exv10w1






Exhibit 10.1




SECURITIES PURCHASE AGREEMENT




BY AND BETWEEN



PENFORD CORPORATION



AND



ZELL CREDIT OPPORTUNITIES MASTER FUND, L.P.



DATED



APRIL 7, 2010



 









 





TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page
	 
	 	 	 	 
	Article I. DEFINITIONS
	 	 	1	 
	 
	 	 	 	 
	1.1 Definitions
	 	 	1	 
	 
	 	 	 	 
	Article II. PURCHASE AND SALE
	 	 	5	 
	 
	 	 	 	 
	2.1 Closing
	 	 	5	 
	2.2 Closing Deliveries
	 	 	5	 
	2.3 Closing Conditions
	 	 	6	 
	 
	 	 	 	 
	Article III. REPRESENTATIONS AND WARRANTIES
	 	 	8	 
	 
	 	 	 	 
	3.1 Representations and Warranties of the Company
	 	 	8	 
	3.2 Representations and Warranties of the Investor
	 	 	17	 
	 
	 	 	 	 
	Article IV. OTHER AGREEMENTS OF THE PARTIES
	 	 	18	 
	 
	 	 	 	 
	4.1 Transfer Restrictions
	 	 	18	 
	4.2 Furnishing of Information
	 	 	21	 
	4.3 Integration
	 	 	21	 
	4.4 Securities Laws Disclosure; Publicity
	 	 	21	 
	4.5 Indemnification of Investor
	 	 	21	 
	4.6 Non-Public Information
	 	 	22	 
	4.7 Listing of Securities
	 	 	22	 
	4.8 Use of Proceeds
	 	 	22	 
	4.9 Board Fees and Expenses
	 	 	22	 
	 
	 	 	 	 
	Article V. MISCELLANEOUS
	 	 	23	 
	 
	 	 	 	 
	5.1 Fees and Expenses
	 	 	23	 
	5.2 Entire Agreement
	 	 	23	 
	5.3 Knowledge
	 	 	23	 
	5.4 Notices
	 	 	23	 
	5.5 Amendments; Waivers; No Additional Consideration
	 	 	24	 
	5.6 Termination
	 	 	24	 
	5.7 Construction
	 	 	25	 
	5.8 Successors and Assigns
	 	 	25	 
	5.9 No Third-Party Beneficiaries
	 	 	25	 
	5.10 Governing Law
	 	 	25	 






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	5.11 Survival
	 	 	26	 
	5.12 Execution
	 	 	26	 
	5.13 Severability
	 	 	26	 
	5.14 Rescission and Withdrawal Right
	 	 	26	 
	5.15 Replacement of Securities
	 	 	26	 
	5.16 Remedies
	 	 	26	 
	5.17 Payment Set Aside
	 	 	27	 
	5.18 Exclusivity
	 	 	27	 
	5.19 Limitation of Liability
	 	 	28	 
	 
	 	 	 	 
	Exhibit A — Convertible Preferred Articles
	 	 	 	 
	 
	 	 	 	 
	Exhibit B — Cumulative Preferred Articles
	 	 	 	 
	 
	 	 	 	 
	Exhibit C — Investor Rights Agreement
	 	 	 	 
	 
	 	 	 	 
	Exhibit D — Standstill Agreement
	 	 	 	 
	 
	 	 	 	 
	Exhibit E — Form of Legal Opinion
	 	 	 	 







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SECURITIES PURCHASE AGREEMENT




     This Securities Purchase Agreement (this “Agreement”), dated as of April 7, 2010, is
made by and between Penford Corporation, a Washington corporation (the “Company”), and Zell
Credit Opportunities Master Fund, L.P., a Delaware limited partnership (the “Investor”).



     WHEREAS, subject to the terms and conditions set forth in this Agreement, the Company desires
to issue and sell to the Investor, and the Investor desires to purchase from the Company certain
securities of the Company, as more fully described in this Agreement.



     NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for
other good and valuable consideration the receipt and adequacy of which are hereby acknowledged,
the Company and the Investor agree as follows:



ARTICLE I.

DEFINITIONS




     1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for
all purposes of this Agreement, the following terms shall have the meanings indicated in this
Section 1.1:



          “Action” means any action, suit, inquiry, notice of violation, proceeding (including
any partial proceeding such as a deposition) or investigation pending or threatened in writing
against or affecting the Company, any Subsidiary or any of their respective properties before or by
any court, arbitrator, governmental or administrative agency, regulatory authority (federal, state,
county, local or foreign), stock market, stock exchange or trading facility.




          “Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a Person, as such
terms are used in and construed under Rule 144.




          “Agreement” has the meaning set forth in the preamble.




          “Business Day” means any day except Saturday, Sunday and any day which is a federal
legal holiday or a day on which banking institutions in the New York City are authorized or
required by law or other governmental action to close.




          “Closing” means the closing of the purchase and sale of the Securities pursuant to
Article II.




          “Closing Date” means the first Business Day on or after April 7, 2010 on which all of
the conditions set forth in Sections 2.3(a) and (b) are satisfied, or such other date as the
Company and the Investor may agree.




          “Code” has the meaning set forth in Section 3.1(o).




          “Commission” means the United States Securities and Exchange Commission.




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          “Common Stock” means the common stock of the Company, par value $1.00 per share, and
any securities into which such common stock may hereafter be reclassified.




          “Common Stock Equivalents” means any securities of the Company or any Subsidiary which
entitle the holder thereof to acquire Common Stock at any time, including without limitation, any
debt, preferred stock, rights, options, warrants or other instrument that is at any time
convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock or other securities that entitle the holder to receive, directly or indirectly, Common Stock.




          “Company” has the meaning set forth in the preamble.




          “Company Counsel” means Perkins Coie LLP.




          “Company Deliverables” has the meaning set forth in Section 2.2(b).




          “Conversion Shares” means the shares of Common Stock issuable upon exercise of the
Convertible Preferred Stock.




          “Convertible Preferred Stock” means the Company’s Series B Voting Convertible
Preferred Stock, par value $1.00 per share, as designated by the Articles of Amendment attached
hereto as Exhibit A (the “Convertible Preferred Articles”).




          “Cumulative Preferred Stock” means the Company’s Series A 15.0% Cumulative Non-Voting
Non-Convertible Preferred Stock, par value $1.00 per share, as designated by the Articles of
Amendment attached hereto as Exhibit B (the “Cumulative Preferred Articles”).




          “Disclosure Materials” has the meaning set forth in Section 3.1(i).




          “Effective Date” means the date that the initial Registration Statement required by
Section 2.1 of the Investor Rights Agreement is first declared effective by the Commission.




          “Environmental Laws” means all applicable federal, state and local laws, rules,
regulations, codes, ordinances, judgments, decrees and the common law governing, regulating or
otherwise affecting the environment, health or safety, including the federal Clean Air Act, the
federal Clean Water Act, the federal Resource Conservation and Recovery Act, the federal
Comprehensive Environmental Response, Compensation and Liability Act, the federal Toxic Substances
Control Act and their state and local counterparts.




          “ERISA” has the meaning set forth in Section 3.1(o).




          “Evaluation Date” has the meaning set forth in Section 3.1(v).




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




          “FDA” has the meaning set forth in Section 3.1(ee).




          “Food Product” has the meaning set forth in Section 3.1(ee).







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          “GAAP” means U.S. generally accepted accounting principles.




          “Hazardous Materials” means the existence in any form of polychlorinated biphenyls,
asbestos or asbestos containing materials, urea formaldehyde foam insulation, oil, gasoline,
petroleum, petroleum products and petroleum-derived substances (other than in vehicles operated in
the ordinary course of business), pesticides and herbicides, and any other chemical, material or
substance regulated under any Environmental Laws.




