8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): April 9, 2006

OTTER TAIL CORPORATION

(Exact name of registrant as specified in its charter)

Minnesota
(State or other jurisdiction
of incorporation) 0-00368
(Commission
File Number) 41-0462685
(I.R.S. Employer
Identification No.)

215 South Cascade Street, P.O. Box 496, Fergus Falls, MN
(Address of principal executive offices) 56538-0496
(Zip Code)

Registrant’s telephone number, including area code: (866) 410-8780

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement

                  (1) On April 9, 2006 the Compensation Committee of the Board of Directors of Otter Tail Corporation (the “Company”) approved compensation for Directors. Following are the retainer and meeting fees as approved:

Retainer — Chairman of the Board	$	66,000
Retainer — Director	$	30,000
Retainer — Committee Chair	$	7,000
Board Meeting Fee (per meeting)	$	1,500

In addition, each Director was awarded a restricted stock grant under the 1999 Stock Incentive Plan of 2,200 common shares that vests over four years. The form of Restricted Stock Award Agreement for Directors is filed as Exhibit 10.1 hereto and is incorporated herein by reference.

                  Directors receive an actual expense or a $100 travel allowance if they are required to furnish their own transportation to Board or Committee meetings outside their city of residence.

                  Directors may elect to receive their compensation (other than expense reimbursements) in the form of cash, common shares or a combination. Directors may elect to defer the receipt of all or part of their cash compensation pursuant to the Otter Tail Corporation Deferred Compensation Plan for Directors. The deferral may be in the form of cash or stock units. Cash deferrals receive interest at a rate equal to 1% over the prime commercial rate of U.S. Bank National Association. Deferrals in the form of stock units are credited quarterly with dividend equivalents equal to the dividend rate on Otter Tail Corporation’s common shares and the deferred amount is paid out in common shares. The Deferred Compensation Plan for Directors, As Amended, was filed as Exhibit 10-N-1 to the Company’s Form 10-K for the year ended December 31, 2002 and is incorporated herein by reference.

                  (2) On April 9, 2006 the Compensation Committee of the Board of Directors of the Company granted performance-based stock incentive awards to the Company’s executive officers under the 1999 Stock Incentive Plan. Under these awards, the Company’s executive officers could earn up to an aggregate of 88,050 common shares based on the Company’s total shareholder return relative to the total shareholder return of the companies that comprise the Edison Electric Institute Index over the performance period of January 1, 2006 through December 31, 2008. The target share award by executive officer is as follows: John Erickson, 22,800 shares; Lauris Molbert, 17,800 shares; Kevin Moug, 10,700 shares and George Koeck, 7,400 shares. Actual payment may range from zero to 150 percent of the target amount. The executive officers have no voting or dividend rights related to these shares until the shares, if any, are issued at the end of the performance period. The form of 2006 Performance Award Agreement is filed as Exhibit 10.2 hereto and is incorporated herein by reference.

                  (3) On April 9, 2006, the Compensation Committee of the Board of Directors of the Company granted restricted stock units to certain employees, including 4,300 restricted stock units to one of the Company’s executive officers, Chuck MacFarlane, payable in common shares upon vesting on April 8, 2010.

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                  (4) On April 9, 2006 the Compensation Committee of the Company’s Board of Directors approved performance targets for 2006 under the terms of the Otter Tail Corporation Executive Annual Incentive Plan (the “Incentive Plan”). The Incentive Plan provides incentives to executive officers if the Company achieves certain performance targets. The Compensation Committee of the Board of Directors is responsible for setting performance targets under the Incentive Plan near the end of the first quarter each year and establishing total target payout percentages for each of the executive officers. For 2006 the performance targets are as follows:

1.	Corporate Earnings per Share. Each executive officer receives 33 1/3 percent of the total target payout if the Company achieves the targeted earnings per share. Each executive officer receives 8 1/3 percent of the total target payout if the Company achieves the minimum performance level, and additional increments for performance above the target.
2.	Corporate Return on Equity. Each executive officer receives 33 1/3 percent of the total target payout if the Company achieves the targeted return on equity. Each executive officer receives 8 1/3 percent of the total target payout if the Company achieves the minimum performance level, and additional increments for performance above the target.
3.	Cash Flow from Operations. Each executive officer receives 33 1/3 percent of the total target payout if the Company achieves the targeted cash flow from operations. Each executive officer receives 8 1/3 percent of the total target payout if the Company achieves the minimum performance level and additional increments for performance above the target.

                  The Compensation Committee has discretion over treatment of extraordinary gains, write-offs, or other events in determining the amount of incentive bonus to be paid. The Incentive Plan was filed as Exhibit 10.2 to the Company’s Form 8-K dated April 15, 2005 and is incorporated herein by reference.

                  (5) On April 10, 2006, the Company’s shareholders approved an amendment to the 1999 Employee Stock Purchase Plan (the “Purchase Plan”) increasing the number of common shares available under the Purchase Plan from 400,000 common shares to 900,000 common shares. The 1999 Employee Stock Purchase Plan, As Amended (2006), is filed as Exhibit 10.3 hereto and is incorporated herein by reference.

                  (6) On April 10, 2006, the Company’s shareholders approved amendments to the 1999 Stock Incentive Plan (the “Incentive Plan”):

(i)	increasing the number of common shares available under the Incentive Plan from 2,600,000 common shares to 3,600,000 common shares;
(ii)	extending the term of the Incentive Plan from December 13, 2008 to December 13, 2013;

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(iii)	deleting the provision of the Incentive Plan that permitted the Company to grant reload options;
(iv)	adding a provision to the Incentive Plan that prohibits repricing of options without shareholder approval; and
(v)	adding a provision to the Incentive Plan limiting the term of any stock option to 10 years from the date of grant.

                  The 1999 Stock Incentive Plan, As Amended (2006), is filed as Exhibit 10.4 hereto and is incorporated herein by reference.

Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

On April 10, 2006, Mr. Thomas M. Brown and Mr. Robert N. Spolum retired from the Board of Directors at the time of the 2006 Annual Meeting of Shareholders in accordance with Board policies.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

10.1	Form of Restricted Stock Award Agreement for Directors
10.2	Form of 2006 Performance Award Agreement
10.3	1999 Employee Stock Purchase Plan, As Amended (2006)
10.4	1999 Stock Incentive Plan, As Amended (2006)

Signature

                  Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: April 13, 2006	OTTER TAIL CORPORATION
	By /s/ Kevin G. Moug
	Kevin G. Moug
	Chief Financial Officer and Treasurer

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Exhibit Index

10.1	Form of Restricted Stock Award Agreement for Directors
10.2	Form of 2006 Performance Award Agreement
10.3	1999 Employee Stock Purchase Plan, As Amended (2006)
10.4	1999 Stock Incentive Plan, As Amended (2006)

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EX-10.1

Exhibit 10.1

OTTER TAIL CORPORATION
1999 STOCK INCENTIVE PLAN
2006 RESTRICTED STOCK AWARD AGREEMENT
FOR DIRECTORS

     This Restricted Stock Award Agreement is between Otter Tail Corporation, a Minnesota corporation (the “Corporation”), and the person named in the attached Restricted Stock Award Certificate for Directors who is a Non-employee Director (“Director”) of the Corporation effective as of the date of grant (the “Grant Date”) set forth in the attached Restricted Stock Award Certificate for Directors.

     WHEREAS, the Corporation, pursuant to the Otter Tail Corporation 1999 Stock Incentive Plan (the “Plan”), wishes to award to the Director a number of the Corporation’s Common Shares, par value $5.00 per share (the “Common Shares”), subject to certain restrictions and on the terms and conditions contained in this Agreement and in the attached Restricted Stock Award Certificate for Directors, which is made a part hereof.

     NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Corporation and the Director hereby agree as follows:

     1. Award of Restricted Stock. The Corporation hereby grants to the Director, effective as of the Grant Date, an award of restricted stock for that number of Common Shares set forth in the attached Restricted Stock Award Certificate for Directors (the “Shares”), on the terms and conditions set forth in this Agreement, the Restricted Stock Award Certificate for Directors and the Plan.

