Document:

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                                                                    EXHIBIT 10.1

                                                              EXECUTION ORIGINAL

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                          SECURITIES PURCHASE AGREEMENT

                                      AMONG

                               PENFORD CORPORATION

                                       AND

                           THE PURCHASER NAMED HEREIN

                           DATED AS OF MARCH 14, 2003

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                          SECURITIES PURCHASE AGREEMENT

         THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") is dated as of
March 14, 2003, among Penford Corporation, a Washington corporation (the
"COMPANY"), and the Purchaser named on the signature page hereto ("PURCHASER").

                                    RECITALS

         The Company desires to issue and sell to Purchaser, and Purchaser
desires to purchase from the Company, an aggregate of up to 650,000 shares (the
"SHARES") of Common Stock, $1.00 par value per share (the "COMMON STOCK") at a
price of $11.1126 Share and upon and subject to the terms and conditions of this
Agreement.

                                    AGREEMENT

         The Company and Purchaser agree as follows:

         SECTION 1.  PURCHASE AND SALE OF THE SHARES. Subject to the terms and
conditions of this Agreement, the Company will issue and sell to Purchaser, and
Purchaser will purchase from the Company the number of Shares set forth on the
Purchaser's signature page at the purchase price of $11.1126 per Share (the
"PURCHASE PRICE").

         SECTION 2.  CLOSING. The closing (the "CLOSING") of the purchase and
sale of the Shares (the "OFFERING") will take place at the offices of Preston
Gates & Ellis LLP, at 10:00 A.M., Seattle time, on March 14, 2003. The Closing
may take place at another time, place or earlier date as is mutually agreed upon
by the Company and Purchaser. The date of the Closing is referred to as the
"CLOSING DATE." At the Closing, the Company will cause its transfer agent to
issue and to deliver to Purchaser a stock certificate representing the Shares
purchased by the Purchaser, against payment of the Purchase Price by wire
transfer of immediately available United States ("U.S.") funds payable to the
Company's account pursuant to the wire transfer instructions set forth on
Exhibit A. The Shares will be registered in Purchaser's name or the name of the
nominee of Purchaser pursuant to instructions delivered to the Company not less
than two business days prior to the Closing Date, and if the certificate is not
delivered at Closing, the Company will deliver it to Purchaser within three
business days after the Closing Date.

         SECTION 3.  CONDITIONS TO THE OBLIGATIONS OF PURCHASER AT CLOSING. The
obligation of Purchaser to purchase and pay for the Shares at Closing is subject
to the satisfaction on or prior to the Closing Date of the following conditions,
each of which may be waived by Purchaser:

         3.1  OPINION OF COUNSEL TO THE COMPANY. Preston Gates & Ellis LLP,
counsel for the Company, will have delivered to Purchaser its opinion dated the
Closing Date in the form of Exhibit B.

         3.2  REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in Section 6 shall have been true and correct as of the
date of this Agreement and shall be true and correct as of the Closing Date as
though made on and as of the Closing Date, except as otherwise contemplated by
this Agreement and except to the extent that the representations and warranties
relate to an earlier date in which case the representations and warranties shall
be true and correct in all material respects on and as of such earlier date.

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         3.3  PERFORMANCE OF COVENANTS. The Company will have performed or
complied in all material respects with all covenants and agreements required to
be performed by it on or prior to the Closing pursuant to this Agreement.

         3.4  NO INJUNCTIONS; ETC. No court or governmental injunction, order or
decree prohibiting the purchase and sale of the Shares will be in effect. There
will not be in effect any law, rule or regulation prohibiting or restricting the
sale or requiring any consent or approval of any person that has not been
obtained that prohibits the consummation of any of the transactions contemplated
by this Agreement.

         3.5  CLOSING DOCUMENTS. The Company will have delivered to Purchaser
the following:

         (a)  a certificate of the Secretary of the Company, dated as of the
Closing Date, certifying (i) the attached are true and complete copies of the
Articles of Incorporation and Bylaws of the Company, as in effect on the date of
such certification; and (ii) the attached are true and complete copies of the
resolutions of the Board of Directors of the Company authorizing the execution,
delivery and performance of this Agreement as in effect on the date of such
certification;

         (b)  a certificate of the Secretary of State of the State of
Washington, dated as of a recent date, to the effect that the Company is validly
existing under the laws of the State of Washington; and

         (c)  a certificate executed by the Chief Financial Officer of the
 Company, dated as of the Closing Date, to the effect that the representations
 and warranties of the Company contained in Section 6 hereof are true and
 correct as of the date of this Agreement and the Closing Date, and that all
 covenants, agreements and conditions required by the Agreement have been
 performed, satisfied and complied with in all material respects.

         3.6  WAIVERS AND CONSENTS. The Company will have obtained all consents
and waivers necessary to execute and deliver this Agreement and all related
documents and agreements and to issue and deliver the Shares, and all consents
and waivers will be in full force and effect.

         3.7  SATISFACTION OF PURCHASER. All proceedings to be taken in
connection with the Offering are to be consummated at or prior to the Closing,
and all documents incidental thereto shall be reasonably satisfactory in form
and substance to Purchaser and its counsel, and Purchaser and its counsel shall
have received copies of all documents and information that it reasonably
requested in connection with the transaction and of all corporate proceedings in
connection therewith, in form and substance reasonably satisfactory to Purchaser
and its counsel.

         SECTION 4.  CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AT CLOSING.
The obligation of the Company to issue and sell the Shares to Purchaser at
Closing is subject to the satisfaction on or prior to the Closing Date of the
following conditions, each of which may be waived by the Company:

         4.1  REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Purchaser contained in this Agreement shall have been true and correct as of
the date of this Agreement and shall be true and correct as of the Closing Date
as though made on and as of the Closing Date, except as otherwise contemplated
by this Agreement and except to the extent that the representations and
warranties relate to an earlier date in which case the representations and
warranties shall be true and correct in all material respects on and as of such
earlier date.

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         4.2  NO INJUNCTIONS. No court or governmental injunction, order or
decree prohibiting the purchase or sale of the Shares will be in effect.

         SECTION 5.  REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants to the Company that:

         5.1  ACCREDITED INVESTOR. Purchaser is an "accredited investor" as
defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as
amended (the "SECURITIES ACT"). Purchaser is acquiring the Shares for its own
account and not with a present view to, or for sale in connection with, any
distribution thereof in violation of the registration requirements of the
Securities Act.

         5.2  AUTHORITY, ETC. Purchaser has the power and authority to execute
and deliver this Agreement and to perform its obligations hereunder. The
execution and delivery by Purchaser of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate or other action on the part of Purchaser. This Agreement constitutes a
legal, valid and binding obligation of Purchaser, enforceable against Purchaser
in accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies, and to
limitations of public policy.

         5.3  ACCESS TO INFORMATION. Purchaser acknowledges that it has been
afforded (i) the opportunity to ask the questions it deemed necessary of, and to
receive answers from, representatives of the Company concerning the Company and
the terms and conditions of the Offering; and (ii) the opportunity to request
such additional information concerning the Company as the Company possesses or
can acquire without unreasonable effort or expense.

         5.4  NO GENERAL SOLICITATION. Purchaser is not purchasing the Shares as
a result of any advertisement, article, notice or other communication published
in a newspaper or magazine or similar media or broadcast over television or
radio, whether closed circuit, or generally available, or any seminar, meeting
or other conference whose attendees were invited by any general solicitation or
general advertising.

         SECTION 6.  REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Purchaser that as of the date hereof and the Closing
Date:

         6.1  ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized and validly existing under the laws of the State of
Washington. The Company and each of its Subsidiaries (as defined in Rule 405
under the Securities Act) has full corporate power and authority to own, operate
and hold its properties and to conduct its business as presently conducted or
proposed to be conducted, as described in the documents filed by the Company, as
of the date hereof, with the U.S. Securities and Exchange Commission ("SEC")
since August 31, 2001 (the "SEC DOCUMENTS"). The Company and each of its
Subsidiaries is duly licensed or qualified to do business, and in good standing,
in each jurisdiction in which the nature of its business requires licensing,
qualification or good standing, except for any failure to be so licensed or
qualified or in good standing that would not have a material adverse effect on
the Company and its Subsidiaries or its business, properties, prospects, results
of operations, assets, condition (financial or otherwise), or on its ability to
perform its obligations under this Agreement (a "MATERIAL ADVERSE EFFECT").

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         6.2  CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of 29,000,000 shares of Common Stock, par value
$1.00 per share and 1,000,000 shares of Preferred Stock, par value $1.00 per
share. As of February 28, 2003, (i) 7,810,753 shares of Common Stock were issued
and outstanding, (ii) no shares of Preferred Stock were issued or outstanding,
and (iii) 967,987 shares of Common Stock were reserved for issuance upon
exercise of outstanding options issued or issuable under (y) the Company's 1994
Stock Option Plan, as amended (the "1994 PLAN") and (z) the Company's Stock
Option Plan for Non-Employee Directors (the "DIRECTOR PLAN"). As of February 28,
2003, there were outstanding options under the 1994 Plan to purchase 799,479
shares of Common Stock and there were outstanding options under the Director
Plan to purchase 165,508 shares of Common Stock. All the outstanding shares of
Common Stock have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, and were not issued in violation of, or subject to any
preemptive, subscription or other similar rights of any shareholder of the
Company. Except as set forth in this Section 6.2, there are no other options,
warrants or other rights, convertible debt, agreements, arrangements or
commitments of any character obligating the Company to issue or sell any shares
of capital stock of or other equity interests in the Company. The Company is not
obligated to retire, redeem, repurchase or otherwise reacquire any of its
capital stock or other securities. No further approval or authorization of any
shareholder, the Board of Directors of the Company or others is required for the
issuance and sale of the Shares. The Company owns the entire equity interest in
each of its Subsidiaries, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest, other than as described in the SEC
Documents. Except as disclosed in the SEC documents, there are no shareholder
agreements, voting agreements or similar agreements with respect to the Common
Stock to which the Company is a party or, to the knowledge of the Company,
between or among any of the Company's shareholders.

         6.3  CORPORATE POWER, AUTHORIZATION; ENFORCEABILITY. The Company has
full corporate power and authority to execute, deliver and enter into this
Agreement and to consummate the transactions contemplated hereby. The Company,
its directors or shareholders have taken all action necessary for the
authorization, execution, delivery and performance of this Agreement by the
Company, the authorization, sale, issuance and delivery of the Shares
contemplated hereby and the performance of the Company's obligations hereunder.
The Shares to be purchased on the Closing Date have been duly authorized and,
when issued in accordance with this Agreement, will be validly issued, fully
paid and nonassessable and will be free and clear of all liens, adverse claims
or encumbrances (collectively, "LIENS") imposed by or through the Company and
will not be subject to any preemptive rights or other similar rights of
shareholders of the Company, and the Purchaser will acquire good and marketable
title to the Shares. The Company has duly executed and delivered this Agreement
and this Agreement constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, subject
to laws of general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies, and to limitations of public policy. Other than the
Company's payment to Nasdaq of the requisite quarterly fees for the Company's
outstanding shares, no further corporate action is required under the rules of
Nasdaq with respect to the transactions contemplated by this Agreement,
including without limitation, the issuance of the Shares and the inclusion
thereof for trading on Nasdaq.

         6.4  FINANCIAL STATEMENTS AND SEC DOCUMENTS. (a) Included in the
Company's Form 10-K for the year ended August 31, 2002, are true and complete
copies of the audited balance sheet (the "BALANCE SHEET") of the Company as of
August 31, 2002 and 2001, and the related audited statements of operations,
shareholders' equity and cash flows for the years ended August 31, 2002 and 2001
(the "AUDITED FINANCIAL STATEMENTS"), accompanied by the report of Ernst & Young
LLP with respect to the years ended August 31, 2002 and 2001. The Company's
Quarterly Report on Form 10-Q for the quarter

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ended November 30, 2002 is available to Purchaser on the SEC's EDGAR System.
Included in the Quarterly Report are the requisite unaudited balance sheets of
the Company and the related unaudited statements of income and statements of
cash flows (the "UNAUDITED FINANCIAL STATEMENTS," and together with the Audited
Financial Statements, the "FINANCIAL STATEMENTS"). The Financial Statements and
the related notes contained in the SEC Documents have been prepared in
accordance with generally accepted accounting principles, applied consistently
with the past practices of the Company (except as may be indicated in the notes
thereto), and as of their respective dates, fairly present, in all material
respects, the financial position of the Company and the results of its
operations as of the time and for the periods indicated therein. Such Financial
Statements conform in all material respects to, and are in agreement with, the
books and records of the Company. The Company keeps accounting records in
accordance with generally accepted accounting principles in which all material
assets and liabilities, and all material transactions, including off-balance
sheet transactions, of the Company are recorded in conformity with applicable
accounting principles and disclosed in its SEC Documents.