          “Intellectual Property Rights” has the meaning set forth in Section 3.1(s).




          “Investment Amount” has the meaning set forth in Section 2.1.




          “Investor” has the meaning set forth in the preamble.




          “Investor Deliverables” has the meaning set forth in Section 2.2(a).




          “Investor Party” has the meaning set forth in Section 4.5.




          “Investor Rights Agreement” means the Investor Rights Agreement, dated as of the date
of this Agreement, between the Company and the Investor, in the form of Exhibit C hereto.




          “Legend Removal Date” has the meaning set forth in Section 4.1(d).




          “Letter of Intent” means the Letter Agreement between the Investor and the Company
dated February 1, 2010 setting forth the terms of the transaction contemplated in the Transaction
Documents.




          “Lien” means any lien, charge, encumbrance, security interest, right of first refusal
or other restrictions of any kind.




          “Material Adverse Effect” means any of (i) a material and adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a material and adverse
effect on the results of operations, assets, prospects, business or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) an adverse impairment to
the Company’s ability to perform on a timely basis its obligations under any Transaction Document.




          “Material Contract” has the meaning set forth in Section 3.1(d).




          “New York Courts” means the state and federal courts sitting in New York County, New
York.




          “Outside Date” means April 7, 2010.




          “Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.







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          “Proceeding” means an action, claim, suit, investigation or proceeding (including,
without limitation, an investigation or partial proceeding, such as a deposition), whether
commenced or threatened.




          “Registration Statement” means a registration statement meeting the requirements set
forth in the Investor Rights Agreement and covering the resale by the Investor of the Conversion
Shares.




          “Required Approvals” has the meaning set forth in Section 3.1(e).




          “Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such Rule.




          “SEC Reports” has the meaning set forth in Section 3.1(i).




          “Securities” means the shares of Cumulative Preferred Stock, the shares of Convertible
Preferred Stock and the Conversion Shares.




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




          “Short Sales” include, without limitation, all “short sales” as defined in Rule 200
promulgated under Regulation SHO under the Exchange Act and all types of direct and indirect stock
pledges, forward sale contracts, options, puts, calls, swaps and similar arrangements (including on
a total return basis), and sales and other transactions through non-US broker dealers or foreign
regulated brokers.




          “Standstill Agreement” means the Standstill Agreement, dated as of the date of this
Agreement, between the Company and the Investor, in the form of Exhibit D hereto.




          “Subsidiary” means any “significant subsidiary” as defined in Rule 1-02(w) of the
Regulation S-X promulgated by the Commission under the Exchange Act.




          “Trading Day” means (i) a day on which the Common Stock is traded on a Trading Market
(other than the OTC Bulletin Board), or (ii) if the Common Stock is not listed on a Trading Market
(other than the OTC Bulletin Board), a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is not
quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter
market as reported by the Pink Sheets, LLC (or any similar organization or agency succeeding to its
functions of reporting prices); provided, that in the event that the Common Stock is not listed or
quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.




          “Trading Market” means whichever of the New York Stock Exchange, the American Stock
Exchange, the NASDAQ Stock Market or OTC Bulletin Board on which the Common Stock is listed or
quoted for trading on the date in question.







4









 








          “Transaction Documents” means this Agreement, the Investor Rights Agreement, the
Standstill Agreement, the Cumulative Preferred Articles and the Convertible Preferred Articles any
other documents or agreements executed in connection with the transactions contemplated hereunder.




          “Transaction Expenses” has the meaning set forth in Section 5.1.




ARTICLE II.

PURCHASE AND SALE




     2.1 Closing. Subject to the terms and conditions set forth in this Agreement, at the
Closing the Company shall issue and sell to the Investor, and the Investor shall purchase from the
Company, an aggregate of One Hundred Thousand (100,000) shares of Cumulative Preferred Stock and
One Hundred Thousand (100,000) shares of Convertible Preferred Stock in exchange for a cash payment
of Forty Million Dollars ($40,000,000) (the “Investment Amount”). The Closing shall take
place at the offices of Reed Smith LLP, 10 South Wacker Drive, Chicago, Illinois 60606 on the
Closing Date, or at such other location or time as the parties may mutually agree.



     2.2 Closing Deliveries.



          (a) Investor. At the Closing, the Investor shall deliver or cause to be delivered to
the Company each of the following (the “Investor Deliverables”):




               (i) the Investment Amount, in United States dollars and in immediately available funds, by
wire transfer to an account designated in writing by the Company for such purpose;



               (ii) the Investor Rights Agreement, duly executed by the Investor; and



               (iii) the Standstill Agreement, duly executed by the Investor.



          (b) Company. At the Closing, the Company shall deliver or cause to be delivered to
the Investor each of the following (the “Company Deliverables”):




               (i) a stock certificate evidencing One Hundred Thousand (100,000) shares of Cumulative
Preferred Stock registered in the name of the Investor or its permitted assigns or irrevocable
instructions delivered to the Company’s transfer agent to issue such a certificate, which
certificate shall be delivered to the Investor promptly following the Closing Date but in any event
within three (3) Business Days following the Closing Date;



               (ii) a stock certificate evidencing One Hundred Thousand (100,000) shares of Convertible
Preferred Stock registered in the name of the Investor or its permitted assigns or irrevocable
instructions delivered to the Company’s transfer agent to issue such a certificate, which
certificate shall be delivered to the Investor promptly following the Closing Date but in any event
within three (3) Business Days following the Closing Date;



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               (iii) evidence satisfactory to the Investor and its counsel that the Cumulative Preferred
Articles and the Convertible Preferred Articles have been accepted for filing and have been duly
filed with the Secretary of State of the State of Washington;



               (iv) the legal opinion of Company Counsel, addressed to the Investor, covering the matters set
forth in Exhibit E hereto and in form and substance satisfactory to the Investor and its
legal counsel;



               (v) the Investor Rights Agreement, duly executed by the Company;



               (vi) the Standstill Agreement, duly executed by the Company; and



               (vii) all other documents and items required by this Agreement, or reasonably requested by
Investor, to be delivered or caused to be delivered by Company at the Closing.



     2.3 Closing Conditions.



          (a) Investor. The obligation of the Investor to acquire the Securities at the Closing
is subject to the satisfaction or waiver in writing by the Investor, at or before the Closing, of
each of the following conditions:




               (i) Representations and Warranties. The representations and warranties of the Company
contained herein shall be true and correct in all material respects as of the date when made and as
of the Closing as though made on and as of such date, except to the extent that such
representations and warranties speak as of an earlier date or only with respect to a certain period
of time (which representations and warranties need only be true and correct as of such date or with
respect to such period), and the Company shall deliver an Officer’s Closing Certificate to such
effect to Investor, signed by the Chief Executive Officer of the Company;



               (ii) Performance. The Company shall have performed, satisfied and complied in all
respects with all covenants, agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by it at or prior to the Closing;



               (iii) Election of Cumulative Preferred Director. The Board of Directors of the
Company shall have voted and resolved to increase the size of the Board and taken such other
requisite action under the Company’s charter and bylaws to allow for the election of the director
entitled to be elected by the holders of the Cumulative Preferred Stock immediately following the
Closing;



               (iv) No Injunction. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;



               (v) Adverse Changes. Since the date of execution of this Agreement, no event or
series of events shall have occurred that are reasonably likely to have or result in a



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Material Adverse Effect;




               (vi) No Suspensions of Trading in Common Stock; Listing. Trading in the Common Stock
shall not have been suspended by the Commission or any Trading Market (except for any suspensions
of trading of not more than one Trading Day solely to permit dissemination of material information
regarding the Company) at any time since the date of execution of this Agreement, and the Common
Stock shall have been at all times since such date listed for trading on a Trading Market;



               (vii) Third Party Consents. The Company and its Subsidiaries shall have obtained all
consents, waivers, authorizations required to be obtained from any Person in connection with the
execution, delivery and performance by the Company and its Subsidiaries of the Transaction
Documents;



               (viii) Credit Agreement. The Company’s Second Amended and Restated Credit Agreement,
dated October 5, 2006, by and among the Company and the various lenders thereto, as amended (the
“Credit Agreement”) shall have been amended (or amended and restated) or replaced by a new
credit agreement (the “New Credit Agreement”) in form and substance satisfactory to the
Investor and such New Credit Agreement shall have been executed and delivered by all parties
thereto; and



               (ix) Company Deliverables. The Company shall have delivered the Company Deliverables
in accordance with Section 2.2(b).