     2. Rights of the Director with Respect to the Shares. With respect to the Shares, the Director shall be entitled at all times on and after the date of issuance of the Shares to exercise the rights of a shareholder of Common Shares of the Corporation, including the right to vote the Shares and the right to receive dividends thereon as provided in Section 8 hereof, unless and until the Shares are forfeited pursuant to Section 5(b) hereof. The rights of the Director with respect to the Shares shall remain forfeitable at all times prior to the date or dates on which such rights become vested, and the restrictions with respect to the Shares lapse, in accordance with Section 3, 4 or 5(a) hereof.

     3. Vesting. Subject to the terms and conditions of this Agreement, the Shares shall vest, and the restrictions with respect to the Shares shall lapse, in installments on the dates and in the amounts set forth in the attached Restricted Stock Award Certificate for Directors if the Director remains continuously a Director of the Corporation until the respective vesting dates.

     4. Change of Control. Notwithstanding the vesting provision contained in Section 3 above, but subject to the other terms and conditions set forth herein, upon the occurrence of a Change of Control (as defined below) prior to any termination of the Director’s service on the Board, the Director shall become immediately and unconditionally vested in all of the Shares,

and the restrictions with respect to all of the Shares shall lapse. As used herein, “Change of Control” shall mean any of the following events:

     (a) The acquisition by any person, entity or “group,” within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than the Corporation or any of its Affiliates, or any employee benefit plan of the Corporation and/or one or more of its Affiliates, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 15% or more of either the then outstanding Common Shares or the combined voting power of the Corporation’s then outstanding voting securities in a transaction or series of transactions not approved in advance by a vote of at least three-quarters of the Continuing Directors (as hereinafter defined); or

     (b) Individuals who, as of the Grant Date, constitute the Board of Directors of the Corporation (generally the “Directors” and as of the Grant Date the “Continuing Directors”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a Director subsequent to the Grant Date whose nomination for election was approved in advance by a vote of at least three-quarters of the Continuing Directors (other than a nomination of an individual whose initial assumption of office is in connection with an actual or threatened solicitation with respect to the election or removal of the Directors of the Corporation, as such terms are used in Rule 14a-11 of Regulation 14A under the Exchange Act) shall be deemed to be a Continuing Director; or

     (c) The approval by the shareholders of the Corporation of a reorganization, merger, consolidation, liquidation or dissolution of the Corporation or of the sale (in one transaction or a series of related transactions) of all or substantially all of the assets of the Corporation other than a reorganization, merger, consolidation, liquidation, dissolution or sale approved in advance by a vote of at least three-quarters of the Continuing Directors;

     (d) The first purchase under any tender offer or exchange offer (other than an offer by the Corporation or any of its Affiliates) pursuant to which Common Shares are purchased; or

     (e) At least a majority of the Continuing Directors determines in their sole discretion that there has been a change in control of the Corporation.

     5. Early Vesting; Forfeiture.

     (a) If the Director’s service on the Corporation’s Board ceases for reason of disability, retirement from the Board or death prior to the vesting of the Shares pursuant to Section 3 or 4 hereof, the Director or the Director’s legal representatives, beneficiaries or heirs, as the case may be, shall become immediately vested, as of the date of such disability, retirement or death, in all of the unvested Shares, and the restrictions with respect to all of such Shares shall lapse. No transfer by will or the applicable laws of descent and distribution of any Shares which vest by reason of the Director’s death shall be effective to bind the Corporation unless the Committee shall have been furnished with written notice of such transfer and a copy of the will or such other evidence as the Committee may deem necessary to establish the validity of the transfer.

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     (b) If the Director’s service on the Corporation’s Board ceases for reasons other than disability, retirement or death prior to the vesting of the Shares pursuant to Section 3 or 4 hereof, the Director’s rights to all of the unvested Shares shall be immediately and irrevocably forfeited, including the right to vote such Shares and the right to receive cash dividends.

     6. Restriction on Transfer. Until the Shares vest pursuant to Section 3, 4 or 5(a) hereof, none of the Shares may be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of or encumbered, and no attempt to transfer the Shares, whether voluntary or involuntary, by operation of law or otherwise, shall vest the transferee with any interest or right in or with respect to the Shares.

     7. Issuance and Custody of Certificates.

     (a) The Corporation shall cause to be issued one or more stock certificates, registered in the Director’s name, representing the Shares. Each such certificate shall be subject to an appropriate stop-transfer order and shall bear the following legend:

“The Common Shares represented by this certificate are subject to forfeiture, and the transferability of this certificate and the Common Shares represented hereby are subject to the restrictions, terms and conditions (including restrictions against transfer) contained in the Otter Tail Corporation 1999 Stock Incentive Plan and a Restricted Stock Award Agreement between Otter Tail Corporation and the registered owner of such shares. Release from such restrictions, terms and conditions shall be made only in accordance with the provisions of the Plan and the Agreement, copies of which are on file in the office of the Secretary of Otter Tail Corporation.”

     (b) Upon execution of this Agreement, the Director shall execute and deliver to the Corporation a stock power or stock powers relating to the Shares.

     (c) Each certificate issued pursuant to Section 7(a) hereof, together with the stock power or stock powers relating to the Shares, shall be deposited by the Corporation with the Secretary of the Corporation or a custodian designated by the Secretary.

     (d) After any Shares vest pursuant to Section 3, 4 or 5(a) hereof, and following payment of the applicable withholding taxes pursuant to Section 9 hereof, the Corporation shall promptly cause to be issued a certificate or certificates, registered in the Director’s name or in the name of the Director’s legal representatives, beneficiaries or heirs, as the case may be, representing such vested Shares (less any shares withheld to pay withholding taxes), free of the legend provided in Section 7(a) hereof and any stop-transfer order with respect to such Shares, and shall cause such certificate or certificates to be delivered to the Director or the Director’s legal representatives, beneficiaries or heirs, as the case may be.

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     8. Distributions and Adjustments.

     (a) If any Shares vest in the Director subsequent to any change in the number or character of the Common Shares of the Corporation (through recapitalization, stock split, stock dividend, reorganization, merger, consolidation or otherwise), the Director shall then receive upon such vesting the number and type of securities or other consideration which the Director would have received if such Shares had vested prior to the event changing the number or character of the outstanding Common Shares.

     (b) Any additional Common Shares of the Corporation, any other securities of the Corporation and any other property (except for cash dividends or other cash distributions) distributed with respect to the Shares prior to the date or dates the Shares vest shall be subject to the same restrictions, terms and conditions as the Shares to which they relate and shall be promptly deposited with the Secretary of the Corporation or a custodian designated by the Secretary.

     (c) Any cash dividends or other cash distributions payable with respect to the Shares shall be distributed to the Director at the same time cash dividends or other cash distributions are distributed to shareholders of the Corporation generally.

     9. Income Tax Matters. The Director acknowledges that the Director will consult with the Director’s personal tax advisor regarding the income tax consequences of the grant of the Shares, or any other matters related to this Agreement. Income taxes will not be withheld in connection with the vesting of shares under this Agreement.

     10. Miscellaneous.

     (a) The Corporation shall reserve and keep available such number of Common Shares as will be sufficient to satisfy the requirements of this Agreement.

     (b) The Corporation shall not be required to deliver any Shares until the requirements of any federal or state securities laws, rules or regulations or other laws or rules (including the rules of any securities exchange) as may be determined by the Corporation to be applicable are satisfied.

     (c) If any of the shares covered by this Agreement are not registered under the Securities Act of 1933 at the time of their issuance hereunder, the Director represents and agrees that all such shares purchased under this grant will be acquired for investment and not for resale.

     (d) As used in this Agreement, the term “Common Shares” shall mean the Common Shares of the Corporation as authorized at the Grant Date and “Fair Market Value” shall have the meaning ascribed to them in the Plan.

     (e) This grant of Shares is granted pursuant to the Plan and is subject to all the terms and conditions contained therein. A copy of the Plan is available to the Director upon request.

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     (f) This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota.

     (g) Headings in this Agreement are for convenience of reference only and shall not be deemed in any way to be material or relevant to the construction or interpretation of this Agreement or any provision hereof.

     (h) THIS RESTRICTED STOCK AWARD AGREEMENT FOR DIRECTORS IS ATTACHED TO AND MADE A PART OF A RESTRICTED STOCK AWARD CERTIFICATE FOR DIRECTORS AND SHALL HAVE NO FORCE OR EFFECT UNLESS SUCH RESTRICTED STOCK AWARD CERTIFICATE FOR DIRECTORS IS DULY EXECUTED AND DELIVERED BY THE CORPORATION AND THE DIRECTOR.

