<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended August 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to _______________________
Commission File Number 0-11488
PENFORD CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 91-1221360
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777-108th Avenue N.E., Suite 2390
Bellevue, Washington 98004-5193
(Address of principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(425) 462-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange of which registered
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $1.00 par value
Common Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(continued)
The aggregate market value of the Registrant's Common Stock held by
non-affiliates as of October 23, 1998 was approximately $116 million. The number
of shares of the Registrant's Common Stock (the Registrant's only outstanding
class of stock) outstanding (net of treasury stock) as of October 23, 1998 was
7,358,022.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement relating to the 1999 Annual Meeting
of Shareholders is incorporated by reference into Part III of this Form 10-K.
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PART I
ITEM 1: BUSINESS
GENERAL/DESCRIPTION OF BUSINESS
Penford Corporation ("Penford" or the "Company"), was incorporated in September
1983 and commenced operations on March 1, 1984. The Company's single business
segment is developing, manufacturing and marketing carbohydrate-based specialty
chemicals. The Company utilizes its expertise in carbohydrate chemistry to
develop functional starch products for value-added applications in several
industries including papermaking, food ingredients and specialty textiles.
Penford Products Co. ("Penford Products"), a subsidiary of Penford Corporation,
develops, manufactures and markets carbohydrate-based specialty chemical
starches for the papermaking and textiles industries. The history of Penford
Products can be traced to 1894. Starches produced by Penford Products are
designed to improve the strength, quality and runnability of coated and uncoated
paper. Penford Products' starches are principally ethylated (chemically modified
with ethylene oxide) and cationic (carrying a positive electrical charge)
starches. Ethylated starches are used in coatings and as binders, providing
strength and printability to fine white, magazine and catalog paper. Cationic
starches are generally used at the "wet-end" of the paper machine, providing
strong internal bonding of paper fibers. In addition, Penford Products' starch
copolymers, a patented combination of synthetic and natural carbohydrate
chemistry, are used in coating and binder applications in various segments of
the paper industry.
Penford Products also sells specialty starch products to the domestic textile
industry for warp sizing, which is a fiber bonding process for yarn and finished
fabric, and for fabric sizing, which provides body and stiffness to textiles.
Penford Products' corn-based ethylated and cationic starches and starch
copolymers are produced at its Cedar Rapids, Iowa facility. The Company's
potato-based cationic starches are produced at its Idaho Falls, Idaho facility.
Specialty chemical brand names of Penford Products for the paper industry
include, among others, Penford(R) Gums, Pensize(R) and the Apollo(R) starch
series.
Penford Food Ingredients Co. ("PFI") was established in 1991 as a division of
Penford Products to develop, manufacture and market specialty carbohydrate-based
ingredients to the food and confectionery industries. These ingredients include
food grade potato and tapioca starch products as well as dextrose-based products
including specialty dried corn syrup. PFI's modified starches are used in
coatings to provide crispness, improved taste and texture and increased product
life. Starch products are also used as moisture binders to reduce fat levels,
modify texture and improve color and consistency in a variety of food
applications. The Company's potato starch products are used as coatings for
french fries sold in quick-service restaurants. In addition, its products also
bind water in low-fat processed meats and improve the texture of soups, sauces
and gravies. PFI is the only North American producer of food grade potato and
tapioca starches.
PFI is headquartered in Englewood, Colorado and maintains manufacturing
facilities at Richland, Washington and Plover, Wisconsin for the food grade
potato and tapioca starches, and at Cedar Rapids, Iowa for the dextrose
products.
PFI's product brand names include PenBind(R), PenCling(TM), PenPlus(R) and
CanTab(R).
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During fiscal 1998 the Company approved a plan to effect a tax-free distribution
to its shareholders of its pharmaceuticals subsidiary, Penwest Pharmaceuticals
Co. ("PPCO"). The plan was designed to foster the growth potential of PPCO, and
separately, the Company's specialty paper chemical and food ingredients
businesses. The distribution was completed on August 31, 1998. As a result of
the plan, PPCO has been presented as a discontinued operation in the
accompanying financial statements. PPCO was a wholly-owned subsidiary of Penford
until August 31, 1998. PPCO is engaged in the research, development and
commercialization of novel controlled release drug delivery technologies and
manufactures and distributes excipients to the pharmaceutical and nutritional
industries. Excipients are the inactive ingredients in tablets and capsules that
enable the tableting of active drug ingredients by enhancing binding,
lubrication and disintegration properties.
RAW MATERIALS
Corn: The Penford Products corn wet milling plant is located in Cedar Rapids,
Iowa, the middle of the U.S. corn belt. Accordingly, the plant has truck and
rail delivered corn available throughout the year from a large number of corn
dealers and farmers at prices related to the major U.S. grain markets. The cost
of the corn to be purchased for fixed price business is generally hedged by
entering into futures contracts.
Potato Starch: The Idaho Falls, Idaho facility of Penford Products and the
Richland, Washington and Plover, Wisconsin facilities of Penford Food
Ingredients use by-products from potato processors that contain the starch used
as the primary raw material to manufacture modified potato starches for
papermaking and food applications. The Company enters contracts having durations
of one to three years with potato processors in North America, primarily in the
northwest and Midwest, to acquire its potato-based raw materials.
Chemicals: The principal chemical used in modifying starch is ethylene oxide, a
petrochemical derivative. Ethylene oxide is a commodity chemical, subject to
price fluctuations due to market conditions.
Corn, potato starch and chemicals are not presently subject to availability
constraints. The Company's current potato starch requirements constitute a
material portion of the available North American supply. In the long term,
continued growth in demand for potato starch and development by the Company and
others of new potato starch products, could result in capacity constraints. See
"Management's Discussion and Analysis, Forward-looking Statements."
Approximately half of total manufacturing costs are the costs of corn, potato
starch and chemicals. The remaining portion consists primarily of utility and
labor costs.
PATENTS, TRADEMARKS AND TRADENAMES
The Company owns a number of patents, trademarks, and tradenames. Its patents
expire between 2008 and 2015. There can be no assurance that these patents will
prevent other companies from developing similar or functionally equivalent
products or from successfully challenging the validity of these patents.
Further, there can be no assurance that the Company's processes or products will
not infringe the patents of third parties.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts cover a range of projects
including technical service work focused on specific customer support and
projects requiring coordination with customers' R&D to develop solutions to
specific customer issues. These projects are balanced with longer-term, new
product development and commercialization initiatives. There is also an emphasis
on polymer technology related to the Company's patented starch co-polymer
products, and the combination of those polymers with carbohydrate-based
products.
Company-sponsored research and development costs of $4,358,000, $4,178,000 and
$3,805,000 in fiscal 1998, 1997 and 1996, respectively, were charged to expense
as incurred.
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ENVIRONMENTAL MATTERS
The Company has adopted a Policy on Environmental Matters and has implemented a
comprehensive corporate-wide environmental management program. The program is
managed by the Corporate Director of Environmental, Health and Safety and has as
its goal to provide for the conduct of the Company's business in a safe and
fiscally responsible manner that protects and preserves the health and safety of
Company employees, the communities surrounding the Company's plants, and the
environment. The Company continues to monitor environmental legislation and
regulations which may affect its operations.
PRINCIPAL CUSTOMERS
The Company sells to approximately ninety major customers. Two customers,
Georgia Pacific and Mead Paper, accounted for approximately 16% and 10%,
respectively, of total sales in fiscal 1998, with the same two customers
accounting for approximately 17% and 12% of sales in fiscal 1997. One customer
represented approximately 14% of sales in fiscal 1996.
COMPETITION
The Company competes with approximately five other companies that manufacture
specialty starches for the papermaking industry, none of which is dominant in
the ethylated starch business. Although Penford Products is one of the smaller
industrial starch producers, it is one of the major producers of specialty
ethylated starches. Application expertise, quality, service and price are the
major competitive factors for Penford Products.
PFI competes with approximately five other companies that manufacture specialty
food ingredients, all of whom have larger market shares. Competitors in the
french fry coating market generally use potato starches imported from Europe.
Competitors for other applications market products based on starches from corn
or other raw materials. Application expertise, quality, service and price are
the major competitive factors for PFI.
Some of the Company's competitors have significantly greater financial and
technical resources than the Company.
EMPLOYEES
At October 23, 1998, Penford and its subsidiaries had 398 employees. Penford's
specialty paper chemicals operations, food ingredients operations, and executive
office employed 341, 49 and 8 persons, respectively. Approximately 45% of the
employees are represented by unions. Management believes its employee relations
are good. The Company's collective bargaining agreement covering all of its
unionized employees was completed in July 1997 and expires in 2001.
METHODS OF DISTRIBUTION
Penford Products and Penford Food Ingredients sales are generated using a
combination of direct sales and distributor agreements.
Penford Products' customers may purchase products through fixed-price contracts
or formula-priced contracts for periods covering three months to five years or
on a spot basis. Approximately 60% of sales are under fixed price contracts, 30%
represents formula price business with the remainder consisting of spot sales.
Products are shipped in either a bulk or bagged format.
d) FOREIGN OPERATIONS AND EXPORT SALES:
Export sales have accounted for approximately 11% of the Company's total sales
in fiscal 1998 and less than 10% during fiscal 1997 and 1996.
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ITEM 2: PROPERTIES
The Company's offices, which are leased, are located at Suite 2390, 777-108th
Avenue N.E., Bellevue, Washington 98004-5193. The Registrant's mailing address
is, P.O. Box 1688, Bellevue, Washington 98009-1688. Other facilities as of
August 31, 1998 are as follows:
<TABLE>
<CAPTION>
Bldg. Area Land Area Owned/ Function of
(Sq. Ft.) (Acres) Leased Facility
--------- ------- ------ --------
<S> <C> <C> <C> <C>
Cedar Rapids, Iowa 707,000 29 Owned Manufacture
of corn starch
products
Englewood, Colorado 45,000 - Leased -- Expires Offices and
April 2000 research
laboratories
Idaho Falls, Idaho 31,000 6 Owned Manufacture of
industrial potato
starch products
Richland, Washington 16,000 3 Leased -- Expires Manufacture of
November 2014, food - grade potato
with renewal option and tapioca starch
products
Plover, Wisconsin 54,000 9 Owned Manufacture of
food - grade potato
starch products
</TABLE>
The corn wet milling operation in Cedar Rapids, Iowa has operating capacity,
measured in bushels ground, of approximately 72,000 bushels per day. The grind
operates continuously except for periodic maintenance.
Most major properties are owned. The Company believes that its production
facilities are well maintained and in good condition and that the capacities of
the plants are suitable and generally sufficient to meet current production
requirements. See "Management's Discussion and Analysis forward-looking
Statements." The Company is continually undertaking a process of expanding and
improving its property, plant and equipment.
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ITEM 3: LEGAL PROCEEDINGS
In November, 1997, the Company was notified by the Idaho Falls Police
Department that a nearby resident had complained about health problems
allegedly caused by starch emissions from the Company's Idaho Falls facility.
In December, 1997, a group of nearby residents filed a Notice of Intent to
Bring Suit with the Idaho Department of Environmental Quality and the U.S.
Environmental Protection Agency pursuant to the Clean Air Act, the Comprehensive
Environmental Response, the Compensation and Liability Act, and the Emergency
Planning and Community Right-to-Know Act. The law permits these residents to
initiate a suit to enforce compliance with these statutes beginning 60 days
after such a notice. To date, the residents have not commenced any such suit.
In January, 1998, the Idaho Department of Environmental Quality issued a notice
of violation alleging a number of violations of the Idaho air pollution control
statute and the Company's air quality permit limits. On July 24, 1998, the
Company settled this matter and agreed to pay a penalty of $50,400.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of shareholders during the fourth quarter of
fiscal 1998.
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EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Age Title
- ---- --- -----
<S> <C> <C> <C>
Jeffrey T. Cook 42 President and
Chief Executive Officer
of Registrant 1998 - current
Vice President-Finance and
Chief Financial Officer of
Registrant 1991 - 1998
Treasurer of Registrant 1988 - 1991
Victor W. Breed 38 Vice President-Finance and
Chief Financial Officer of
Registrant 1998 - current
Corporate Director of Finance of
Registrant 1997 - 1998
Senior Manager, Ernst & Young LLP 1982 - 1997
Robert G. Widmaier, Ph.D. 50 Vice President-Technical
Director and Chief Innovation
Officer of Registrant 1990 - current
Vice President-Technical
Director of Registrant 1988 -1990
Francis C. Rydzewski 48 Vice President of Registrant
and President and General
Manager, Penford Products Co.,
a wholly-owned subsidiary of
Registrant 1996 - current
Executive Vice President of
Operations, Penford Products Co.,
a wholly-owned subsidiary of
Registrant 1995 - 1996
Global Business Director,
Air Products 1972 - 1995
Gregory C. Horn 50 Vice President of Registrant
and President and General
Manager, Penford Food
Ingredients Co. 1995 - current
Vice President of Marketing,
Penford Products Co. 1993 - 1994
Vice President and General
Manager, Sarah Lee
Corporation 1992 - 1993
Vice President and General
Manager, Churchill
Industries 1990 - 1992
</TABLE>
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PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Penford common stock, $1.00 par value, trades on the Nasdaq National Market
under the symbol "PENX." On October 23, 1998, there were 1,061 shareholders of
record. The high and low closing prices of the Company's common stock during the
last two fiscal years are set forth below. The quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1997/1998
Quarter Ended November 30 $41.00 $32.38
Quarter Ended February 28 $40.63 $28.00
Quarter Ended May 31 $35.25 $30.88
Quarter Ended August 31 (1) $32.25 $23.50
1996/1997
Quarter Ended November 30 $20.00 $17.50
Quarter Ended February 28 $20.25 $17.00
Quarter Ended May 31 $20.00 $18.25
Quarter Ended August 31 $34.50 $18.75
</TABLE>
(1) The distribution to the Company's shareholders of all of the stock of PPCO
was completed, effective at the close of business August 31, 1998. The closing
price of the Company's common stock on August 31, 1998 was $26.50. From
September 1, 1998 through October 23, 1998, the high and low closing prices for
the Company's common stock were $15.75 and $10.88, respectively.