          (b) Company. The obligation of the Company to sell the Securities to the Investor at
the Closing is subject to the satisfaction or waiver in writing by the Company, at or before the
Closing, of each of the following conditions:




               (i) Representations and Warranties. The representations and warranties of the
Investor contained herein shall be true and correct in all material respects as of the date when
made and as of the Closing Date as though made on and as of such date;



               (ii) Performance. The Investor shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Investor at or prior to the Closing;



               (iii) No Injunction. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents; and



               (iv) Investor Deliverables. The Investor shall have delivered the Investor
Deliverables in accordance with Section 2.2(a).



7









 





ARTICLE III.

REPRESENTATIONS AND WARRANTIES




     3.1 Representations and Warranties of the Company. The Company hereby makes the
following representations and warranties to the Investor:



          (a) Subsidiaries. The Company has no direct or indirect Subsidiaries other than as
specifically disclosed in the SEC Reports. Except as specifically disclosed in the SEC Reports,
the Company owns, directly or indirectly, all of the capital stock of each Subsidiary free and
clear of any and all Liens, and all the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar
rights.




          (b) Organization and Qualification. The Company and each Subsidiary are duly
incorporated or otherwise organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the requisite power and
authority to own and use their respective properties and assets and to carry on their respective
businesses as currently conducted. Neither the Company nor any Subsidiary is in violation of any
of the provisions of its respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. The Company and each Subsidiary are duly qualified to conduct
their respective businesses and are each in good standing as a foreign corporation or other entity
in each jurisdiction in which the nature of the business conducted or property owned by each of
them makes such qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect.




          (c) Authorization; Enforcement. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each of the Transaction
Documents and otherwise to carry out its obligations thereunder. Except for the Required
Approvals, the execution and delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required by the Company in
connection therewith. Each Transaction Document has been (or upon delivery will have been) duly
executed by the Company and, when delivered in accordance with the terms hereof, will constitute
the valid and binding obligation of the Company enforceable against the Company in accordance with
its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the
enforcement of, creditors’ rights and remedies or by other equitable principles of general
application.




          (d) Contracts. (1) Each indenture, contract, lease, mortgage, deed of trust, note
agreement, loan or other agreement or instrument of a character that is required to be described or
summarized in the SEC Reports or to be filed as an exhibit to the SEC Reports under the Exchange
Act and the rules and regulations promulgated thereunder (collectively, the “Material
Contracts”) is so described, summarized or filed.







8









 








               (ii) The Material Contracts to which the Company or any of its Subsidiaries is a party have
been duly and validly authorized, executed and delivered by the Company and its Subsidiaries, as
applicable, and constitute the legal, valid and binding agreements of the Company, enforceable by
and against the Company or its Subsidiaries, as applicable, in accordance with their respective
terms, except as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to enforcement of creditors’ rights generally, and
general equitable principles relating to the availability of remedies, except as rights to
indemnity or contribution may be limited by federal or state securities laws.



          (e) Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any filing or registration
with, any court or other federal, state, local or other governmental authority or any other Person
in connection with the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) the filing with the Commission of one or more Registration Statements in
accordance with the requirements of the Investor Rights Agreement, (ii) filings that may be
required by state securities laws, (iii) the filing of a Notice of Sale of Securities on Form D
with the Commission under Regulation D of the Securities Act, (iv) applications to the Trading
Market for the listing of the Conversion Shares for trading thereon and (v) those that have been
made or obtained prior to the date of this Agreement (collectively, the “Required
Approvals”).




          (f) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions contemplated
thereby do not and will not (i) conflict with or violate any provision of the Company’s or any
Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter
documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of, any Material
Contract, or (iii) subject to the filings contemplated by Section 3.1(e), result in a violation of
any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not,
individually or in the aggregate, have or reasonably be expected to result in a Material Adverse
Effect.




          (g) Issuance of the Securities. The Securities have been duly authorized and, when
issued and paid for in accordance with the Transaction Documents, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens other than restrictions on transfer
provided for in the Transaction Documents. The Company has reserved from its duly authorized
capital stock the shares of Common Stock issuable pursuant to this Agreement in order to issue the
Conversion Shares.




          (h) Capitalization. The number of shares and type of all authorized, issued and
outstanding capital stock of the Company, and all shares of Common Stock reserved for issuance
under the Company’s various option and incentive plans and other derivative securities,






9









 







is specified in the SEC Reports. Except as specifically disclosed in the SEC Reports, no
securities of the Company or any of its Subsidiaries are entitled to preemptive or similar rights,
and no Person has any right of first refusal, preemptive right, right of participation, or any
similar right to participate in the transactions contemplated by the Transaction Documents. Except
as specifically disclosed in the SEC Reports, there are no outstanding options, warrants, scrip
rights to subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exchangeable for, or giving any Person any
right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or exchangeable into
shares of Common Stock. The issue and sale of the Securities will not, immediately or with the
passage of time, obligate the Company to issue shares of Common Stock or other securities to any
Person (other than the Investor) and will not result in a right of any holder of Company securities
to adjust the exercise, conversion, exchange or reset price under such securities.




          (i) SEC Reports; Financial Statements. The Company has filed all reports required to
be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a)
or 15(d) of the Exchange Act, for the 12 months preceding the date hereof (the foregoing materials
being collectively referred to herein as the “SEC Reports” and, together with the Schedules
to this Agreement (if any), the “Disclosure Materials”) on a timely basis or has timely
filed a valid extension of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved, except as may be otherwise specified in such
financial statements or the notes thereto, and fairly present in all material respects the
financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments. Except as disclosed in
the SEC Reports, since August 31, 2009 the Company has not altered materially its method of
accounting or the manner in which it keeps its accounting books and records.




          (j) Price of Common Stock. Neither the Company nor, to its knowledge, any of its
Affiliates has taken, directly or indirectly, any action designed to or which has constituted or
which might reasonably be expected to cause or result, under the Exchange Act or otherwise, in the
stabilization or manipulation of the price of any securities of the Company to facilitate the sale
or resale of any of the Securities.




          (k) Material Changes. Since the date of the latest audited financial statements
included within the SEC Reports, except as specifically disclosed in the SEC Reports, (i) there has
been no event, occurrence or development that has had or that could reasonably be expected






10









 







to result in a Material Adverse Effect, (ii) neither the Company nor any of its Subsidiaries
has incurred any liabilities (contingent or otherwise) other than (A) trade payables, accrued
expenses and other liabilities incurred in the ordinary course of business consistent with past
practice and (B) liabilities not required to be reflected in the Company’s financial statements
pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company
has not altered its method of accounting (except as may be required by GAAP) or the identity of its
auditors, (iv) the Company has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital stock, and (v) the Company has not issued any equity securities to any
officer, director or Affiliate, except pursuant to existing Company stock option or incentive plans
or arrangements specifically approved by the Board of Directors of the Company. The Company does
not have pending before the Commission any request for confidential treatment of information.