         (b)  A copy of each report, schedule, effective registration statement
and definitive proxy statement filed by the Company with the SEC since January
1, 2002 (as the documents may have been amended since the time of their filing,
the "SEC DOCUMENTS"), has also been made available to each Purchaser via the
SEC's EDGAR System. The Company has provided to each Purchaser who has requested
the same a true and complete copy of each SEC Document that the Company filed
since January 1, 2002. As of their respective filing dates, each SEC Document
complied in all material respects with the requirements of the Securities Act or
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), as
applicable, and the rules and regulations of the SEC thereunder applicable to
the SEC Document. The SEC Documents, taken as a whole, do not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective
filing dates, the Financial Statements included in the SEC Documents complied as
to form in all material respects with then applicable accounting requirements
and with the published rules and regulations of the SEC with respect thereto,
were prepared in accordance with generally accepted accounting principles,
applied consistently with the past practices of the Company, and as of their
respective dates, fairly presented in all material respects the financial
position of the Company and the results of its operations as of the time and for
the periods indicated therein (except as may be indicated in the notes thereto
or, in the case of the unaudited statements, as permitted by Form 10-Q and
Regulations S-K and S-X of the SEC).

         6.5  NO MATERIAL ADVERSE CHANGES. Since November 30, 2002, except as
disclosed in the SEC Documents filed subsequent to that date, if any, there has
not been any material adverse change in the business, properties, assets,
condition (financial or otherwise), prospects or operating results of the
Company and its Subsidiaries.

         6.6  ABSENCE OF CERTAIN DEVELOPMENTS. Except as described in or
contemplated by this Agreement or the SEC Documents, since November 30, 2002,
through the Closing Date, the Company and its Subsidiaries have not (a) issued
any stock, options (other than to employees and directors consistent with past
practices) bonds or other corporate securities; (b) borrowed any amount or
incurred or become subject to any direct or indirect liabilities (absolute,
accrued or contingent), other than current liabilities incurred in the ordinary
course of business and liabilities under contracts entered into in the ordinary
course of business; (c) discharged or satisfied any lien or adverse claim or
paid any obligation or liability (absolute, accrued or contingent), other than
current liabilities shown on the Balance Sheet and current liabilities incurred
in the ordinary course of business; (d) made any material change in the nature
or operations of the business of the Company and its Subsidiaries; (e) sustained
any material loss or

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interference with its business or properties not covered by insurance; (f) paid
or declared any dividends or other distributions with respect to the capital
stock (other than customary dividends paid to all holders of Common Stock); (g)
defaulted in the payment of principal and interest on any outstanding debt
obligations or (h) entered into any agreement or commitment to do any of the
foregoing.

         6.7  NO CONFLICT; GOVERNMENTAL CONSENTS. (a) The execution and delivery
by the Company of this Agreement and the consummation of the transactions
contemplated hereby will not (i) result in the violation of any provision of the
Articles of Incorporation or Bylaws of the Company, (ii) result in any violation
of any law, statute, rule, regulation, order, writ, injunction, judgment or
decree of any court or governmental authority applicable to or by which the
Company is bound, or (iii) conflict with, or result in a breach or violation of,
any of the terms or provisions of, or constitute (with due notice or lapse of
time or both) a default under, any bond, debenture, note or other evidence of
indebtedness, lease, loan agreement, mortgage, security agreement, trust
indenture or other contract, agreement or instrument to which the Company is a
party or by which it is bound or to which any of its properties or assets is
subject, nor result in the creation or imposition of any Lien upon any of the
properties or assets of the Company.

         (b)  No consent, approval, license, permit, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority remains to be obtained or is
otherwise required to be obtained by the Company in connection with the
authorization, execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby, including, without limitation the issue
and sale of the Shares, except filings as may be required to be made by the
Company after the Closing with (i) the SEC, (ii) Nasdaq and (iii) state blue sky
or other securities regulatory authorities.

         6.9  NO GENERAL SOLICITATION. Neither the Company nor any person acting
on behalf of the Company has conducted any "general solicitation," as described
in Rule 502(c) under Regulation D promulgated under the Securities Act
("REGULATION D"), with respect to any of the Shares being offered hereby.

         6.10 REGISTRATION FORM. The Company is eligible to register the resale
of the Shares by the Purchaser in a secondary offering on a registration
statement on Form S-3 under the Securities Act. To the knowledge of the Company,
there exists no facts or circumstances that could reasonably be expected to
prohibit or delay the preparation and filing of a registration statement on Form
S-3.

         6.11 NO INTEGRATION. Neither the Company, nor any of its affiliates,
nor 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 prevent the parties hereto from consummating the
transactions contemplated hereby pursuant to an exemption from registration
under the Securities Act pursuant to the provisions of Regulation D. Assuming
the accuracy of the representations and warranties herein contained of Purchaser
to the extent relevant for such determination, the transactions contemplated
hereby are exempt from the registration requirements of the Securities Act. The
issuance of the Shares to the Purchaser will not be integrated with any other
issuance of the Company's securities (past or current) that requires shareholder
approval under the rules of Nasdaq or that would result in a violation of the
Securities Act. The issuance of the Shares to Purchaser does not require
shareholder approval, including any approval pursuant to the rules of Nasdaq.

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         6.12 NO BROKERS. Except for its agreement with A.G. Edwards, the
Company has taken no action that would give rise to any claim by any person for
brokerage commissions, finder's fees or similar payments by Purchaser relating
to this Agreement or the transactions contemplated hereby.

         6.13 LICENSES AND PERMITS. To the Company's knowledge, the Company and
each of its Subsidiaries has all Permits (as defined below) required by law or
governmental regulations from all applicable courts, administrative agencies or
commissions or other governmental authorities or instrumentalities, whether in
the U.S. (federal, state or local) or outside of the U.S. that are necessary to
operate such businesses as presently conducted and all such Permits are in full
force and effect, except where the failure to have any such Permits in full
force and effect could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. To the Company's knowledge, the
Company is not in default under, or in violation of or noncompliance with, any
of such Permits, except for any such default, violation of or noncompliance that
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Upon consummation of the transactions contemplated by
this Agreement, each such Permit will remain in full force and effect and will
not create a right of any other person to terminate or revoke, modify or
condition such Permit based on such consummation. "PERMIT" means any permit,
certificate, consent, approval, authorization, order, license, variance,
franchise or other similar indicia of authority issued or granted by any court,
administrative agency or commission or other governmental authority or
instrumentality, whether in the U.S. (federal, state or local) or outside of the
U.S.

         6.14 LITIGATION. Except as set forth in the SEC Documents, there is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board, governmental agency or authority, or self-regulatory organization
or body pending or, to the knowledge of the Company, threatened against or
affecting the Company and its Subsidiaries or any of its directors or officers
in their capacities as such, which individually or in the aggregate, if
determined adversely to the Company, would reasonably be expected to have a
Material Adverse Effect; and to the Company's knowledge, no labor disturbance by
the employees of the Company and its Subsidiaries exists, or is imminent, which
would reasonably be expected to have a Material Adverse Effect. The Company and
each of its Subsidiaries is not a party to or subject to the provisions of any
injunction, judgment, decree or order of any court, regulatory body or
administrative agency or other governmental body, which has, or would reasonably
be expected to have, a Material Adverse Effect.

         6.15 INVESTMENT COMPANY. The Company is not, and after giving effect to
the transactions contemplated herein, will not be an "investment company" within
the meaning of that term under the Investment Company Act of 1940, as amended,
and the rules and regulations of the SEC thereunder.

         6.16 NO DEFAULT OR VIOLATION. The Company and each of its Subsidiaries
is not (i) in default under or 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 or (ii) in violation of any law,
administrative regulation, ordinance, or order of any court, arbitrator or
governmental body or agency, other than any such violation or violations that
individually, on in the aggregate, would not have a Material Adverse Effect.

         6.17 LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE. The Company's
Common Stock is registered under Section 12(g) of the Exchange Act and is listed
on the Nasdaq National Market System. The Company has not, since November 30,
2002, received notice (written or oral) from Nasdaq to the effect that the
Company is not in compliance with the continuing listing or maintenance
requirements of the exchange or market. The Company is in compliance with all
Nasdaq listing and

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maintenance requirements and has not taken any action designed to terminate
registration of its Common Stock or delist the Common Stock from Nasdaq.

         6.18 INTELLECTUAL PROPERTY. The Company and each of its Subsidiaries
has, or has rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses and
know-how (including trade secrets or other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures) (collectively,
the "INTELLECTUAL PROPERTY RIGHTS") that are necessary for use in connection
with its business as presently conducted or proposed to be conducted as
described in the SEC Documents except where the failure to have such
Intellectual Property Rights would not have a Material Adverse Effect, and, to
the Company's knowledge, there is no existing infringement by another person or
entity of any of the Intellectual Property Rights that are necessary for use in
connection with the Company's business as presently conducted. To the Company's
knowledge, neither the Company nor its Subsidiaries are infringing on or in
conflict with any right of any other person with respect to any intangibles,
including Intellectual Property Rights, nor is there any claim of infringement
of such rights made or threatened by a third party against or involving the
Company.

         6.19 ENVIRONMENTAL MATTERS. Each of the Company its Subsidiaries has
obtained all permits, licenses and other authorizations that are required under
federal, state and local laws in the U.S. and outside the U.S. relating to
pollution or protection of the environment, including laws related to emissions,
discharges, releases or threatened releases of pollutants, contaminants or
hazardous or toxic material or wastes into ambient air, surface water, ground
water or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants or hazardous or toxic materials or wastes
("ENVIRONMENTAL LAWS"), except for any failures to obtain the permits, licenses
or authorizations that would not, individually or in the aggregate, have or
result in a Material Adverse Effect. The Company and each of its Subsidiaries is
in compliance with all terms and conditions of the required permits, licenses
and authorizations and is also in full compliance with all other limitations,
restrictions, conditions and requirements contained in the Environmental Laws or
contained in any plan, order, judgment, decree or notice, except for any
non-compliance which could not, individually or in the aggregate, have or result
in a Material Adverse Effect. The Company is not aware of, nor has the Company
received notice of, any events, conditions, circumstances, actions or plans
which may interfere with or prevent continued compliance or which would give
rise to any liability under any Environmental Laws, except for any liability
which could not, individually or in the aggregate, have or result in a Material
Adverse Effect.

         6.20 INSURANCE. The Company maintains and will continue to maintain
insurance of the types, against such losses and in amounts, with such insurers
and subject to deductibles and exclusions as are customary in the Company's
industry and otherwise reasonably prudent, including, but not limited to,
insurance covering all real and personal property owned or leased by the Company
and its Subsidiaries against theft, damage, destruction, acts of vandalism, all
of which insurance is in full force and effect.

         6.21 PROPERTIES. The Company and each of its Subsidiaries has good
title to all properties and assets reflected as owned by it in the Financial
Statements and that it otherwise purports to own, and such properties and assets
are not subject to any lien, mortgage, pledge, charge, claim or encumbrance of
any kind except: (i) those, if any, reflected in the Financial Statements, or
(ii) those which are not material in amount and do not adversely affect the use
made and intended to made of such property by the Company and its Subsidiaries.
The Company and each of its Subsidiaries holds its leased properties under valid
and binding leases, with such exceptions as would not reasonably be expected to
have a Material Adverse Effect. Except as disclosed in the SEC Documents, the
Company owns or leases all such properties as are necessary to its operations as
now conducted.

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         6.22 MATERIAL CONTRACTS/TRADE RELATIONS. All material agreements to
which the Company or any of its Subsidiaries is a party and which are required
to have been filed by the Company pursuant to the Securities Act or Exchange Act
have been filed by the Company with the SEC pursuant to the requirements of the
Securities Act or Exchange Act, as applicable. Each such agreement is in full
force and effect and is binding on the Company or its Subsidiaries, and to the
Company's knowledge, is binding upon such other parties, in each case in
accordance with its terms, and neither the Company or any of its Subsidiaries,
nor, to the Company's knowledge, any other party thereto is in breach of or
default under any such agreement, which breach or default would reasonably be
expected to have a Material Adverse Effect. The Company has not received any
written notice regarding the termination of any such agreements. There exists no
actual or, to the knowledge of the Company, threatened termination, cancellation
or limitation of, or any material adverse modification or change in, the
business relationship of the Company or any of its Subsidiaries, or the business
of the Company or any of its Subsidiaries, with any customer or supplier or any
group of customers or suppliers whose purchases or inventories provided to the
business of the Company or any of its Subsidiaries are individually or in the
aggregate material to the Company.