During each quarter in fiscal years 1998 and 1997, a $0.05 per share cash
dividend was declared. The Company anticipates that it will continue to pay such
quarterly dividends in the foreseeable future.
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ITEM 6: SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended August 31
------------------------------------------------------------------------------------
(Thousands of dollars except share and
per share data) 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Data:
Sales $ 163,045 $ 170,057 $ 168,018 $ 149,663 $ 136,259
Gross margin percentage 28.0% 25.2% 23.4% 26.5% 24.7%
Income from operations $ 18,229 (1) $ 17,469 $ 15,264 $ 16,619 $ 12,640
Income from continuing
operations $ 8,110 $ 8,934(2) $ 6,969 $ 8,269(3) $ 7,214
Earnings per common share from
continuing operations, diluted $ 1.08 $ 1.25 $ 0.99 $ 1.18 $ 1.01
Dividends declared per common share $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20
Weighted average common shares
and equivalents outstanding 7,530,640 7,131,725 7,007,340 7,018,970 7,110,953
Balance Sheet Data:
Net property, plant and equipment $ 107,049 $ 108,099 $ 100,463 $ 91,067 $ 81,583
Capital expenditures 10,768 18,349 19,447 18,659 10,620
Total debt 73,896 67,746 66,763 62,898 46,997
Shareholders' equity 53,995 89,101 78,572 72,476 67,527
Total assets 183,208 213,508 200,317 184,261 136,128
</TABLE>
Note: All data except share and per share data has been restated to reflect
the distribution of 100% of the common stock of Penwest Pharmaceuticals
Co. (PPCO) to the shareholders of Penford Corporation which was
completed on August 31, 1998.
(1) Includes a pretax charge of approximately $1.9 million ($1.3 million after-
tax, or $0.17 per share) related to restructure costs recorded in
connection with the spin-off of PPCO.
(2) Includes a pretax gain of approximately $1.2 million ($800,000 after-tax,
or $0.11 per share) related to the sale of Southern California air
emission credits.
(3) Includes a pretax gain of approximately $899,000 ($580,000 after-tax, or
$0.08 per share) related to the sale of assets of Pacific Cogeneration,
Inc.
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Spin-off of Penwest Pharmaceuticals Co.
On May 19, 1998, Penford announced a plan to effect a tax-free distribution to
its shareholders of all of the stock of the Company's pharmaceuticals
subsidiary, Penwest Pharmaceuticals Co. ("PPCO"). The distribution, which was
completed August 31, 1998 represented the culmination of a plan announced last
year to foster the growth potential of the Company's specialty paper chemical
and food ingredients businesses, and separately, the pharmaceuticals business.
The original plan, announced in October 1997, called for PPCO to complete an
initial public offering ("IPO"), followed by a tax-free distribution of the
Company's shares of PPCO. PPCO's IPO was postponed in December of 1997 due to
market conditions for new issues in general, as well as for health care and
technology stocks in particular. Subsequently, the Company concluded that the
objective of enhancing shareholder value could best be achieved through a
tax-free distribution of PPCO to Penford Corporation shareholders, rather than
wait for improvement in the initial public offering market. The spin-off
required that a bank line of credit of $15 million be obtained by PPCO and
guaranteed by Penford Corporation. On September 1, 1998 shares of PPCO began
trading on the Nasdaq National Market under the symbol "PPCO."
As a result of the plan, Penford Corporation has reported PPCO as a discontinued
operation in the accompanying financial statements. One time charges totaling
$5.6 million ($3.6 million after-tax) were included as a component of
discontinued operations reflecting the costs of separating the two businesses
including direct costs such as professional fees, investment banking fees and
other costs of establishing PPCO as a separate public company of approximately
$3.3 million and operating losses of $2.3 million from May 31, 1998 to the
distribution date, August 31, 1998. The PPCO loss from operations through May
31, 1998 of $7.9 million ($5.1 million after-tax) includes the write-off of
certain costs incurred in connection with the previously planned IPO of
approximately $1.7 million.
In addition, the Company incurred restructuring costs of $1.9 million charged to
continuing operations consisting primarily of estimated costs associated with
implementing the spin-off, severance costs and facilities charges incurred in
connection with the downsizing of the corporate headquarters. The Company
continues to believe the estimate is reasonable and expects the majority of
related obligations remaining at August 31, 1998 of $1.8 million will be settled
in the first half of fiscal 1999.
The financial results discussed below are comprised of the Company's continuing
operations in the carbohydrate-based specialty paper chemical and food
ingredients businesses.
Results of Operations
Fiscal 1998 vs. Fiscal 1997
Sales decreased $7.0 million or 4.1% in fiscal 1998. The decrease is primarily a
result of lower corn prices in 1998. Corn is a key component in Penford
Products' paper chemicals and changes in corn costs are generally passed through
to customers. Corn prices trended lower throughout fiscal 1998. Sales were
affected late in the fiscal year by worldwide economic conditions which have had
an adverse affect on the operations of Penford Products' customers in the
papermaking industry.
Volumes at Penford Products increased nominally in fiscal 1998. Growth
opportunities were limited, particularly in the second half of fiscal 1998, as
the Company's North American paper customers were negatively impacted by the
Asian economic crisis and uncertainties in the global economy.
The Company's customers in the North American paper industry are experiencing
significant competition from imports as demand for paper in Asia and other
foreign markets has decreased. Adverse developments in the paper industry could
negatively affect the business of Penford Products.
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Shipments of food grade starch volumes at Penford Food Ingredients ("PFI")
increased by 32.5% in 1998. The increase was primarily the result of the
continued expansion of markets for coating products, and the introduction of a
line of products for processed meat applications.
On a consolidated basis, gross margin was 28.0% in 1998 compared to 25.2% in
1997. The increase reflects an emphasis on cost controls and lower raw material
costs at both Penford Products and PFI, increased manufacturing efficiency
associated with higher volumes at PFI, and the impact of Company-wide process
improvements implemented during the year.
Excluding restructuring costs, operating expenses increased $100,000 or less
than 1.0% in 1998. General and administrative cost reductions, primarily a
result of lower corporate office expenses in the second half of the year, were
offset by higher research and development costs of $200,000, or 4.3%, mainly due
to new product development expenditures at Penford Products.
Restructure costs of $1.9 million were recorded in the third quarter of fiscal
1998, in conjunction with the spin-off of PPCO. See "Spin-off of Penwest
Pharmaceuticals Co."
Interest expense increased $471,000, or 8.8%, due to higher outstanding debt
balances and lower capitalized interest in the current year.
As a result, income from continuing operations before income taxes, excluding
the restructuring charge, increased $982,000, or 7.3%, in 1998. After the
restructuring charge, income from continuing operations before income taxes
declined $949,000, or 7.1%.
The effective tax rate in 1998 was 35.0%, compared to 33.4% in 1997 when the
Company benefited from tax credits. The effective tax rate for fiscal 1999 is
expected to increase to approximately 36% primarily due to higher state income
taxes. See "Forward-looking Statements".
Loss from discontinued operations of $5.1 million, net of tax, reflects the
operating losses of PPCO for the nine months ended May 31, 1998 including the
write-off of certain costs incurred in connection with the previously planned
initial public offering of PPCO. Operating losses at PPCO increased due to a
decrease in licensing fee income, higher general and administrative costs
associated with the hiring of additional employees required for the Company to
operate on a stand-alone basis after the spin-off, and higher research and
development expenses related to the development of TIMERx controlled release
formulations.
Loss on disposal, net of tax, of $3.6 million resulted from the decision to
spin-off the pharmaceuticals business to shareholders. These costs include
professional fees, investment banking fees, other costs of establishing PPCO as
a separate public entity, and operating losses of PPCO from May 31, 1998 through
the distribution date, August 31, 1998.
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Fiscal 1997 vs. Fiscal 1996
Sales increased $2.0 million or 1.2% in fiscal 1997. The increase reflects
higher volumes in each of the Company's divisions, partially offset by lower
prices for the Company's corn based products due to lower corn prices in 1997.
During 1997, corn prices generally trended down from the historical highs of
late fiscal 1996. During 1997, Penford Products increased shipments of
corn-based products by 6.0%, reflecting increased marketing efforts to certain
key customers. Penford Food Ingredients volume increased by 31.0% primarily as a
result of new customers for its french fry coating products.
Gross margin was 25.2% in 1997 compared to 23.4% in 1996. The increase reflects
higher volumes at Penford Products and Penford Food Ingredients, lower corn
costs and the impact of manufacturing efficiencies implemented during the year.
Operating expenses increased $1.3 million, or 5.3%. General and administrative
costs rose by $0.9 million primarily for company-wide information technology
support. Research and development expenses increased $371,000, or 9.7%,
primarily due to increased headcount at Penford Food Ingredients.
Other income of $1.2 million represents a gain on the sale of Southern
California air emission credits.
Interest expense increased $222,000, or 4.4%, primarily due to higher
outstanding debt balances.
The effective tax rate was 33.4% in fiscal 1997 compared to 33.2% in the prior
year. The effective rate is lower than the statutory rate primarily due to tax
credits and the effects of the Company's foreign sales corporation.
Liquidity and Capital Resources
As of August 31, 1998 the Company had working capital of $16.2 million. The
Company has an unsecured $75 million credit agreement under which $34.0 million
was outstanding at the end of fiscal 1998. The Company's borrowing agreements
contain financial covenants which require among other things, maintenance of
certain leverage and fixed charge coverage ratios and include limitations on
minimum net worth. The covenants presently limit the amount the Company could
borrow under its credit agreement. The Company also has $10 million of credit
lines that are used for overnight borrowings. These lines are utilized
throughout the year and there was $4.4 million outstanding at the end of fiscal
1998.
The Company had $34.3 million of Senior Notes outstanding at August 31, 1998.
The Company intends to refinance approximately $13 million of fiscal 1999
maturities under these Notes, through additional borrowings under the $75
million Credit Agreement. See "Forward-looking Statements."
The Company has guaranteed repayment of principal and interest and other
obligations under a $15 million revolving credit facility obtained by PPCO. The
Company's obligations under the guarantee are capped at $18 million and are
reduced by the amount of certain sales of securities by PPCO. The Company is not
liable for obligations of PPCO incurred after August 31, 2000. As of August 31,
1998 there were no amounts owed by PPCO under the facility.
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Operating cash flow from continuing operations was $21.6 million, $20.8 million
and $14.9 million in fiscal 1998, 1997 and 1996, respectively. The Company used
operating cash flow and debt to finance capital expenditures and expenses
relating to the distribution of PPCO in fiscal 1998.
Capital expenditures related to continuing operations were $10.8 million, $18.3
million and $19.4 million in 1998, 1997 and 1996 respectively. Capital expansion
has been funded from operating cash flows and borrowings under lines of credit.
Capital projects in 1998 were directed to increasing capacity, improving
operational efficiency, and upgrading and modernizing equipment at Penford
Products. In addition, the production capabilities of the Penford Food
Ingredients facility in Plover, Wisconsin were expanded.
The Company expects the amount of capital expenditures in fiscal 1999 will be
similar to fiscal 1998. Projects will be primarily directed to equipment
modernization, process improvements and the completion of projects started in
1998. The Company intends to fund capital expenditures primarily from operating
cash flows.
The Company began paying a quarterly cash dividend of $0.05 per share in 1992,
and has paid dividends each quarter since then. The Board of Directors reviews
the dividend policy on a periodic basis.
The Board of Directors has authorized a stock repurchase program for the
purchase of up to 500,000 shares of the outstanding common stock of the Company.
The Company did not repurchase any of its common stock during fiscal 1998.
Year 2000
The Company has undergone an assessment of its information systems for
compliance with the Year 2000 issue. The assessment and resulting remediation
efforts are addressing all facets of the Company including plant automation
software including embedded controllers and process control devices, materials
management, engineering, laboratory, business systems and general user software.
In connection with the Company's ongoing capital program, and as part of the
Year 2000 remediation, a series of technology related expenditures are planned,
many of which have been, or are currently being implemented. The Company
anticipates that internal Year 2000 compliance issues will be substantially
remediated in the first half of calendar 1999.
It is anticipated that total expenses for Year 2000 remediation efforts may
range from $500,000 to $700,000, approximately 50% of which had been expended as
of August 31, 1998. See "Forward-looking Statements."
The Company does not anticipate significant delays in finalizing internal Year
2000 remediation efforts. See "Forward-looking Statements." However, third
parties having a material relationship with the Company may be a potential risk
based on their Year 2000 preparedness, which is not within the Company's
control. The Company is in the process of identifying and evaluating the Year
2000 preparedness of critical customers, suppliers and service providers. This
review should be completed early in calendar 1999. Pending the results of that
review, the Company will, if necessary, consider alternatives to its planned
course of efforts.