          (l) Litigation. There is no Action which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii)
except as specifically disclosed in the SEC Reports, could, if there were an unfavorable decision,
individually or in the aggregate, have or reasonably be expected to result in a Material Adverse
Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof (in his or her
capacity as such), is or has been the subject of any Action involving a claim of violation of or
liability under federal or state securities laws or a claim of breach of fiduciary duty, except as
specifically disclosed in the SEC Reports. There has not been, and to the knowledge of the
Company, there is not pending any investigation by the Commission involving the Company, any of its
Subsidiaries or any current or former director or officer of the Company or any of its Subsidiaries
(in his or her capacity as such). The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company or any Subsidiary
under the Exchange Act or the Securities Act.




          (m) Environmental Laws.




               (i) Neither the Company or any of its Subsidiaries have received any written notice, report or
other communication from a federal, state, local or other governmental authority or other third
party regarding any actual or alleged violation of any Environmental Laws, or any liabilities or
potential liabilities, including any investigatory, remedial or corrective obligations relating to
the Company or its Subsidiaries, any real property owned or leased by the Company or its
Subsidiaries or any other asset owned or leased by the Company or its Subsidiaries. To the
Company’s knowledge, there are no environmental audits, inspections, investigations, studies,
tests, reviews and similar formal reports with respect to any parcel of real property owned or
leased by the Company or its Subsidiaries.



               (ii) None of the Company, nor any of its Subsidiaries, and, to the Company’s knowledge, no
prior owner or operator, has used, generated, treated, stored, recycled, disposed of, released,
transported, or arranged for the transportation, storage, treatment or disposal of any Hazardous
Materials at the real property owned or leased by the Company or its Subsidiaries or in connection
with the business of the Company or its Subsidiaries, except in compliance with Environmental Laws.
There has been no release of Hazardous Materials in, on or under any of the real property owned or
leased by the Company or its Subsidiaries, nor to the



11









 




Company’s knowledge at any facility or property formerly owned or operated by either of the
Company or any of its Subsidiaries and no such property is contaminated by any Hazardous Materials.




               (iii) The Company and its Subsidiaries have conducted and are conducting their operations in
material compliance with all Environmental Laws and possess and are in compliance with all material
permits, licenses or other authorizations as may be required by any federal, state, local or other
governmental authority under Environmental Laws in connection with the real property owned or
leased by the Company or its Subsidiaries and the business conducted by them.



          (n) Labor and Employment. No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company or any of its
Subsidiaries which would reasonably be expected to result in a Material Adverse Effect. The
Company and its Subsidiaries believe that their relationships with their employees are good. No
executive officer of the Company or its Subsidiaries, to the knowledge of the Company, is, or is
now expected to be, in violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement or non-competition agreement, or any other contract
or agreement or any restrictive covenant, and the continued employment of each such executive
officer does not subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters. The Company and its Subsidiaries are in compliance with all U.S.
federal, state, local and foreign laws and regulations relating to employment and employment
practices, terms and conditions of employment and wages and hours, except where the failure to be
in compliance would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.




          (o) ERISA. The Company and each of its Subsidiaries is in compliance in all material
respects with all presently applicable provisions of the Employee Retirement Income Security Act of
1974, as amended, including the regulations and published interpretations thereunder (herein called
“ERISA”); no “reportable event” (as defined in ERISA) has occurred with respect to any
“pension plan” (as defined in ERISA) for which the Company or any of its Subsidiaries would have
any liability; neither the Company nor any of its Subsidiaries has incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any
“pension plan”; or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the “Code”); and each
“Pension Plan” for which the Company would have liability that is intended to be qualified under
Section 401(a) of the Code is so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of such qualification.




          (p) Compliance. Neither the Company nor any Subsidiary (i) is in default under or in
violation of (and no event has occurred that has not been waived that, with notice or lapse of time
or both, would result in a default by the Company or any Subsidiary under), nor has the Company or
any Subsidiary received notice of a claim that it is in default under or that it is in violation
of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not such default or violation
has been waived), (ii) is in violation of any order of any court, arbitrator or






12









 







governmental body, or (iii) is or has been in violation of any statute, rule or regulation of
any governmental authority, including without limitation all foreign, federal, state and local laws
relating to taxes, environmental protection, occupational health and safety, product quality and
safety and employment and labor matters, except in each case as could not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse Effect. The Company has
not received any communication from any governmental authority (i) threatening to revoke any
permit, license, franchise, certificate of authority or other governmental authorization, or (ii)
threatening or contemplating revocation or limitation of, or which would reasonably be expected to
result in a Material Adverse Effect.




          (q) Regulatory Permits. The Company and the Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as described in the SEC Reports,
except where the failure to possess such permits could not, individually or in the aggregate, have
or reasonably be expected to result in a Material Adverse Effect, and neither the Company nor any
Subsidiary has received any notice of proceedings relating to the revocation or modification of any
such permits.




          (r) Properties and Assets. The Company and the Subsidiaries have good and marketable
title to all the properties and assets described as owned by it in the Company’s consolidated
financial statements, in each case free and clear of all Liens, except for Liens as do not
materially affect the value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries. Any real property and
facilities held under lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Company and the Subsidiaries are in compliance,
except as could not, individually or in the aggregate, have or reasonably be expected to result in
a Material Adverse Effect.




          (s) Patents and Trademarks. The Company and the Subsidiaries have, or have rights to
use, all patents, patent applications, trademarks, trademark applications, service marks, trade
names, copyrights, licenses and other similar rights that are necessary or material for use in
connection with their respective businesses as described in the SEC Reports and which the failure
to so have could, individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither the
Company nor any Subsidiary has received a written notice that the Intellectual Property Rights used
by the Company or any Subsidiary violates or infringes upon the rights of any Person which could,
individually or in the aggregate, have or reasonably be expected to result in a Material Adverse
Effect. Except as set forth in the SEC Reports, to the knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights which could, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect.




          (t) Insurance. The Company and the Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as are prudent and
customary in the businesses in which the Company and the Subsidiaries are engaged. The Company has
no reason to believe that it will not be able to renew its and the Subsidiaries’ existing insurance
coverage as and when such coverage expires or to obtain similar




13









 




coverage from similar insurers as may be necessary to continue its business on terms
consistent with market for the Company’s and such Subsidiaries’ respective lines of business.




          (u) Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company or any of its Subsidiaries and, to the
knowledge of the Company, none of the employees of the Company or any of its Subsidiaries is
presently a party to any transaction with the Company or any Subsidiary (other than for services as
employees, officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any entity in which any officer, director, or any
such employee has a substantial interest or is an officer, director, trustee or partner, in each
case in excess of $120,000 other than (i) for payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the Company or any of its
Subsidiaries and (iii) for other employee benefits, including stock option agreements under any
stock option plan of the Company.




          (v) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of
the date of the Closing. The Company and each Subsidiary maintain a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific authorizations, (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance with management’s
general or specific authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls
and procedures to ensure that material information relating to the Company, including its
Subsidiaries, is made known to the certifying officers by others within those entities,
particularly during the period in which the Company’s most recently filed periodic report under the
Exchange Act, as the case may be, is being prepared. The Company’s certifying officers have
evaluated the effectiveness of the Company’s disclosure controls and procedures as of the date
prior to the filing date of the most recently filed periodic report under the Exchange Act (such
date, the “Evaluation Date”). The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about the effectiveness of
the Company’s disclosure controls and procedures based on their evaluations as of the Evaluation
Date. Since the Evaluation Date, there have been no significant changes in the Company’s internal
accounting controls or its disclosure controls and procedures or, to the Company’s knowledge, in
other factors that could materially affect the Company’s internal accounting controls or its
disclosure controls and procedures.