         6.23 TAXES. The Company has filed all necessary federal, state and
foreign income and franchise tax returns and has paid or accrued all taxes shown
as due thereon, and the Company has no knowledge of a tax deficiency which has
been or might be asserted or threatened against it which is reasonably likely to
have a Material Adverse Effect.

         6.24 CONTRIBUTIONS. Neither the Company, its employees nor, to the
Company's knowledge, any agent or other person acting on behalf of the Company,
has (i) directly or indirectly, used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds, (iii) failed to disclose
fully any contribution made by the Company or made by any person acting on its
behalf and of which the Company is aware in violation of law or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.

         6.25 Labor Relations. Except as could not reasonably be expected to
have a Material Adverse Effect on the Company: (a) neither the Company nor any
of its Subsidiaries is engaged in any unfair labor practice; and (b) there is no
strike, labor dispute, slowdown or stoppage pending or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries. To the
knowledge of the Company, each of the executive officers of the Company and each
of its Subsidiaries spends all, or substantially all, of his business time on
the business of the Company or its Subsidiary, as the case may be.

         6.26 Potential Conflicts of Interest To the knowledge of the Company,
no officer, director or stockholder beneficially owning more than 5% of the
outstanding shares of Common Stock of the Company, no spouse of any such
officer, director or stockholder, and no affiliate (as defined in Rule 12b-2 of
the Exchange Act) is engaged in of any of the foregoing: (a) owns, directly or
indirectly, any interest in (excepting less than one percent (1%) stock holdings
for investment purposes in securities of publicly held and traded companies), or
is an officer, director, employee or consultant of, any person which is, or is
engaged in business as, a competitor, lessor, lessee, supplier, distributor, or
customer of, or lender to or borrower from, the Company or any of its
Subsidiaries; (b) owns, directly or indirectly, in whole or in part, any
tangible or intangible property that the Company or any of its Subsidiaries use,
in

                                      -9-
<PAGE>
the conduct of business; or (c) has any cause of action or other claim
whatsoever against, or owes or has advanced any amount to, the Company, except
for claims in the ordinary course of business such as for accrued vacation pay,
accrued benefits under employee benefit plans, and similar matters and
agreements existing on the date hereof.

         SECTION 7.  COVENANTS OF THE COMPANY. The Company covenants and agrees
as follows:

         7.1  REPORTING STATUS; RULE 144. So long as the Company is subject to
the reporting requirements of the Exchange Act, the Company will use its
commercially reasonable efforts to timely file all reports required to be filed
with the SEC pursuant to the Exchange Act (or if the Company is not required to
such reports it will, upon request if the Purchaser, make publicly available
such information as necessary to permit the sale of the Shares pursuant to Rule
144 under the Securities Act), and it will take such further action as Purchaser
may reasonably request to enable Purchaser to sell Shares without registration
under the Securities Act within the limitation of the exemption provided by (i)
Rule 144 under the Securities Act, as amended from time to time, or (ii) any
similar rule or regulation hereafter adopted by the SEC.

         7.2  FORM D; FORM 8-K. The Company will file a Form D with the SEC
within 15 days of the Closing Date with respect to the Shares as required under
Regulation D under the Securities Act, and will provide a copy thereof to
Purchaser. The Company shall file within seven (7) days after the Closing Date a
Current Report on Form 8-K with the SEC describing the terms of the transactions
contemplated by the Agreement, including any required exhibits.

         7.3  EXCHANGE ACT FILINGS. The Company agrees to provide the following
reports to the Purchaser until the earlier of (i) the date on which the
Purchaser transfers, assigns or sells all of its Shares to a non-affiliate of
Purchaser, or (ii) the second anniversary of the Closing Date: (a) a copy of its
annual report on Form 10-K within 90 days of the end of the Company's fiscal
year, its quarterly reports on Form 10-Q within 45 days of the end of each
fiscal quarter, any proxy statements and any current reports on Form 8-K as each
becomes available and (b) within two days after release, copies of all press
releases issued by the Company or any of its subsidiaries. Subject to Regulation
FD and any state or federal securities laws, the Company further agrees to
provide promptly to Purchaser any information with respect to the Company, its
properties, or its business or Purchaser's investment as the Purchaser may
reasonably request; provided, however, that the Company will not be required to
provide the Purchaser any material nonpublic information.

         7.4  LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE. So long as the
Company shall continue the listing and trading of its Common Stock on Nasdaq,
the Company will use its commercially reasonable efforts to comply in all
respects with the Company's reporting, filing and other obligations under the
by-laws or rules of such exchange or quotation system.

         7.5  INTEGRATION. The Company will ensure that the issuance of the
Shares to the Purchaser will not be integrated with any other issuance of the
Company's securities in the future that requires shareholder approval under the
rules of Nasdaq or that would result in a violation of the Securities Act.

         SECTION 8.  SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Notwithstanding
any investigation made by any party to this Agreement, all representations and
warranties made by the Company and the Purchaser herein and in the certificates
for the Shares delivered pursuant hereto, shall survive for a period of two
years after the Closing Date and shall thereupon expire together with the
associated right to indemnification pursuant to Section 10(a)(iv), unless a
claim for indemnification

                                      -10-
<PAGE>
(whether or not fixed as to liability or liquidated as to amount) shall be made
with respect thereto prior to the end of such period, in which case such
representation or warranty with respect to which such claim has been made, and
the associated right to indemnification shall survive until such claim is
satisfied, settled or dismissed.

         SECTION 9.  REGISTRATION OF COMMON STOCK.

         9.1  REGISTRABLE SECURITIES. For the purposes of this Agreement,
"REGISTRABLE SECURITIES" means (a) the Shares, and (b) any shares of Common
Stock issued as a distribution with respect to the Shares referred to in (a);
provided that (i) any shares of Common Stock will cease to be Registrable
Securities, and (ii) the Company will not be obligated to maintain the
effectiveness of the Registration Statement (as defined below), and the
Company's obligations under this Section 9 will cease, with respect to the
Purchaser's Registrable Securities following the earlier of (x) the second
anniversary of the Closing Date and (y) the date on which the Company delivers
an opinion of counsel in form and substance reasonably satisfactory to the
Purchaser that (1) the Purchaser may sell in a single transaction all
Registrable Securities then held or issuable to the Purchaser on a registered
securities exchange or Nasdaq market under an applicable exemption from the
registration requirements of the Securities Act (pursuant to Rule 144 under the
Securities Act or otherwise) and (2) all transfer restrictions and restrictive
legends with respect to the Registrable Securities will be removed upon the
consummation of the sale. The period of time during which the Company is
required to keep the Shelf Registration Statement effective is referred to as
the "REGISTRATION PERIOD."

         9.2  REGISTRATION. (a) The Company will, as soon as practicable
following the Closing Date, but not later than the 30th day after the Closing
Date, file with the SEC a registration statement on Form S-3 or successor form
or another form selected by the Company that is available to it under the
Securities Act (the "REGISTRATION STATEMENT") with respect to the Registrable
Securities beneficially owned by Purchaser following the Closing, and use its
reasonable best efforts to cause the Registration Statement to be declared
effective no later than the 120th day after the Closing Date. The Registration
Statement shall contain the Plan of Distribution in substantially the form
attached hereto as Exhibit C.

         (b)  If (i) the Registration Statement has not been declared effective
by the SEC on or before the 120th day after the Closing Date (the "DEFAULT
DATE"), or (ii) the Purchaser's use of the prospectus forming a part of the
Registration Statement is suspended for more than 60 days in any 12-month period
pursuant to Section 9.6(a), the Company shall pay to the Purchaser, as
liquidated damages, an amount equal to 1/30th of one percent (.033%) of the
purchase price paid for each Share then held by the Purchaser and for each day
after the Default Date that the Registration Statement is not declared effective
or for each day in excess of 60 days in any 12 month period that the Purchaser's
use of the Registration Statement is suspended pursuant to Section 9.6(a);
provided, however, that the liquidated damages payable pursuant to this Section
9.2(b) shall in no event exceed ten percent (10%) of the aggregate Purchase
Price paid by Purchaser pursuant to this Agreement in any 12 month period. The
foregoing payment shall constitute the sole monetary remedy available to the
Purchaser in the event that the Company does not comply with the deadlines set
forth in Section 9.2(b) or Section 9.6(a) with respect to the effectiveness of
the Registration Statement.

         (c)  In the event that, after the Closing Date and before the
Registration Statement is declared effective, there is an act of God, war or
terror that directly affects the Company's operations and adversely impacts its
ability to meet the original Default Date, the Default Date will be extended by
a number of days equal to the number of days that the Company is so affected
plus five.

                                      -11-
<PAGE>
         9.3  REGISTRATION PROCEDURES. In connection with the registration of
any Registrable Securities under the Securities Act as provided in this Section
9, the Company will use its commercially reasonable efforts:

         (a)  To cause the Registration Statement (and any other related
registrations, qualifications or compliances as may be reasonably requested and
as would permit or facilitate the sale and distribution of all Registrable
Securities until the distribution thereof is complete) to become effective as
soon as practicable following the filing thereof and notify the Purchaser
promptly upon effectiveness of the Registration Statement;

         (b)  To prepare and file with the SEC the amendments and supplements to
the Registration Statement and the prospectus used in connection therewith and
take all other actions as may be necessary to keep the Registration Statement
continuously effective, and free from any material misstatement or omission to
state a material fact, until the disposition of all securities in accordance
with the intended methods of disposition by the Purchaser thereof set forth in
the Registration Statement will be completed, and to comply with the provisions
of the Securities Act (to the extent applicable to the Company) with respect to
the dispositions;

         (c)  To furnish to the Purchaser a reasonable number of copies of the
Registration Statement and of each amendment and supplement thereto, a number of
copies of the prospectus included in the Registration Statement (including each
preliminary prospectus), in conformity with the requirements of the Securities
Act, and the other documents (including exhibits to any of the foregoing), as
the Purchaser may reasonably request, in order to facilitate the disposition of
the Registrable Securities owned by the Purchaser;

         (d)  To register or qualify the Registrable Securities covered by the
Registration Statement under blue sky laws of the various states as the
Purchaser reasonably requests, and do any and all other acts and things that may
be reasonably necessary or advisable to enable the Purchaser to consummate the
disposition in those states, except that the Company will not be required to
qualify generally to do business as a foreign corporation in any jurisdiction
wherein it would not, but for the requirements of this Section 9.3(d) be
obligated to be qualified, to subject itself to taxation in any jurisdiction, or
to consent to general service of process in any jurisdiction;

         (e)  To provide a transfer agent and registrar for the Registrable
Securities covered by the Registration Statement not later than the effective
date of the Registration Statement;

         (f)  To notify the Purchaser at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in the Registration
Statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading, and, at the request of
the Purchaser, the Company will promptly prepare a supplement or amendment to
the prospectus so that, as thereafter delivered to the purchasers of Registrable
Securities, the prospectus will not contain an untrue statement of a material
fact or omit to state any fact necessary to make the statements therein not
misleading;

         (g)  To cause all Registrable Securities to be listed on each
securities exchange or Nasdaq National Market on which similar securities issued
by the Company are then listed;

         (h)  To enter into customary agreements (including, in the event the
Purchaser elects to engage an underwriter in connection with the Registration
Statement, an underwriting agreement

                                      -12-
<PAGE>
containing customary terms and conditions) and take all other actions as
reasonably required in order to expedite or facilitate the disposition of
Registrable Securities; provided, however, that, except as provided in Section
9.4 hereof, the Company will not be liable for any expenses, including any
underwriter's fees, commissions and discounts or counsel fees with respect to
the sale of Registrable Securities;

         (i)  With a view to making available to the Purchaser the benefits of
certain rules and regulations of the SEC that at any time permit the sale of the
Registrable Securities to the public without registration:

                  (i)   to make and keep public information available, as those
         terms are understood and defined in Rule 144 under the Securities Act;

                  (ii)  to file with the SEC in a timely manner all reports and
         other documents required of the Company under the Exchange Act; and

                  (iii) so long as the Purchaser owns any unregistered
         Registrable Securities, to furnish to the Purchaser upon any reasonable
         request a written statement by the Company as to its compliance with
         the public information requirements of Rule 144 under the Securities
         Act, and of the Exchange Act, a copy of the most recent annual and
         quarterly report of the Company, and the other SEC reports and
         documents of the Company as the Purchaser may reasonably request in
         availing itself of any rule or regulation of the SEC allowing a
         Purchaser to sell any Registrable Securities without registration
         (excluding any reports or documents of the Company that the Company, in
         its sole discretion, deems confidential).

         (j)  To advise the Purchaser promptly after is has received notice or
obtained knowledge of the existence of any stop order by the SEC delaying or
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly make every
reasonable effort to obtain the withdrawal of any order suspending the
effectiveness of the Registration Statement at the earliest possible time.