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OTTER TAIL CORPORATION
1999 STOCK INCENTIVE PLAN

RESTRICTED STOCK AWARD CERTIFICATE FOR DIRECTORS

     This certifies the award of restricted stock as specified below which has been granted under the Otter Tail Corporation 1999 Stock Incentive Plan (the “Plan”), the terms and conditions of which are incorporated by reference herein and made a part hereof. In addition, the award shown in this Certificate is nontransferable and is subject to the terms and conditions set forth in the attached 2006 Restricted Stock Award Agreement for Directors of which this Certificate is a part.

     [Name and address of recipient]

     [Social Security Number of recipient]

     You have been granted the following Award:

Grant Type:	Restricted Stock
Number of Common Shares:	2,200
Grant Date:	April 10, 2006

     Vesting Schedule:

	Percentage of
Date	Restricted Stock Vested
April 8, 2007		25	%
April 8, 2008		25	%
April 8, 2009		25	%
April 8, 2010		25	%

     By the Corporation’s and your signature below, it is agreed that this award of restricted stock is governed by the terms and conditions of the 2006 Restricted Stock Award Agreement for Directors, a copy of which is attached and made a part of this document, and the Corporation’s 1999 Stock Incentive Plan, a copy of which is enclosed.

OTTER TAIL CORPORATION
By:
	John D. Erickson Its: President & Chief Executive Officer
[Name of Recipient]

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EX-10.2

Exhibit 10.2

OTTER TAIL CORPORATION
1999 STOCK INCENTIVE PLAN
2006 PERFORMANCE AWARD AGREEMENT

     This Performance Award Agreement is between Otter Tail Corporation, a Minnesota corporation (the “Corporation”), and you, as an employee of the Corporation or one of its Affiliates, effective as of the date of grant (the “Grant Date”) set forth in the attached Performance Award Certificate.

     WHEREAS, the Corporation, pursuant to the Otter Tail Corporation 1999 Stock Incentive Plan (the “Plan”), wishes to grant to you the opportunity and right to receive a number of the Corporation’s Common Shares, par value $5.00 per share (the “Common Shares”), subject to the terms and conditions contained in this Agreement and in the attached Performance Award Certificate, which is made a part of this Agreement.

     NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Corporation and you hereby agree as follows:

     1. Performance Award. The Corporation hereby grants to you, effective as of the Grant Date, a Performance Award representing the right to receive a specified number of Common Shares, as set forth in the attached Performance Award Certificate and subject to the terms and conditions set forth in this Agreement, the Performance Award Certificate and the Plan. The Performance Award, to the extent it becomes payable, shall be paid in Common Shares of the Corporation (the “Shares”).

     2. Performance Period and Performance Goals. The performance period for purposes of determining whether the Performance Award will be paid shall be January 1, 2006 through December 31, 2008 (the “Performance Period”). The performance goals for purposes of determining whether, and the extent to which, the Performance Award will be paid are set forth in Exhibit 1 to this Agreement, which Exhibit is made a part of this Agreement.

     3. Payment. Subject to the provisions of Sections 4 and 5 of this Agreement, the Performance Award shall be paid as soon as practicable after the Compensation Committee of the Corporation’s Board of Directors (the “Committee”) determines, in its discretion after the end of the Performance Period, whether and to what extent the performance goals have been achieved in accordance with the terms set forth in Exhibit 1 to this Agreement.

     4. Forfeiture; Early Payment. Notwithstanding the provisions of Section 3 of this Agreement, in the event your employment is terminated during the Performance Period, the Performance Award and your right to receive any Shares shall be immediately and irrevocably forfeited, unless such termination is by reason of:

          (a) disability (as determined under any long-term disability program then maintained by the Corporation or any of its Affiliates that is applicable to you),

          (b) retirement (normal or early retirement under any retirement plan of the Corporation or any of its Affiliates that is applicable to you),

          (c) death,

          (d) your resignation for “Good Reason” (as defined in your Executive Employment Agreement, dated on or before the Grant Date, between the Corporation and you), or

          (e) your termination “Without Cause” (as defined in your Executive Employment Agreement, dated on or before the Grant Date, between the Corporation and you).

In the event your employment is terminated during the Performance Period for one of the reasons enumerated in clauses (a) through (e) above, then you or your estate shall be entitled to receive a payment of the Performance Award based on, and assuming that, the performance goal would be achieved at the Target level, as set forth in Exhibit 1 to this Agreement. Such payment shall be made promptly following the date of such termination. If a payment is made pursuant to this Section 4, no payment shall be made pursuant to Section 3 of this Agreement.

     5. Change in Control. Notwithstanding the provisions of Section 3 of this Agreement, in the event of a “Change in Control” (as defined in the Change in Control Severance Agreement, dated on or before the Grant Date, between the Corporation and you) during the Performance Period that occurs prior to your termination of employment, you shall be entitled to receive a payment of the Performance Award based on, and assuming that, the performance goal would have been achieved at the Target level, as set forth in Exhibit 1 to this Agreement. Such payment shall be made promptly following the date of the Change in Control. If a payment is made pursuant to this Section 5, no payment shall be made pursuant to Section 3 of this Agreement.

     6. Restriction on Transfer. The Performance Award, and the right to receive Shares, may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of or encumbered, other than by will or the laws of descent and distribution, and no attempt to transfer the Performance Award, and the right to receive the Shares, whether voluntary or involuntary, by operation of law or otherwise, shall vest the transferee with any interest or right in or with respect to the Performance Award or the Shares. No transfer by will or the applicable laws of descent and distribution of the Performance Award shall be effective to bind the Corporation unless the Committee shall have been furnished with written notice of such transfer and a copy of the will or such other evidence as the Committee may deem necessary to establish the validity of the transfer.

     7. Issuance of Shares. After the Performance Award becomes payable pursuant to Section 3, 4 or 5 hereof, and following payment of the applicable withholding taxes pursuant to Section 8 hereof, the Corporation shall promptly cause to be issued a certificate or certificates, registered in your name or in the name of your legal representatives, beneficiaries or heirs, as the case may be, representing the Shares (less any shares withheld to pay withholding taxes) and shall cause such certificate or certificates to be delivered to you or your legal representatives, beneficiaries or heirs, as the case may be.

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     8. Income Tax Matters.

          (a) You acknowledge that you will consult with your personal tax advisor regarding the income tax consequences of the grant of the Performance Award, the receipt of Shares upon any payment of the Performance Award, the subsequent disposition of the Shares and any other matters related to this Agreement. In order to comply with all applicable federal or state income tax laws or regulations, the Corporation may take such action as it deems appropriate to ensure that all applicable federal or state payroll, withholding, income or other taxes, which are your sole and absolute responsibility, are withheld or collected from you.

          (b) In accordance with the terms of the Plan, and such rules as may be adopted by the Committee under the Plan, you may elect to satisfy your federal and state income tax withholding obligations arising from the receipt of the Shares by (i) delivering cash, check (bank check, certified check or personal check) or money order payable to the order of the Corporation, (ii) having the Corporation withhold a portion of the Shares otherwise to be delivered having a Fair Market Value equal to the amount of such taxes, or (iii) delivering to the Corporation Common Shares having a Fair Market Value equal to the amount of such taxes. The Corporation will not deliver any fractional Share but will pay, in lieu thereof, the Fair Market Value of such fractional Share. Your election must be made on or before the date that the amount of tax to be withheld is determined.

     9. Miscellaneous.

          (a) Nothing contained in this Agreement or the Plan shall confer on you any right to continue in the employ of the Corporation or any Affiliate or affect in any way the right of the Corporation or any Affiliate to terminate your employment at any time.

          (b) You shall not have any rights of a holder of Common Shares unless and until Shares are actually issued to you after the end of the Performance Period as provided in this Agreement.

          (c) The Corporation shall not be required to deliver any Shares until the requirements of any federal or state securities laws, rules or regulations or other laws or rules (including the rules of any securities exchange) as may be determined by the Corporation to be applicable are satisfied.

          (d) This Agreement is subject to the terms of the Plan. Terms used in this Agreement which are not defined herein shall have the respective meanings given to such terms in the Plan. A copy of the Plan is available to you upon request.