          (w) Foreign Corrupt Practices. Neither the Company nor any of its Subsidiaries, nor,
to the knowledge of the Company, any director, officer, agent, employee or other Person acting on
behalf of the Company or any of its Subsidiaries has, in the course of its actions for, or on
behalf of, the Company or any of its Subsidiaries (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to political






14









 







activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.




          (x) Certain Fees. Except as set forth in Schedule 3.1(x), no brokerage or finder’s
fees or commissions are or will be payable by the Company or its Subsidiaries to any broker,
financial advisor or consultant, finder, placement agent, investment banker, bank or other Person
with respect to the transactions contemplated by this Agreement. The Investor shall have no
obligation with respect to any fees or with respect to any claims (other than such fees or
commissions owed by the Investor pursuant to written agreements executed by the Investor which fees
or commissions shall be the sole responsibility of the Investor) made by or on behalf of other
Persons for fees of a type contemplated in this paragraph that may be due in connection with the
transactions contemplated by this Agreement.




          (y) Certain Registration Matters. Assuming the accuracy of the Investor’s
representations and warranties set forth in Section 3.2(b)-(d), no registration under the
Securities Act is required for the offer and sale of the Securities by the Company to the Investor
under the Transaction Documents. The Company is eligible to register the resale of its Common
Stock for resale by the Investor under Form S-3 promulgated under the Securities Act. The Company
has not granted or agreed to grant to any Person any rights (including “piggy-back” registration
rights) to have any securities of the Company registered with the Commission or any other
governmental authority that have not been satisfied.




          (z) Listing and Maintenance Requirements. Except as specified in the SEC Reports, the
Company has not, in the two years preceding the date hereof, received notice from any Trading
Market to the effect that the Company is not in compliance with the listing or maintenance
requirements thereof. The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with the listing and maintenance requirements for
continued listing of the Common Stock on the Trading Market on which the Common Stock is currently
listed or quoted. The issuance and sale of the Securities under the Transaction Documents does not
contravene the rules and regulations of the Trading Market on which the Common Stock is currently
listed or quoted, and no approval of the stockholders of the Company thereunder is required for the
Company to issue and deliver to the Investor the Securities contemplated by Transaction Documents.




          (aa) Investment Company. The Company is not, and is not an Affiliate of, and
immediately following the Closing will not have become, an “investment company” within the meaning
of the Investment Company Act of 1940, as amended.




          (bb) Application of Takeover Protections. The Company has taken all necessary action,
if any, in order to render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar anti-takeover provision
under the Company’s articles of incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to the Investor as a result of the
Investor and the Company fulfilling their obligations or exercising




15









 




their rights under the Transaction Documents, including without limitation the Company’s
issuance of the Securities and the Investor’s ownership of the Securities.




          (cc) No Integrated Offering. None of the Company, its Subsidiaries, any of their
Affiliates, or any Person acting on their behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security, under circumstances that would
adversely affect reliance by the Company on Section 4(2) of the Securities Act or require
registration of any of the Securities under the Securities Act or cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of the Securities Act
or any applicable stockholder approval provisions, including, without limitation, under the rules
and regulations of the of the Trading Market on which the Common Stock is currently listed or
quoted.




          (dd) Disclosure. The Company confirms that, upon the filing by the Company of the
Reports on Form 8-K required by Section 4.4, the Investor will not be in possession of any
information disseminated by or on behalf of the Company that the Company believes constitutes
material, non-public information pertaining to the Company. To the knowledge of the Company, all
due diligence materials regarding the Company, its business and the transactions contemplated
hereby, furnished by or on behalf of the Company to the Investor are, when taken together with the
SEC Reports, true and correct in all material respects and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not misleading. The Company
understands and confirms that the Investor will rely on the foregoing representations and covenants
in effecting transactions in securities of the Company. No event or circumstance has occurred or
information exists with respect to the Company or its business, properties, operations or financial
conditions, which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or disclosed, except for
the announcement of this Agreement and related transactions and as may be disclosed in the Current
Report on Form 8-K filed by the Company.




          (ee) FDA Compliance. Except as set forth in Schedule 3.1(ee), neither the Company nor
any of its Subsidiaries nor, to the knowledge of the Company, any of the customers of the Company
or its Subsidiaries, have been subject to any adverse inspection, finding of deficiency, finding of
non-compliance, compelled recall, investigation, penalty, fine, sanction, assessment, audit,
request for corrective or remedial action, or other compliance or enforcement action, in each case
relating to the products or goods made, developed, under development, stored or sold by the Seller
or Business by the United States Food and Drug Administration (“FDA”) or any other federal,
state, local or foreign authority having or asserting responsibility for the regulation of any food
product that is manufactured, packaged, labeled, tested, distributed, sold, and/or marketed by the
Company or any of its Subsidiaries (each such product, a “Food Product”). The Company and
all of its Subsidiaries are, and since January 1, 2008 have been, in material compliance with the
labeling requirements of the FDA relating to every Food Product sold by the Company or any of its
Subsidiaries, and the Company and all of its Subsidiaries are, and since January 1, 2008 have been,
in material compliance with all applicable regulations and requirements of the FDA and any other
federal, state, local, or foreign authority having or asserting responsibility for the regulation
of their Food Products. All labeling used on the Food Products has been filed or registered with
or approved by each state






16









 







regulatory agency that requires such filing, registration or approval. The properties,
business and operations of the Company have been and are being conducted in all material respects
in accordance with all applicable laws, rules and regulations of the FDA. The Company has not been
informed by the FDA that the FDA will prohibit the marketing, sale, license or use in the United
States of any product proposed to be developed, produced or marketed by the Company nor has the FDA
expressed any concern as to approving or clearing for marketing any product being developed or
proposed to be developed by the Company.




     3.2 Representations and Warranties of the Investor. The Investor hereby represents
and warrants to the Company as follows:



          (a) Organization; Authority. The Investor is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its organization with the
requisite limited partnership power and authority to enter into and to consummate the transactions
contemplated by the applicable Transaction Documents and otherwise to carry out its obligations
thereunder. The execution, delivery and performance by the Investor of the transactions
contemplated by this Agreement has been duly authorized by all necessary limited partnership or
other applicable like action, on the part of the Investor. Each of this Agreement, the Standstill
Agreement and the Investor Rights Agreement has been duly executed by the Investor, and when
delivered by the Investor in accordance with terms hereof, will constitute the valid and legally
binding obligation of the Investor, enforceable against it in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of,
creditors’ rights and remedies or by other equitable principles of general application.




          (b) Investment Intent. The Investor is acquiring the Securities as principal for its
own account and not with a view to or for distributing or reselling such Securities or any part
thereof, without prejudice, however, to the Investor’s right at all times to sell or otherwise
dispose of all or any part of such Securities in compliance with applicable federal and state
securities laws. Subject to the immediately preceding sentence, nothing contained herein shall be
deemed a representation or warranty by the Investor to hold the Securities for any period of time.
The Investor is acquiring the Securities hereunder in the ordinary course of its business. Other
than as set forth in the Investor Rights Agreement, the Investor does not have any present
agreement or understanding, directly or indirectly, with any Person to distribute any of the
Securities.




          (c) Investor Status. At the time the Investor was offered the Securities, it was, and
at the date hereof it is an “accredited investor” as defined in Rule 501(a) under the Securities
Act. The Investor is not a registered broker-dealer under Section 15 of the Exchange Act.




          (d) General Solicitation. The Investor is not purchasing the Securities as a result
of any advertisement, article, notice or other communication regarding the Securities published in
any newspaper, magazine or similar media or broadcast over television or radio or presented at any
seminar or any other general solicitation or general advertisement.