         9.4  REGISTRATION AND SELLING EXPENSES. All expenses incurred by the
Company in connection with the Company's performance of or compliance with this
Section 9, including (i) all SEC registration and filing fees, (ii) blue sky
fees and expenses, (iii) all necessary printing and duplicating expenses, and
(iv) all fees and disbursements of counsel and accountants retained on behalf of
the Company (collectively, the "REGISTRATION EXPENSES"), will be paid by the
Company. The Purchaser may, at its election, retain its own counsel and other
representatives and advisors as it chooses at its own expense.

         9.5  NO DELAY. The Purchaser will not have a right to take any action
to restrain, enjoin or otherwise delay any registration pursuant to Section 9.2
hereof as a result of any dispute, controversy or other matter that may arise
with respect to the interpretation or implementation of this Agreement.

         9.6  CERTAIN OBLIGATIONS OF PURCHASER. (a) The Company may voluntarily
suspend the effectiveness of the Registration Statement for a limited time,
which in no event shall be longer than 30 days with respect to any single event
or more than 60 consecutive or non-consecutive days in any 12-month period, if
the Company has been advised in writing by either counsel or underwriters to the
Company that the offering of the Registrable Securities pursuant to the
Registration Statement would materially adversely affect or would be
impermissible in the view of (or impermissible without disclosure

                                      -13-
<PAGE>
in a prospectus), a proposed material financing, acquisition, merger,
reorganization or other similar transaction involving the Company (a
"SUSPENSION"). Purchaser agrees that, upon receipt of any notice (a "SUSPENSION
NOTICE") from the Company of the happening of any event of the kind described in
this Section 9.6, Purchaser will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Purchaser's receipt of the copies of the
amended or supplemented Prospectus or receipt of notice that no amendment or
supplement is required and, if so directed by the Company, such Purchaser shall
deliver to the Company (at the expense of the Company) or destroy (and deliver
to the Company a certificate of destruction) all copies of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice (other than a single file copy, which such Purchaser may keep) in such
Purchaser's possession. In the event of any Suspension, the Company will use its
reasonable best efforts to cause the use of the prospectus so suspended to be
resumed as soon as possible within 30 days after delivery of a Suspension Notice
to the Purchaser. In addition to and without limiting any other remedies
(including without limitation at law or equity), available to the Purchaser, the
Purchaser shall be entitled to specific performance regarding registration in
the event the Company fails to comply with the provisions of this Section
9.6(a). Notwithstanding the foregoing, the Purchaser shall not be prohibited
from selling its Shares under the Registration Statement as a result of
Suspensions for more than 60 days in the aggregate during any 12 month period,
unless, in the good faith judgment of the Company's Board of Directors, upon the
advice of counsel, the sale of the Shares under the Registration Statement would
be reasonably likely to cause a violation of the Securities Act or the Exchange
Act.

         (b)  As a condition to the inclusion of its Registrable Securities,
Purchaser will promptly furnish to the Company the information regarding the
Purchaser and the intended method of distribution of the securities as the
Company may from time to time request or as will be required in connection with
any registration, qualification or compliance referred to in this Section 9.
Purchaser will promptly furnish to the Company all information required to be
disclosed in order to make the information previously furnished by it to the
Company not materially misleading.

         (c)  Purchaser hereby covenants to the Company not to make any sale of
the Registrable Securities without satisfying the prospectus delivery
requirements under the Securities Act and, if Registrable Securities are to be
sold by any method or in any transaction other than on Nasdaq (or other national
securities exchange) or as set forth in the Plan of Distribution in the
prospectus included in the Registration Statement, to deliver to the Company an
opinion of counsel to the Purchaser of such Registrable Securities to the effect
that the sale may be effected in accordance with the Securities Act. Purchaser
acknowledges that the anti-manipulation provisions of Regulation M may apply to
the sales of the Shares.

         (d)  The rights to cause the Company to register Registrable Securities
granted to the Purchaser by the Company under Section 9.2 may be assigned in
whole or in part by the Purchaser, provided, that: (i) the Company is furnished
with an opinion of counsel to the Purchaser to the effect that the transfer may
be effected in accordance with the Securities Act; (ii) the transfer involves
not less than the lesser of all of Purchaser's Registrable Securities or 10,000
shares of Common Stock; (iii) the Purchaser gives prior written notice to the
Company; and (iv) the transferee agrees to comply with the terms and provisions
of this Agreement in a written instrument satisfactory in form and substance to
the Company and its counsel.

         (e)  No provision of this Section 9 may be waived (either generally or
in a particular instance, either retroactively or prospectively and either for a
specified period of time or indefinitely) or amended without the written consent
of the Purchaser.

                                      -14-
<PAGE>
         9.7  TRANSFER OF SHARES. A Purchaser may transfer all or any part of
its Shares to any person under common management or control with the Purchaser,
and the Company will affect such transfer of restricted certificates and will
promptly amend the prospectus forming a part of the Registration Statement to
add the transferee as a selling shareholder in the Registration Statement.

         SECTION 10. INDEMNIFICATION. (a) The Company will indemnify, to the
extent permitted by law, the Purchaser and each director, officer or controlling
person of the Purchaser within the meaning of Section 15 of the Securities Act
against all losses, claims, damages, liabilities and expenses, (or action in
respect thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on (i) any untrue
statement or alleged untrue statement of a material fact contained in, or
information incorporated by reference into, any registration statement or
prospectus (or any amendment or supplement thereto) or any preliminary
prospectus prepared in connection with the registration contemplated by Section
9, (ii) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, (iii) any failure by the Company to fulfill and perform any
agreement, covenant or undertaking herein, or (iv) any failure or breach of the
representations and warranties of the Company set forth in Section 6 to be
accurate as of the date hereof and as of the Closing Date, and will promptly
reimburse the Purchaser and each director, officer or controlling person of the
Purchaser for reasonable legal and other expenses incurred in connection with
investigating or defending any claim, loss, damage, liability or action as
incurred; provided however, that the Company will not be liable in any such case
to the extent that any such loss, claim, damage, liability or action arises
directly out of or is based upon an untrue statement or alleged untrue statement
or by any omission or alleged omission made in such registration statement or
prospectus made in reliance upon and in conformity with written information
furnished by the Purchaser specifically for use in the preparation of the
registration statement or prospectus, provided further, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises directly out of or is based primarily
upon an untrue statement or omission made in any preliminary prospectus or final
prospectus if (i) the Purchaser failed to send or deliver a copy of the final
prospectus or prospectus supplement as provided in Section 9.6(c), and (ii) the
final prospectus or prospectus supplement would have corrected such untrue
statement or omission. The indemnification obligation of the Company with
respect to clause (iv) above, will survive for a period ending on the second
anniversary of the Closing Date, unless a claim for indemnification (whether or
not fixed as to liability or liquidated as to amount) is made with respect
hereto prior to the end of such period, in which case the right to
indemnification shall survive until such claim is satisfied, settled or
dismissed.

         (b)  In connection with the Registration Statement, the Purchaser will
furnish to the Company in writing the information as is reasonably requested by
the Company for use in the Registration Statement or prospectus and will
indemnify, to the extent permitted by law, the Company, its directors and
officers and each person or entity, if any, who controls the Company within the
meaning of Section 15 of the Securities Act, against any losses, claims,
damages, liabilities and expenses resulting from any untrue statement or alleged
untrue statement of a material fact or any omission or alleged omission of a
material fact required to be stated in the Registration Statement or prospectus
or any amendment thereof or supplement thereto or necessary to make the
statements therein not misleading, but only to the extent the losses, claims,
damages, liabilities or expenses are caused by an untrue statement or alleged
untrue statement or by an omission or alleged omission made in reliance upon and
in conformity with the written information specifically furnished by the
Purchaser to the Company for use in connection with the preparation of the
Registration Statement or prospectus; provided however, that the indemnity will
not apply to the extent that the loss, claim, damage, liability or expense
arises out of or is based upon a violation of this Agreement by the Company. If
the offering pursuant to any registration is made through

                                      -15-
<PAGE>
underwriters, the Purchaser agrees to enter into an underwriting agreement in
customary form with the underwriters and to indemnify the underwriters, their
officers and directors, if any, and each person or entity who controls the
underwriters within the meaning of the Securities Act to the same extent as
hereinabove provided with respect to indemnification by the Purchaser.
Notwithstanding the foregoing or any other provision of this Agreement, in no
event will the Purchaser liable for any losses, claims, damages, liabilities or
expenses in excess of the net proceeds received by the Purchaser upon the
disposition of Registrable Securities pursuant to the registration statement
giving rise to such claim.

         (c)  Promptly after receipt by an indemnified party under Section 10(a)
or (b) of notice of any claim as to which indemnity may be sought, including the
commencement of any action or proceeding, the indemnified party will, if a claim
in respect thereof may be made against the indemnifying party under this
Section, promptly notify the indemnifying party in writing of the commencement
thereof; provided that the failure of the indemnified party to so notify the
indemnifying party will not relieve the indemnifying party from its obligations
under this Section except to the extent that the indemnifying party is adversely
affected by the failure. In case any action or proceeding is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party and its counsel will conduct the defense of any
action although the indemnified party will be entitled to participate therein at
the indemnified party's expense, and after notice from the indemnifying party to
the indemnified party of its election to so assume the defense thereof, the
indemnifying party will not be liable to the indemnified party under that
Section for any legal or any other expenses subsequently incurred by the
indemnified party in connection with the defense thereof (other than reasonable
costs of investigation) unless incurred at the written request of the
indemnifying party. Notwithstanding the above, the indemnified party will have
the right to employ counsel of its own choice in any action or proceeding (and
be reimbursed by the indemnifying party for the reasonable fees and expenses of
the counsel and other reasonable costs of the defense) if representation of the
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests or conflicts
between the indemnified party and any other party represented by the counsel in
the action or proceeding; provided, however, that the indemnifying party will
not in connection with any one action or proceeding or separate but
substantially similar actions or proceedings arising out of the same general
allegations, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys at any time for all indemnified parties, except to
the extent that local counsel, in addition to regular counsel, is required in
order to effectively defend against the action or proceeding. An indemnifying
party will not be liable to any indemnified party for any settlement or entry of
judgment concerning any action or proceeding effected without the consent of the
indemnifying party.

         (d)  If the indemnification provided for in Section 10(a) or (b) is
held by a court of competent jurisdiction to be unavailable under applicable law
to an indemnified party in respect of any losses, claims, damages or liabilities
referred to therein, then each applicable indemnifying party, in lieu of
indemnifying the indemnified party, will contribute to the amount paid or
payable by the indemnified party as a result of the losses, claims, damages or
liabilities in the proportion as is appropriate to reflect the relative fault of
the Company on the one hand and of the indemnified party on the other in
connection with the statements or omissions which resulted in the losses,
claims, damages, or liabilities, as well as any other relevant equitable
considerations including the relative benefits to the parties. The relative
fault of the Company on the one hand and of the indemnified party on the other
will be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a material
fact relates to information supplied by the Company or by the indemnified party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the statement or omission. The Company and the
Purchaser agree that it would not be just and equitable if contribution pursuant
to this subsection (d) were determined by pro rata allocation or by any other
method of allocation which does not take into account the equitable
considerations referred to

                                      -16-
<PAGE>
above in this subsection (d). The amount paid or payable by a party as a result
of the losses, claims, damages and liabilities referred to above will be deemed
to include, subject to the limitations set forth in Section 10(c), any legal or
other fees or expenses reasonably incurred by the party in connection with
investigating or defending any action or claim. Notwithstanding the provisions
of this subsection (d), Purchaser shall not be required to contribute any amount
in excess of the amount by which the net proceeds received by the Purchaser from
the sale of the Shares to which such loss relates exceeds the amount of any
damages which such Purchaser has otherwise been required to pay by reason of
such untrue statement. No person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity that is not guilty of
fraudulent misrepresentation.

         SECTION 11. MISCELLANEOUS.

         11.1 NOTICES. Any notice or other communication given hereunder will be
deemed sufficient if in writing and sent by registered or certified mail, return
receipt requested, or delivered by hand against written receipt therefor, or
sent by confirmed facsimile, addressed to:

              If to the Company:

                        Penford Corporation
                        7094 South Revere Pkwy
                        Englewood, CO 80112-3932
                        Attention:  Steven Cordier, Chief Financial Officer
                        Facsimile:  (303) 649-1700

              With a copy to:

                        Preston Gates & Ellis LLP
                        925 Fourth Avenue, Suite 2900
                        Seattle, WA 98104-1158
                        Attention:      Richard B. Dodd
                        Telephone No.:  (206) 623-7580
                        Facsimile No.:  (206) 623-7022

              If to Purchaser:

                        To the name and address or facsimile number of the
                        Purchaser on the signature page hereto.