Page 14
<PAGE> 15
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. As noted above, the Company has
not yet completed all necessary phases of the Year 2000 program. The failure to
correct a material Year 2000 problem could result in an interruption in, or a
failure of certain normal business activities. Such failures could adversely
affect the Company's results of operations, liquidity and financial condition.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also materially adversely affect the Company. Due to the
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of critical third-parties, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company.
The Company has contingency plans for certain critical applications and is
working on such plans for others. These contingency plans involve, among other
actions, manual workarounds, increasing inventories, and adjusting staffing
strategies.
Forward-looking Statements
This report contains forward-looking statements concerning the estimated capital
expenditures, long-term debt maturities, the price and availability of raw
materials, estimated expenses related to year 2000 issues and year 2000
preparedness, and the anticipated results of the Company. Certain
forward-looking statements are identified with a cross-reference to this
section. There are a variety of factors which could cause actual events or
results to differ materially from those projected in the forward-looking
statements, including without limitation, competition; the possibility of
interruption of business activities due to equipment problems, accidents,
strikes, weather or other factors; product development risk; changes in corn and
other raw material prices; changes in general economic conditions or
developments with respect to specific industries or customers affecting demand
for the Company's products; unanticipated costs, expenses or third party claims;
the risk that results may be effected by construction delays, cost overruns,
technical difficulties, nonperformance by contractors or changes in capital
improvement project requirements or specifications; the possibility of technical
difficulties or cost overruns in the Company's Year 2000 compliance program; or
other unforeseen developments in the industries in which the Company operates.
Accordingly, there can be no assurance that future activities or results will be
as anticipated.
Forward-looking statements are based on the estimates and opinions of management
on the date the statements are made. The Company assumes no obligation to update
any forward-looking statements if circumstances or management's estimates or
opinions should change.
Page 15
<PAGE> 16
ITEM 7A: MARKET RISK DISCLOSURES.
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
The market risk associated with the Company's market risk sensitive instruments
is the potential loss from adverse changes in interest rates and commodities
prices.
INTEREST
The fair market value of the Company's long-term debt is estimated using
discounted cash flow analysis based on the Company's current incremental
borrowing rates for similar types of borrowings. The fair value of the Company's
long-term debt was $76.3 million as of August 31, 1998, representing an excess
of approximately $2.4 million over the carrying value. The Company's market risk
has been calculated as the possible increase in fair value resulting from a
hypothetical one point change in interest rates. The market risk associated with
a one point change in interest rates is approximately $1.0 million. See
"Management's Discussion and Analysis, Forward-looking Statements."
COMMODITIES
The availability and price of corn, the Company's most significant raw material,
is subject to fluctuations due to unpredictable factors such as weather,
plantings, domestic and foreign governmental farm programs and policies, changes
in global demand and the worldwide production of corn. The Company generally
follows a policy of hedging corn purchases related to fixed price sales
contracts to reduce price risk caused by market fluctuations. The instruments
used are principally readily marketable exchange traded futures contracts, which
are designated as hedges. The changes in market value of such contracts have a
high correlation to changes in the price of corn. To obtain a proper matching of
revenue and expense, gains or losses arising from hedging transactions are
included in inventories as a cost of the raw material and reflected in earnings
when the related sale is made.
A sensitivity analysis has been prepared to estimate the Company's exposure to
market risk of its raw material position. The Company's net commodity position
consists primarily of inventories and purchase contracts and exchange traded
futures contracts which hedge fixed sales commitments. The fair value of the
position is based on quoted market prices. The Company has estimated its market
risk as the potential loss in fair value resulting from a hypothetical 10%
adverse change in such prices. As of August 31, 1998 the fair value of the
Company's net corn position was approximately $1.3 million. The market risk
associated with a 10% adverse change in corn prices is estimated at $130,000.
Actual results could differ from this analysis. See "Management's Discussion and
Analysis, Forward-looking Statements."
Page 16
<PAGE> 17
ITEM 8: PENFORD CORPORATION CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31
(Thousands of dollars) 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,200
Trade accounts receivable 20,957 $ 22,469
Inventories 16,152 14,276
Prepaid expenses and other 5,424 4,938
--------- ---------
Total current assets 45,733 41,683
Property, plant and equipment:
Land 4,735 4,138
Plant and equipment 189,685 182,506
Construction in progress 8,243 5,988
Less accumulated depreciation (95,614) (84,533)
--------- ---------
Net property, plant and equipment 107,049 108,099
Deferred income taxes 13,781 11,007
Restricted cash value of life insurance 11,371 12,691
Other assets 5,274 5,138
Net assets of discontinued operations 34,890
--------- ---------
$ 183,208 $ 213,508
========= =========
Liabilities and shareholders' equity
Current liabilities:
Bank overdraft, net $ 1,019
Accounts payable $ 8,509 8,131
Accrued liabilities 5,596 7,094
Current portion of long-term debt 13,697 5,955
Accrued liabilities, discontinued operations 1,761
--------- ---------
Total current liabilities 29,563 22,199
Long-term debt 60,199 61,791
Other postretirement benefits 10,383 10,143
Deferred income taxes 21,882 21,867
Other liabilities 7,186 8,407
Commitments and Contingencies
Shareholders' equity:
Common stock, par value $1.00 per share,
authorized 29,000,000 shares, issued 9,130,062
shares in 1998 and 9,093,251 in 1997, including
treasury shares 9,130 9,093
Additional paid-in capital 20,223 18,466
Retained earnings 54,644 93,854
Treasury stock, at cost, 1,773,560 shares in 1998
and 1,830,735 in 1997 (29,647) (30,604)
Note receivable from Savings
and Stock Ownership Plan (355) (639)
Cumulative translation adjustment (1,069)
--------- ---------
Total shareholders' equity 53,995 89,101
--------- ---------
$ 183,208 $ 213,508
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 17
<PAGE> 18
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended August 31
(Thousands of dollars except share and per share data) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 163,045 $ 170,057 $ 168,018
Cost of sales 117,405 127,225 128,676
----------- ----------- -----------
Gross margin 45,640 42,832 39,342
Operating expenses 25,480 25,363 24,078
Restructure costs 1,931
----------- ----------- -----------
Income from operations 18,229 17,469 15,264
Other income 1,200
Investment income 34 72 277
Interest expense (5,794) (5,323) (5,101)
----------- ----------- -----------
Income from continuing operations
before income taxes 12,469 13,418 10,440
Income taxes 4,359 4,484 3,471
----------- ----------- -----------
Income from continuing operations 8,110 8,934 6,969
Discontinued operations:
Loss from operations, net of applicable
income tax benefit of $2,771, $1,190 and $1,039 (5,137) (2,309) (1,917)
Loss on disposal, including operating losses
from May 31, 1998 through disposal date,
net of applicable income tax benefit
of $1,967 (3,605)
----------- ----------- -----------
Net income (loss) $ (632) $ 6,625 $ 5,052
=========== =========== ===========
Weighted average common shares and
equivalents outstanding 7,530,640 7,131,725 7,007,340
=========== =========== ===========
Earnings per common share from
continuing operations;
Basic $ 1.11 $ 1.28 $ 1.02
=========== =========== ===========
Diluted $ 1.08 $ 1.25 $ 0.99
=========== =========== ===========
Earnings (loss) per common share;
Basic $ (0.09) $ 0.95 $ 0.74
=========== =========== ===========
Diluted $ (0.08) $ 0.93 $ 0.72
=========== =========== ===========
Dividends declared per common share $ 0.20 $ 0.20 $ 0.20
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 18
<PAGE> 19
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended August 31
(Thousands of dollars) 1998 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Income from continuing operations $ 8,110 $ 8,934 $ 6,969
Adjustments to reconcile income from
continuing operations to net cash from
continuing operations
Depreciation 12,087 10,857 9,840
Deferred income taxes 1,075 (179) 1,174
Stock compensation expense related to non-
employee director stock options 219 246
Change in operating assets and liabilities
of continuing operations
Trade receivables 1,512 (448) (3,154)
Inventories (1,876) (663) (4,608)
Accounts payable, prepaids and other 484 2,054 4,689
-------- -------- --------
Net cash from continuing operations 21,611 20,801 14,910
Net cash used in discontinued operations (12,170) (5,898) (3,785)
-------- -------- --------
Net cash from operating activities 9,441 14,903 11,125
Investing activities:
Acquisitions of fixed assets, net (10,768) (18,349) (19,447)
Other 1,291 1,118 1,242
-------- -------- --------
Net cash used by investing activities (9,477) (17,231) (18,205)
Financing activities:
Proceeds from unsecured line of credit 87,867 87,875 60,847
Payments on unsecured line of credit (89,512) (87,765) (54,962)
Proceeds from long-term debt 39,000 5,000 15,250
Payments on long-term debt (31,205) (4,127) (17,270)
Exercise of stock options 721 3,671 876
Purchase of officers' life insurance (1,158) (1,158) (2,501)
Payment of dividends (1,458) (1,391) (1,017)
-------- -------- --------
Net cash from financing activities 4,255 2,105 1,223
-------- -------- --------
Net increase (decrease) in cash 4,219 (223) (5,857)
Cash (bank overdrafts) and cash
equivalents at beginning of year (1,019) (796) 5,061
-------- -------- --------
Cash (bank overdrafts) and cash
equivalents at end of year $ 3,200 $ (1,019) $ (796)
======== ======== ========
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 6,206 $ 5,924 $ 5,392
Income taxes $ 1,832 $ 1,273 $ 1,317
</TABLE>
The accompanying notes are an integral part of these statements.
Page 19
<PAGE> 20
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Note Receiv-
able from Total
Additional Savings & Cumulative Share-
Common Paid-In Retained Treasury Stock Translation holders'
(Thousands of dollars) Stock Capital Earnings Stock Ownership Plan Adjustment Equity
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, September 1, 1995 $ 8,591 $ 12,550 $ 84,949 $(30,637) $ (2,978) $ (493) $ 71,982
Net income 5,052 5,052
Exercise of stock options 86 790 876
Tax benefit of stock option
exercises 293 293
Savings and Stock Ownership
Plan activity 1,236 1,236
Translation gain 60 60
Dividends declared (1,361) (1,361)
-------- -------- -------- -------- -------- -------- --------
Balances, August 31, 1996 8,677 13,633 88,640 (30,637) (1,742) (433) 78,138
Net income 6,625 6,625
Exercise of stock options 416 3,255 3,671
Tax benefit of stock option
exercises 1,328 1,328
Stock compensation expense
related to non-employee
director stock options 246 246
Savings and Stock Ownership
Plan activity 4 33 1,103 1,140
Translation loss (636) (636)
Dividends declared (1,411) (1,411)
-------- -------- -------- -------- -------- -------- --------
Balances, August 31, 1997 9,093 18,466 93,854 (30,604) (639) (1,069) 89,101
Net loss (632) (632)
Spin-off of PPCO (37,115) 1,069 (36,046)
Exercise of stock options 37 684 721
Stock compensation expense
related to non-employee
director stock options 219 219
Savings and Stock Ownership
Plan activity 854 957 284 2,095
Dividends declared (1,463) (1,463)
-------- -------- -------- -------- -------- -------- --------
Balances, August 31, 1998 $ 9,130 $ 20,223 $ 54,644 $(29,647) $ (355) $ 0 $ 53,995
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 20
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Penford Corporation (Penford or the Company) is in the business of developing,
manufacturing and marketing carbohydrate-based specialty chemicals for the paper
making, food ingredients and specialty textile industries. Sales of the
Company's products are generated using a combination of direct sales and
distributor agreements.
Basis of Presentation
The consolidated financial statements include Penford and its wholly-owned
subsidiaries excluding Penwest Pharmaceuticals Co. (PPCO) which was spun-off to
shareholders on August 31, 1998 and is reflected as a discontinued operation in
the accompanying financial statements for all periods presented (See Note B).
Material intercompany balances and transactions have been eliminated. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Certain amounts in the financial statements for prior years have been
reclassified to conform with the current year presentation including the
reclassifications necessary to present PPCO as a discontinued operation. These
reclassifications had no effect on previously reported net income.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of less than
three months when purchased to be cash equivalents.
Cash equivalents consist of money market funds, short-term deposits, and
commercial paper. Amounts reported in the balance sheets represent cost which
approximates market value.
Penford's cash management system includes a cash overdraft feature for uncleared
checks in the disbursing accounts. Cash in the accompanying balance sheets
represents the net amounts available to the disbursing accounts. Uncleared
checks of $499,000 and $1,192,000 are netted against cash at August 31, 1998 and
1997, respectively.
Concentration of Credit Risk and Financial Instruments
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral. The Company maintains an allowance for doubtful
accounts which management believes is sufficient to cover potential credit
losses. The carrying value of financial instruments including cash, receivables,
and payables approximates market value at August 31, 1998. The fair market value
of long-term debt is approximately $76.3 million at August 31, 1998 with a
carrying value of $73.9 million. At August 31, 1997, the fair value of long-term
debt was approximately $69.9 million with a carrying value
Page 21
<PAGE> 22
of $67.7 million. The fair value of fixed rate, long-term debt is estimated
using discounted cash flow analyses based on the Company's current incremental
borrowing rates for similar types of borrowings.
Penford Products' two largest customers individually accounted for approximately
16% and 10% of sales in fiscal 1998, with the same two customers accounting for
approximately 17% and 12% of sales in fiscal 1997. One customer represented
approximately 14% of sales in fiscal 1996. Export sales accounted for
approximately 11% of total sales in fiscal 1998 and were less than 10% of total
sales in fiscal 1997 and 1996.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Expenditures for maintenance
and repairs are expensed as incurred. The Company uses the straight-line method
to compute depreciation assuming average useful lives of three to forty years
for financial reporting purposes. For income tax purposes, the Company generally
uses accelerated depreciation methods.