17









 








          (e) Access to Information. The Investor acknowledges that it has reviewed the
Disclosure Materials and has been afforded (i) the opportunity to ask such questions as it has
deemed necessary of, and to receive answers from, representatives of the Company concerning the
terms and conditions of the offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Subsidiaries and their respective
financial condition, results of operations, business, properties, management and prospects
sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such
additional information that the Company possesses or can acquire without unreasonable effort or
expense that is necessary to make an informed investment decision with respect to the investment.
Neither such inquiries nor any other investigation conducted by or on behalf of the Investor or its
representatives or counsel shall modify, amend or affect the Investor’s right to rely on the truth,
accuracy and completeness of the Disclosure Materials and the Company’s representations and
warranties contained in the Transaction Documents.




          (f) Certain Trading Activities. The Investor has not directly or indirectly, nor has
any Person acting on behalf of or pursuant to any understanding with the Investor, engaged in any
transactions in the securities of the Company (including, without limitations, any Short Sales
involving the Company’s securities) since the earlier to occur of (1) the time that the Investor
was first contacted by the Company or Bank of America Merrill Lynch regarding an investment in the
Company and (2) the date of this Agreement. The Investor covenants that neither it nor any Person
acting on its behalf or pursuant to any understanding with it will engage in any transactions in
the securities of the Company (including Short Sales) prior to the time that the transactions
contemplated by this Agreement is publicly disclosed.




          (g) Independent Investment Decision. The Investor has independently evaluated the
merits of its decision to purchase Securities pursuant to the Transaction Documents, and the
Investor confirms that it has not relied on the advice of any other Investor’s business and/or
legal counsel in making such decision.



The Company acknowledges and agrees that the Investor has not made and does not make any
representations or warranties with respect to the transactions contemplated hereby other than those
specifically set forth in this Section 3.2.




ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES




     4.1 Transfer Restrictions.



          (a) The Securities may only be disposed of in compliance with state and federal securities
laws. In connection with any transfer of the Securities other than pursuant to an effective
registration statement, to the Company or as permitted in Section 3 of the Standstill Agreement,
the Company may require (x) the transferor thereof to provide to the Company an opinion of counsel
selected by the transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act and (y) any transferee to agree in writing to be
bound by the terms of this Agreement.





18











 





          (b) Certificates evidencing the Convertible Preferred Stock and Cumulative Preferred Stock
will contain the following legend, until such time as they are not required under Section 4.1(d):





THE SHARES OF PREFERRED STOCK OF PENFORD CORPORATION (THE “COMPANY”) REPRESENTED BY
THIS CERTIFICATE (THE “SHARES”) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED UNLESS (A) SUBSEQUENTLY REGISTERED PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS
OR (B) THE HOLDER HEREOF SHALL HAVE DELIVERED TO THE COMPANY A WRITTEN OPINION OF
COUNSEL, IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE COMPANY, TO THE
EFFECT THAT THE SHARES TO BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED ARE
BEING OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED PURSUANT TO AN EXEMPTION FROM
SUCH REGISTRATION.



          (c) Certificates evidencing the Conversion Shares will contain the following legend, until
such time as they are not required under Section 4.1(d):





THE SHARES OF COMMON STOCK OF PENFORD CORPORATION (THE “COMPANY”) REPRESENTED BY
THIS CERTIFICATE (THE “SHARES”) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED UNLESS (A) SUBSEQUENTLY REGISTERED PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS
OR (B) THE HOLDER HEREOF SHALL HAVE DELIVERED TO THE COMPANY A WRITTEN OPINION OF
COUNSEL, IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE COMPANY, TO THE
EFFECT THAT THE SHARES TO BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED ARE
BEING OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED PURSUANT TO AN EXEMPTION FROM
SUCH REGISTRATION.


The Company acknowledges and agrees that the Investor may from time to time pledge, and/or grant a
security interest in some or all of the Securities pursuant to a bona fide margin agreement in
connection with a bona fide margin account and, if required under the terms of such agreement or
account, the Investor may transfer pledged or secured Securities to the pledgees or secured
parties. Such a pledge or transfer would not be subject to approval or consent of the Company and
no legal opinion of legal counsel to the pledgee, secured party or pledgor shall be required in
connection with the pledge or in connection with a subsequent transfer following default by the
Investor transferee of the pledge. No notice shall be required of such pledge. At the Investor’s
expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured
party of securities may reasonably request in connection with a pledge or






19









 







transfer of the Securities including the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) of the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of selling stockholders thereunder.




          (d) Certificates evidencing the Conversion Securities shall not contain any legend (including
the legend set forth in Section 4.1(b) and (c)) (i) while a registration statement (including the
Registration Statement) covering the resale of the Conversion Shares is effective under the
Securities Act, or (ii) following any sale of such Securities pursuant to Rule 144, or (iii) if
such Securities are eligible for sale under Rule 144, or (iv) except relating to state securities
laws, if such legend is not required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the Staff of the Commission). The Company
shall cause its counsel to issue a legal opinion to the Company’s transfer agent promptly after the
Effective Date if required by the Company’s transfer agent to effect the removal of the legend
hereunder. If all or any Convertible Preferred Stock is converted into Conversion Shares at a time
when there is an effective registration statement to cover the resale of the Conversion Shares,
such Conversion Shares shall be issued free of all legends. The Company agrees that following the
Effective Date or at such time as any legend is no longer required under this Section 4.1(d), it
will, no later than three Trading Days following the actual receipt (if received prior to noon
Central time otherwise four Trading Days) from the Investor by the Company or the Company’s
transfer agent of a certificate representing Securities issued with a restrictive legend (such
date, the “Legend Removal Date”), deliver or cause to be delivered to the Investor a
certificate representing such Securities that is free from the restrictive or other legend
requested to be removed. The Company may not make any notation on its records or give instructions
to any transfer agent of the Company that enlarge the restrictions on transfer set forth in this
Section 4.1(d). Certificates for Securities subject to legend removal hereunder shall be
transmitted by the transfer agent of the Company to the Investor by crediting the account of the
Investor’s prime broker with the Depository Trust Company System.




          (e) In addition to the Investor’s other available remedies, the Company shall pay to the
Investor, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of the
Securities (based on the Closing Price of the Common Stock on the date such Securities are
submitted to the Company’s transfer agent) subject to Section 4.1(d), $0.50 per Trading Day
(increasing to $1 per Trading Day five (5) Trading Days after such damages have begun to accrue)
for each Trading Day after the fifth Trading Day immediately following the Legend Removal Date
until such certificate is delivered. Nothing herein shall limit the Investor’s right to pursue
actual damages for the Company’s failure to deliver certificates representing any Securities as
required by the Transaction Documents, and the Investor shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of specific performance
and/or injunctive relief.




          (f) The Investor agrees that the removal of the restrictive legend from certificates
representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance
that the Investor will sell any Securities pursuant to either the registration requirements of the
Securities Act, including any applicable prospectus delivery requirements, or an exemption
therefrom.







20









 








     4.2 Furnishing of Information. As long as the Investor owns the Securities, the
Company covenants to timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act. As long as the Investor owns Securities, if the Company is not
required to file reports pursuant to such laws, it will prepare and furnish to the Investor and
make publicly available in accordance with Rule 144(c) such information as is required for the
Investor to sell the Securities under Rule 144. The Company further covenants that it will take
such further action as any holder of Securities may reasonably request, all to the extent required
from time to time to enable such Person to sell the Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.



     4.3 Integration. The Company shall not, and shall use its best efforts to ensure that
no Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be
integrated with the offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Investor, or that would be integrated
with the offer or sale of the Securities for purposes of the rules and regulations of any Trading
Market in a manner that would require stockholder approval of the sale of the Securities to the
Investor.



