exv10w3






Exhibit 10.3




ZELL CREDIT OPPORTUNITIES MASTER FUND, L.P.

TWO NORTH RIVERSIDE PLAZA, SUITE 600

CHICAGO, ILLINOIS 60606




April 7, 2010



Penford Corporation

7094 S. Revere Parkway

Centennial, Colorado 80112

Attention: Thomas D. Malkoski




Dear Mr. Malkoski:




     As you know, the Board of Directors of Penford Corporation, a Washington corporation (the
“Company”), has agreed to issue to Zell Credit Opportunities Master Fund, L.P., a Delaware
limited partnership (the “Investor”), shares of Series A 15.0% Cumulative Non-Voting
Non-Convertible Preferred Stock and Series B Voting Convertible Preferred Stock of the Company
pursuant to a Securities Purchase Agreement by and between the Company and the Investor dated April
7, 2010 (the “Purchase Agreement”). The execution and delivery of this letter agreement is
a condition precedent to the Closing under the Purchase Agreement. Capitalized terms used and not
otherwise defined herein that are defined in the Purchase Agreement will have the meanings given
such terms in the Purchase Agreement.



     In consideration of the foregoing, the Company and Investor hereby agree as follows:


1. Standstill Restrictions. Subject to the exceptions set forth in Section 2, the Investor
covenants and agrees that from the Closing Date until the second anniversary thereof (the
“Standstill Period”), no member of the Investor Group shall, without the prior written
consent of the Company authorized by a majority vote of the Disinterested Directors then in office,
take any of the following actions:




     (a) acquire, offer to acquire (except a nonpublic and confidential offer to the Company or its
Affiliates which nonpublic and confidential offer, if any, shall be accompanied by a written
opinion of counsel, to the effect that such offer and the subject matter thereof, as so presented,
does not require disclosure by any party hereto, pursuant to the Securities Act or the Exchange Act
or any rule or regulation promulgated thereunder) or enter into any agreement to acquire, by
purchase, exchange or otherwise, beneficial ownership of (i) any Voting Securities, or (ii) any
other security convertible into, or any option, warrant or right to acquire, Voting Securities
(other than by means of a dividend paid to holders of Voting Securities generally);



     (b) nominate one or more directors for election to the Board or make any shareholder proposal
at any annual or special meeting of shareholders of the Company, except for the nomination and
election of the director entitled to be elected by the holders of the Cumulative Preferred Stock
(the “Cumulative Preferred Director”);



     (c) solicit, or participate in any solicitation of, proxies or consents with respect to any
Voting Securities, or become a “participant” or “participant in a solicitation” with respect to any



 









 




Voting Securities, as such terms are used in Schedule 14A under the Exchange Act, with respect
to any annual or special meeting of shareholders of the Company or any action proposed to be taken
by written consent by the shareholders of the Company; or




     (d) join or participate in any Group, or otherwise act in concert with any Person, for the
purpose of circumventing the provisions or purposes of this letter agreement or any portion hereof.


2. Exceptions to Standstill Restrictions.




     (a) Section 1(a) shall not apply to the acquisition or purchase by members of the Investor
Group of Voting Securities or securities convertible into or exercisable for Voting Securities:




(i) that are offered or issued in a rights offering made available to the holders of
Common Stock generally or in any dividend or distribution made to holders of Common
Stock generally;




(ii) acquired pursuant to preemptive rights set forth in the Investor Rights
Agreement; and




(iii) consisting of stock or options issued or granted by the Company to the
Cumulative Preferred Director as compensation for his or her service on the
Company’s Board of Directors or a committee of the Board.



     (b) Sections 1(b) and (c) shall not apply at any time that:




(i) there are any Cash Dividends that are payable to the holders of Cumulative
Preferred Stock pursuant to Section 4(a) of the Cumulative Preferred Articles
(whether for the most recent period or any previous period) and such Cash Dividends
remain unpaid past the applicable Dividend Payment Date (as such terms are defined
in the Cumulative Preferred Articles); or




(ii) any Person who is not a member of the Investor Group has commenced and has not
withdrawn (A) the solicitation of proxies or consents to elect or appoint a slate of
directors who would constitute a majority of the Board of Directors of the Company
if elected or (B) a tender offer which would, if fully subscribed, cause such Person
to beneficially own at least a majority of the Voting Securities of the Company.



