or any Senior Indebtedness Agreement).

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

     “ Termination Date ” means May 20, 2011.

     “ 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 stock, 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.

     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 determination of compliance with financial ratios and restrictions in Articles VIII and IX ) 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 Interpretive Provisions . Except as otherwise expressly provided herein, any reference to (a) an Article , a Section , an Exhibit or a Schedule is to an Article or a Section of, or an Exhibit or a Schedule to, this Agreement; (b) an agreement or contract shall mean such agreement or contract as amended, amended and restated, supplemented or otherwise modified from time to time; (c) a law shall mean such law as amended, supplemented or otherwise modified from time to time (including any successor thereto) and all rules, regulations, guidelines and decisions interpreting or implementing such law; and (d) a time of day shall mean

such time in Chicago, Illinois. The term “including” means “including without limitation” and derivatives of such term have a corresponding meaning.

ARTICLE 2.
TERMS OF LENDING

     Section 2.1 The Commitments . Subject to the terms and conditions hereof and in reliance upon the warranties of the Borrower herein, each Bank agrees, severally and not jointly, to make a loan (each a “ Loan ” and collectively the “ Loans ”) to the Borrower on the Closing Date in an amount equal to the amount of such Bank’s Commitment. The Commitments will automatically terminate concurrently with the making of the Loans on the Closing Date.

     Section 2.2 Advance Options . Each Bank’s Loan shall be at all times either a LIBOR Advance or a Base Rate Advance.

     Section 2.3 Borrowing Procedures .

     (a)  Request by Borrower . The Borrower shall give irrevocable written notice to the Agent (which shall promptly notify each Bank) of the proposed Closing Date not later than (i) if the Loans are to be comprised of Base Rate Advances, 1:00 p.m. on the Business Day prior to the date of the requested Loans; or (ii) otherwise, 12:00 noon at least three Business Days prior to the date of the requested Loans. Such notice shall specify (A) the proposed Closing Date (which shall be a Business Day), (B) the amount of the Loans and the type of Advances comprising the Loans, and (C) if the Loans are to include LIBOR Advances, the initial Interest Period for each such LIBOR Advance.

     (b)  Funding of Agent . Not later than 11:00 a.m. on the Closing Date, each Bank shall deliver the proceeds of its Loan to the Agent in immediately available funds. Unless the Agent determines that any applicable condition specified in Article VI has not been satisfied, the Agent will make such proceeds available to the Borrower at the Agent’s principal office in Chicago, Illinois in immediately available funds not later than 5:00 p.m. on the Closing Date, provided that the Agent shall not be required to make any amount available to the Borrower unless the Agent shall have received such amount from the applicable Bank, and provided , further , that unless the Agent shall have been notified in writing by a Bank prior to the time the Loans are to be made hereunder that such Bank does not intend to make the proceeds of its Loan available to the Agent, the Agent may assume that such Bank has made such proceeds available to the Agent and the Agent may, in reliance on such assumption, make the corresponding amount available to the Borrower. If the Agent has made a Loan to the Borrower on behalf of a Bank but has not received the proceeds of such 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 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 its Loan. If the Agent does not receive payment from such Bank by the next Business Day after the Closing Date, the Agent shall be entitled to recover such Loan, with interest thereon at the rate then applicable to such 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

thereon before the Agent has recovered from the Borrower, such Bank shall be entitled to the interest payable by the Borrower with respect to its Loan accruing from the date the Agent made such Loan.

     Section 2.4 Continuation or Conversion of Loans . The Borrower may elect to (a) 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 (b) 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 irrevocable notice in writing, or by telephone promptly confirmed in writing, given so as to be received by the Agent not later than:

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

     (b) 12:00 noon at least three Business Days prior to the date of the requested continuation or conversion, if the continuing or converted Advance is to 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, a LIBOR Advance, the Interest Period for such Advance. Absent timely notice of continuation of a LIBOR Advance, such LIBOR Advance shall (unless repaid in full) convert into a Base Rate Advance on the last day of the Interest Period therefor. 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 exists.