         Notices will be deemed to have been given or delivered on the date of
mailing, except notices of change of address, which will be deemed to have been
given or delivered when received.

         11.2 SUCCESSORS AND ASSIGNS. Subject to Section 9.6(d), this Agreement
will be binding upon and inure to the benefit of the parties hereto and to their
respective heirs, legal representatives, successors and assigns.

         11.3 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding among the parties as to the subject matter hereof and merges
and supersedes all prior discussions,

                                      -17-
<PAGE>
agreements and understandings of any and every nature among them. Subject to
Section 9.6(e), this Agreement may be amended only by the written agreement of
the Company and Purchaser.

         11.4 GOVERNING LAW. The terms and provisions hereof will be construed
in accordance with and governed by the laws of the State of Washington without
regard to that State's conflicts of law principles.

         11.5 SEVERABILITY. If a court of competent jurisdiction holds any
provision of this Agreement invalid or unenforceable, such holding will not
affect any other provision of this Agreement and this Agreement will remain in
full force and effect. If a court of competent jurisdiction declares any
provision of this Agreement to be invalid, illegal or incapable of being
enforced in whole or in part, the provision will be interpreted so as to remain
enforceable to the maximum extent permissible consistent with applicable law and
the remaining conditions and provisions or portions thereof will nevertheless
remain in full force and effect and enforceable to the extent they are valid,
legal and enforceable, and no provisions will be deemed dependent upon any other
covenant or provision unless so expressed herein.

         11.6 NO WAIVER. A waiver by either party of a breach of any provision
of this Agreement will not operate, or be construed, as a waiver of any
subsequent breach by that same party.

         11.7 FURTHER ASSURANCES. The parties agree to execute and deliver all
further documents, agreements and instruments and take further action as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.
Any documentary, stamp tax or similar issuance or transfer taxes due as a result
of the conveyance, transfer or sale of the Shares between the Purchaser (or any
of its permitted transferees), on the one hand, and the Company, on the other
hand, pursuant to this Agreement will be borne by the Company.

         11.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which will
together constitute the same instrument.

         11.9 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement creates in
any person not a party to this Agreement any legal or equitable right, remedy or
claim under this Agreement, and this Agreement is for the exclusive benefit of
the parties hereto. The parties expressly recognize that this Agreement is not
intended to create a partnership, joint venture or other similar arrangement
between any of the parties or their respective affiliates.

         11.10 PUBLICITY RESTRICTIONS. No press release or other public
disclosure relating to the transactions contemplated by this Agreement may be
issued or made by or on behalf of any party without prior consultation with the
other parties, except as required by applicable law, court process or Nasdaq or
other stock exchange rules, in which case the Purchaser required to make the
disclosure will allow the Company reasonable time (to the extent practicable) to
comment thereon in advance of the issuance. The Company may issue an initial
press release relating to the transactions contemplated by this Agreement, but
shall not identify Purchaser in such press release without the consent of
Purchaser.

                                      -18-
<PAGE>
                 SIGNATURE PAGE - SECURITIES PURCHASE AGREEMENT

         IN WITNESS WHEREOF, the undersigned have duly executed this Securities
Purchase Agreement as of the date first above written.

                                        PENFORD CORPORATION

                                        By: /s/ Steven O. Cordier
                                            ------------------------------------

                                        Name:   Steven O. Cordier
                                              ----------------------------------

                                        Title:  Vice President and Chief
                                                Financial Officer
                                               ---------------------------------

                                        T. ROWE PRICE SMALL-CAP VALUE FUND, INC.

                                        By: /s/ Preston G. Athey
                                            ------------------------------------

                                        Name:   Preston G. Athey
                                              ----------------------------------

                                        Title:  President
                                               ---------------------------------

                                        Number of Shares Purchased:  650,000

                                        Purchase Price:  $11.1126

                                        Purchaser's Address:

                                                T. Rowe Price Associates, Inc.
                                                100 East Pratt Street
                                                Baltimore, Maryland 21202

                                        Purchaser's Nominee's Tax Identification
                                        Number: 04-2956875

                                        Shares to be issued as follows:
                                                Oceanoar & Co.
                                                State Street Bank
                                                225 Franklin Street
                                                Main Concourse
                                                Boston, MA 02110
                                                Fund - T. Rowe Price Small Cap
                                                Value Fund

<PAGE>

                                                Fund #7032
                                                Attn: Anna Barnes

                                      -2-
<PAGE>
                                                                      EXHIBIT A

                                WIRE INSTRUCTIONS

Wire Instructions:

Bank:        Bank of America
ABA#:        125000024
Account:     Penford Corporation
        Acct. No.

                                      A-1
<PAGE>
                                                                      EXHIBIT B

                  FORM OF OPINION OF PRESTON GATES & ELLIS LLP

                                 March 14, 2003

To the Purchaser listed on Exhibit A:

         Re:  Penford Corporation Shares of Common Stock

Ladies and Gentlemen:

         We have acted as counsel to Penford Corporation, a Washington
corporation (the "Company"), in connection with its offering, issuance and sale
of 650,000 shares (the "Shares") of the Company's common stock, par value $1.00
per share (the "Common Stock"). The Shares are being issued and sold on the date
hereof by the Company pursuant to a Securities Purchase Agreement dated as of
March 14, 2003 (the "Purchase Agreement"), among the Company and the purchaser
(the "Purchaser") named on Exhibit A. Capitalized terms used herein but not
otherwise defined have the meanings given those terms in the Purchase Agreement.

         We have examined certain documents delivered in connection with the
offering, sale and purchase of the Shares by the Purchaser, including the
Purchase Agreement. We have also examined originals or copies, certified or
otherwise identified to our satisfaction, of certificates of public officials
and corporate records, instruments and documents of or affecting the Company, as
well as certificates of officers or representatives of the Company. We have also
reviewed such questions of law and made such other inquiries, as we have deemed
necessary or appropriate for the purpose of rendering this opinion.

         In rendering our opinion, we have relied, as to matters of fact, upon
the representations and warranties of the Company and the Purchaser set forth in
the Purchase Agreement, and upon certificates of officers or representatives of
the Company and the stock transfer agent for the Common Stock and which we have
assumed to be correct without independent investigation or verification.
Additionally, we have assumed (i) the genuineness of all signatures other than
persons signing on behalf of the Company, (ii) the authenticity of all documents
submitted to us as originals and the conformity with the original documents of
all documents submitted to us as certified, conformed or photostatic copies,
(iii) the authority of all persons signing any document other than persons
signing on behalf of the Company, (iv) the enforceability of the Purchase
Agreement in accordance with its terms against the Purchaser, and (v) that all
future offers, sales and issuances that may be integrated pursuant to Rule 502
of the Securities Act with the offer, sale and issuance of the Shares meet all
of the terms and conditions of Regulation D of the Securities Act. We also call
your attention to the fact that we have not made any independent inquiries of
the Purchaser or the Company except as set forth in such documents, certificates
or other instruments or reviewed any agreements or other documents other than
Filed Agreements and those documents specifically referred to in the Purchase
Agreement.

         Based upon the foregoing, and subject to the limitations,
qualifications, assumptions and exceptions set forth herein, we are of opinion
that:

                                      C-1
<PAGE>
         1. The Company is a corporation duly incorporated and validly existing
under the laws of the State of Washington and has all requisite power and
authority to own its property and assets and conduct its business as it is
presently conducted.

         2. The Company is qualified to do business in the State of Washington
and is duly licensed or qualified to do business, and in good standing as a
foreign corporation in any other state of the United States where any statutory
fines, penalty or any corporate disability imposed for the failure to qualify
would materially and adversely affect the business, properties, assets,
conditions (financial or otherwise), prospects, operations or results of
operations of the Company.

         3. The Company has the corporate power and authority to execute,
deliver and perform the Purchase Agreement. The Company has taken all corporate
action necessary to authorize the execution, delivery and performance of the
Purchase Agreement.

         4. The Purchase Agreement has been duly and validly authorized,
executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as limited by bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium or other laws relating to creditors' rights
generally or by equitable principles (whether considered in an action at law or
in equity).

         5. The execution and delivery of the Purchase Agreement by the Company,
the issuance of the Shares and the consummation of the transactions contemplated
thereby by the Company do not violate any provision of the Articles of
Incorporation or Bylaws of the Company, do not constitute a default under the
provisions of any Filed Agreement, and do not violate or contravene (a) any
governmental statute, rule or regulation applicable to the Company, or (b) any
order, writ, judgment, injunction, decree, determination or award of which we
have actual knowledge and which has been entered against the Company and of
which the violation or contravention of which would materially and adversely
affect the business, properties, assets, conditions (financial or otherwise),
prospects, operations or results of operations of the Company. For purposes of
the foregoing opinion, "Filed Agreement" means any agreement to which the
Company is a party or by which it is bound that is included in the list of
exhibit included in the Form 10-K Annual Report for the fiscal year ended August
30, 2002 and in each other filing made by the Company with the SEC during its
current fiscal year.

         6. The Shares have been duly authorized and upon issuance and delivery
against payment therefor in accordance with the terms of the Purchase Agreement,
will be duly and validly issued, fully paid and non-assessable, and will not
have been issued in violation of or subject to any preemptive right in any
applicable statute or the Company's Articles of Incorporation, or, to the best
of our knowledge, any right of first refusal or other similar right of
shareholders.

         7. The offer, sale and issuance of the Shares, under existing law, (i)
constitute transactions exempt from the registration requirements of Section 5
of the Securities Act; and (ii) when issued, will constitute "covered
securities" as defined under Section 18 of the Securities Act and be exempt from
registration or qualification of securities transactions imposed by the state
securities or "Blue Sky" laws of Washington, Maryland and Colorado or
regulations thereunder. We express no opinion as to when or under what
circumstances the Shares may be re-offered or re-sold.

                                      C-2
<PAGE>
         8.  Based on written confirmation from the Company's stock transfer
agent for the Common Stock that the number of issued and outstanding shares of
Common Stock as of February 28, 2003, is 7,810,753 shares (without giving effect
to the Shares to be issued this day pursuant to the Purchase Agreement), the
Shares to be issued pursuant to the Purchase Agreement constitute less than 20%
of the presently issued and outstanding shares of Common Stock for purposes of
the shareholder approval requirement under the Nasdaq Marketplace Rules.

         9.  No stamp tax or other issuance or transfer taxes or duties are
payable by or on behalf of Purchaser in connection with the issuance by the
Company of the Shares for the account of the Purchaser.

         10. No notices, report or other filings are required to be made by the
Company with, or any consents, registrations, applications, approvals, permits,
licenses or authorizations required to be obtained by the Company from, any
court or governmental agency or other regulatory body or tribunal or similar
entity in connection with the consummation or performance by the Company of the
transactions contemplated by the Purchase Agreement, including any filings with
the Nasdaq Stock Market, Inc., other than (i) filings of Form D under the
Securities Act and applicable state blue sky laws, (ii) the Company's payment to
Nasdaq of the requisite quarterly fees for the Company's outstanding shares, and
(iii) the filing of the Registration Statement with the SEC and the declaration
of that Registration Statement effective by the SEC.

         11. To our knowledge, there is no action, proceeding or investigation
pending before any court or governmental agency or threatened against the
Company.

         For purposes of paragraph 4, we express no opinion on any provisions of
the Purchase Agreement relating to indemnification or waivers to the extent that
such indemnification or waivers may be held to be unenforceable because they are
in violation of public policy. The opinion expressed in paragraph 5 is qualified
by the further actions listed in clauses (i), (ii) and (iii) of paragraph 10.

         We are not expressing any opinion with respect to, any laws other than
the laws of the State of Washington and the Federal securities laws of the
United States of America. We assume no obligation to supplement this opinion if
any applicable laws change after the date hereof or if we become aware of any
facts that might change the opinions expressed herein after the date hereof.

         This opinion is being furnished pursuant to Section 3.1 of the Purchase
Agreement solely for the benefit of the Purchaser in connection with the
purchase and sale of the Shares at the Closing and may not be relied on by or
furnished to any other person, or used, circulated, quoted or otherwise referred
to for any other purpose, without our express prior written consent.

                                                  Very truly yours,

                                                  PRESTON GATES & ELLIS LLP

                                                  By
                                                        Richard B. Dodd

                                      C-3
<PAGE>
                                    EXHIBIT A

<Table>
<Caption>
PURCHASER NAME                                SHARES OF COMMON STOCK PURCHASED
--------------                                --------------------------------
<S>                                           <C>
T. ROWE PRICE SMALL-CAP VALUE FUND, INC.                   650,000
</Table>

                                      C-4
<PAGE>
                                                                      EXHIBIT C

                              PLAN OF DISTRIBUTION
                 [TO BE INCLUDED IN THE REGISTRATION STATEMENT.]