          (e) This Agreement shall be governed by and construed in accordance with the internal laws of the State of Minnesota, without giving effect to the conflicts of laws principles thereof.

          (f) Headings in this Agreement are for convenience of reference only and shall not be deemed in any way to be material or relevant to the construction or interpretation of this Agreement or any provision hereof.

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          (g) THIS PERFORMANCE AWARD AGREEMENT IS ATTACHED TO AND MADE A PART OF A PERFORMANCE AWARD CERTIFICATE AND SHALL HAVE NO FORCE OR EFFECT UNLESS SUCH PERFORMANCE AWARD CERTIFICATE IS DULY EXECUTED AND DELIVERED BY THE CORPORATION AND YOU.

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OTTER TAIL CORPORATION
1999 STOCK INCENTIVE PLAN

PERFORMANCE AWARD CERTIFICATE

     This certifies the Performance Award, as specified below, has been granted under the Otter Tail Corporation 1999 Stock Incentive Plan (the “Plan”), the terms and conditions of which are incorporated by reference herein and made a part hereof. In addition, the award shown in this Certificate is nontransferable and is subject to the terms and conditions set forth in the attached 2006 Performance Award Agreement of which this Certificate is a part.

[Name and Address of the Participant]

[Social Security Number of the Participant]

     You have been granted the following Award:

Grant Type:	Performance Award
Target Number of Common Shares
Subject to Award:
Maximum Number of Common Shares
Subject to Award:
Grant Date:	April 10, 2006
Performance Period:	January 1, 2006 — December 31, 2008
Performance Goals:	Set forth in Exhibit 1 to the 2006 Performance Award Agreement

          By the Corporation’s and your signature below, it is agreed that this Performance Award is governed by the terms and conditions of the Performance Award Agreement, a copy of which is attached and made a part of this document, and the Plan.

OTTER TAIL CORPORATION
By:
	[Name of Authorized Officer] [Title]

[Name of Participant]
 

Exhibit 1

Performance Goals for Three-Year Performance Period
(January 1, 2006 — December 31, 2008)

					Threshold						Target			Maximum
Performance Goal	Otter Tail TSR performance relative to peer group	<10 %ile			10 %ile			25th %ile			50th %ile			75th %ile or greater
Payment Levels	% of target shares		0	%		50	%		50	%		100	%		150	%

nAmounts payable for performance between the 25^th and 75^th percentile will be interpolated.

nTotal Shareholders Return (TSR) = stock price appreciation plus value of dividends.

nPeer group = Edison Electric Institute Index

EX-10.3

Exhibit 10.3

OTTER TAIL CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
AS AMENDED (2006)

ARTICLE I.
INTRODUCTION

     Section 1.01 Purpose. The purpose of the Plan is to provide employees of the Company and certain related corporations with an opportunity to share in the ownership of the Company by providing them with a convenient means for regular and systematic purchases of Common Stock and, thus, to develop a stronger incentive to work for the continued success of the Company.

     Section 1.02 Rules of Interpretation. It is intended that the Plan be an “employee stock purchase plan” as defined in Section 423(b) of the Code and Treasury Regulations promulgated thereunder. Accordingly, the Plan shall be interpreted and administered in a manner consistent therewith if so approved. All Participants in the Plan will have the same rights and privileges consistent with the provisions of the Plan.

     Section 1.03 Definitions. For purposes of the Plan, the following terms will have the meanings set forth below:

     (a) “Acceleration Date” means the earlier of the date of shareholder approval or approval by the Company’s Board of Directors of (i) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of Company Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which shareholders of the Company immediately prior to the merger have substantially the same proportionate ownership of stock in the surviving corporation immediately after the merger; (ii) any sale, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; or (iii) any plan of liquidation or dissolution of the Company.

     (b) “Affiliate” means any subsidiary corporation of the Company, as defined in Section 424(f) of the Code, whether now or hereafter acquired or established.

     (c) “Code” means the Internal Revenue Code of 1986, as amended.

     (d) “Committee” means the committee described in Section 10.01 of the Plan.

     (e) “Common Stock” means the Company’s Common Shares, $5 par value per share, as such stock may be adjusted for changes in the stock or the Company as contemplated by Article XI of the Plan.

     (f) “Company” means Otter Tail Corporation, a Minnesota corporation, and its successors by merger or consolidation as contemplated by Section 11.02 of the Plan.

     (g) “Current Compensation” means all regular wage, salary and commission payments paid by the Company to a Participant in accordance with the terms of his or her employment, but excluding annual bonus payments and all other forms of special compensation.

     (h) “Fair Market Value” as of a given date means the fair market value of the Common Stock determined by such methods or procedures as shall be established from time to time by the Committee, but shall not be less than, if the Common Stock is then quoted on the NASDAQ National Market System, the average of the high and low sales price as reported on the NASDAQ National Market System on such date or, if the NASDAQ National Market System is not open for trading on such date, on the most recent preceding date when it is open for trading. If on a given date the Common Stock is not traded on an established securities market, the Committee shall make a good faith attempt to satisfy the requirements of this Section 1.03(h) and in connection therewith shall take such action as it deems necessary or advisable.

     (i) “Participant” means a Regular Employee who is eligible to participate in the Plan under Section 2.01 of the Plan and who has elected to participate in the Plan.

     (j) “Participating Affiliate” means an Affiliate which has been designated by the Committee in advance of the Purchase Period in question as a corporation whose eligible Regular Employees may participate in the Plan.

     (k) “Plan” means the Otter Tail Corporation 1999 Employee Stock Purchase Plan, as it may be amended, the provisions of which are set forth herein.

     (l) “Purchase Period” means the period beginning on May 1, 1999 and ending on the last business day in December, 1999 and thereafter each approximate six-month period beginning on January 1st and July 1st of each year and ending on the last business day in June and December of each year; provided, however, that the then current Purchase Period will end upon the occurrence of an Acceleration Date.

     (m) “Regular Employee” means an employee of the Company or a Participating Affiliate as of the first day of a Purchase Period, including an officer or director who is also an employee, but excluding an employee whose customary employment is less than 20 hours per week.

     (n) “Stock Purchase Account” means the account maintained on the books and records of the Company recording the amount received from each Participant through payroll deductions made under the Plan.

ARTICLE II.
ELIGIBILITY AND PARTICIPATION

     Section 2.01 Eligible Employees. All Regular Employees shall be eligible to participate in the Plan beginning on the first day of the first Purchase Period to commence after such person becomes a Regular Employee. Subject to the provisions of Article VI of the Plan, each such employee will continue to be eligible to participate in the Plan so long as he or she remains a Regular Employee.

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     Section 2.02 Election to Participate. An eligible Regular Employee may elect to participate in the Plan for a given Purchase Period by filing with the Company, in advance of that Purchase Period and in accordance with such terms and conditions as the Committee in its sole discretion may impose, a form provided by the Company for such purpose (which authorizes regular payroll deductions from Current Compensation that continue until the employee withdraws from the Plan or ceases to be eligible to participate in the Plan).

     Section 2.03 Limits on Stock Purchase. No employee shall be granted any right to purchase Common Stock hereunder if such employee, immediately after such a right to purchase is granted, would own, directly or indirectly, within the meaning of Section 423(b)(3) and Section 424(d) of the Code, Common Stock possessing 5% or more of the total combined voting power or value of all the classes of the capital stock of the Company or of all Affiliates.

     Section 2.04 Voluntary Participation. Participation in the Plan on the part of a Participant is voluntary and such participation is not a condition of employment nor does participation in the Plan entitle a Participant to be retained as an employee.

ARTICLE III.
PAYROLL DEDUCTIONS AND STOCK PURCHASE ACCOUNT

     Section 3.01 Deduction from Pay. The form described in Section 2.02 of the Plan will permit a Participant to elect payroll deductions of any multiple of $10 but not less than $10 or more than $2,000 per month of such Participant’s Current Compensation during such Purchase Period, subject to such other limitations as the Committee in its sole discretion may impose. A Participant may cease making payroll deductions at any time, subject to such limitations as the Committee in its sole discretion may impose. In the event that during a Purchase Period the entire credit balance in a Participant’s Stock Purchase Account exceeds the product of (a) 85% of the Fair Market Value of the Common Stock on the first business day of that Purchase Period and (b) 2,000, then payroll deductions for such Participant shall automatically cease, and shall resume on the first pay period of the next Purchase Period.