     Section 2.5 Notes; Recordkeeping . Upon the request of any Bank made through the Agent, such Bank’s Loan may be evidenced by a Note in the original principal amount of such Bank’s Loan. Each Bank shall enter in its records the amount of its Loan, the rate of interest borne by each Advance and the payments made on its Loan, 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 any payment pursuant to Section 4.2 , 4.5 or 10.2 ), prepayment or conversion of any LIBOR Advance on a date other than the last day of the Interest Period for such Advance, the Borrower agrees to pay each Bank’s costs, expenses and Interest Differential (as determined by such Bank) incurred as a result of such event. The term “ Interest Differential ” shall mean an amount, not less than $0, equal to the financial loss incurred by a 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 Purpose of the Loans . The Loans shall be used for Otter Tail Power Company electrical generation and transmission operations and other general corporate purposes of Otter Tail Power Company not in contravention of any applicable law or of any Loan Document.

ARTICLE 3.
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.

     (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 as in effect from time to time plus the Applicable Margin.

     (c)  Interest After Maturity . Any portion of a Loan that is 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 thereof immediately before it became due, or (ii) the sum of 2.00% plus the Base Rate as in effect from time to time plus the Applicable Margin for Base Rate Advances.

     Section 3.2 Computation . Interest shall be computed on the basis of actual days elapsed and a year of 360 days, provided that any interest or fee calculated with reference to the Prime Rate shall be computed on the basis of actual days elapsed and a year of 365 days.

     Section 3.3 Payment Dates . Accrued interest under Section 3.1(a) and (b) shall be payable on the applicable Payment Dates. Accrued interest under Section 3.1(c) shall be payable on demand.

     Section 3.4 Agent’s and Lead Arrangers’ Fees . The Borrower shall pay such fees (a) to the Agent as are required under the Agent’s Fee Letter and (b) to each Lead Arranger as are required under the Lead Arrangers’ Fee Letter.

ARTICLE 4.
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 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 of the Loans shall be in an aggregate amount of $50,000 or an integral multiple thereof.

     Section 4.3 Payments . Payments and prepayments of principal of, and interest on, the Loans and all fees, expenses and other obligations under the Loan Documents shall be made (subject only to required withholding by the Borrower in the case of non-compliance by a Bank with the requirements of Section 13.3(e )) without set-off or counterclaim in immediately available funds not later than 2:00 p.m. on the date due at the main office of the Agent in Chicago, Illinois. Whenever any payment to be made hereunder shall be stated to be due on a day that 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).

     Section 4.4 Proration of Payments . If any Bank or other holder of a Loan shall obtain any payment or other recovery (whether voluntary, involuntary, by application of offset or otherwise) on account of principal of, interest on, or fees with respect to its Loan 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 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 4.5 Senior Indebtedness Prepayment Event .

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

     (b) If a prepayment of the Loans is required pursuant to the foregoing clause (a) , it will be made prior to or concurrently with the prepayment, purchase or redemption by the Borrower of the relevant Indebtedness under the relevant Senior Indebtedness Agreement. Failure by the Borrower to make a payment when due pursuant to this Section 4.5 shall constitute an immediate Event of Default under Section 10.1(a) .

     (c) For purposes of this Section 4.5 , a “ Ratable Portion ” shall mean a fraction the numerator of which is equal to the amount of the prepayment, purchase or redemption of the Indebtedness under the relevant Senior Indebtedness Agreement that the Borrower is required to make or offer to make, and the denominator of which is the aggregate principal amount of such Indebtedness outstanding.