     (c) No provisions of Section 1 shall apply at any time that there has occurred and remains
uncured a breach by the Company of any of its material duties or obligations under the Purchase
Agreement, the Investor Rights Agreement, the Cumulative Preferred Articles or the Convertible
Preferred Articles.



     (d) Nothing in Section 1 shall in any way limit or restrict (i) the ability of the Cumulative
Preferred Director to take any actions (or to refrain from taking any actions) in his or her
capacity as a director of the Company or comply with his or her fiduciary duties as a director



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of the Company or (ii) the ability of any member of the Investor Group to freely vote its
Voting Securities or furnish a consent with respect to any of its Voting Securities to any matter
requiring the vote or consent of the shareholders (including third party proxy contests) in its
sole discretion, provided that such Voting Securities and associated voting rights were not
acquired in violation of this letter agreement.



3. Transfer Restrictions. Investor covenants and agrees that, during the Standstill
Period, Investor shall not, without the prior written consent of the Company authorized by a
majority of the Disinterested Directors then in office, Transfer any Cumulative Preferred Stock,
Convertible Preferred Stock or Conversion Shares (collectively, the “Restricted
Securities”); provided, however, that the foregoing restrictions shall not
apply to the Transfer of Restricted Securities:




     (a) to any Affiliate of such member of the Investor Group;



     (b) in connection with a liquidation, dissolution or winding-down of Investor only, to the
equity holders or partners of the Investor and to the members of the Family Group of such equity
holders;



     (c) in a bona fide pledge of such Restricted Securities to secure any indebtedness or
liability and any Transfer of such Restricted Securities to the pledge of such pledge in the event
of default on such indebtedness or liability; or



     (d) at any time that there has occurred and remains uncured a breach by the Company of any of
its material duties or obligations under the Purchase Agreement, the Investor Rights Agreement, the
Cumulative Preferred Articles or the Convertible Preferred Articles.


4. Miscellaneous




     (a) Definitions. As used in this letter agreement, the following terms have the
respective meanings set forth below:



          “Affiliate” and “Associate” shall have the respective meanings ascribed to
such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act (“Rule
12b-2”), as in effect on the date hereof; provided, however, that (i) that the term “Affiliate”
shall include any beneficial owner of at least 5% of a Person’s voting securities regardless of
whether such owner would be considered an Affiliate under Rule 12b-2 and (ii) the term “Associate”
shall not include any Person who would be an Associate only as a result of clause (2) of the
definition of Associate contained in such Rule 12b-2.




          “Common Stock” shall mean the common stock, $1.00 par value per share, of the Company.




          “Disinterested Director” shall mean any member of the Board who, while a member of the
Board, is not an Affiliate, Associate or representative of any member of the Investor Group.




          “Exchange Act” means the Securities Exchange Act of 1934, as amended.




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          “Family Group” means, with respect to any Person, (i) such Person’s lineal
descendants; (ii) any trust substantially for the benefit of one or more lineal descendants of such
Person; (iii) such Person’s spouse; (iv) any trusts substantially for the benefit of such Person’s
spouse; and (v) any trusts substantially for the benefit of such Person’s spouse and lineal
descendants.




          “Group” shall have the meaning set forth in Rule 13d-5, as in effect on the date
hereof, under the Exchange Act.




          “Investor Group” means (i) Investor; and (ii) any Group that includes Investor formed
for the purpose of acquiring, holding, voting or disposing of Common Stock which would be required
by Section 13(d) of the Exchange Act, and the rules and regulations promulgated thereunder, to file
a statement on Schedule 13D pursuant to Rule 13d-1(a) or Schedule 13G pursuant to Rule 13d-1(c)
with the Securities and Exchange Commission as a “person” within the meaning of Section 13(d)(3) of
the Exchange Act if such group beneficially owned Common Stock representing more than 5% of any
class of Common Stock then outstanding.




          “Person” shall have the meaning set forth in Section 2(2) of the Securities Act.




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




          “Transfer” means any sale, gift, bequest, distribution, disposition, assignment,
pledge, hypothecation, or any other voluntary or involuntary transfer, disposition or encumbrance,
including any disposition by operation of law, and including the exercise of a power of appointment
or the exercise by a fiduciary of distribution discretion. For the avoidance of doubt, a conversion
of the Series B Voting Convertible Preferred Stock shall not constitute a Transfer hereunder.