     Section 3.02 Credit to Account. Payroll deductions will be credited to the Participant’s Stock Purchase Account on each applicable payday.

     Section 3.03 Interest. No interest will be paid on payroll deductions or on any other amount credited to, or on deposit in, a Participant’s Stock Purchase Account.

     Section 3.04 Nature of Account. The Stock Purchase Account is established solely for accounting purposes, and all amounts credited to the Stock Purchase Account will remain part of the general assets of the Company or the Participating Affiliate (as the case may be).

     Section 3.05 No Additional Contributions. A Participant may not make any payment into the Stock Purchase Account other than the payroll deductions made pursuant to the Plan.

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ARTICLE IV.
RIGHT TO PURCHASE SHARES

     Section 4.01 Number of Shares. Each Participant will have the right to purchase on the last business day of the Purchase Period all, but not less than all, of the number of whole and fractional shares, computed to four decimal places, of Common Stock that can be purchased at the price specified in Section 4.02 of the Plan with the entire credit balance in the Participant’s Stock Purchase Account, subject to the limitations that (a) no more than 2000 shares of Common Stock may be purchased under the Plan by any one Participant for a given Purchase Period, and (b) in accordance with Section 423(b)(8) of the Code, no more than $25,000 in Fair Market Value (determined at the beginning of each Purchase Period) of Common Stock and other stock may be purchased under the Plan and all other employee stock purchase plans (if any) of the Company and the Affiliates by any one Participant for any calendar year. If the purchases for all Participants for any Purchase Period would otherwise cause the aggregate number of shares of Common Stock to be sold under the Plan to exceed the number specified in Section 10.04 of the Plan, each Participant shall be allocated a pro rata portion of the Common Stock to be sold for such Purchase Period.

     Section 4.02 Purchase Price. The purchase price for any Purchase Period shall be that price as announced by the Committee prior to the first business day of that Purchase Period, which price may, in the discretion of the Committee, be a price which is not fixed or determinable as of the first business day of that Purchase Period; provided, however, that in no event shall the purchase price for any Purchase Period be less than the lesser of (a) 85% of the Fair Market Value of the Common Stock on the first business day of that Purchase Period or (b) 85% of the Fair Market Value of the Common Stock on the last business day of that Purchase Period, in each case rounded up to the next higher full cent.

ARTICLE V.
EXERCISE OF RIGHT

     Section 5.01 Purchase of Stock. On the last business day of a Purchase Period, the entire credit balance in each Participant’s Stock Purchase Account will be used to purchase the number of whole shares and fractional shares, computed to four decimal places, of Common Stock purchasable with such amount (subject to the limitations of Section 4.01 of the Plan), unless the Participant has filed with the Company, in advance of that date and subject to such terms and conditions as the Committee in its sole discretion may impose, a form provided by the Company which requests the distribution of the entire credit balance in cash.

     Section 5.02 Notice of Acceleration Date. The Company shall use its best efforts to notify each Participant in writing at least ten days prior to any Acceleration Date that the then current Purchase Period will end on such Acceleration Date.

ARTICLE VI.
WITHDRAWAL FROM PLAN; SALE OF STOCK

     Section 6.01 Voluntary Withdrawal. A Participant may, in accordance with such terms and conditions as the Committee in its sole discretion may impose, withdraw from the Plan and

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cease making payroll deductions by filing with the Company a form provided for this purpose. In such event, the entire credit balance in the Participant’s Stock Purchase Account will be paid to the Participant in cash within 30 days. A Participant who withdraws from the Plan will not be eligible to reenter the Plan until the beginning of the next Purchase Period following the date of such withdrawal.

     Section 6.02 Death. Subject to such terms and conditions as the Committee in its sole discretion may impose, upon the death of a Participant, no further amounts shall be credited to the Participant’s Stock Purchase Account. Thereafter, on the last business day of the Purchase Period during which such Participant’s death occurred and in accordance with Section 5.01 of the Plan, the entire credit balance in such Participant’s Stock Purchase Account will be used to purchase Common Stock, unless such Participant’s estate has filed with the Company, in advance of that day and subject to such terms and conditions as the Committee in its sole discretion may impose, a form provided by the Company which elects to have the entire credit balance in such Participant’s Stock Account distributed in cash within 30 days after the end of that Purchase Period or at such earlier time as the Committee in its sole discretion may decide. Each Participant, however, may designate one or more beneficiaries who, upon death, are to receive the Common Stock or the amount that otherwise would have been distributed or paid to the Participant’s estate and may change or revoke any such designation from time to time. No such designation, change or revocation will be effective unless made by the Participant in writing and filed with the Company during the Participant’s lifetime. Unless the Participant has otherwise specified the beneficiary designation, the beneficiary or beneficiaries so designated will become fixed as of the date of the death of the Participant so that, if a beneficiary survives the Participant but dies before the receipt of the payment due such beneficiary, the payment will be made to such beneficiary’s estate.

     Section 6.03 Termination of Employment. Subject to such terms and conditions as the Committee in its sole discretion may impose, upon a Participant’s normal or early retirement with the consent of the Company under any pension or retirement plan of the Company or Participating Affiliate, no further amounts shall be credited to the Participant’s Stock Purchase Account. Thereafter, on the last business day of the Purchase Period during which such Participant’s approved retirement occurred and in accordance with Section 5.01 of the Plan, the entire credit balance in such Participant’s Stock Purchase Account will be used to purchase Common Stock, unless such Participant has filed with the Company, in advance of that day and subject to such terms and conditions as the Committee in its sole discretion may impose, a form provided by the Company which elects to receive the entire credit balance in such Participant’s Stock Purchase Account in cash within 30 days after the end of that Purchase Period, provided that such Participant shall have no right to purchase Common Stock in the event that the last day of such a Purchase Period occurs more than three months following the termination of such Participant’s employment with the Company or Participating Affiliate by reason of such an approved retirement. In the event of any other termination of employment (other than death) with the Company or a Participating Affiliate, participation in the Plan will cease on the date the Participant ceases to be a Regular Employee for any reason. In such event, the entire credit balance in such Participant’s Stock Purchase Account will be paid to the Participant in cash within 30 days. For purposes of this Section 6.03, a transfer of employment to any Participating Affiliate or to the Company, or a leave of absence which has been approved by the Committee, will not be deemed a termination of employment as a Regular Employee.

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ARTICLE VII.
NONTRANSFERABILITY

     Section 7.01 Nontransferable Right to Purchase. The right to purchase Common Stock hereunder may not be assigned, transferred, pledged or hypothecated (whether by operation of law or otherwise), except as provided in Section 6.02 of the Plan, and will not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition or levy of attachment or similar process upon the right to purchase will be null and void and without effect.

     Section 7.02 Nontransferable Account. Except as provided in Section 6.02 of the Plan, the amounts credited to a Stock Purchase Account may not be assigned, transferred, pledged or hypothecated in any way, and any attempted assignment, transfer, pledge, hypothecation or other disposition of such amounts will be null and void and without effect.

     Section 7.03 Nontransferable Shares. Except as the Committee shall otherwise permit, prior to the second anniversary of the beginning of any Purchase Period, the Common Stock purchased at the end of such Purchase Period by a Participant pursuant to Section 5.01 of the Plan may not be assigned, transferred, pledged, hypothecated or otherwise disposed of in any way other than by will or by the laws of descent and distribution, and any other attempted assignment, transfer, pledge, hypothecation or other disposition of such share or shares will be null and void and without effect.

ARTICLE VIII.
COMMON STOCK ISSUANCE AND DIVIDEND REINVESTMENT

     Section 8.01 Issuance of Purchased Shares. Promptly after the last day of each Purchase Period and subject to such terms and conditions as the Committee in its sole discretion may impose, the Company will cause the Common Stock then purchased pursuant to Section 5.01 of the Plan to be issued for the benefit of the Participant and held in the Plan pursuant to Section 8.03 of the Plan.

     Section 8.02 Completion of Issuance. A Participant shall have no interest in the Common Stock purchased pursuant to Section 5.01 of the Plan until such Common Stock is issued for the benefit of the Participant pursuant to Section 8.03 of the Plan.