         We have registered the 650,000 shares of our common stock offered in
this prospectus on behalf of the selling shareholder. We will pay all expenses
of this registration, other than fees and expenses, if any, of counsel or other
advisors to the selling shareholder. The selling shareholder is responsible for
paying any commissions, discounts, or other brokerage fees incurred in
connection with their sale of any of the shares.

         The shares of common stock may be sold in one or more transactions at
fixed prices, at prevailing market prices at the time of sale, at prices related
to the prevailing market prices, at varying prices determined at the time of
sale, or at negotiated prices. These sales may be effected at various times in
one or more of the following transactions, or in other kinds of transactions:

            o  in the over-the-counter market;

            o  in private transactions and transactions otherwise than on these
               exchanges or systems or in the over-the-counter market;

            o  by pledge to secure debt and other obligations;

            o  through the writing of options, whether the options are listed on
               an options exchange or otherwise;

            o  in connection with the writing of non-traded and exchange-traded
               call options, in hedge transactions and in settlement of other
               transactions in standardized or over-the-counter options; or

            o  through a combination of any of the above transactions.

         The selling shareholder and its successors, including its transferees,
pledgees or donees or their successors, may sell the common stock directly to
purchasers or through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions from the
selling shareholder or the purchasers. These discounts, concessions or
commissions as to any particular underwriter, broker-dealer or agent may be in
excess of those customary in the types of transactions involved.

         Under the terms of the private placements, we have agreed to indemnify
the selling shareholder, and each director, officer or controlling person of the
selling shareholder within the meaning of Section 15 of the Securities Act of
1933 against all losses, claims, damages, liabilities and expenses, (or action
in respect thereof) including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on (i) any untrue
statement or alleged untrue statement of a material fact contained in, or
information incorporated by reference into, any registration statement or
prospectus (or any amendment or supplement thereto) or any preliminary
prospectus prepared in connection with the registration contemplated by the
Purchase Agreement, (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not

                                      C-5
<PAGE>
misleading, (iii) any failure by us to fulfill and perform any agreement,
covenant or undertaking pursuant to the Purchase Agreement, or (iv) any failure
or breach of our representations and warranties as set forth in the Purchase
Agreement.

         The selling shareholder also may resell all or a portion of the shares
in open market transactions in reliance on Rule 144 under the Securities Act of
1933, if they meet the criteria and conform to the requirements of that rule.

         The selling shareholder and any broker-dealers or agents that
participate with the selling shareholder in the sale of shares may be
"underwriters" within the meaning of the Securities Act of 1933. Any commissions
received by broker-dealers or agents on the sales and any profit on the resale
of shares purchased by broker-dealers or agents may be deemed to be underwriting
commissions or discounts under the Securities Act of 1933.

         Under the rules of the SEC, any person engaged in the distribution of
our common stock may not simultaneously buy, bid for or attempt to induce any
other person to buy or bid for our common stock in the open market for a period
of two business days prior to the beginning of the distribution. The rules and
regulations under the Securities Exchange Act of 1934 may also limit the timing
of purchases and sales of shares of our common stock by the selling shareholder.
We have notified the selling shareholder they should not begin any distribution
of common stock unless they have stopped purchasing and bidding for common stock
in the open market as provided in applicable securities regulations, including
Regulation M promulgated under the Securities Exchange Act of 1934.

         We have informed the selling shareholder that the anti-manipulation
provisions of Regulation M may apply to the sales of their shares. We have
advised the selling shareholder of the requirement for delivery of this
prospectus in connection with any sale of the common stock.

                                      * * *

                                      C-6
<PAGE>
                                   APPENDIX I

                               PENFORD CORPORATION

                         STOCK CERTIFICATE QUESTIONNAIRE

         Pursuant to Section 3 of the Agreement, please provide us with the
following information:

The exact name that your Shares are to be registered in (this is the name that
         will appear on your stock certificate(s)). You may use a nominee name
         if appropriate:

         ----------------------------------

1.       The relationship between the Purchaser of the Shares and the Registered
         shareholder listed in response to item 1 above:
                                                        ------------------------

2.       The mailing address of the Registered shareholder listed in response to
         item 1 above:

         ----------------------------------

         ----------------------------------

         ----------------------------------

         ----------------------------------

3.       The Social Security Number or Tax Identification Number of the
         Registered shareholder listed in response to item 1 above:

         ----------------------------------

                                      C-1
<PAGE>

                                   APPENDIX II

                               PENFORD CORPORATION

                      REGISTRATION STATEMENT QUESTIONNAIRE

         In connection with the preparation of the Registration Statement,
         please provide us with the following information:

         1.   Pursuant to the "Selling Shareholder" section of the Registration
              Statement, please state your or your organization's name exactly
              as it should appear in the Registration Statement:

              -------------------------------------------------------

         2.   Please provide the number of shares that you or your organization
              will own immediately after Closing, including those Shares
              purchased by you or your organization pursuant to this Purchase
              Agreement and those shares purchased by you or your organization
              through other transactions:

              --------------------------------------------------

         3.   Please indicate the number of Shares purchased that you wish to
              have "offered" pursuant to the Registration Statement:

              --------------------------------------------------

         4.   Have you or your organization had any position, office or other
              material relationship within the past three years with the Company
              or its affiliates?
              ____ Yes         _____ No

         If yes, please indicate the nature of any such relationships below:

         -------------------------------------------------------

         -------------------------------------------------------

         -------------------------------------------------------

         -------------------------------------------------------

         NOTE: you should not begin any distribution of Shares unless you have
stopped purchasing and bidding for Company's common stock in the open market as
provided in applicable securities regulations, including Regulation M
promulgated under the Securities Exchange Act of 1934.

         NOTE:  The following legend will be affixed to the Shares:

         "The shares represented by this certificate may not be offered, sold,
pledged, transferred or otherwise disposed of except in accordance with the
requirements of the Securities Act of 1933, as amended, and the other conditions
specified in that certain Securities Purchase Agreement dated as of

                                      A-2
<PAGE>
March 14, 2003, a copy of which Securities Purchase Agreement may be inspected
by the holder of this certificate at the offices of Penford Corporation, 7094
South Revere Pkwy, Englewood, CO 80112-3932, attention: Chief Financial Officer,
or Penford Corporation will furnish, without charge, a copy thereof to the
holder of this certificate upon written request therefor."

                                        3
<PAGE>
                                  APPENDIX III

                   PURCHASER'S CERTIFICATE OF SUBSEQUENT SALE

       The undersigned, an officer of, or other person duly authorized by

-------------------------------------------------------------------------------
              [fill in official name of individual or institution]

hereby certifies that he/she/it is the Purchaser of the shares evidenced by the
attached certificate, and as such, sold such shares on ________________, 200__
in accordance with Registration Statement number 333-________________, and
complied with the requirement of delivering a current prospectus in connection
with such sale.

PRINT OR TYPE:

Name of Purchaser (Individual or Institution):

-------------------------------------------------------------------------------

Name of Individual representing Purchaser (if an Institution)

-------------------------------------------------------------------------------

Title of Individual representing Purchaser (if an Institution):

-------------------------------------------------------------------------------

SIGNATURE:

Individual Purchaser or Individual representing Purchaser:

-------------------------------------------------------------------------------

                                       4exv10w9

 

Exhibit 10.9

THORNBURG MORTGAGE, INC.

AMENDED AND RESTATED

2002 LONG-TERM INCENTIVE PLAN

JANUARY 21, 2003

ARTICLE I

PURPOSES

     The purposes of the Plan are to enable the Company to provide competitive
long-term incentives that will help attract, retain, motivate and reward
directors, officers, key employees and consultants of the Company and its
subsidiaries as well as managing directors and key employees of the Manager and
to afford additional incentives to others to increase their efforts in
providing key services for the Company or the Manager.

ARTICLE II

DEFINITIONS

     2.1 Act: shall mean the Securities Act of 1933, as amended, 15 U.S.C. §77a
et seq.

     2.2 Affiliate: shall mean, with respect to any person, any other person
controlled by, controlling or under common control with such person.

     2.3 Agreement: shall mean an agreement that, at the determination of the
Committee, may be entered into between the Company and each Participant who
receives a Grant hereunder evidencing the terms and conditions of the Grant.

     2.4 Advisory Board: shall mean a committee composed of former directors and
executive officers of the Company who meet periodically to advise the Board and
the Manager on matters of policy, strategy and operations.

     2.5 Board: shall mean the Board of Directors of the Company.

     2.6 Cause: shall include, but not be limited to (a) conviction of, or
confession of guilt of, a felony, (b) the commission of a willful act that is
materially injurious to the Company, including but not limited to, theft,
fraud, or misrepresentation, (c) becoming employed by (whether as an employee
or independent contractor), or the owner of more than 5% of, a competitor of
the Company or the Manager, or (d) willful insubordination, refusal or
inability to perform duties in a competent manner. Cause, based on the
foregoing factors, shall be determined by the Committee in its sole discretion.

 

 

     2.7 Change in Control: shall have the meaning set forth in Section
6.6.

     2.8 Code: shall mean the Internal Revenue Code of 1986, as amended from
time to time.

     2.9 Committee: shall mean the Compensation Committee of the Company
appointed by the Board to administer the Plan, or, if no such committee has
been appointed, the Board. The Committee shall consist only of two or more
“outside directors” as defined in Section 1.162-27(e)(3) of the Treasury
Regulations who are “non-employee directors” as defined in Rule 16b-3(b) under
the Exchange Act.

     2.10 Common Stock: shall mean the common stock, par value of $0.01, of
the Company.

     2.11 Company: shall mean Thornburg Mortgage, Inc., a Maryland
corporation.

     2.12 DER: shall mean a dividend equivalent right consisting of the right to
receive, as specified in the applicable Agreement, either (i) cash or (ii)
PSRs, in an amount equal to the dividend distributions paid on a Share.

     2.13 Director: shall mean a member of the Board.

     2.14 DRP: shall mean the Dividend Reinvestment and Stock Purchase Plan of
the Company, or any successor program.

     2.15 Effective Date: shall mean September 29, 2002, the original
Effective Date of the Plan. All Grants shall be effective on the date awarded
by the Committee. Grants awarded under the Prior Plan shall not be subject to
the terms of the Plan and shall be awarded in accordance with the Prior Plan.

     2.16 Eligible Person: shall mean an officer, employee or director of the
Company or a Subsidiary, an officer, employee or managing director of the
Manager and such other persons expected to provide significant services to the
Company, the Manager or a Subsidiary and any other persons as are selected from
time to time by the Committee to participate in the Plan. An Eligible Person
includes a consultant, vendor, customer or other provider of significant
services to the Company, the Manager or a Subsidiary as designated by the
Committee in its discretion.

     2.17 Employee: shall mean an individual, including any officer, who is
employed (within the meaning of Code Section 3401 and the regulations
thereunder) by the Company, a Subsidiary, or the Manager.

     2.18 Exchange Act: shall mean the Securities Exchange Act of 1934, as
amended, 15 U.S.C. §78a et seq.

2

 

     2.19 Fair Market Value: shall mean (i) with respect to a Share, the closing
price of a Share on the New York Stock Exchange on the valuation date, and (ii)
with respect to a Notional Option, as determined through the Black-Scholes
method or any other method that is considered acceptable by the Company’s
independent accountants.

     2.20 Formula Grants: shall mean the award of PSRs (or other Grant) under
Section 3.2 and of DERs under Section 3.3 on a quarterly basis calculated
according to the number of shares of Common Stock or preferred stock sold by
the Company during the quarter just ended or at such other periods or intervals
as the Committee may determine. Formula Grants shall not be awarded based on
Shares sold under the dividend reinvestment or the non-waiver optional cash
purchase provisions of the DRP but shall be awarded based on Shares sold under
the waiver provisions of the optional cash purchase feature of the DRP.

     2.21 Grant: shall mean the issuance of PSRs, SARs and/or DERs to an
Eligible Person.

     2.22 Manager: shall mean Thornburg Mortgage Advisory Corporation, a
Delaware corporation.

     2.23 Minimum Combination of Years: shall mean a total of years of service to
the Company (including a minimum of nine years of service; ten years effective
on and after April 1, 2003) and age that equals 65.

     2.24 Notional Option: shall mean, for purposes of calculating the PSR Total,
the Formula Grants and the initial award under Section 3.4, a hypothetical
option to purchase a Share that shall be deemed to have a term of ten years and
an exercise price equal to the issue price of a Share on the date of the public
offering or private or direct placement, except that the exercise price of an
initial award granted pursuant to Section 3.4 shall equal the Fair Market Value
of a Share on the date of Grant of such award. The Fair Market Value of a
Notional Option shall be determined under the Black Scholes or other reasonable
method based on those hypothetical terms. If the offering or placement is for
preferred stock, the Notional Options shall be deemed to apply to Shares of
Common Stock. In making such calculation, the issue price of Shares sold in a
continuous offering shall be based on the weighted average of the gross sales
price of all Shares sold under such continuous offering during the month.