Interest is capitalized on major construction projects while in progress.
Interest of $39,000, $537,000 and $300,000 was capitalized in 1998, 1997 and
1996, respectively.
Income Taxes
The provision for income taxes includes federal and state taxes currently
payable and deferred income taxes arising from temporary differences between
financial and income tax reporting methods. Deferred taxes have been recorded
using the liability method in recognition of these temporary differences.
Revenue Recognition
Sales revenue is recorded upon shipment of product.
Research and Development
Research and development costs of $4,358,000, $4,178,000 and $3,805,000 in 1998,
1997 and 1996, respectively, were charged to expense as incurred.
Page 22
<PAGE> 23
Recent Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131, which is effective for years
beginning after December 15, 1997, establishes standards for the way that public
business enterprises report information about operating segments in published
financial reports. The Company will adopt the new requirements in fiscal 1999.
Management has not yet determined the financial statement impact of SFAS No.
131.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 1999. The Company
expects to adopt the new Statement effective September 1, 1999. The Statement
establishes standards for recognition and measurement of derivatives and
hedging activities and will require the Company to recognize all derivatives
on the balance sheet at fair value. The Company has not yet determined the
financial statement impact of SFAS No. 133.
Page 23
<PAGE> 24
NOTE B
DISCONTINUED OPERATIONS
On May 19, 1998 the Company announced a plan to effect a tax-free spin-off to
its shareholders of the Company's pharmaceuticals subsidiary, Penwest
Pharmaceuticals Co. (PPCO). The spin-off superceded a plan announced in 1997
which called for PPCO to complete an initial public offering, followed by a
tax-free spin-off. On August 31, 1998, Penford shareholders of record on August
10, 1998 received PPCO shares on a basis of three shares of PPCO for every two
shares of the Company. Prior to the spin-off, PPCO entered into a $15 million
revolving credit facility which has been guaranteed by the Company. As of August
31, 1998 there were no amounts owed by PPCO under the facility.
The consolidated financial statements of the Company have been restated to
reflect the divestiture of PPCO. Accordingly, the operating results, assets,
liabilities and cash flows of PPCO have been excluded from their respective
captions in the Consolidated Balance Sheets, Consolidated Statements of Income
and Consolidated Statements of Cash Flows. These items have been reported as Net
Assets of Discontinued Operations, Income from Discontinued Operations and Net
Cash Flows from Discontinued Operations for all periods presented. As of August
31, 1998, other current assets include a note receivable from the Chairman and
CEO of PPCO of $1.2 million, secured by real estate acquired in connection with
his relocation to PPCO.
Summarized financial information for the discontinued operations is set forth
below (Thousands of dollars):
<TABLE>
<CAPTION>
August 31,
------------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Sales $ 27,962 $ 26,577 $ 26,456
Pre-tax loss from operations (10,183) (3,499) (2,956)
Identifiable assets 42,762 38,583 35,316
</TABLE>
The Company recorded one-time charges totaling $5.6 million ($3.6 million after
tax) which are included as a component of discontinued operations. These charges
comprise the costs of separating the two businesses including direct costs such
as professional fees, investment banking fees and other costs of establishing
PPCO as a separate public entity which approximated $3.3 million and operating
losses of $2.3 million incurred from May 31, 1998, the measurement date through
the spin-off date. The PPCO loss from operations of $7.9 million ($5.1 million
after-tax) includes the write-off of certain costs incurred in connection with
the previously planned IPO of PPCO of approximately $1.7 million. As of August
31, 1998 Penford forgave all intercompany borrowings of PPCO and reflected the
distribution of PPCO stock to its shareholders as a reduction of consolidated
retained earnings of $36.0 million.
In addition, restructuring costs of $1.9 million were charged to continuing
operations reflecting other costs associated with implementing the spin-off
including adjustments to the corporate office infrastructure, severance costs
and other facilities charges. It is anticipated that related liabilities of $1.8
million as of August 31, 1998 will be settled in the first half of fiscal 1999.
Page 24
<PAGE> 25
NOTE C
INVENTORIES
Inventories are stated at the lower of cost or market. Cost, which includes
material, labor and manufacturing overhead costs, is determined by the first-in,
first-out (FIFO) method.
The Company generally follows a policy of hedging corn purchases related to
fixed price sales contracts and certain anticipated corn purchases to minimize
price risk due to market fluctuations. The instruments used are principally
readily marketable exchange traded futures contracts which are designated as
hedges. The changes in market value of such contracts have a high correlation to
the price changes of the hedged commodity. Also, the underlying commodity can be
delivered against such contracts. Gains or losses arising from open and closed
hedging transactions are included in inventory as a cost of raw materials and
reflected in the statement of income when the related product is sold.
Components of inventory are as follows:
<TABLE>
<CAPTION>
August 31 (Thousands of dollars) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials, supplies and other $ 7,161 $ 4,995
Work in progress 900 885
Finished goods 8,091 8,396
------- -------
Total inventories $16,152 $14,276
======= =======
</TABLE>
Page 25
<PAGE> 26
NOTE D
DEBT
<TABLE>
<CAPTION>
August 31 (Thousands of dollars) 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Unsecured credit agreement, matures in fiscal 2003, 6.38%
interest rate at August 31, 1998 $34,000 $20,250
Private placement, 8.43% interest rate, semiannual interest
payments, annual principal payments of $2,857, final
maturity in fiscal 2003 14,285 17,143
Private placement, 8.09% interest rate, semiannual interest-only
payments on $10 million principal with payment in fiscal 1999,
and 8.85% interest rate, semiannual interest-only payments on
$10 million principal with payment in fiscal 2007 20,000 20,000
Unsecured note, 9.40% interest rate, due in quarterly installments
through December 1999 1,260 2,100
Note payable, 7.01% interest rate, quarterly
principal and interest payments through October 1997 2,258
Lines of credit, average interest rate of 6.50% at August 31, 1998 4,351 5,995
------- -------
73,896 67,746
Less current portion 13,697 5,955
------- -------
Net long-term debt $60,199 $61,791
======= =======
</TABLE>
Maturities of long-term debt for the fiscal years ending August 31, 1999 through
2003, and thereafter, are as follows (thousands of dollars):
<TABLE>
<S> <C>
1999 $ 13,697
2000 3,277
2001 2,857
2002 2,857
2003 41,208
Thereafter 10,000
--------
$ 73,896
========
</TABLE>
On July 2, 1998, the Company completed an unsecured $75.0 million revolving
credit agreement with three banks which will expire on June 30, 2003. Borrowing
rates available to the Company under the agreement are based on LIBOR or prime
rate depending on the selection of borrowing options. The agreement replaced an
unsecured revolving credit agreement with four banks which at July 2, 1998, had
$25.3 million of borrowings outstanding.
The unsecured credit agreement, the private placements and other notes require,
among other provisions, that the Company maintain certain leverage and fixed
charge coverage ratios and include limitations on long-term indebtedness and
minimum net worth.
The Company has uncommitted lines of credit aggregating $10.0 million, which
provide for financing at various floating rates of which $4.4 million was
outstanding at August 31, 1998.
Page 26
<PAGE> 27
The Company enters into interest rate swap agreements to modify the interest
characteristics of its outstanding debt. These agreements involve the exchange
of interest payment streams without an exchange of the underlying principal
amount. Net amounts paid or received are reflected as adjustments to interest
expense. The fair values of the swap agreements are not recognized in the
financial statements. In the event of default by a counterparty, the risk in
these transactions is the cost of replacing the interest rate contract at
current market rates. Management continually monitors the credit ratings of its
counterparties, and believes the risk of incurring such losses is remote, and
that if incurred, such losses would be immaterial. At August 31, 1998,
approximately $25 million of the Company's outstanding debt was subject to
interest rate swap agreements. Of this amount, $15 million involves floating
rate to fixed rate swaps which effectively fix rates at approximately 9.0% and
$10 million involves fixed rate to floating rate swaps, with the floating rate
approximating 6.6% at August 31, 1998.
Penwest Pharmaceuticals Co. has entered into a $15 million revolving credit
facility which expires August 31, 2000. Penford Corporation has guaranteed
repayment of principal, interest and other obligations under the facility. The
Company's obligations under the guarantee are capped at $18 million and are
reduced by the amount of certain sales of securities by PPCO. The Company is not
liable for obligations of PPCO incurred after August 31, 2000. There were no
borrowings under the agreement as of August 31, 1998.
NOTE E
LEASES
Certain of the Company's property, plant, and equipment is leased under
operating leases ranging from one to fifteen years with renewal options. Rental
expense under operating leases was $4,635,000, $4,089,000 and $4,421,000 for
fiscal years ended August 31, 1998, 1997 and 1996, respectively. Future minimum
lease payments as of August 31, 1998 for noncancellable operating leases having
initial lease terms of more than one year are as follows (thousands of dollars):
<TABLE>
<CAPTION>
Years ending August 31 Operating Leases
- ---------------------- ----------------
<S> <C>
1999 $ 4,470
2000 3,333
2001 2,441
2002 2,252
2003 1,947
Thereafter 8,147
--------
Total minimum lease payments $ 22,590
========
</TABLE>
Page 27
<PAGE> 28
NOTE F
STOCK OPTIONS
As of August 31, 1998 the Company had two stock option plans for which 1,500,000
shares of Common Stock were authorized for grants of options: the 1994 Stock
Option Plan (the "1994 Plan") and the Stock Option Plan for Non-Employee
Directors (the "Directors' Plan"). The 1994 Plan replaced the 1984 Stock Option
Plan (126,000 shares outstanding at August 31, 1998) which expired in February
1994, and provides for the granting of stock options at the fair market value of
the Company's Common Stock on the date of grant. Either incentive stock options
or non-qualified stock options are granted under the 1994 Plan. The incentive
stock options generally vest over five years at the rate of 20% each year and
expire 10 years from the date of grant. The non-qualified stock options
generally vest over four years at the rate of 25% of each year and expire 10
years and 10 days from the date of grant.
The Directors' Plan provides for the granting of non-qualified stock options at
75% of the fair market value of the Company's Common Stock on the date of grant
for annual retainers and meeting fees in lieu of cash compensation at each
Directors' annual election. Options granted under the Directors' Plan vest six
months after the grant date and expire at the earlier of ten years after the
date of grant or three years after the date the non-employee director ceases to
be a member of the Board. In addition, non-employee directors receive restricted
stock under a restricted stock plan every three years. The restricted stock may
be sold or otherwise transferred at the rate of 33.3% each year.
Changes in stock options for the three years ended August 31 follow:
<TABLE>
<CAPTION>
Wtd. Average
Shares Option Price Range Exercise Price
------ ------------------ --------------
<S> <C> <C> <C>
Fiscal 1996
Balance, September 1, 1995 847,459 $ 5.59 - 27.50 $ 14.66
Granted 117,944 18.25 - 24.75 19.30
Exercised (77,917) 5.59 - 22.63 9.17
Cancelled (38,300) 22.50 - 27.50 23.90
-------
Balance, August 31, 1996 849,186 5.83 - 24.75 15.08
=======
Options Exercisable 454,692 5.83 - 24.75 10.86
Fiscal 1997
Granted 338,848 $ 13.13 - 18.75 $ 17.44
Exercised (409,242) 5.83 - 22.75 8.66
Cancelled (22,800) 18.25 - 21.00 20.29
-------
Balance, August 31, 1997 755,992 13.13 - 24.75 19.47
=======
Options Exercisable 199,625 13.13 - 24.75 19.00
Fiscal 1998
Granted 28,527 $ 22.88 - 28.03 $ 24.53
Exercised (36,807) 17.00 - 23.75 19.56
Cancelled (2,400) 18.25 18.25
-------
Balance, August 31, 1998 745,312 13.13 - 28.03 19.65
=======
Options Exercisable 302,767 13.13 - 28.03 19.65
Shares available for future grant 858,681
</TABLE>
Page 28
<PAGE> 29
The following table summarizes information concerning outstanding and
exercisable options as of August 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- -----------------------
Wtd. Avg.
Remaining Wtd. Avg Wtd.Avg.
Range of Number of Contractual Exercise Number of Exercise
Exercise Prices Options Life Price Options Price
--------------- ------- ---- ----- ------- -----
<S> <C> <C> <C> <C> <C>
$ 13.13 - 17.00 96,739 7.87 $ 14.87 69,539 $ 14.04
17.01 - 21.00 489,646 7.45 19.27 130,497 18.75
21.01 - 28.03 158,927 4.89 23.73 102,731 23.87
------- -------
745,312 302,767
======= =======
</TABLE>
Page 29
<PAGE> 30
Subsequent to the spin-off of PPCO on August 31, 1998 the exercise price and
number of options outstanding were adjusted in order to preserve the options'
value as of the distribution date. The number of shares available for grant
under the Plan was also adjusted in accordance with the Plan provisions. In
addition, the Board of Directors granted 459,000 options to Penford Corporation
employees on September 1, 1998. Subsequent to these changes there are 1,433,761
options outstanding, with an average exercise price of $9.09, of which 449,527
are exercisable. There are 638,355 shares available for future grant.
Stock appreciation rights (SARs) to certain officers of the Company that were
granted in December 1986 and fully vested as of August 31, 1996 were fully
exercised during the first half of fiscal 1997. As a result of depreciation of
Penford stock, compensation expense was credited for $28,000 and $451,000 in
1997 and 1996, respectively.