     Section 8.03 Form of Ownership. The Common Stock issued under Section 8.01 of the Plan will be held in the Plan in the name of the Participant or jointly in the name of the Participant and another person, as the Participant may direct on a form provided by the Company, until such time as certificates for such shares of Common Stock are delivered to or for the benefit of the Participant pursuant to Section 8.05 of the Plan.

     Section 8.04 Automatic Dividend Reinvestment. Prior to the delivery of certificates to or for the benefit of the Participant under Section 8.05 of the Plan, any and all cash dividends paid on full and fractional shares of Common Stock issued under either Section 8.01 of the Plan or this Section 8.04 shall be reinvested to acquire either new issue Common Stock or shares of Common Stock purchased on the open market, as determined by the Committee in its sole discretion. Purchases of Common Stock under this Section 8.04 will be (a) with respect to shares

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newly issued by the Company, invested on the dividend payment date, or, if that date is not a trading day, the immediately preceding trading day, or (b) with respect to shares purchased on the open market, normally purchased on the open market within ten business days of the dividend payment date, depending upon market conditions. The price per share of the Common Stock issued under this Section 8.04 shall be (x) with respect to shares newly issued by the Company, the Fair Market Value of the Common Stock on the applicable investment date, or (y) with respect to shares purchased on the open market, the weighted average price per share at which the Common Stock is actually purchased on the open market for the relevant period on behalf of all participants in the Plan. All shares of Common Stock acquired under this Section 8.04 will be held in the Plan in the same name as the Common Stock upon which the cash dividends were paid.

     Section 8.05 Delivery. At any time following the conclusion of the nontransferability period set forth in Section 7.03 of the Plan and subject to such terms and conditions as the Committee in its sole discretion may impose, by filing with the Company a form provided by the Company for such purpose, the Participant may elect to have the Company cause to be delivered to or for the benefit of the Participant a certificate for the number of whole shares and cash for any fractional share representing the Common Stock purchased pursuant to Section 5.01 of the Plan. Subject to such terms and conditions as the Committee in its sole discretion may impose, a Participant may at any time elect to have the Company cause to be delivered to or for the benefit of the Participant a certificate for the number of whole shares and cash for any fractional share representing the Common Stock purchased pursuant to Section 8.04 of the Plan upon the reinvestment of dividends by filing with the Company a form provided by the Company for such purpose. An election notice will be processed as soon as practicable after receipt. A certificate for whole shares normally will be mailed to the Participant within five business days after receipt of the election notice; provided, however, that if the notice is received between a dividend record date and a dividend payment date, a certificate will generally not be sent out until the declared dividends have been reinvested pursuant to Section 8.04 of the Plan. Any fractional share normally will be sold on the first trading day of each month and a check for the fractional share sent to the Participant promptly thereafter.

ARTICLE IX.
EFFECTIVE DATE, AMENDMENT AND
TERMINATION OF PLAN

     Section 9.01 Effective Date. The Plan was approved by the Board of Directors on December 14, 1998, subject to approval by the shareholders of the Company within twelve (12) months thereafter.

     Section 9.02 Plan Commencement. The initial Purchase Period under the Plan will commence May 1, 1999. Thereafter, each succeeding Purchase Period will commence and terminate in accordance with Section 1.03(l) of the Plan.

     Section 9.03 Powers of Board. The Board of Directors may amend or discontinue the Plan at any time. No amendment or discontinuation of the Plan, however, shall be made without shareholder approval that requires shareholder approval under any rules or regulations of the NASDAQ National Market System or any securities exchange that are applicable to the Company.

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     Section 9.04 Automatic Termination. The Plan shall automatically terminate when all of the shares of Common Stock provided for in Section 10.04 of the Plan have been sold, provided that such termination shall in no way affect the terms of the Plan pertaining to any Common Stock then held under the Plan.

ARTICLE X.
ADMINISTRATION

     Section 10.01 The Committee. The Plan shall be administered by a committee (the “Committee”) established by the Board of Directors. The members of the Committee need not be directors of the Company and shall be appointed by and serve at the pleasure of the Board of Directors.

     Section 10.02 Powers of Committee. Subject to the provisions of the Plan, the Committee shall have full authority to administer the Plan, including authority to interpret and construe any provision of the Plan, to establish deadlines by which the various administrative forms must be received in order to be effective, and to adopt such other rules and regulations for administering the Plan as it may deem appropriate. The Committee shall have full and complete authority to determine whether all or any part of the Common Stock acquired pursuant to the Plan shall be subject to restrictions on the transferability thereof or any other restrictions affecting in any manner a Participant’s rights with respect thereto but any such restrictions shall be contained in the form by which a Participant elects to participate in the Plan pursuant to Section 2.02 of the Plan. Decisions of the Committee will be final and binding on all parties who have an interest in the Plan.

     Section 10.03 Power and Authority of the Board of Directors. Notwithstanding anything to the contrary contained herein, the Board of Directors may, at any time and from time to time, without any further action of the Committee, exercise the powers and duties of the Committee under the Plan.

     Section 10.04 Stock to be Sold. The Common Stock to be issued and sold under the Plan may be authorized but unissued shares or shares acquired in the open market or otherwise. Except as provided in Section 11.01 of the Plan, the aggregate number of shares of Common Stock to be sold under the Plan will not exceed 900,000 shares.

     Section 10.05 Notices. Notices to the Committee should be addressed as follows:

Otter Tail Corporation
215 South Cascade Street, Box 496
Fergus Falls, MN 56538-0496
Attn: Secretary

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ARTICLE XI.
ADJUSTMENT FOR CHANGES
IN STOCK OR COMPANY

     Section 11.01 Stock Dividend or Reclassification. If the outstanding shares of Common Stock are increased, decreased, changed into or exchanged for a different number or kind of securities of the Company, or shares of a different par value or without par value, through reorganization, recapitalization, reclassification, stock dividend, stock split, amendment to the Company’s Articles of Incorporation, reverse stock split or otherwise, an appropriate adjustment shall be made in the maximum numbers and kind of securities to be purchased under the Plan with a corresponding adjustment in the purchase price to be paid therefor.

     Section 11.02 Merger or Consolidation. If the Company is merged into or consolidated with one or more corporations during the term of the Plan, appropriate adjustments will be made to give effect thereto on an equitable basis in terms of issuance of shares of the corporation surviving the merger or of the consolidated corporation, as the case may be.

ARTICLE XII.
APPLICABLE LAW

     Rights to purchase Common Stock granted under the Plan shall be construed and shall take effect in accordance with the laws of the State of Minnesota.

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EX-10.4

Exhibit 10.4

OTTER TAIL POWER COMPANY
1999 STOCK INCENTIVE PLAN
AS AMENDED (2006)

Section 1. Purpose.

     The purpose of the Plan is to promote the interests of the Company and its shareholders by aiding the Company in attracting and retaining employees, officers, consultants, independent contractors and non-employee directors capable of assuring the future success of the Company, to offer such persons incentives to put forth maximum efforts for the success of the Company’s business and to afford such persons an opportunity to acquire a proprietary interest in the Company.

Section 2. Definitions.

     As used in the Plan, the following terms shall have the meanings set forth below:

          (a) “Affiliate” shall mean (i) any entity that, directly or indirectly through one or more intermediaries, is controlled by the Company and (ii) any entity in which the Company has a significant equity interest, in each case as determined by the Committee.

          (b) “Award” shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award, Other Stock Grant or Other Stock-Based Award granted under the Plan.

          (c) “Award Agreement” shall mean any written agreement, contract or other instrument or document evidencing any Award granted under the Plan.

          (d) “Board” shall mean the Board of Directors of the Company.

          (e) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder.

          (f) “Committee” shall mean a committee of Directors designated by the Board to administer the Plan. The Committee shall be comprised of not less than such number of Directors as shall be required to permit Awards granted under the Plan to qualify under Rule 16b-3, and each member of the Committee shall be a “Non-Employee Director” within the meaning of Rule 16b-3 and an “outside director” within the meaning of Section 162(m) of the Code. The Company expects to have the Plan administered in accordance with the requirements for the award of “qualified performance-based compensation” within the meaning of Section 162(m) of the Code.

          (g) “Company” shall mean Otter Tail Power Company, a Minnesota corporation, and any successor corporation.

          (h) “Director” shall mean a member of the Board.

          (i) “Eligible Person” shall mean any employee, officer, consultant, independent contractor or Director providing services to the Company or any Affiliate whom the Committee determines to be an Eligible Person.