ARTICLE 5.
ADDITIONAL PROVISIONS RELATING TO LOANS

     Section 5.1 Increased Costs . If, as a result of any change after the date hereof of any law, rule, regulation, treaty or directive or in the interpretation or administration thereof, or compliance by any Bank 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 such Bank’s Commitment or Loan, or any Note held by such Bank, is imposed, modified or deemed applicable, or the basis of taxation of payments to such Bank of interest or principal of its Loan (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, such Bank (excluding any reserve or other requirement reflected in the calculation of LIBOR Rate (Reserve Adjusted)) is imposed, modified or deemed applicable;

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

     (d) any other condition (other than taxes described in the parenthetical clause set forth in clause (a) above) affecting this Agreement or the Commitments is imposed on such Bank or the relevant funding markets;

and such Bank determines that, by reason thereof, the cost to such Bank of committing to make, making or maintaining its Loan increased, or the amount of any sum receivable by such Bank hereunder in respect of its Loan is reduced to a level below which such Bank could have achieved but for such change; 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 clause (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 amount. In determining such amount, the Banks may use any reasonable averaging, attribution and

allocation methods. Notwithstanding the foregoing, no Bank shall charge the Borrower for additional amounts for such additional costs or reductions: (i) which additional amounts applied or accrued more than 90 days prior to the time that such Bank became aware of the event giving rise to such additional costs or reductions; or (ii) unless such Bank is generally requiring payment under comparable provisions of its agreements with similarly situated borrowers.

     Section 5.2 Deposits Unavailable or Interest Rate Unascertainable or Inadequate; Impracticability . If the Agent determines (which determination shall be conclusive and binding on the parties hereto), or in the case of clause (b) below, the Agent or the Required Banks determine, 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; or

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

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, continued 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 or convert any such LIBOR Advance to a Base Rate Advance, without premium or penalty, on the last day of the current Interest Period with respect thereto.

     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 its Loan 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 6.
CONDITIONS PRECEDENT

     The obligations of the Banks to make Loans hereunder shall be subject to the satisfaction of the following conditions precedent (and the date on which such conditions precedent are satisfied is called the “ Closing Date ”):

     Section 6.1 Documents . The Agent shall have received all of the following in form and substance reasonably satisfactory to the Agent:

     (a)  Term Loan Agreement . This Agreement duly executed by each party hereto;

     (b)  Notes . A Note, signed by a duly authorized officer of the Borrower, for each Bank that has requested a Note.

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

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

     (e)  Opinion of Borrower’s Counsel . An opinion of counsel to the Borrower in substantially the form of Exhibit C .

     Section 6.2 Representation and Warranties . Before and after giving effect to the Loans, the representation and warranties contained in Article VII shall be true and correct as though made on the Closing Date.

     Section 6.3 No Default . Before and after giving effect to the Loans, no Default or Event of Default shall have occurred and be continuing.

     Section 6.4 Payment of Fees and Expenses . The Borrower shall have paid all fees and expenses payable pursuant to the Agent’s Fee Letter and the Lead Arrangers’ Fee Letter, in each case to the extent then due and payable.

ARTICLE 7.
REPRESENTATIONS AND WARRANTIES

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

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

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

     Section 7.3 No Conflict; No Default . The execution, delivery and performance by the Borrower of the Loan Documents will not (a) violate any provision of any law, statute, rule or regulation or any order, writ, judgment, injunction, decree, determination or award of any court, governmental agency or arbitrator presently in effect having applicability to the Borrower, (b) violate or contravene any provisions of the Articles (or Certificate) of Incorporation or by-laws of the Borrower, or (c) result in a breach of or constitute a default under any indenture, loan or credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by which 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 clause (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 that 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, 2008 and unaudited financial statements as at March 31, 2009, copies of which have been furnished to the Banks, were prepared in accordance with GAAP on a consistent basis and fairly present the financial condition of the Borrower and the Subsidiaries as at the dates thereof and the results of their operations for the fiscal periods then ended (subject, in the case of such unaudited statements, to the absence of footnotes and ordinary year-