The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation," using the intrinsic-value method
prescribed by APB Opinion No. 25, as allowed for in the Statement. Accordingly,
no compensation expense has been recognized for the stock-based compensation
plans other than for the Directors' Plan and restricted stock awards. Had
compensation cost been recognized based on the fair value at the date of grant
for options awarded in 1998, 1997 and 1996 under the Plans, pro forma amounts of
the Company's income from continuing operations and earning per common share
from continuing operations would have been as follows (In thousands, except per
share data):
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
----------- ----------- -----------
<S> <C> <C> <C>
Income from continuing operations - as reported $8,110 $8,934 $6,969
Income from continuing operations - pro forma $7,411 $8,003 $6,612
Earnings per common share from continuing
operations - as reported $1.11 $1.28 $1.02
Earnings per common share from continuing
operations - pro forma $1.01 $1.14 $0.97
Earnings per common share from
continuing operations, diluted - as reported $1.08 $1.25 $0.99
Earnings per common share from continuing
operations, diluted - pro forma $0.98 $1.12 $0.94
</TABLE>
The fair value of each option grant was estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions: risk-free
interest rates of 4.2% to 6.1%; expected option life of each vesting increment
of 2.8 years for employees and 3.0 years for non-employee directors; expected
volatility ranging from 49% to 50%; and expected dividends of $0.20 per share.
The weighted average fair value of options granted under the 1994 Plan during
fiscal years 1997 and 1996 was $9.46 and $10.57, respectively. There were no
options granted under the 1994 Plan in fiscal 1998. The weighted average fair
value of options granted under the Directors' Plan during fiscal years 1998,
1997 and 1996 was $16.42, $9.29 and $11.66, respectively. The effect of applying
SFAS No. 123 for providing pro forma disclosures for fiscal years 1998, 1997 and
1996 is not likely to be representative of the effects in future years because
the amounts above reflect only the options granted in 1998, 1997 and 1996 that
vest over four to five years, and additional grants are generally made annually.
Page 30
<PAGE> 31
NOTE G
INCOME TAXES
Income tax expense on income from continuing operations consists of the
following:
<TABLE>
<CAPTION>
Year Ended August 31
(Thousands of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 1,687 $ 1,467 $ 1,751
State 100 208 87
------- ------- -------
1,787 1,675 1,838
Deferred
Federal 2,579 2,571 1,532
State (7) 238 101
------- ------- -------
2,572 2,809 1,633
------- ------- -------
Total provision $ 4,359 $ 4,484 $ 3,471
======= ======= =======
</TABLE>
A reconciliation of the statutory federal tax to the actual provision for taxes
on income from continuing operations is as follows:
<TABLE>
<CAPTION>
Year Ended August 31
(Thousands of dollars) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35% 34% 34%
Statutory tax on income from continuing operations $ 4,364 $ 4,562 $ 3,550
State taxes, net of federal benefit 58 238 101
Tax credits, including research and
development credits (468) (322)
Foreign sales corporation (210) (244) (238)
Restructuring and other nondeductible expenses 633 114 27
Other (18) 136 31
------- ------- -------
Total provision $ 4,359 $ 4,484 $ 3,471
======= ======= =======
</TABLE>
Page 31
<PAGE> 32
The significant components of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
August 31
(Thousands of dollars) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Alternative minimum tax credit $ 4,932 $ 3,506
Research and development credit 1,223 947
Postretirement benefits 3,738 3,706
Provisions for accrued expenses 2,077 1,780
Net operating loss carryforward 1,015
Other 796 1,068
------- -------
Total deferred tax assets 13,781 11,007
Deferred tax liabilities:
Depreciation 21,273 19,830
Other 609 2,037
------- -------
Total deferred tax liabilities 21,882 21,867
------- -------
Net deferred tax liabilities $ 8,101 $10,860
======= =======
</TABLE>
The Company has a net operating loss carryforward of approximately $2.8 million
available to offset future taxable income. The carryforward begins to expire in
2012.
Page 32
<PAGE> 33
NOTE H
PENSION AND OTHER EMPLOYEE BENEFITS
Penford maintains two noncontributory defined benefit pension plans that cover
substantially all employees.
Benefits under the plan for hourly employees are primarily related to years of
service. Benefits for salaried employees are primarily related to years of
credited service and the average of the highest five-years' consecutive
earnings. Employees generally become eligible to participate in the plans after
attaining age 21 and benefits normally become vested after five years of
credited service.
The Company's funding policy is to contribute amounts to the plans sufficient to
meet or exceed the minimum requirements of the Employee Retirement Income
Security Act of 1974.
Assumptions used in the measurement of the projected benefit obligation included
a discount rate of 6.8% in 1998 and 7.5% in 1997 and a rate of increase in
compensation levels of 4.0% in 1998 and 1997 for the salaried employees. The
expected long-term rate of return on plan assets is assumed to be 10.0% for 1998
and 1997, and 9.0% for 1996.
Net periodic pension expense consisted of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended August 31
1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned during the year $ 780 $ 632 $ 709
Interest cost on projected benefit obligation 1,541 1,466 1,426
Actual return on plan assets (475) (6,036) (2,278)
Net amortization and deferral (1,934) 4,246 892
------- ------- -------
Net pension expense (benefit) $ (88) $ 308 $ 749
======= ======= =======
</TABLE>
The following table sets forth the funded status of both pension plans (in
thousands):
<TABLE>
<CAPTION>
August 31
1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of projected obligation,
based on service to date and current salary levels:
Vested $ 21,613 $ 19,059
Nonvested 830 963
-------- --------
Accumulated benefit obligation 22,443 20,022
Effect of projected salary increases 1,659 1,186
-------- --------
Projected benefit obligation 24,102 21,208
Plan assets at fair market value 23,840 24,639
-------- --------
Plan assets in excess of projected benefit obligation (262) 3,431
Unrecognized actuarial net gain (1,173) (5,216)
Balance of unrecognized net obligation at
transition being amortized over 15 years 751 882
Unrecognized prior service cost 1,109 1,118
-------- --------
Net pension asset $ 425 $ 215
======== ========
</TABLE>
Assets of the pension plans are invested in units of common trust funds managed
by Frank Russell Trust Company. The common trust funds own stocks, bonds and
real estate.
Page 33
<PAGE> 34
Savings And Stock Ownership Plan
The Company has a savings investment plan. The savings component, available to
all employees, matches 75% of the employee's contribution up to 6% of the
employee's pay, in the form of Penford common stock. During 1998, approximately
33,047 shares of stock were earned by plan participants. The savings component
expense of the plan was $833,000, $734,000 and $575,000 for fiscal years 1998,
1997 and 1996, respectively. Compensation expense is recorded by the Company at
the market value of shares contributed to the Plan.
The plan also includes an annual profit-sharing component that is awarded by the
Board of Directors based on achievement of predetermined corporate goals. This
feature of the plan is available to all employees who meet the eligibility
requirements of the plan. The profit-sharing expense, which reflects the market
value of shares released to participants was $451,000, $175,000 and $434,000 for
the fiscal years 1998, 1997 and 1996, respectively.
The plan initially acquired the Penford common stock by issuing a note to the
Company. The note is reflected as a reduction of shareholders' equity and is
amortized ratably over the note term which expires in December 1999. The shares
held by the plan are considered outstanding for purposes of calculating earnings
per share. Dividends on shares held by the plan are allocated to participant
accounts.
Supplemental Executive Retirement Plan
The Company sponsors a Supplemental Executive Retirement Plan (SERP), a
non-qualified plan, which covers certain employees. For 1998, 1997 and 1996, the
net pension expense accrued for the SERP was $650,000, $602,000 and $908,000,
respectively.
Health Care And Life Insurance Benefits
The Company offers health care and life insurance benefits to most active
employees. Costs incurred to provide these benefits are charged to expense when
paid. Health care and life insurance expense was $2,455,000, $2,436,000 and
$2,183,000 in 1998, 1997 and 1996, respectively.
NOTE I
OTHER POSTRETIREMENT BENEFITS
Penford maintains two postretirement benefit plans that cover substantially all
salaried and hourly retirees.
Benefits under the plan for hourly employees include medical coverage,
prescription drug coverage, and, to a certain grandfathered group, life
insurance. Hourly participants contribute to the cost of the benefits based on a
pension credit formula. Benefits under the plan for salaried employees include
medical coverage and vision coverage. Salaried participants contribute, for the
most part, 100% of the premiums. Presently the Company funds the current
benefits on a cash basis, and therefore, there are no plan assets.
Page 34
<PAGE> 35
The following table sets forth the plan's status (in thousands of dollars):
Accumulated postretirement benefit obligation:
<TABLE>
<CAPTION>
August 31, August 31,
1998 1997
---------- ----------
<S> <C> <C>
Retirees $ 4,008 $ 3,752
Fully eligible active plan participants 704 621
Other active plan participants 3,232 2,415
------- -------
Accumulated post retirement benefit obligation 7,944 6,788
Unrecognized actuarial net gain 2,439 3,355
------- -------
Accrued postretirement benefit obligation $10,383 $10,143
======= =======
</TABLE>
Net periodic postretirement benefit costs include the following components:
<TABLE>
<CAPTION>
Year Ended August 31
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Service cost of benefits earned during the
period $ 242 $ 210 $ 238
Interest cost on accumulated postretirement
benefit obligations 496 470 475
Net amortization and deferral (280) (364) (298)
----- ----- -----
Postretirement benefit expense $ 458 $ 316 $ 415
===== ===== =====
</TABLE>
Future benefit costs were estimated assuming medical costs would increase at a
8.5% annual rate for fiscal 1998, decreasing by one half of a percent ratably
over the next six years to a rate of 5.5%. A 1% increase in this annual trend
rate would have increased the accumulated postretirement benefit obligation at
August 31, 1998 by $1.4 million, with an increase of $147,000 in the annual 1998
postretirement benefit expense. The weighted average discount rate used to
estimate the accumulated postretirement obligation was 6.8% and 7.5% in 1998 and
1997, respectively.
Page 35
<PAGE> 36
NOTE J
SHAREHOLDERS' EQUITY
Unissued Preferred Stock
There are 1,000,000 shares of $1.00 par value preferred stock authorized for
issue; however, none are outstanding.
Common Stock Purchase Rights
On June 16, 1988, Penford distributed a dividend of one right (Right) for each
outstanding share of Penford common stock. In May 1997 the Company amended its
Shareholder Rights Plan. When exercisable, each Right will entitle its holder to
buy one share of Penford's common stock at $100 per share. The Rights will
become exercisable if a purchaser acquires 15% of Penford's common stock or
makes an offer to acquire common stock. In the event that a purchaser acquires
15% of the common stock of Penford, each Right shall entitle the holder, other
than the acquirer, to purchase one share of common stock of Penford for one half
of the market price of the common stock. In the event that Penford is acquired
in a merger or transfers 50% or more of its assets or earnings to any one
entity, each Right entitles the holder to purchase common stock of the surviving
or purchasing company having a market value of twice the exercise price of the
Right. The Rights may be redeemed by Penford at a price of $0.01 per Right, and
expire in June 2008.
NOTE K
EARNINGS PER COMMON SHARE
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share" in the second quarter of fiscal 1998. The Statement
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Basic earnings per share reflects
only the weighted average common shares outstanding. Diluted earnings per share
reflects weighted average common shares outstanding and the effect of any
dilutive common stock equivalent shares. All earnings per share amounts have
been presented and where necessary, have been restated to conform with the
requirements of SFAS No. 128.
Page 36
<PAGE> 37
The following table presents the computation of basic and diluted earnings per
share under SFAS No. 128 (dollars in thousands, except share and per share
data):
<TABLE>
<CAPTION>
Year Ended
August 31
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Income from continuing operations $ 8,110 $ 8,934 $ 6,969
Discontinued operations $ (8,742) $ (2,309) $ (1,917)
------------- ------------- -------------
Net income (loss) $ (632) $ 6,625 $ 5,052
============= ============= =============
Weighted average common
shares outstanding 7,303,056 7,001,209 6,805,740
Net effect of dilutive
stock options 227,584 130,516 201,600
------------- ------------- -------------
Weighted average common shares and
equivalents outstanding 7,530,640 7,131,725 7,007,340
============= ============= =============
Earnings (loss) per common share, basic:
Continuing operations $ 1.11 $ 1.28 $ 1.02
Discontinued operations $ (1.20) $ (0.33) $ (0.28)
------------- ------------- -------------
Net income (loss) $ (0.09) $ 0.95 $ 0.74
============= ============= =============
Earnings (loss) per common share, diluted:
Continuing operations $ 1.08 $ 1.25 $ 0.99
Discontinued operations $ (1.16) $ (0.32) $ (0.27)
------------- ------------- -------------
Net income (loss) $ (0.08) $ 0.93 $ 0.72
============= ============= =============
</TABLE>
Certain adjustments to outstanding options and new option grants were made on
September 1, 1998, subsequent to the spin-off of PPCO (See Note F).
NOTE L
OTHER EVENTS
Sale of Air Emission Credits
In November 1996 the Company sold certain Southern California air emission
credits and recognized a gain on the sale of $1.2 million, which is reflected as
other income.