     4.4 Securities Laws Disclosure; Publicity. Except only as and to the extent required
by law or rules of applicable regulatory agencies, neither party shall issue any press release or
make any public disclosure with respect to or in connection with the transactions contemplated in
the Transaction Documents without the prior written consent of the other party. Notwithstanding
the foregoing, the Company will be entitled to disclose the terms of the transactions contemplated
in the Transaction Documents to its lenders and agents in connection with the negotiation of the
New Credit Agreement and any related consents or waivers. With respect to any disclosure by the
Company to the Commission or any other regulatory agency or pursuant to any governmental
regulations or law, the Company will consult with the Investor regarding any and all such
disclosures about or relating to the Investor or the Investor’s business, and the Investor has a
right to review and comment on such disclosures. The Company will use its reasonable best efforts
to comply with Investor’s reasonable requests or comments to the disclosure, subject to the
Company’s disclosure obligation under applicable law and regulation. With respect to all other
disclosures by the Company, whether such disclosure is to its lenders or to any third party,
Investor will have the right to review and approve in its sole discretion any and all such
disclosures about or relating to the Investor or its business.



     4.5 Indemnification of Investor. In addition to the indemnity provided in the
Investor Rights Agreement, subject to the provisions of this Section 4.5, the Company will
indemnify and hold the Investor and its Affiliates and their respective officers, partners,
employees and agents (each, a “Investor Party”) harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any the Investor Party may suffer or incur as a result of or relating to (a) any
breach of any of the representations, warranties, covenants or agreements made by the Company in
this Agreement or in the other Transaction Documents or (b) any action instituted against any
Investor Party, by any stockholder of the Company with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a breach of the
Investor’s



21









 




representations, warranties or covenants under the Transaction Documents). If any action
shall be brought against any Investor Party in respect of which indemnity may be sought pursuant to
this Agreement, the Investor Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with nationally recognized counsel of its own
choosing. Any Investor Party shall have the right to employ separate counsel in any such action
and participate in the defense thereof, but the fees and expenses of such counsel shall be at the
expense of the Investor Party except to the extent that (i) the employment thereof has been
specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable
period of time to assume such defense and to employ counsel and/or to diligently conduct such
defense (iii) in such action there is, in the reasonable opinion of such separate counsel, a
material conflict on any material issue between the position of the Company and the position of the
Investor Party. The Company will not be liable to any Investor Party under this Agreement (i) for
any settlement by the Investor Party effected without the Company’s prior written consent, which
shall not be unreasonably withheld, conditioned or delayed; or (ii) to the extent, but only to the
extent that a loss, claim, damage or liability is attributable to any Investor Party’s breach of
any of the representations, warranties, covenants or agreements made by the Investor in this
Agreement or in the other Transaction Documents.




     4.6 Non-Public Information. The Company covenants and agrees that after the Closing,
neither it nor any other Person acting on its behalf will provide the Investor or its agents or
counsel with any information that the Company believes constitutes material non-public information,
unless prior thereto the Investor shall have executed a written agreement regarding the
confidentiality and use of such information. The foregoing shall not apply to any information
received by the director elected to the Company’s Board of Directors by the holders of the
Cumulative Preferred Stock. The Company understands and confirms that the Investor shall be
relying on the foregoing representations in effecting transactions in securities of the Company.



     4.7 Listing of Securities. The Company agrees, (i) if the Company applies to have the
Common Stock traded on any other Trading Market, it will include in such application the Conversion
Shares, and will take such other action as is necessary or desirable to cause the Conversion Shares
to be listed on such other Trading Market as promptly as possible, and (ii) it will take all action
reasonably necessary to continue the listing and trading of its Common Stock on a Trading Market
and will comply in all material respects with the Company’s reporting, filing and other obligations
under the bylaws or rules of the Trading Market.



     4.8 Use of Proceeds. The Company will use the net proceeds from the sale of the
Securities hereunder for redemption of outstanding indebtedness and working capital purposes and
not to repurchase any Common Stock or Common Stock Equivalents.


     4.9 Board Fees and Expenses. The director elected to the Company’s Board of Directors by
the holders of the Cumulative Preferred Stock shall be entitled to receive the same Board and
Committee fees and reimbursement of expenses as any other independent director of the Company who
has served, or is serving, on the Board of Directors or any Committee of the Company.







22









 








ARTICLE V.

MISCELLANEOUS




     5.1 Fees and Expenses. Each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of the Transaction
Documents (“Transaction Expenses”), except that the Company shall pay the Investor’s
reasonable Transaction Expenses, whether or not the Closing occurs, up to an aggregate amount of
$95,000 no later than three (3) Business Days following the Closing or the termination of this
Agreement pursuant to Section 5.6 hereof (whichever is first to occur). In addition, the Company
shall pay all stamp and other taxes and duties levied in connection with the sale of the
Securities.



     5.2 Entire Agreement. The 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.



     5.3 Knowledge. As used in the Transaction Documents, “knowledge” as it relates to the
Company means the knowledge of the executive officers of the Company and its Subsidiaries after a
reasonable investigation.



     5.4 Notices. Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given and effective on
the earliest of (a) the date of transmission, if such notice or communication is delivered via
facsimile (provided the sender receives a machine-generated confirmation of successful
transmission) at the facsimile number specified in this paragraph prior to 6:30 p.m. (Central time)
on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in this paragraph on a
day that is not a Trading Day or later than 6:30 p.m. (Central time) on any Trading Day, (c) the
Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier
service, or (d) upon actual receipt by the party to whom such notice is required to be given. The
address for such notices and communications shall be as follows:



	 	 	 

	     If to the Company:

	 	Penford Corporation
	 

	 	7094 S. Revere Parkway
	 

	 	Centennial, Colorado 80112
	 

	 	Facsimile: (303) 649-1700
	 

	 	Attention: Steven O. Cordier
	 
	 	 
	     With a copy to:

	 	Perkins Coie LLP
	 

	 	1201 Third Avenue, Suite 4800
	 

	 	Seattle, Washington 98101
	 

	 	Facsimile: (206) 359-9000
	 

	 	Attention: Andrew Bor, Esq.






23









 






	 	 	 

	     If to the Investor:

	 	Zell Credit Opportunities Master Fund, L.P.
	 

	 	Two North Riverside Plaza, Suite 600
	 

	 	Chicago, Illinois 60606
	 

	 	Facsimile: (312) 454-0335
	 

	 	Attention: Jon Wasserman, Esq.
	 
	     With a copy to:

	 	Reed Smith LLP
	 

	 	10 South Wacker Drive
	 

	 	Chicago, Illinois 60606
	 

	 	Facsimile: (312) 207-6400
	 

	 	Attention: Matthew Petersen, Esq.






     or such other address as may be designated in writing hereafter, in the same manner, by such
Person.



     5.5 Amendments; Waivers; No Additional Consideration. No provision of this Agreement
may be waived or amended except in a written instrument signed by the Company and Zell Credit
Opportunities Master Fund, L.P., the original Investor, irrespective of whether any Securities have
been assigned or transferred to any Persons. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in
the future or a waiver of any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder
in any manner impair the exercise of any such right.