     2.25 Participant: shall mean an Eligible Person who is selected to
receive Grants under the Plan.

     2.26 Permanent Disability: shall mean a physical or mental disability or
infirmity that permanently prevents the performance of a Participant’s duties
as a director, officer or employee of the Company, the Manager or a Subsidiary.

     2.27 Plan: shall mean this Amended and Restated 2002 Long-Term Incentive
Plan, as the same may be further amended from time to time.

3

 

     2.28 Plan Year: shall mean the calendar year or such shorter period as
shall be determined by the Committee.

     2.29 Prior Plan: shall mean the Thornburg Mortgage, Inc. Amended and Restated
1992 Stock Option and Incentive Plan, as amended.

     2.30 PSR: shall mean a phantom stock right, consisting of (i) the
unfunded deferred obligation of the Company to pay the recipient of a PSR, upon
exercise, an amount of cash equal to the Fair Market Value of a Share at the
time of exercise, and (ii) the recipient’s right to receive distributions,
either in the form of cash or additional PSRs, in an amount equal to the value
of the cash dividends that are paid on a Share.

     2.31 PSR Total: shall mean that number of PSRs determined by dividing (a)
the Fair Market Value of that number of Notional Options equaling three percent
(3%) of the total number of shares sold by the Company in any public offering
or direct or private placement of Common Stock or preferred stock (including
Shares sold under the waiver provisions of the optional cash purchase feature
of the DRP) by (b) the Fair Market Value of a Share on such date. In the case
of a continuous offering, the PSR Total shall be calculated by accumulating the
Shares issued pursuant to the continuous offering in each month during a
calendar quarter and shall be awarded by the Committee after the end of such
calendar quarter.

     2.32 Retire or Retirement: shall mean the later to occur of (a) a
Participant’s voluntary or involuntary separation from service as a Director of
the Company or as a managing director of the Manager or (b) a Participant’s
voluntary or involuntary termination of service on the Advisory Board.

     2.33 SAR: shall mean a stock appreciation right, consisting of the
unfunded deferred obligation of the Company, to pay the recipient of the SAR,
upon exercise, an amount of cash equal to the excess, if any, of the Fair
Market Value of a Share over the stated amount of the SAR.

     2.34 Share: shall mean one (1) share of Common Stock, adjusted in
accordance with Article VI of the Plan (if applicable).

     2.35 Subsidiary: shall mean any corporation, partnership, or other entity
at least fifty percent (50%) of the economic interest in the equity of which is
owned by the Company or by another Subsidiary.

     2.36 Termination of Employment: shall mean the time when the employee-employer
relationship or directorship between the Participant and the Company, the
Manager or a Subsidiary is terminated for any reason, with or without Cause,
including but not limited to any termination by resignation, discharge, death
or retirement; provided, however, Termination of Employment shall not include a
termination where there is a simultaneous reemployment of the Participant by
the Company, the Manager or a Subsidiary or continued service on the Advisory
Board. The Committee, in its absolute discretion, shall determine the effect
of all matters and questions relating to Termination of Employment, including
but not

4

 

limited to the question of whether any Termination of Employment was for Cause
and all questions of whether particular leaves of absence constitute
Terminations of Employment.

ARTICLE III

ELIGIBILITY AND PARTICIPATION

     3.1 Participation in Plan by an Eligible Person. Subject to Section 3.6
for a member of the Advisory Board, any Eligible Person may participate in and
receive Grants under the Plan. The Committee shall have the authority to award
individual Grants to Eligible Persons from time to time in addition to the
Formula Grants prescribed in Sections 3.2 and 3.3 below.

     3.2 Formula Grants for PSRs: Formula Grants for PSRs shall be made to the
Eligible Persons specified in this Section 3.2 as follows:

	 	a)	 	Each non-employee Director and the Company’s
corporate secretary shall receive individual Grants in the
form of PSRs having the Fair Market Value of Notional Options
to purchase 0.2% of the total number of shares of Common Stock
and preferred stock sold by the Company in any public offering
or private or direct placement.
	 
	 	b)	 	Employees shall receive, in the aggregate, Grants
in the amount of the PSR Total which shall be allocated in
individual Grants by the Committee among employee Directors,
managing directors of the Manager and other Employees and
Eligible Persons who are selected by the Committee in its
discretion.
	 
	 	c)	 	The Committee shall have the discretion to change
the form of the Formula Grant awards under this Section 3.2 at
any time and award Grants in other forms of incentive awards,
but the Formula Grant provisions of Section 3.2 and 3.3 and
the initial award provisions of Section 3.4 may otherwise be
suspended, modified or terminated only upon the joint approval
of the Committee and the Board.

     3.3 Formula Grants for DERs. Formula Grants for DERs shall be made to the
applicable Eligible Persons at the same time as PSRs are granted pursuant to
this Article III at the rate of 0.75 DER multiplied by the number of Notional
Options used to determine the PSRs granted pursuant to this Article III.

     3.4 Initial Awards. Whenever an outside Director is initially appointed
to the Committee, such outside Director shall automatically be granted (i) PSRs
having the Fair Market Value of Notional Options to purchase 13,333 Shares and
(ii) DERs in accordance with the DER formula set forth in Section 3.3.

     3.5 Form of Payment. Unless the Participant elects before a dividend
distribution is declared to receive distributions on his or her PSRs or DERs in
the form of cash payments, the distributions will be payable in additional PSRs.

5

 

     3.6 Participation in Plan by members of the Advisory Board.

         3.6.1 Participation on Advisory Board. A former Director or a former
managing director of the Manager, the Company’s corporate secretary and such
other persons as may be designated from time to time by the Committee, will be
eligible to serve on the Advisory Board after reaching the Minimum Combination
of Years. While serving on the Advisory Board, he or she shall not be eligible
to receive new Grants; however, such Participant shall continue to receive the
benefits on existing vested and unvested Grants pursuant to subsection 3.6.2
below until such time as the Participant enters Retirement or otherwise
terminates service for the Company or the Manager.

         3.6.2 Level of Participation. While serving on the Advisory Board an
Eligible Person shall participate solely by receiving distributions, either in
cash or in PSRs, on his or her PSRs or DERs in an amount determined with
respect to each cash dividend distribution that is paid on a Share as follows:
A Minimum Combination of Years (totaling 65 years) qualifies for an 80%
participation, increasing by 4% for each year of combined service and age over
the Minimum Combination of Years to 100% participation for a Participant with a
combination of years of service and age equaling or exceeding 75.

ARTICLE IV

TERMS OF GRANTS

     4.1 Grants. Grants may be issued to Eligible Persons at such time or
times as shall be determined by the Committee. Each Grant granted to a
Participant shall be evidenced by an Agreement that shall specify the terms and
conditions consistent with the Plan as the Committee shall determine.
Consistent with the Company’s intention for the Committee to exercise the
greatest flexibility under Rule 16b-3 under the Exchange Act in awarding
Grants, the Committee shall have the power:

		
	 	     (a) To determine from time to time the Grants to be awarded
to Eligible Persons under the Plan and to prescribe the terms and
provisions (which need not be identical) of Grants awarded under
the Plan to such persons;

		
	 	     (b) To construe and interpret the Plan and Grants thereunder
and to establish, amend, and revoke rules and regulations for
administration of the Plan. In this connection, the Committee may
correct any defect or supply any omission, or reconcile any
inconsistency in the Plan, in any Agreement, or in any related
agreements, in the manner and to the extent it shall deem necessary
or expedient to make the Plan fully effective. All decisions and
determinations by the Committee in the exercise of this power shall
be final and binding upon the Company and the Participant;

6

 

		
	 	     (c) To amend any outstanding Grant, subject to Sections 4.7
and 8.2 hereof, and to accelerate or extend the vesting or
exercisability of any Grant and to waive conditions or restrictions
on any Grants, to the extent it shall deem appropriate; and

		
	 	     (d) Generally, to exercise such powers and to perform such
acts as are deemed necessary or expedient to promote the best
interests of the Company with respect to the Plan.

         4.1.1 In the event the Company determines that it is required to withhold
taxes as a result of the exercise of a Grant, as a condition to the exercise
thereof, an Employee may be required to make arrangements satisfactory to the
Company to enable it to satisfy such withholding requirements in accordance
with Article VII hereof.

     4.2 Term, Nontransferability and Vesting of Grants. Each Grant shall
state the time or times at which all or part thereof becomes exercisable,
subject to the following restrictions:

    4.2.1 No Grant shall be exercisable except by the recipient.

         4.2.2 No Grant shall be assignable or transferable, except pursuant to a
qualified domestic relations order as defined in Code Section 414(p) or, in the
event of the Participant’s death, by will or the laws of descent and
distribution.

         4.2.3 Grants shall vest in accordance with the terms of the Agreements
pursuant to which they are made.

     4.3 Termination of Employment, Except by Death or Permanent Disability.
Upon any Termination of Employment for any reason other than his or her death
or Permanent Disability, a recipient of a Grant shall have the right to
exercise his or her Grant at any time within three (3) months after Termination
of Employment, but only to the extent that, at the date of Termination of
Employment, the recipient’s right to exercise such Grant had vested pursuant to
the terms of the applicable Agreement and had not previously been exercised;
provided, however, that if the recipient was terminated as an Employee or
removed as a member of the Board for Cause (as determined by the Committee) any
Grant not exercised in full prior to such termination shall be canceled; and
further provided that no DERs, SARs or PSRs shall vest for such Participant
after the date of his or her Termination of Employment and no additional
dividends or credits shall accrue with respect to DERs or PSRs after the
Termination of Employment of the Participant. For this purpose, the employment
relationship shall be treated as continuing intact while the recipient is on
military leave, sick leave or other bona fide leave of absence (to be
determined in the sole discretion of the Committee).

     4.4 Death of Recipient. If the recipient of a Grant dies while an
Eligible Person or within three (3) months after any Termination of Employment
other than for Cause, and has not fully exercised the Grant, then the Grant may
be exercised in full at any time

7

 

 within twelve (12) months after the recipient’s death, by the executors or
administrators of his or her estate or by any person or persons who have
acquired the Grant directly from the recipient by bequest or inheritance, but
only to the extent that, at the date of death, the recipient’s right to
exercise such Grant had vested and had not been forfeited pursuant to the terms
of the applicable Agreement and had not previously been exercised.

     4.5 Permanent Disability of Grant Recipient. Upon Termination of
Employment for reason of Permanent Disability, such Grant recipient shall have
the right to exercise the Grant at any time within twelve (12) months after
Termination of Employment, but only to the extent that, at the date of
Termination of Employment, the recipient’s right to exercise such Grant had
vested pursuant to the terms of the applicable Agreement and had not previously
been exercised.

     4.6 Rights as a Shareholder. The recipient of a Grant shall have no
rights as a shareholder.

     4.7 Modification, Extension and Renewal of Grant. Within the limitations
of the Plan, the Committee may modify, extend or renew outstanding Grants or
accept the cancellation of outstanding Grants (to the extent not previously
exercised) for the awarding of new Grants in substitution therefor. The
Committee may not modify, extend or renew any Grants awarded to any Participant
unless such modification, extension or renewal shall satisfy the requirements
of Rule 16b-3 under the Exchange Act. The foregoing notwithstanding, no
modification of Grant shall, without the consent of the Participant, alter or
impair any rights or obligations under any Grant previously awarded.

     4.8 Other Provisions. The Agreements authorized under the Plan may
contain such other provisions not inconsistent with the terms of the Plan
(including, without limitation, restrictions upon the exercise of the Grant) as
the Committee shall deem advisable.

     4.9 Grants to Committee Members. No Director who is a member of the
Committee may vote on or participate in the award, modification, extension or
renewal of a Grant to himself or herself, except that the Committee may
collectively approve the Formula Grants under Section 3.2(a).

     4.10 Term of Plan. Grants may be awarded pursuant to the Plan until the
expiration of ten (10) years from the effective date of the Plan.

ARTICLE V

ADMINISTRATION

     5.1 Membership on Committee. The Plan shall be administered by the
Committee which shall consist of two or more members of the Board, each of whom
shall qualify as a Non-Employee Director as defined in Rule 16b-3(b)(3)(i)
under the Exchange Act and as an outside director within the meaning of
Treasury Regulation Section 1.162-27(e)(3). The Board shall appoint one of the
members of the Committee as Chairman of the Committee.

8

 

     5.2 Committee Meetings. The Committee shall hold meetings at such times
and places as it may determine. Acts of a majority of the Committee, or acts
approved in writing by a majority of the members of the Committee, shall be the
valid acts of the Committee.