Page 37
<PAGE> 38
NOTE M
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Fiscal 1998 First Second Third Fourth
(Thousands of dollars except per share data) Quarter(1) Quarter Quarter(2) Quarter Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ 41,818 $ 40,723 $ 40,306 $ 40,198 $ 163,045
Gross margin 11,411 11,397 11,330 11,502 45,640
Income from continuing operations 2,095 2,224 1,214 2,577 8,110
Discontinued operations (1,596) (1,210) (5,766) (170) (8,742)
Net income (loss) 499 1,014 (4,552) 2,407 (632)
Continuing operations:
Earnings per common share $ 0.29 $ 0.30 $ 0.17 $ 0.35 $ 1.11
Earnings per common share, diluted $ 0.28 $ 0.30 $ 0.16 $ 0.34 $ 1.08
Dividends declared $ 0.05 $ 0.05 $ 0.05 $ 0.05 $ 0.20
</TABLE>
(1) Earnings per share for the first quarter of fiscal 1998 have been restated
to conform to the requirements of SFAS No. 128, "Earnings Per Share," which
the Company adopted in the second quarter (See Note K).
(2) Third quarter fiscal 1998 income from continuing operations includes
restructure costs of $1.9 million ($1.3 million after-tax, or $0.17 per
share) related to the spin-off of Penwest Pharmaceuticals Co.
<TABLE>
<CAPTION>
Fiscal 1997(1) First Second Third Fourth
(Thousands of dollars except per share data) Quarter(2) Quarter Quarter Quarter Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ 43,127 $ 42,050 $ 42,797 $ 42,083 $ 170,057
Gross margin 9,122 10,165 11,800 11,745 42,832
Income from continuing operations 2,034 1,842 2,435 2,623 8,934
Discontinued operations (627) (586) (623) (473) (2,309)
Net income 1,407 1,256 1,812 2,150 6,625
Continuing operations:
Earnings per common share $ 0.30 $ 0.27 $ 0.35 $ 0.36 $ 1.28
Earnings per common share, diluted $ 0.29 $ 0.26 $ 0.35 $ 0.35 $ 1.25
Dividends declared $ 0.05 $ 0.05 $ 0.05 $ 0.05 $ 0.20
</TABLE>
(1) Earnings per share amounts in fiscal 1997 have been restated to conform to
the requirements of SFAS No. 128, "Earnings Per Share" (See Note K).
(2) First quarter results include a gain of $800,000 after-tax, or $0.11 per
share, from the sale of Southern California air emission credits.
Page 38
<PAGE> 39
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Penford Corporation
We have audited the accompanying consolidated balance sheets of Penford
Corporation as of August 31, 1998 and 1997, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended August 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Penford
Corporation at August 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
August 31, 1998, in conformity with generally accepted accounting principles.
October 9, 1998
Seattle, Washington ERNST & YOUNG LLP
Page 39
<PAGE> 40
REPORT OF MANAGEMENT
The management of Penford Corporation has prepared and is responsible for the
integrity and fairness of the financial statements and other financial
information presented in this annual report. The statements have been prepared
in accordance with generally accepted accounting principles and, to the extent
appropriate, include amounts based on management's judgment and/or estimates. In
order to fulfill its responsibilities for these financial statements and
information, management maintains accounting systems and related internal
controls. These controls are designed to provide reasonable assurance that
transactions are properly authorized and recorded, that assets are safeguarded,
and that financial records are reliably maintained.
Ernst & Young LLP, independent auditors, is retained to audit the Company's
consolidated financial statements. Their accompanying report is based on an
audit conducted in accordance with generally accepted auditing standards,
including a review of internal accounting controls and tests of accounting
procedures and records to the extent necessary to support their audit.
The Audit Committee of the Board of Directors, which is composed solely of
outside directors, meets periodically with management and with the independent
auditors to review the quality of financial reporting, the operation and
development of the internal control systems, and the results of independent
audits.
The independent auditors periodically meet with the Audit Committee without the
presence of management.
Jeffrey T. Cook
President and
Chief Executive Officer
Victor W. Breed
Vice President, Finance and
Chief Financial Officer
Page 40
<PAGE> 41
ITEM 9: CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information set forth under "Election of Directors" in the Company's
definitive Proxy Statement for the 1999 Annual Meeting of Shareholders is
incorporated herein by reference.
Information regarding executive officers of the Company is set forth in Part I
above and incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
The information set forth under "Executive Compensation" in the Company's
definitive Proxy Statement for the 1999 Annual Meeting of Shareholders is
incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under "Security Ownership of Certain Beneficial Owners
and Management" in the Company's definitive Proxy Statement for the 1999 Annual
Meeting of Shareholders is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to certain relationships and related transactions of
the Company set forth under "Change-in-Control Arrangements" in the Company's
definitive Proxy Statement for the 1999 Annual Meeting of Shareholders is
incorporated herein by reference.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The consolidated balance sheets as of August 31, 1998 and 1997
and the related statements of income, cash flows and
shareholders' equity for each of the three years in the period
ended August 31, 1998 and the report of independent auditors are
included in Part II, Item 8.
(a) (2) Financial Statement Schedules
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are omitted because they are not applicable or because the
information is presented in the financial statements or notes
thereto.
Page 41
<PAGE> 42
(a) (3) Exhibits
See list of Exhibits on page 44. This list includes a subset
containing each management contract, compensatory plan, or
arrangement required to be filed as an exhibit to this report.
(b) Reports on Form 8-K
A Form 8-K dated August 31, 1998 was filed reporting under Item 2 and
Item 5 Registrant's distribution to Penford Corporation Stockholders of
record on August 10, 1998, of approximately 11 million shares of common
stock of Penwest Pharmaceuticals Co. Inc. (PPCO). The distribution
completed Penford Corporation's previously announced spin-off of PPCO.
Filed as exhibits were a copy of a press release dated September 1, 1998
relating to the spin-off, a Separation Agreement setting forth the
agreement of the parties with respect to the principal corporate
transactions required to effect the separation of the Registrant and
PPCO, and certain other agreements that govern various interim and
ongoing relationships.
Page 42
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Penford Corporation
Date: November 20, 1998 /s/ Jeffrey T. Cook
----------------- -----------------------------------
Jeffrey T. Cook, President and
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: November 20, 1998 /s/ Jeffrey T. Cook
----------------- -----------------------------------
Jeffrey T. Cook, President and
Chief Executive Officer (Principal
Executive Officer)
Date: November 20, 1998 /s/ Victor W. Breed
----------------- -----------------------------------
Victor W. Breed, Vice President,
Finance and Chief Financial Officer
(Principal Financial Officer)
Date: November 20, 1998 /s/ Keith T. Fujinaga
----------------- -----------------------------------
Keith T. Fujinaga, Corporate
Controller (Principal Accounting
Officer)
Directors
Jeffrey T. Cook*
Richard E. Engebrecht*
Paul E. Freiman*
Paul H. Hatfield* By /s/ Victor W. Breed
Sally G. Narodick* --------------------------------
William G. Parzybok, Jr.*
N. Stewart Rogers* Attorney-in-Fact*
William K. Street* Power of Attorney Dated
Date October 14, 1998
----------------
Page 43
<PAGE> 44
INDEX TO EXHIBITS
Exhibits identified in parentheses below, on file with the Securities and
Exchange Commission, are incorporated by reference.
<TABLE>
<CAPTION>
Exhibit No. Item
- ----------- ----
<S> <C>
(3.1) Restated Articles of Incorporation of Registrant (filed as an
Exhibit to Registrant's Form 10-K for fiscal year ended August
31, 1995)
(3.2) Articles of Amendment to Restated Articles of Incorporation of
Registrant (filed as an exhibit to Registrant's Form 10-K for
fiscal year ended August 31, 1997)
(3.3) Bylaws of Registrant as amended and restated as of October 20,
1997 (filed as an exhibit to Registrant's Form 10-K for fiscal
year ended August 31, 1997)
(4.1) Amended and Restated Rights Agreement dated as of April 30, 1997
(filed as an Exhibit to Registrant's Amendment to Registration
Statement on Form 8-A/A dated May 5, 1997)
(10.1) Senior Note Agreement among Penford Corporation as Borrower and
Mutual of Omaha and Affiliates as lenders, dated November 1, 1992
(filed as an Exhibit to Registrant's Form 10-Q for the quarter
ended February 28, 1993)
(10.2) Loan Agreement among Penford Corporation as Borrower and
Seattle-First National Bank as Lender, dated December 1, 1989
(Registrant agrees to furnish a copy of this instrument to the
Commission on request)
(10.3) Penford Corporation Supplemental Executive Retirement Plan, dated
March 19, 1990 (filed as an Exhibit to Registrant's Form 10-K for
the fiscal year ended August 31, 1991)
(10.4) Penford Corporation Supplemental Survivor Benefit Plan, dated
January 15, 1991 (filed as an Exhibit to Registrant's Form 10-K
for the fiscal year ended August 31, 1991)
(10.5) Penford Corporation Deferred Compensation Plan, dated January 15,
1991 (filed as an Exhibit to Registrant's Form 10-K for the
fiscal year ended August 31, 1991)
(10.6) Change of Control Agreements between Penford Corporation and
Messrs. Cook, Widmaier, Talley, Horn, and Rydzewski (a
representative copy of these agreements is filed as an exhibit to
Registrant's Form 10-K for the fiscal year ended August 31, 1995)
(10.7) Penford Corporation 1993 Non-Employee Director Restricted Stock
Plan (filed as an Exhibit to Registrant's Form 10-Q for the
quarter ended November 30, 1993)
(10.8) Note Agreement dated as of October 1, 1994 among Penford
Corporation, Principal Mutual Life Insurance Company and TMG Life
Insurance Company (filed as an Exhibit to Registrant's Form 10-Q
for the quarter ended February 28, 1995)
(10.9) Penford Corporation 1994 Stock Option Plan as amended and
restated as of January 21, 1997 (filed on Form S-8 dated March
17, 1997)
(10.10) Penford Corporation Stock Option Plan for Non-Employee Directors
(filed as an exhibit to the Registrant's Form 10-Q for the
quarter ended May 31, 1996)
</TABLE>
Page 44
<PAGE> 45
<TABLE>
<S> <C>
(10.11) Separation Agreement dated as of July 31, 1998 between Registrant
and Penwest Pharmaceuticals Co. (filed as an exhibit to
Registrant's Form 8-K dated August 31, 1998)
(10.12) Services Agreement dated as of July 31, 1998 between Registrant
and Penwest Pharmaceuticals Co. (filed as an exhibit to
Registrant's Form 8-K dated August 31, 1998)
(10.13) Employee Benefits Agreement dated as of July 31, 1998 between
Registrant and Penwest Pharmaceuticals Co. (filed as an exhibit
to Registrant's Form 8-K dated August 31, 1998)
(10.14) Tax Allocation Agreement dated as of July 31, 1998 between
Registrant and Penwest Pharmaceuticals Co. (filed as an exhibit
to Registrant's Form 8-K dated August 31, 1998)
(10.15) Excipient Supply Agreement dated as of July 31, 1998 between
Registrant and Penwest Pharmaceuticals Co. (filed as an exhibit
to Registrant's Form 8-K dated August 31, 1998)
10.16 Restatement and Exchange Agreement amending the Senior Note
Agreement among Penford Corporation as Borrower and Mutual of
Omaha and Affiliates as lenders, dated as of August 1, 1998
10.17 Guaranty Agreement dated as of August 1, 1998 by Penford Products
Co., a wholly-owned subsidiary of Registrant, of the Restatement
and Exchange Agreement among Registrant and Mutual of Omaha and
Affiliates
10.18 Intercreditor Agreement dated as of August 1, 1998 among the
parties to the Credit Agreement dated July 2, 1998 and the
parties to the Senior Note Agreements dated as of August 1, 1998.
10.19 Restatement and Exchange Agreement amending the Note Agreement
among Penford Corporation as Borrower, and Principal Mutual Life
Insurance Company and TMG Life Insurance Company as lenders,
dated as of August 1, 1998
10.20 Guaranty Agreement dated as of August 1, 1998 by Penford Products
Co., a wholly-owned subsidiary of Registrant, of the Restatement
and Exchange Agreement among Registrant, Principal Mutual Life
Insurance Company, and TMG Life Insurance Company
10.21 Credit Agreement dated as of July 2, 1998 among Penford
Corporation and Penford Products Co. as borrowers, and certain
commercial lending institutions as the lenders, and The Bank of
Nova Scotia, as agent for the lenders
10.22 Specific Guarantee made by Penford Corporation in favor of The
Bank of Nova Scotia (the "Bank") in respect to the indebtedness
and liability of Penwest Pharmaceuticals Co. to the Bank under a
letter loan agreement dated as of July 2, 1998
10.23 Specific Guarantee made by Penford Products Co. in favor of The
Bank of Nova Scotia (the "Bank") in respect to the indebtedness
and liability of Penwest Pharmaceuticals Co. to the Bank under a
letter loan agreement dated as of July 2, 1998
10.24 Revolving Term Credit Facility in Favor of Penwest
Pharmaceuticals Co. as borrowers and The Bank of Nova Scotia as
lender dated as of July 2, 1998
</TABLE>
Page 45
<PAGE> 46
<TABLE>
<S> <C>
21 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP, Independent Auditors
24 Power of Attorney
27 Financial Data Schedule
</TABLE>
Page 46
<PAGE> 47
SUBSET OF THE INDEX TO EXHIBITS
Executive Compensation Plans and Arrangements.
This subset of the index to exhibits includes a subset containing each
management contract, compensatory plan, or arrangement required to be filed as
an exhibit to this Report.
<TABLE>
<CAPTION>
Exhibit No. Item
- ----------- ----
<S> <C>
(10.3) Penford Corporation Supplemental Executive Retirement Plan,
dated March 19, 1990 (filed as an Exhibit to Registrant's Form
10-K for the fiscal year ended August 31, 1991, Commission File
No. 0-11488)
(10.4) Penford Corporation Supplemental Survivor Benefit Plan, dated
January 15, 1991 (filed as an Exhibit to Registrant's Form 10-K
for the fiscal year ended August 31, 1991, Commission File No.