          (j) “Fair Market Value” shall mean, with respect to any property (including, without limitation, any Shares or other securities), the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee. Notwithstanding the foregoing, unless otherwise determined by the Committee, the Fair Market Value of Shares as of a given date shall be, if the Shares are then quoted on the NASDAQ National Market System, the average of the high and low sales price as reported on the NASDAQ National Market System on such date or, if the NASDAQ National Market System is not open for trading on such date, on the most recent preceding date when it is open for trading.

          (k) “Incentive Stock Option” shall mean an option granted under Section 6(a) of the Plan that is intended to meet the requirements of Section 422 of the Code or any successor provision.

          (l) “Non-Qualified Stock Option” shall mean an option granted under Section 6(a) of the Plan that is not intended to be an Incentive Stock Option.

          (m) “Option” shall mean an Incentive Stock Option or a Non-Qualified Stock Option.

          (n) “Other Stock Grant” shall mean any right granted under Section 6(e) of the Plan.

          (o) “Other Stock-Based Award” shall mean any right granted under Section 6(f) of the Plan.

          (p) “Participant” shall mean an Eligible Person designated to be granted an Award under the Plan.

          (q) “Performance Award” shall mean any right granted under Section 6(d) of the Plan.

          (r) “Person” shall mean any individual, corporation, partnership, association or trust.

          (s) “Plan” shall mean the Otter Tail Power Company 1999 Stock Incentive Plan, as amended from time to time, the provisions of which are set forth herein.

          (t) “Restricted Stock” shall mean any Shares granted under Section 6(c) of the Plan.

          (u) “Restricted Stock Unit” shall mean any unit granted under Section 6(c) of the Plan evidencing the right to receive a Share (or a cash payment equal to the Fair Market Value of a Share) at some future date.

          (v) “Rule 16b-3” shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, or any successor rule or regulation.

          (w) “Shares” shall mean shares of Common Stock, $5 par value per share, of the Company or such other securities or property as may become subject to Awards pursuant to an adjustment made under Section 4(c) of the Plan.

          (x) “Stock Appreciation Right” shall mean any right granted under Section 6(b) of the Plan.

Section 3. Administration.

          (a) Power and Authority of the Committee. The Plan shall be administered by the Committee. Subject to the express provisions of the Plan and to applicable law, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to each Participant under the Plan; (iii) determine the number of Shares to be covered by (or with respect to which payments, rights or other matters are to be calculated in connection with) each Award; (iv) determine the terms and conditions of any Award or Award Agreement; (v) amend the terms and conditions of any Award or Award Agreement and accelerate the exercisability of Options or the lapse of restrictions relating to Restricted Stock, Restricted Stock Units or other Awards; (vi) determine whether, to what extent and under what circumstances Awards may be exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or suspended; (vii) determine whether, to what extent and under what circumstances cash, Shares, promissory notes, other securities, other Awards, other property and other amounts payable with respect to an Award under the Plan shall be deferred either automatically or at the election of the holder thereof or the Committee; (viii) interpret and administer the Plan and any instrument or agreement, including an Award Agreement, relating to the Plan; (ix) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (x) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon any Participant, any holder or beneficiary of any Award and any employee of the Company or any Affiliate.

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          (b) Delegation. The Committee may delegate its powers and duties under the Plan to one or more Directors or a committee of Directors, subject to such terms, conditions and limitations as the Committee may establish in its sole discretion.

          (c) Power and Authority of the Board of Directors. Notwithstanding anything to the contrary contained herein, the Board may, at any time and from time to time, without any further action of the Committee, exercise the powers and duties of the Committee under the Plan.

Section 4. Shares Available for Awards.

          (a) Shares Available. Subject to adjustment as provided in Section 4(c) of the Plan, the aggregate number of Shares that may be issued under all Awards under the Plan shall be 3,600,000. Shares to be issued under the Plan may be either authorized but unissued Shares or Shares acquired in the open market or otherwise. Any Shares that are used by a Participant as full or partial payment to the Company of the purchase price relating to an Award, or in connection with the satisfaction of tax obligations relating to an Award, shall again be available for granting Awards (other than Incentive Stock Options) under the Plan. In addition, if any Shares covered by an Award or to which an Award relates are not purchased or are forfeited, or if an Award otherwise terminates without delivery of any Shares, then the number of Shares counted against the aggregate number of Shares available under the Plan with respect to such Award, to the extent of any such forfeiture or termination, shall again be available for granting Awards under the Plan. Notwithstanding the foregoing, the number of Shares available for granting Incentive Stock Options under the Plan shall not exceed 1,300,000, subject to adjustment as provided in the Plan and subject to the provisions of Section 422 or 424 of the Code or any successor provision.

          (b) Accounting for Awards. For purposes of this Section 4, if an Award entitles the holder thereof to receive or purchase Shares, the number of Shares covered by such Award or to which such Award relates shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Plan.

          (c) Adjustments. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or other property) that thereafter may be made the subject of Awards, (ii) the number and type of Shares (or other securities or other property) subject to outstanding Awards and (iii) the purchase or exercise price with respect to any Award; provided, however, that the number of Shares covered by any Award or to which such Award relates shall always be a whole number.

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          (d) Award Limitations Under the Plan. No Eligible Person may be granted any Award or Awards under the Plan, the value of which Award or Awards is based solely on an increase in the value of the Shares after the date of grant of such Award or Awards, for more than 50,000 Shares (subject to adjustment as provided for in Section 4(c) of the Plan), in the aggregate in any calendar year. The foregoing annual limitation specifically includes the grant of any Award or Awards representing “qualified performance-based compensation” within the meaning of Section 162(m) of the Code.

Section 5. Eligibility.

     Any Eligible Person shall be eligible to be designated a Participant. In determining which Eligible Persons shall receive an Award and the terms of any Award, the Committee may take into account the nature of the services rendered by the respective Eligible Persons, their present and potential contributions to the success of the Company or such other factors as the Committee, in its discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive Stock Option may only be granted to full or part-time employees (which term as used herein includes, without limitation, officers and Directors who are also employees), and an Incentive Stock Option shall not be granted to an employee of an Affiliate unless such Affiliate is also a “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code or any successor provision.

Section 6. Awards.

          (a) Options. The Committee is hereby authorized to grant Options to Participants with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine:

               (i) Exercise Price. The purchase price per Share purchasable under an Option shall be determined by the Committee; provided, however, that such purchase price shall not be less than 100% of the Fair Market Value of a Share on the date of grant of such Option; and further provided, that, except as otherwise provided in Section 4(c) hereof, the Committee shall not reprice, adjust or amend the exercise price of any Option previously awarded to any participant, whether through amendment, cancellation and replacement grant, or any other means, without obtaining shareholder approval.

               (ii) Option Term. The term of each Option shall be fixed by the Committee, but shall not be longer than 10 years from the date of grant.

               (iii) Time and Method of Exercise. The Committee shall determine the time or times at which an Option may be exercised in whole or in part and the method or methods by which, and the form or forms (including, without limitation, cash, Shares, promissory notes, other securities, other Awards or other property, or any combination thereof, having a Fair Market Value on the exercise date equal to the relevant exercise price) in which, payment of the exercise price with respect thereto may be made or deemed to have been made.

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          (b) Stock Appreciation Rights. The Committee is hereby authorized to grant Stock Appreciation Rights to Participants subject to the terms of the Plan and any applicable Award Agreement. A Stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive upon exercise thereof the excess of (i) the Fair Market Value of one Share on the date of exercise (or, if the Committee shall so determine, at any time during a specified period before or after the date of exercise) over (ii) the grant price of the Stock Appreciation Right as specified by the Committee, which price shall not be less than 100% of the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right. Subject to the terms of the Plan and any applicable Award Agreement, the grant price, term, methods of exercise, dates of exercise, methods of settlement and any other terms and conditions of any Stock Appreciation Right shall be as determined by the Committee. The Committee may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate.

          (c) Restricted Stock and Restricted Stock Units. The Committee is hereby authorized to grant Restricted Stock and Restricted Stock Units to Participants with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine:

               (i) Restrictions. Shares of Restricted Stock and Restricted Stock Units shall be subject to such restrictions as the Committee may impose (including, without limitation, a waiver by the Participant of the right to vote or to receive any dividend or other right or property with respect thereto), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise as the Committee may deem appropriate.