          “Voting Securities” means the shares of Common Stock and any other securities of the
Company having ordinary power to vote in the election of members of the Board and any securities
convertible, exchangeable or otherwise exercisable to acquire such Voting Securities.




     (b) Special Remedy. The parties hereto agree that any breach of this letter agreement
would result in irreparable injury to other party and that money damages would not be an adequate
remedy for such breach. Accordingly, without prejudice to the rights and remedies otherwise
available under applicable law, either party shall be entitled to seek specific performance and
equitable relief by way of injunction or otherwise if the other party breaches or threatens to
breach any of the provisions of this letter agreement. It is further understood and agreed that no
failure or delay by either party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any right, power or privilege hereunder. If any term,
provision, covenant or restriction in this letter agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable the parties hereto shall negotiate in good faith
to attempt to place the parties in the same position as they would have been in had such provision
not been held to be invalid, void or unenforceable, but if the parties are unable to reach
agreement thereon, this letter agreement shall automatically terminate. This



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letter agreement contains the entire agreement between the parties hereto concerning the
matters addressed herein.




     (c) Amendments. No modification of this letter agreement or waiver of the terms and
conditions hereof shall be binding upon either party hereto, unless approved in writing by the
party against which enforcement of such waiver or amendment is sought; provided that no waiver or
amendment shall be effective as against the Company unless such waiver or amendment is approved in
writing by the vote of a majority of the independent members of the Board (other than any director
appointed by a member of the Investor Group pursuant to the Certificate of Designations for the
Series A Preferred).



     (d) Notices. All notices and other communications provided for or permitted hereunder
shall be made pursuant to the provisions for such notices and communications provided in Section
5.4 of the Purchase Agreement.



     (e) Successors and Assigns. This letter agreement shall inure to the benefit of and
be binding upon the successors and assigns of each of the parties hereto; provided that this letter
agreement may not be assigned by either party without the prior written consent of the other party.



     (f) Counterparts. This letter agreement may be executed in any number of counterparts
and by the parties hereto in separate counterparts (including by electronic facsimile or email
attachment), each of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.



     (g) Governing Law; Jurisdiction. This letter agreement shall be governed by and
construed in accordance with the internal laws of the State of New York applicable to agreements
made and to be performed within that state. In addition, each of the parties hereto (a) consents
to submit itself to the personal jurisdiction of the New York Courts in the event any dispute
arises out of this letter agreement or any of the transactions contemplated hereby; (b) agrees that
it will not attempt to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court; and (c) agrees that the court specified in clause (a) of this Section
6(g) shall be the non-exclusive forum for disputes hereunder. Each party hereto hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in
any legal proceeding arising out of or relating to this letter agreement or the transactions
contemplated hereby.



     (h) Entire Agreement. The letter agreement and the other Transaction Documents,
together with the Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements, understandings,
discussions and representations, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.



     (i) Interpretation. The definitions contained in this letter agreement are applicable
to the singular as well as the plural forms of such terms. The words “include” and “including,”
and other words of similar import when used herein shall not be deemed to be terms of limitation
but rather shall be deemed to be followed in each case by the words “without limitation.”



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     If the foregoing correctly sets forth the understanding between us, please execute this letter
agreement in the space provided below, whereupon it will become a binding agreement between us (the
parties hereto intending to be legally bound by the execution of this letter agreement) as of the
date first above written.



	 	 	 	 	 	 	 	 	 

	 	 	Very truly yours,	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Zell Credit Opportunities Master Fund, L.P.	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Zell Credit Opportunities (GenPar), L.L.C.	 	 
	 	 	Its:	 	General Partner	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Philip G. Tinkler	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	Name:
	 	Philip G. Tinkler	 	 
	 

	 	 	 	Its:
	 	Vice President	 	 






ACCEPTED AND AGREED TO:




Penford Corporation




	 	 	 	 	 

	By:

	 	/s/ Thomas D. Malkoski
	 	 
	 

	 	 	 	 
	Name:

	 	Thomas D. Malkoski	 	 
	Title:

	 	President and Chief Executive Officer	 	 







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