0-11488)
(10.5) Penford Corporation Deferred Compensation Plan, dated January
15, 1991 (filed as an Exhibit to Registrant's Form 10-K for the
fiscal year ended August 31, 1991, Commission File No. 0-11488)
(10.6) Agreements relating to compensation in the event of a change in
control of the corporation between the Corporation and Messrs.
Cook, Widmaier, Talley, Horn, and Rydzewski (a representative
copy of these agreements filed as an Exhibit to Registrant's
Form 10-K for the fiscal year ended August 31, 1995, Commission
File No. 0-11488)
(10.7) Penford Corporation 1993 Non-Employee Director Restricted Stock
Plan (filed as an Exhibit to Registrant's Form 10-Q for the
quarter ended November 30, 1993, Commission File Number
0-11488)
(10.9) Penford Corporation 1994 Stock Option Plan as amended and
restated as of January 21, 1997 (filed on Form S-8, No.
33-58799, dated March 17, 1997)
(10.10) Penford Corporation Stock Option Plan for Non-Employee
Directors (filed as an Exhibit to the Registrant's Form 10-Q
for the quarter ended May 31, 1996, Commission File Number
0-11488)
(10.13) Employee Benefits Agreement dated as of July 31, 1998 between
Registrant and Penwest Pharmaceuticals Co. (filed as an exhibit
to Registrant's Form 8-K dated August 31, 1998, Commission File
Number 0-11488)
</TABLE>
Page 47
<PAGE> 1
Exhibit 10.16
================================================================================
PENFORD CORPORATION
RESTATEMENT AND EXCHANGE AGREEMENT
Dated as of August 1, 1998
Re: $14,285,600 Adjustable Rate Senior Notes
Due November 30, 2002
================================================================================
<PAGE> 2
TABLE OF CONTENTS
(Not a part of the Agreement)
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C> <C>
SECTION 1. DESCRIPTION OF REORGANIZATION, NOTES AND COMMITMENT....................................1
Section 1.1. Reorganization.........................................................................1
Section 1.2. Description of Old Notes...............................................................2
Section 1.3. Description of New Notes...............................................................2
Section 1.4. Commitment, Closing Date...............................................................3
Section 1.5. Other Agreements.......................................................................4
SECTION 2. PREPAYMENT OF NOTES....................................................................4
Section 2.1. Required Prepayments...................................................................4
Section 2.2. Optional Prepayment With Premium.......................................................4
Section 2.3. Notice of Optional Prepayments.........................................................4
Section 2.4. Application of Prepayments.............................................................5
Section 2.5. Direct Payment.........................................................................5
SECTION 3. REPRESENTATIONS........................................................................5
Section 3.1. Representations of the Company.........................................................5
Section 3.2. Representations of the Purchasers......................................................5
SECTION 4. CLOSING CONDITIONS.....................................................................6
Section 4.1. Conditions.............................................................................6
Section 4.2. Waiver of Conditions...................................................................7
SECTION 5. COMPANY COVENANTS......................................................................8
Section 5.1. Corporate Existence, Etc...............................................................8
Section 5.2. Insurance..............................................................................8
Section 5.3. Taxes, Claims for Labor and Materials, Compliance with Laws............................8
Section 5.4. Maintenance, Etc.......................................................................8
Section 5.5. Nature of Business.....................................................................8
Section 5.6. Consolidated Tangible Net Worth........................................................9
Section 5.7. Indebtedness...........................................................................9
Section 5.8. Limitation on Liens...................................................................10
Section 5.9. Restricted Payments...................................................................12
Section 5.10. Mergers, Consolidations and Sales of Assets...........................................12
Section 5.11. Guaranties............................................................................14
Section 5.12. Repurchase of Notes...................................................................14
Section 5.13. Transactions with Affiliates..........................................................14
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 5.14. Multiemployer Plan Liability and Termination of Pension Plans.........................15
Section 5.15. Reports and Rights of Inspection......................................................15
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR...............................................18
Section 6.1. Events of Default.....................................................................18
Section 6.2. Notice to Holders.....................................................................19
Section 6.3. Acceleration of Maturities............................................................19
Section 6.4. Rescission of Acceleration............................................................20
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS......................................................20
Section 7.1. Consent Required......................................................................20
Section 7.2. Solicitation of Holders...............................................................21
Section 7.3. Effect of Amendment or Waiver.........................................................21
SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS..............................................21
Section 8.1. Definitions...........................................................................21
Section 8.2. Accounting Principles.................................................................31
Section 8.3. Directly or Indirectly................................................................31
SECTION 9. MISCELLANEOUS.........................................................................31
Section 9.1. Registered Notes......................................................................31
Section 9.2. Exchange of Notes.....................................................................32
Section 9.3. Loss, Theft, Etc. of Notes............................................................32
Section 9.4. Expenses, Stamp Tax Indemnity.........................................................32
Section 9.5. Powers and Rights Not Waived; Remedies Cumulative.....................................33
Section 9.6. Notices...............................................................................33
Section 9.7. Successors and Assigns................................................................33
Section 9.8. Survival of Covenants and Representations.............................................33
Section 9.9. Severability..........................................................................34
Section 9.10. Governing Law.........................................................................34
Section 9.11. Captions..............................................................................34
Section 9.12. Oral Agreements.......................................................................34
Signature........................................................................................................35
</TABLE>
-ii-
<PAGE> 4
ATTACHMENTS TO RESTATEMENT AND EXCHANGE AGREEMENT
<TABLE>
<S> <C> <C>
Schedule I -- Names and Addresses of Note Purchasers and Amounts of Commitments
Exhibit A -- Form of Adjustable Rate Senior Note due November 30, 2002
Exhibit B -- Representations and Warranties of the Company
Exhibit C -- Form of Guaranty Agreement
Exhibit D -- Form of Intercreditor Agreement
Exhibit E -- Description of Special Counsel's Closing Opinion
Exhibit F -- Form of Closing Opinion of Counsel to the Company and the Guarantor
</TABLE>
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<PAGE> 5
PENFORD CORPORATION
777-108TH AVENUE N.E., SUITE 2390
BELLEVUE, WASHINGTON 98004
RESTATEMENT AND EXCHANGE AGREEMENT
Re: $14,285,600 Adjustable Rate Senior Notes
Due November 30, 2002
Dated as of
August 1, 1998
To the Purchaser named in Schedule I
hereto which is a signatory of this
Agreement
Gentlemen:
Reference is made to the separate Note Agreements, each dated as of
November 1, 1992 (the "Note Agreements"), between the undersigned, PENFORD
CORPORATION, a Washington corporation which is the successor to Penwest, Ltd., a
Delaware corporation (the "Company"), and the Purchasers named in Schedule I to
this Restatement and Exchange Agreement (the or this "Agreement"). The Company
and the Purchasers entered into a First Amendment, Waiver and Consent dated as
of December 1, 1997 (the "First Amendment"), relating to the Note Agreements,
but the conditions to the effectiveness of the First Amendment were not
satisfied. The Company now wishes to amend and restate the Note Agreements as
hereinafter set forth, subject to the terms and conditions hereof and on the
basis of the representations and warranties hereinafter set forth, you agree to
such amendment and restatement.
SECTION 1. DESCRIPTION OF REORGANIZATION, NOTES AND COMMITMENT.
Section 1.1. Reorganization. The Company proposes the following
corporate reorganization transactions (being referred to individually as a
"Transaction" and collectively as the "Transactions"):
(a) the transfer of certain assets currently used in the
Company's pharmaceuticals business to the Restricted Subsidiary of the
Company which is primarily engaged in the pharmaceuticals business,
formerly known as Edward Mendell Co., Inc., a Washington corporation
(the "Pharmaceuticals Company"), and the change of the name of the
Pharmaceuticals Company to Penwest Pharmaceuticals Co.;
<PAGE> 6
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
(b) the distribution by the Company to its shareholders of
the outstanding Common Stock of the Pharmaceuticals Company (the
"Spin-off");
(c) the entering into of the following agreements between the
Company and the Pharmaceuticals Company in connection with the Spin-off
(collectively, the "Inter-Company Agreements"): (i) a service agreement
pursuant to which the Company will, on an interim basis, provide the
Pharmaceuticals Company with certain general corporate services after
the Spin-off; (ii) an excipient supply agreement pursuant to which the
Company will manufacture and supply exclusively to the Pharmaceuticals
Company all of the Pharmaceuticals Company's EMDEX and CANDEX
requirements; (iii) an employee benefits agreement pursuant to which
the Company will, for a specified period of time, permit employees of
the Pharmaceuticals Company to continue to be covered under certain of
the Company's employee benefit plans; (iv) a tax allocation agreement
pursuant to which, as long as the Pharmaceuticals Company participates
in the Company's consolidated return, the Pharmaceuticals Company will
be required to pay to the Company, or will be entitled to receive from
the Company, the Pharmaceuticals Company's allocable portion of
consolidated federal or state income tax liability or credits; and (v)
a separation agreement between the Company and the Pharmaceuticals
Company setting forth the agreements of the parties with respect to the
separation of the pharmaceuticals business from the Company's food and
paper business and the Spin-off; and
(d) the Penwest Guarantee.
In order to permit the Transactions, the Company now requests the following
amendment and restatement of the Note Agreements and waivers and consents in
connection therewith, and, based on the representations and warranties of the
Company herein set forth and subject to the terms and conditions herein
provided, the Purchasers are willing to enter into such amendment and
restatement and to extend such waivers and consents.
Section 1.2. Description of Old Notes. Pursuant to the Original Note
Agreements, the Company issued and sold to the Purchasers $20,000,000 aggregate
original principal amount of its 7.93% Senior Notes due November 30, 1992 (the
"Old Notes").
Section 1.3. Description of New Notes. (a) The Company will authorize
the issue in exchange for the Old Notes of $14,285,600 aggregate principal
amount of its Adjustable Rate Senior Notes due November 30, 1992 (the "New
Notes"), to be dated the date of issue, to bear interest from such date at the
rate of 8.43% per annum (subject to adjustment as set forth in paragraph (b) of
this Section), payable at maturity, to be expressed to mature on November 30,
2002, and to be substantially in the form attached hereto as Exhibit A. Interest
on the New Notes shall be computed on the basis of a 360-day year of twelve
30-day months. If the date on which a payment shall be due is not a Business
Day, then the payment date shall be the next Business Day. The Notes are not
subject to prepayment or redemption at the option of the Company prior to their
expressed maturity dates except on the terms and conditions and in the amounts
and with the premium, if any, set forth in Section 2 of this Agreement. The term
"New Notes" or
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<PAGE> 7
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
"Notes" as used herein shall include each New Note delivered pursuant to this
Agreement and the separate agreements with the other purchasers named in
Schedule I. You and the other purchasers named in Schedule I are hereinafter
sometimes referred to as the "Purchasers".
(b) In the event the Indebtedness to Consolidated Capitalization Ratio
exceeds 62% as at the end of any fiscal quarter of the Company, the interest
rate borne by the Notes shall be increased to 8.93% per annum, commencing with
the first interest payments to become due 60 days or more after the end of such
fiscal period and applicable to the calculation of the entire semiannual
interest payment then due.
(c) The New Notes shall bear interest on overdue principal (including
any overdue required or optional prepayment of principal) and premium, if any,
and (to the extent legally enforceable) on any overdue installment of interest
at the rate of interest otherwise then borne by the New Notes plus 2% per annum
after the date due, whether by acceleration or otherwise, until paid.
Section 1.4. Commitment, Closing Date. Subject to the terms and
conditions hereof and on the basis of the representations and warranties
hereinafter set forth:
(a) you hereby agree with the Company as follows:
(i) You waive any Default or Event of Default under
Sections 5.9, 5.10 and 5.13 hereof arising solely from the
Transactions;
(ii) The Spin-off will not constitute a Restricted
Payment for purposes of Section 5.9 hereof, provided that the
Spin-off is completed by November 1, 1998;
(iii) None of the Transactions will constitute a
disposition of assets for purposes of Section 5.10 hereof,
provided that the Spin-off is completed by November 1, 1998;
and
(iv) None of the Inter-Company Agreements will
constitute a transaction or arrangement with any Affiliate for
purposes of Section 5.13 hereof; and
(b) the Company agrees to issue to you in exchange for the
Old Notes held by you, and you agree to surrender such Old Notes to the
Company in exchange therefor and for payment of accrued interest on the
Old Notes to and including the Closing Date, New Notes in the principal
amount set forth opposite your name on Schedule I hereto in a principal
amount equal to the unpaid principal amount of such Old Notes on the
Closing Date hereafter mentioned.
Delivery of the New Notes will be made at the offices of Chapman and
Cutler, 111 West Monroe Street, Chicago, Illinois 60603, against surrender of
Old Notes in the same principal
-3-
<PAGE> 8
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
amount as the New Notes at 10:00 A.M., Chicago, Illinois, time, on August 28,
1998 or such earlier date as may be determined by not less than five Business
Days' prior written notice from the Company to the Purchasers (the "Closing
Date").
The New Notes delivered to you on the Closing Date will be delivered to
you in the form of a registered Note or registered Notes to be acquired by you
in the form attached hereto as Exhibit A, for the full amount to be acquired by
you (in the denominations specified by you in Schedule I), registered in your
name or in the name of your nominee, all as you may specify at any time prior to
the date fixed for delivery.