     5.3 Authority of the Committee. The Committee shall be responsible for
the administration of the Plan and shall have full authority to exercise its
duties and powers under the Plan in its sole discretion. Subject to the terms
of the Plan, the Committee is authorized to prescribe, amend and rescind rules
and regulations relating to the administration of the Plan, to provide for
conditions and assurances deemed necessary or advisable to protect the
interests of the Company and the Manager, and to make all other determinations
necessary or advisable for the administration and interpretation of the Plan or
to carry out its provisions and purposes.

     5.4 Delegation by the Committee. The Committee may delegate its
non-discretionary ministerial duties and responsibilities under the Plan by
appointment in writing, and has delegated such duties and responsibilities to
the Manager. The Committee may employ consultants, advisors and administrators
to render advice with regard to any of the duties or responsibilities of the
Committee under the Plan.

     5.5 Expenses. The Company shall be responsible for all of the expenses of
the Plan or the administration thereof.

     5.6 Reliance. Each member of the Committee and the Board shall be
entitled to rely upon all determinations, certificates and reports made by any
financial officer of the Company, or any actuary or independent public
accountant and upon all opinions of law given by any counsel selected by it
(who may be counsel to the Company or the Manager), and shall be fully
protected in respect of any act done or omitted to be done or any determination
made in good faith in reliance upon any such determination, certificate, report
or opinion. No member of the Committee or the Board shall be liable for any
act done or omitted to be done or determination made in the performance of its
duties under this Plan or for any act done or omitted to be done by any agent
or representative of such Committee so long as such person acted in good faith.

     5.7 Indemnification. Each person who is or shall have been a member of
the Committee, the Board, the Advisory Board or otherwise delegated any
administrative duties or responsibilities hereunder shall be indemnified and
held harmless by the Company to the fullest extent permitted by law from and
against any and all losses, costs, liabilities and expenses (including any
reasonable related attorneys’ fees and advances thereof) in connection with,
based upon or arising or resulting from any claim, action, suit or proceeding
to which such person may be made a party or in which such person may be
involved by reason of any action taken or failure to act under or in connection
with the Plan and from and against any and all amounts paid by such person in
settlement thereof, with the Company’s approval, or paid by such person in
satisfaction of any judgment in any such action, suit or proceeding against him
or her, provided, that such person shall give the Company an opportunity, at
its own expense, to defend the same before such person undertakes to defend it

9

 

 on his or her own behalf. The foregoing right of indemnification shall
not be exclusive and shall be independent of any other rights of
indemnification to which such persons may be entitled under the Company’s
Articles of Incorporation or By-laws, by contract, as a matter of law or
otherwise.

ARTICLE VI

RECAPITALIZATION AND CHANGES IN CONTROL

     6.1 Adjustment to Grants. Subject to any required action by shareholders,
and provided that all requirements of Rule 16b-3 under the Exchange Act are
satisfied, as applicable, the number of DERs, PSRs or SARs subject to a Grant
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a subdivision or consolidation of Shares or the
payment of a stock dividend (but only of Common Stock) or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company.

     6.2 Merger or Acquisition. Subject to any required action by shareholders,
if the Company is the surviving corporation in any merger or consolidation, the
rights under a Grant shall pertain and apply to the securities to which a
recipient of the Grant would have been entitled. In the event of a merger or
consolidation in which the Company is not the surviving corporation, the date
of vesting and exercisability of each outstanding Grant shall be accelerated to
a date prior to such merger or consolidation, unless the agreement of merger or
consolidation provides for the assumption of the Grant by the successor to the
Company. To the extent that the foregoing adjustments relate to securities of
the Company, such adjustments shall be made by the Committee, whose
determination shall be conclusive and binding on all persons.

     6.3 Certain Reorganizations Not Change In Control. Except as expressly
provided in this Article VI, the recipient of a Grant shall have no rights by
reason of subdivision or consolidation of shares of stock of any class, the
payment of any stock dividend or any other increase or decrease in the number
of shares of stock of any class or by reason of any dissolution, liquidation,
merger or consolidation or spin-off of assets or stock of the Company or any
other corporation, and any issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of PSRs, DERs or SARs subject to a Grant.

     6.4 Plan Not to Affect Company’s Right to Reorganization. Grants made
pursuant to the Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure, to merge or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business assets.

     6.5 Effect of Change of Control. Upon the occurrence of a Change of
Control as defined in this Article VI—

10

 

         6.5.1 Each outstanding Grant shall automatically become fully exercisable.

         6.5.2 All restrictions and conditions on each Grant shall automatically
lapse and all Grants under the Plan shall be deemed fully vested.

     6.6 Change of Control. Change of Control shall mean the occurrence of any
one of the following events:

         6.6.1 any “person,” as such term is used in Sections 13(d) and 14(d) of
the Act (other than the Company, any of its Affiliates or any trustee,
fiduciary or other person or entity holding securities under any employee
benefit plan or trust of the Company or any of its Affiliates) together with
all “affiliates” and “associates” (as such terms are defined in Rule 12b-2
under the Exchange Act) of such person, shall become the “beneficial owner” (as
such term is defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 20% or more of either (A)
the combined voting power of the Company’s then outstanding securities having
the right to vote in an election of the Board (“voting securities”) or (B) the
then outstanding Shares (in either such case other than as a result of an
acquisition of securities directly from the Company); or

         6.6.2 persons who, as of the effective date of the amendment and restatement of
the Plan, constitute the Board (the “Incumbent Directors”) cease for any
reason, including, without limitation, as a result of a tender offer, proxy
contest, merger or similar transaction, to constitute at least a majority of
the Board, provided that any person becoming a Director subsequent to the
Effective Date whose election or nomination for election was approved by a vote
of at least a majority of the Incumbent Directors shall, for purposes of this
Plan, be considered an Incumbent Director; or

         6.6.3 the shareholders of the Company shall approve or the Company shall
otherwise engage in (A) any consolidation or merger of the Company or any
Subsidiary where the shareholders of the Company immediately prior to the
consolidation or merger, would not, immediately after the consolidation or
merger, beneficially own (as such term is defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, shares representing in the aggregate 80%
or more of the voting securities of the corporation issuing cash or securities
in the consolidation or merger (or of its ultimate parent corporation, if any),
(B) any sale, lease, exchange or other transfer (in one transaction or a series
of transactions contemplated or arranged by any party as a single plan) of all
or substantially all of the assets of the Company or (C) any plan or proposal
for the liquidation or dissolution of the Company.

         6.6.4 Notwithstanding the foregoing, a “Change of Control” shall not be deemed
to have occurred for purposes of the foregoing Section 6.6.3 solely as the
result of an acquisition of securities by the Company which, by reducing the
number of Shares or other voting securities outstanding, increases (x) the
proportionate number of Shares beneficially owned by any person to 20% or more
of the Shares then outstanding or (y) the proportionate voting power
represented by the voting securities beneficially owned by any person to 20% or
more of the combined voting power of all then outstanding voting securities;
provided,

11

 

however, that if any person referred to in clause (x) or (y) of this sentence
shall thereafter become the beneficial owner of any additional Shares or other
voting securities (other than pursuant to a stock split, stock dividend, or
similar transaction), then a “Change of Control” shall be deemed to have
occurred for purposes of this Section 6.6.

ARTICLE VIII

TAX WITHHOLDING

     7.1 Each recipient of a Grant shall, no later than the date as of which
the value of any Grant first becomes includable in the gross income of the
recipient for federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Company regarding payment of any federal,
state or local taxes of any kind that are required by law to be withheld with
respect to such income.

     7.2 A recipient may elect to have such tax withholding satisfied, in whole
or in part, by (1) transferring to the Company Shares owned by the recipient
with a Fair Market Value equal to the amount of the required withholding tax,
or (2) in the case of a recipient who is an employee of the Company at the time
such withholding is effected, by withholding from the recipient’s cash
compensation.

     7.3 A recipient who is an employee of the Manager or another Affiliate of the
Company shall also reimburse his employer, if an Affiliate of the Company, for
the tax on any additional amount of compensation income deemed recognized by
such recipient’s employer from the Company, reduced by the amount of the
compensation deduction permitted such recipient’s employer as a result of such
employee’s receipt or exercise of the Grant.

ARTICLE VIII

GENERAL PROVISIONS

     8.1 Nontransferability of Grants. No Grant issued under the Plan may be
sold, transferred, pledged, assigned, encumbered or otherwise alienated or
hypothecated and any purported action to that effect shall be void.

     8.2 Amendment or Termination. The Plan may be amended, modified or
terminated by the Board including a majority of the non-employee Directors at
any time or from time to time, provided that no such amendment, modification or
termination shall, without the consent of the affected Participant, adversely
affect the vested rights of a Participant.

     8.3 Term of Plan. Following its approval by the Board, the Plan will
become effective as of the Effective Date. The Plan shall continue in effect,
unless sooner terminated pursuant to Section 8.2, until the tenth anniversary
of the Effective Date. The provisions of the Plan, however, shall continue
thereafter to govern all outstanding Grants theretofore made.

12

 

     8.4 Limitation on Participants’ Rights. The Plan shall not be construed
as creating any contract of employment or otherwise conferring upon any
Participant any legal right to continuation of employment, nor as limiting or
qualifying the right of the Company, a Subsidiary or the Manager to discharge
any Employee without regard to the effect that such discharge might have upon
such Employee’s rights under the Plan. Selection for participation in the Plan
shall not entitle any Participant to remain as a Director of the Company, as a
managing director of the Manager or an employee of the Company or a Subsidiary
or the Manager for any period or to receive or be eligible to receive any
subsequent or additional Grants.

     8.5 Facility of Payments. In the event that the Committee shall find that
any Participant to whom an amount is payable under the Plan is unable to care
for his or her affairs because of illness, accident or otherwise, the Committee
may direct that any payment due shall be paid to the duly appointed legal
representative of such person, or if there is no duly appointed legal
representative, to the Participant’s spouse or child of majority age, and any
such payments shall be in complete discharge of the liabilities of the Company
under the Plan.

     8.6 Beneficiary Designation. Each Participant under the Plan may from
time to time name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any cash amount payable under the Plan is
to be paid. Each designation shall revoke all prior designations by the same
Participant, shall be in a form prescribed by the Committee (which form may be
the form used generally for other benefit plan purposes) and shall be effective
only when filed by the Participant in writing with the Committee during his or
her lifetime. In the absence of any such designation, cash amounts payable
remaining unpaid or outstanding at the Participant’s death shall be paid to the
Participant’s surviving spouse, if any, or otherwise to his or her estate.

     8.7 No Limitation on Compensation. Nothing in the Plan shall be construed
as limiting the right of the Company, the Manager or any Subsidiary to
establish other plans or to pay compensation to employees in cash or property,
in a manner that is not expressly authorized under the Plan.

     8.8 Requirements of Law, Etc. The awarding of Grants and the satisfaction
thereof, including, but not limited to, the payment of cash to a Participant
shall be subject to all applicable laws, rules and regulations, and to such
approvals by any governmental agencies or national or foreign securities
exchanges as may be appropriate or required, as reasonably interpreted and
determined by the Committee.

     8.9 Notices. Each Participant shall be responsible for furnishing the
Committee with the current and proper address for the mailing of notices and
payment of cash. Any notices required or permitted to be given shall be deemed
given if directed to the person to whom addressed at such address, mailed by
regular United States mail, first-class, and prepaid. If any item mailed to
such address is returned as undeliverable to the addressee, mailing will be
suspended until the Participant furnishes the proper address.

13

 

     8.10 Severability of Provisions. If any provision of the Plan shall be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and the Plan shall be construed and
enforced as if such provision had not been included.

     8.11 Applicable Law. The Plan in all respects shall be construed and
interpreted in accordance with the laws of the State of New Mexico. Any
dispute arising under the Plan shall be resolved by binding arbitration before
the American Arbitration Association under its Commercial Arbitration Rules,
before a single arbitrator in Santa Fe County, New Mexico. The parties will
mutually determine the arbitrator from a list of arbitrators obtained from the
American Arbitration Association office located in Santa Fe County, New Mexico.
If the parties are unable to agree on the arbitrator, the arbitrator will be
selected by the American Arbitration Association with a preference for
selecting a retired federal district judge or state district court judge as the
arbitrator.

     8.12 Number and Gender. To the extent appropriate in the context, each
term used in the Plan in either the singular or the plural shall include the
singular and the plural, and pronouns stated in either the masculine, feminine
or neuter gender shall include the masculine, feminine and neuter.

     8.13 Headings and Captions. Headings and captions in the Plan are
inserted for convenience of reference only and the Plan is not to be construed
by the interpretation thereof.

This Plan, originally approved by the Board of Directors of Thornburg Mortgage,
Inc. on July 23, 2002, is hereby amended and restated in its entirety on
January 21, 2003.

14

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