               (ii) Stock Certificates. Any Restricted Stock granted under the Plan shall be registered in the name of the Participant and shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted Stock. In the case of Restricted Stock Units, no Shares shall be issued at the time such Awards are granted.

               (iii) Forfeiture. Except as otherwise determined by the Committee, upon termination of employment (as determined under criteria established by the Committee) during the applicable restriction period, all Shares of Restricted Stock and all Restricted Stock Units at such time subject to restriction shall be forfeited and reacquired by the Company; provided, however, that the Committee may, when it finds that a waiver would be in the best interest of the Company, waive in whole or in part any or all remaining restrictions with respect to Shares of Restricted Stock or Restricted Stock Units. Upon the lapse or waiver of restrictions and the restricted period relating to Restricted Stock Units evidencing the right to receive Shares, such Shares shall be issued and delivered to the holders of the Restricted Stock Units.

          (d) Performance Awards. The Committee is hereby authorized to grant Performance Awards to Participants subject to the terms of the Plan and any applicable Award Agreement. A Performance Award granted under the Plan (i) may be denominated or payable in cash, Shares (including, without limitation, Restricted Stock and Restricted Stock Units), other securities, other Awards or other property and (ii) shall confer on the holder thereof the right to receive payments, in whole or in part, upon the achievement of such performance goals during such performance periods as the Committee shall establish. Subject to the terms of the Plan and

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any applicable Award Agreement, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award granted, the amount of any payment or transfer to be made pursuant to any Performance Award and any other terms and conditions of any Performance Award shall be determined by the Committee.

          (e) Other Stock Grants. The Committee is hereby authorized, subject to the terms of the Plan and any applicable Award Agreement, to grant to Participants Shares without restrictions thereon as are deemed by the Committee to be consistent with the purpose of the Plan.

          (f) Other Stock-Based Awards. The Committee is hereby authorized to grant to Participants subject to the terms of the Plan and any applicable Award Agreement, such other Awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purpose of the Plan. Shares or other securities delivered pursuant to a purchase right granted under this Section 6(f) shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms (including, without limitation, cash, Shares, promissory notes, other securities, other Awards or other property or any combination thereof), as the Committee shall determine, the value of which consideration, as established by the Committee, shall not be less than 100% of the Fair Market Value of such Shares or other securities as of the date such purchase right is granted.

          (g) General.

               (i) No Cash Consideration for Awards. Awards shall be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law.

               (ii) Awards May Be Granted Separately or Together. Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with or in substitution for any other Award or any award granted under any plan of the Company or any Affiliate other than the Plan. Awards granted in addition to or in tandem with other Awards or in addition to or in tandem with awards granted under any such other plan of the Company or any Affiliate may be granted either at the same time as or at a different time from the grant of such other Awards or awards.

               (iii) Forms of Payment under Awards. Subject to the terms of the Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise or payment of an Award may be made in such form or forms as the Committee shall determine (including, without limitation, cash, Shares, promissory notes, other securities, other Awards or other property or any combination thereof), and may be made in a single payment or transfer, in installments or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of dividend equivalents with respect to installment or deferred payments.

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               (iv) Limits on Transfer of Awards. No Award (other than Other Stock Grants) and no right under any such Award shall be transferable by a Participant otherwise than by will or by the laws of descent and distribution; provided, however, that, if so determined by the Committee, a Participant may, in the manner established by the Committee, transfer Options (other than Incentive Stock Options) or designate a beneficiary or beneficiaries to exercise the rights of the Participant and receive any property distributable with respect to any Award upon the death of the Participant. Each Award or right under any Award shall be exercisable during the Participant’s lifetime only by the Participant or, if permissible under applicable law, by the Participant’s guardian or legal representative. No Award or right under any such Award may be pledged, alienated, attached or otherwise encumbered, and any purported pledge, alienation, attachment or encumbrance thereof shall be void and unenforceable against the Company or any Affiliate.

               (v) Term of Awards. The term of each Award shall be for such period as may be determined by the Committee, but the term of any Option shall not be longer than 10 years from the date of grant.

               (vi) Restrictions; Securities Exchange Listing. All Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such restrictions as the Committee may deem advisable under the Plan, applicable federal or state securities laws and regulatory requirements, and the Committee may cause appropriate entries to be made or legends to be affixed to reflect such restrictions. If any securities of the Company are traded on a securities exchange, the Company shall not be required to deliver any Shares or other securities covered by an Award unless and until such Shares or other securities have been admitted for trading on such securities exchange.

Section 7. Amendment and Termination; Adjustments.

          (a) Amendments to the Plan. The Board may amend, alter, suspend, discontinue or terminate the Plan at any time; provided, however, that, notwithstanding any other provision of the Plan or any Award Agreement, without the approval of the shareholders of the Company, no such amendment, alteration, suspension, discontinuation or termination shall be made that, absent such approval:

               (i) would violate the rules or regulations of the NASDAQ National Market System or any securities exchange that are applicable to the Company; or

               (ii) would cause the Company to be unable, under the Code, to grant Incentive Stock Options under the Plan.

          (b) Amendments to Awards. The Committee may waive any conditions of or rights of the Company under any outstanding Award, prospectively or retroactively. Except as otherwise provided herein or in the Award Agreement, the Committee may not amend, alter, suspend, discontinue or terminate any outstanding Award, prospectively or retroactively, if such action would adversely affect the rights of the holder of such Award, without the consent of the Participant or holder or beneficiary thereof.

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          (c) Correction of Defects, Omissions and Inconsistencies. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry the Plan into effect.

Section 8. Income Tax Withholding; Tax Bonuses.

          (a) Withholding. In order to comply with all applicable federal or state income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal or state payroll, withholding, income or other taxes, which are the sole and absolute responsibility of a Participant, are withheld or collected from such Participant. In order to assist a Participant in paying all or a portion of the federal and state taxes to be withheld or collected upon exercise or receipt of (or the lapse of restrictions relating to) an Award, the Committee, in its discretion and subject to such additional terms and conditions as it may adopt, may permit the Participant to satisfy such tax obligation by (i) electing to have the Company withhold a portion of the Shares otherwise to be delivered upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes or (ii) delivering to the Company Shares other than Shares issuable upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes. The election, if any, must be made on or before the date that the amount of tax to be withheld is determined.

          (b) Tax Bonuses. The Committee, in its discretion, shall have the authority, at the time of grant of any Award under this Plan or at any time thereafter, to approve cash bonuses to designated Participants to be paid upon their exercise or receipt of (or the lapse of restrictions relating to) Awards in order to provide funds to pay all or a portion of federal and state taxes due as a result of such exercise or receipt (or the lapse of such restrictions). The Committee shall have full authority in its discretion to determine the amount of any such tax bonus.

Section 9. General Provisions.

          (a) No Rights to Awards. No Eligible Person, Participant or other Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Eligible Persons, Participants or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to any Participant or with respect to different Participants.

          (b) Award Agreements. No Participant will have rights under an Award granted to such Participant unless and until an Award Agreement shall have been duly executed on behalf of the Company and, if requested by the Company, signed by the Participant.

          (c) No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases.

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          (d) No Right to Employment. The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or any Affiliate, nor will it affect in any way the right of the Company or an Affiliate to terminate such employment at any time, with or without cause. In addition, the Company or an Affiliate may at any time dismiss a Participant from employment free from any liability or any claim under the Plan or any Award, unless otherwise expressly provided in the Plan or in any Award Agreement.

          (e) Governing Law. The validity, construction and effect of the Plan or any Award, and any rules and regulations relating to the Plan or any Award, shall be determined in accordance with the laws of the State of Minnesota.

          (f) Severability. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction or Award, and the remainder of the Plan or any such Award shall remain in full force and effect.

          (g) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.

          (h) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash shall be paid in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated.

          (i) Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.

Section 10. Effective Date of the Plan.

     The Plan was approved by the Board on December 14, 1998, subject to approval by the shareholders of the Company within twelve (12) months thereafter. Any Award granted under the Plan prior to shareholder approval of the Plan shall be subject to shareholder approval of the Plan.

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Section 11. Term of the Plan.

     No Award shall be granted under the Plan after December 13, 2013 or any earlier date of discontinuation or termination established pursuant to Section 7(a) of the Plan. However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond such date.

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