     5.6 Termination. This Agreement may be terminated prior to Closing:



          (a) by written agreement of the Investor and the Company;




          (b) by written notice by the Investor to the Company if an event or series of events shall
have occurred that are reasonably likely to have or result in a Material Adverse Effect;




          (c) by written notice from the Company to the Investor that it has received an offer from a
third party to enter into a transaction contemplated by clause (ii) of Section 5.18(b) and the
Company’s Board of Directors, acting consistent with their fiduciary duties, determines in good
faith that (i) the proposed transaction is reasonably capable of being consummated on the terms
proposed by the third party and (ii) acceptance of such offer is in the best interest of the
Company’s shareholders, accompanied by payment of any Transaction Expenses due to Investor under
Section 5.1 in addition to a break-up fee in the amount of Five Hundred Thousand Dollars ($500,000)
in immediately available funds, by wire transfer to an account designated in writing by the
Investor for such purpose, payable within two (2) Business Days of the written notice of
termination; or




          (d) by written notice from the Investor to the Company if the Closing shall not have taken
place by 6:30 p.m. Central time on the Outside Date; provided, however, that the
right to terminate this Agreement under this Section 5.6(d) shall not be available to the Investor
if its failure to comply with its obligations under this Agreement has been the cause of or






24









 







resulted in the failure of the Closing to occur on or before such time, provided,
further, that if the condition set forth in Section 2.3(a)(vii) is the only outstanding
condition to the Closing under Section 5, then the parties will have an additional thirty (30) days
after and including the Outside Date to satisfy such condition to Closing.




     5.7 Construction. The headings herein are for convenience only, do not constitute a
part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
The language used in this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be applied against any party.
This Agreement shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement or any of the Transaction Documents.



     5.8 Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written consent of the Investor.
The Investor may assign any or all of its rights under this Agreement to any Person to whom the
Investor assigns or transfers any Securities, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof that apply to the
“Investor.”



     5.9 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is not for the benefit of,
nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in
Section 4.5 (as to each Investor Party).



     5.10 Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the principles of conflicts of
law thereof. Each party agrees that Proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective Affiliates, employees or agents) may be
commenced in the New York Courts. Each party hereto hereby irrevocably submits to the jurisdiction
of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or
with any transaction contemplated hereby or discussed herein (including with respect to the
enforcement of the any of the Transaction Documents), and hereby irrevocably waives, and agrees not
to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any
such New York Court, or that such Proceeding has been commenced in an improper or inconvenient
forum; provided, however, that the parties acknowledge and agree that such courts are not the
exclusive venue for disputes hereunder or under any of the Transaction Documents. Each party
hereto hereby irrevocably waives personal service of process and consents to process being served
in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in effect for notices to it under
this Agreement and agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to
serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the
fullest extent



25









 




permitted by applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Agreement or the transactions contemplated hereby. If either
party shall commence a Proceeding to enforce any provisions of a Transaction Document, then the
prevailing party in such Proceeding shall be reimbursed by the other party for its reasonable
attorneys’ fees and other costs and expenses incurred with the investigation, preparation and
prosecution of such Proceeding.




     5.11 Survival. The representations, warranties, agreements and covenants contained
herein shall survive the Closing and the delivery of the Securities.



     5.12 Execution. This Agreement may be executed in two or more counterparts, all of
which when taken together shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the other party, it being
understood that both parties need not sign the same counterpart. In the event that any signature
is delivered by facsimile transmission or portable document format (PDF), such signature shall
create a valid and binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile or PDF signature page were an
original thereof.



     5.13 Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt
to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon
so agreeing, shall incorporate such substitute provision in this Agreement.



     5.14 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction Documents, whenever
the Investor exercises a right, election, demand or option under a Transaction Document and the
Company does not timely perform its related obligations within the periods therein provided, then
the Investor may rescind or withdraw, in its sole discretion from time to time upon written notice
to the Company, any relevant notice, demand or election in whole or in part without prejudice to
its future actions and rights.



     5.15 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued
in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with the issuance of such
replacement Securities. If a replacement certificate or instrument evidencing any Securities is
requested due to a mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a replacement.



     5.16 Remedies. In addition to being entitled to exercise all rights provided herein
or granted by law, including recovery of damages, the Investor and the Company will be entitled to
specific performance under the Transaction Documents. The parties agree that monetary



26









 




damages may not be adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law would be adequate.




     5.17 Payment Set Aside. To the extent that the Company makes a payment or payments to
the Investor pursuant to any Transaction Document or the Investor enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any
part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the
Company, a trustee, receiver or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent
of any such restoration the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.


     5.18 Exclusivity.




          (a) Prior to the Closing, the Company will not directly or indirectly, through any officer,
director, employee, agent, representative or otherwise: (i) participate in any negotiations or
solicit, initiate or encourage submission of inquiries, proposals or offers relating to an
acquisition of, investment in or other transaction involving any of the Common Stock or Common
Stock Equivalents with any party other than the Investor (the “Subject Matter”); (ii) enter
into any agreement or take any action that by its terms or effect could reasonably be expected to
adversely affect the ability of the parties hereto to enter into or consummate the transactions
contemplated in the Transaction Documents on the terms and conditions set forth therein; or (iii)
furnish or authorize any agent or representative to furnish any information concerning the Letter
of Intent or the transactions contemplated in the Transaction Documents to any party. The Company
will promptly notify Investor in writing of any unsolicited inquiry, proposal or other offer
relating to the Subject Matter, including disclosing to Investor the identity of the other party or
parties and the material terms of such unsolicited inquiry, proposal or offer, and will refrain
from engaging in negotiations or providing any information with respect to such inquiry, proposal
or offer.




          (b) The provisions of Section 5.18(a) shall not prohibit the Company from: (i) negotiating
with lenders and their agents concerning the Credit Agreement or the New Credit Agreement and any
related consents or waivers; (ii) responding to, negotiating and providing information in
connection with inquiries, proposals or offers from third parties concerning a possible sale or
merger of the Company, merger of equals, joint venture or similar transaction involving the Company
that would not involve: (A) the issuance of securities by the Company, except in connection with a
merger of equals, in such transaction, or (B) in the case of a joint venture or similar
transaction, a material contribution of cash by the other party, provided that the Company promptly
notifies the Investor of such inquiry, proposal or offer, including disclosing to the Investor the
identity of the other parties and the material terms of such unsolicited inquiry, proposal or
offer; or (iii) issuing shares of Common Stock or options to purchase shares Common Stock pursuant
to awards made under existing equity compensation plans in the ordinary course, the exercise of
stock options issued under such plans or the exercise of outstanding warrants or other derivative
securities pursuant to their current terms.







27









 








     5.19 Limitation of Liability. Notwithstanding anything herein to the contrary, the
Company acknowledges and agrees that the liability of the Investor arising directly or indirectly,
under any Transaction Document of any and every nature whatsoever shall be satisfied solely out of
the assets of the Investor, and that no trustee, officer, other investment vehicle or any other
Affiliate of the Investor or any investor, shareholder or holder of shares of beneficial interest
of the Investor shall be personally liable for any liabilities of the Investor.



[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

[SIGNATURE PAGES FOLLOW]






28









 








     IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be
duly executed by their respective authorized signatories as of the date first indicated above.



	 	 	 	 	 	 	 

	 	 	THE COMPANY	 	 
	 
	 	 	 	 	 	 
	 	 	Penford Corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ Thomas D. Malkoski
 

Thomas D. Malkoski
	 	 
	 

	 	Its:
	 	President and Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	THE INVESTOR	 	 
	 
	 	 	 	 	 	 
	 	 	Zell Credit Opportunities Master Fund, L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Zell Credit Opportunities (GenPar), L.L.C.	 	 
	 

	 	Its:
	 	General Partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ Philip G. Tinkler
 

Philip G. Tinkler
	 	 
	 

	 	Its:
	 	Vice President	 	 






29









 





EXHIBITS




Exhibit A

Convertible Preferred Articles



Exhibit B

Cumulative Preferred Articles



Exhibit C

Investor Rights Agreement



Exhibit D

Standstill Agreement



Exhibit E

Form of Legal Opinion