Section 1.5. Other Agreements. Simultaneously with the execution and
delivery of this Agreement, the Company is entering into similar agreements with
the other Purchasers under which such other Purchasers agree to acquire from the
Company the principal amount of New Notes set forth opposite such Purchasers'
name in Schedule I, and your obligation and the obligations of the Company
hereunder are subject to the execution and delivery of the similar agreement by
the other Purchasers. This Agreement and said similar agreements with the other
Purchasers are herein collectively referred to as the "Agreements". The
obligations of each Purchaser shall be several and not joint and no Purchaser
shall be liable or responsible for the acts of any other Purchaser.
SECTION 2. PREPAYMENT OF NOTES.
Section 2.1. Required Prepayments. The Company agrees that on November
30 in each year, commencing November 30, 1998 and ending November 30, 2001, both
inclusive, it will prepay and apply and there shall become due and payable on
the aggregate principal indebtedness evidenced by the Notes an amount equal to
the lesser of (i) $2,857,200 or (ii) the principal amount of the Notes then
outstanding. The entire remaining principal amount of the Notes shall become due
and payable on November 30, 2002. No premium shall be payable in connection with
any required prepayment made pursuant to this Section 2.1. For purposes of this
Section 2.1, any prepayment of less than all of the outstanding Notes pursuant
to Section 2.2 shall be deemed to be applied first, to the amount of principal
scheduled to remain unpaid on November 30, 2002, and then to the remaining
scheduled principal payments in inverse chronological order.
Section 2.2. Optional Prepayment With Premium. In addition to the
payments required by Section 2.1, upon compliance with Section 2.3 the Company
shall have the privilege of prepaying the outstanding Notes on any interest
payment date, either in whole or in part (but if in part then in a minimum
aggregate principal amount of $100,000) by payment of the principal amount of
the Notes, or portion thereof to be prepaid, and accrued interest thereon to the
date of such prepayment, together with a premium equal to the Make-Whole Amount,
determined as of five business days prior to the date of such prepayment
pursuant to this Section 2.2.
Section 2.3. Notice of Optional Prepayments. The Company will give
notice of any prepayment of the Notes pursuant to Section 2.2 to each holder
thereof not less than 30 days nor more than 60 days before the date fixed for
such optional prepayment specifying (i) such date, (ii) the principal amount of
the holder's Notes to be prepaid on such date, (iii) that a premium may be
-4-
<PAGE> 9
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
payable, (iv) the date when such premium will be calculated, (v) the estimated
premium, together with a reasonably detailed computation of such estimated
premium, and (vi) the accrued interest applicable to the prepayment. Such notice
of prepayment shall also certify all facts, if any, which are conditions
precedent to any such prepayment. Notice of prepayment having been so given, the
aggregate principal amount of the Notes specified in such notice, together with
accrued interest thereon and the premium, if any, payable with respect thereto
shall become due and payable on the prepayment date specified in said notice.
Not later than two business days prior to the prepayment date specified in such
notice, the Company shall provide each holder of a Note written notice of the
premium, if any, payable in connection with the prepayment of such Note and,
whether or not any premium is payable, a reasonably detailed computation of the
Make-Whole Amount applicable to such prepayment.
Section 2.4. Application of Prepayments. All partial prepayments shall
be applied on all outstanding Notes ratably in accordance with the unpaid
principal amounts thereof.
Section 2.5. Direct Payment. Notwithstanding anything to the contrary
contained in this Agreement or the Notes regarding the place or manner of
payment of the Notes, in the case of any Note owned and registered in accordance
with Section 9.1 by you or by any subsequent Institutional Holder which has
given written notice to the Company requesting that the provisions of this
Section 2.5 shall apply, the Company will punctually pay when due the principal
thereof, interest thereon and premium, if any, due with respect to said
principal, without any presentment thereof, directly to you, to your nominee or
to such subsequent Institutional Holder at your address or your nominee's
address set forth in Schedule I hereto or such other address as you or such
subsequent Institutional Holder may from time to time designate in writing to
the Company or, if a bank account with a United States bank is designated for
you or your nominee on Schedule I hereto or in any written notice to the Company
from you or from any such subsequent Institutional Holder, the Company will make
such payments in immediately available funds to such bank account, marked for
attention as indicated, or in such other manner or to such other account in any
United States bank as you or any such subsequent Institutional Holder may from
time to time direct in writing.
SECTION 3. REPRESENTATIONS.
Section 3.1. Representations of the Company. The Company represents and
warrants that all representations and warranties set forth in Exhibit B are true
and correct as of the date hereof and are incorporated herein by reference with
the same force and effect as though herein set forth in full.
Section 3.2. Representations of the Purchasers. You represent, and in
entering into this Agreement the Company understands, that you are an Accredited
Investor and acquiring the Notes for the purpose of investment and not with a
view to the distribution thereof, and that you have no present intention of
selling, negotiating or otherwise disposing of the Notes; it being understood,
however, that the disposition of your property shall at all times be and remain
within your control. You further represent that at least one of the following
statements is an accurate
-5-
<PAGE> 10
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
representation as to each account (an "Account") in which the Old Notes to be
surrendered by you for cancellation are held and for which the Notes being
acquired by you are being acquired:
(a) the Account is an "insurance company general account"
within the meaning of Department of Labor Prohibited Transaction
Exemption ("PTE") 95-60 (issued July 12, 1995) and there is no employee
benefit plan, treating as a single plan, all plans maintained by the
same employer or employee organization, with respect to which the
amount of the general account reserves and liabilities for all
contracts held by or on behalf of such plan, exceeds 10% of the total
reserves and liabilities of such general account (exclusive of separate
account liabilities) plus surplus, as set forth in the NAIC Annual
Statement filed with your state of domicile; or
(b) the Account is either (i) an insurance company pooled
separate account, within the meaning of PTE 90-1 (issued January 29,
1990), or (ii) a bank collective investment fund, within the meaning of
the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed
to the Company in writing pursuant to this paragraph (b), no employee
benefit plan or group of plans maintained by the same employer or
employee organization beneficially owns more than 10% of all assets
allocated to such pooled separate account or collective investment
fund.
As used in this Section 3.2, the terms "employee benefit plan" and
"separate account" shall have the respective meanings assigned to such terms in
Section 3 of ERISA.
SECTION 4. CLOSING CONDITIONS.
Section 4.1. Conditions. Your obligation to acquire the Notes on the
Closing Date shall be subject to the performance by the Company of its
agreements hereunder which by the terms hereof are to be performed at or prior
to the time of delivery of the Notes and to the following further conditions
precedent:
(a) Guaranty Agreement. The Guaranty Agreement substantially
in the form attached hereto as Exhibit C shall have been duly executed
and delivered by the Guarantor and shall be in full force and effect.
(b) Intercreditor Agreement. The Intercreditor Agreement
substantially in the form attached hereto as Exhibit D shall have been
duly executed and delivered by the parties thereto and shall be in full
force and effect.
(c) Closing Certificate of the Company. You shall have
received a certificate dated the Closing Date, signed by the President,
a Vice President or the Corporate Director of Finance of the Company,
the truth and accuracy of which shall be a condition to your obligation
to acquire the Notes proposed to be delivered to you and to the effect
that (i) the representations and warranties of the Company set forth in
Exhibit B hereto are true and correct on and with respect to the
Closing Date, (ii) the Company has
-6-
<PAGE> 11
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
performed all of its obligations hereunder which are to be performed on
or prior to the Closing Date, and (iii) no Default or Event of Default
has occurred and is continuing.
(d) Closing Certificate of the Guarantor. You shall have
received a certificate dated the Closing Date, signed by the President,
a Vice President or the Corporate Director of Finance of the Guarantor,
the truth and accuracy of which shall be a condition to your obligation
to acquire the Notes proposed to be delivered to you and to the effect
that the representations and warranties of the Guarantor set forth in
the Guaranty Agreement hereto are true and correct on and with respect
to the Closing Date.
(e) Legal Opinions. You shall have received from Chapman and
Cutler, who are acting as your special counsel in this transaction, and
from Bogle & Gates, counsel for the Company and the Guarantor, their
respective opinions dated the Closing Date, in form and substance
satisfactory to you, and covering the matters set forth in Exhibits E
and F, respectively, hereto.
(f) Related Transactions. The Company shall have consummated
the exchange of the entire principal amount of the New Notes for the
Old Notes pursuant to this Agreement and the other Agreements referred
to in Section 1.3. This shall also be a condition to the Company's
obligation to deliver any New Notes pursuant to this Agreement or the
other Agreements.
(g) Amendment Fee and Accrued Interest. Each Purchaser shall
have received a fee equal to 0.25% of the unpaid principal amount of
the Old Notes held by such Purchaser and accrued interest on the Old
Notes held by such Purchaser through and including the Closing Date.
(h) Satisfactory Proceedings. All proceedings taken in
connection with the transactions contemplated by this Agreement, and
all documents necessary to the consummation thereof, shall be
satisfactory in form and substance to you and your special counsel, and
you shall have received a copy (executed or certified as may be
appropriate) of all legal documents or proceedings taken in connection
with the consummation of said transactions.
Section 4.2. Waiver of Conditions. If on the Closing Date the Company
fails to tender to you the Notes to be issued to you on such date or if the
conditions specified in Section 4.1 have not been fulfilled, you may thereupon
elect to be relieved of all further obligations under this Agreement. Without
limiting the foregoing, if the conditions specified in Section 4.1 have not been
fulfilled, you may waive compliance by the Company with any such condition to
such extent as you may in your sole discretion determine. Nothing in this
Section 4.2 shall operate to relieve the Company of any of its obligations
hereunder or to waive any of your rights against the Company.
-7-
<PAGE> 12
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
SECTION 5. COMPANY COVENANTS.
From and after the date of this Agreement and continuing so long as any
amount remains unpaid on any Note:
Section 5.1. Corporate Existence, Etc. The Company will preserve and
keep in full force and effect, and will cause each Subsidiary to preserve and
keep in full force and effect, its corporate existence and all licenses and
permits necessary to the proper conduct of its business; provided, however, that
the foregoing shall not prevent any transaction permitted by Section 5.10.
Section 5.2. Insurance. The Company will maintain, and will cause each
Subsidiary to maintain, insurance coverage by financially sound and reputable
insurers in such forms and amounts and against such risks as are customary for
corporations of established reputation engaged in the same or a similar business
and owning and operating similar properties.
Section 5.3. Taxes, Claims for Labor and Materials, Compliance with
Laws. The Company will promptly pay and discharge, and will cause each
Subsidiary promptly to pay and discharge, all lawful taxes, assessments and
governmental charges or levies imposed upon the Company or such Subsidiary,
respectively, or upon or in respect of all or any part of the property or
business of the Company or such Subsidiary, all trade accounts payable in
accordance with usual and customary business terms, and all claims for work,
labor or materials, which if unpaid might become a Lien upon any property of the
Company or such Subsidiary; provided, however, that the Company or such
Subsidiary shall not be required to pay any such tax, assessment, charge, levy,
account payable or claim if (i) the validity, applicability or amount thereof is
being contested in good faith by appropriate actions or proceedings which will
prevent the forfeiture or sale of any property of the Company or such Subsidiary
or any material interference with the use thereof by the Company or such
Subsidiary, and (ii) the Company or such Subsidiary shall set aside on its
books, reserves deemed by it to be adequate with respect thereto. The Company
will promptly comply and will cause each Subsidiary to comply with all laws,
ordinances or governmental rules and regulations to which it is subject
including, without limitation, the Occupational Safety and Health Act of 1970,
as amended, ERISA and all laws, ordinances, governmental rules and regulations
relating to environmental protection in all applicable jurisdictions, the
violation of which could materially and adversely affect the properties,
business, prospects, profits or condition of the Company and its Subsidiaries or
would result in any Lien not permitted under Section 5.8.
Section 5.4. Maintenance, Etc. The Company will maintain, preserve and
keep, and will cause each Subsidiary to maintain, preserve and keep, its
properties which are used or useful in the conduct of its business (whether
owned in fee or a leasehold interest) in good repair and working order and from
time to time will make all necessary repairs, replacements, renewals and
additions so that at all times the efficiency thereof shall be maintained.
Section 5.5. Nature of Business. Neither the Company nor any Subsidiary
will engage in any business if, as a result, the general nature of the business,
taken on a consolidated basis, which would then be engaged in by the Company and
its Subsidiaries would be substantially
-8-
<PAGE> 13
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
changed from the general nature of the business engaged in by the Company and
its Subsidiaries on the date of this Agreement.
Section 5.6. Consolidated Tangible Net Worth. The Company will not
permit Consolidated Tangible Net Worth at any time to be less than (i)
$40,000,000 plus (ii) 50% of GAAP Net Income (without giving effect to any
losses) for each Fiscal Quarter beginning on or after May 31, 1998 plus (iii)
75% of the Net Equity Proceeds from any equity offering by the Company or any of
its Subsidiaries after May 31, 1998.
Section 5.7. Indebtedness. The Company will not at any time permit:
(a) the Indebtedness to Consolidated Capitalization Ratio to
exceed the following levels at any time during the periods set forth
below:
(i) While the Penwest Guarantee is in effect:
<TABLE>
<CAPTION>
PERIOD RATIO
<S> <C>
to August 31, 1999 0.65 to 1.00
from August 31, 1999
to August 31, 2000 0.62 to 1.00
from August 31, 2000
to August 31, 2001 0.52 to 1.00
on and after
August 31, 2001 0.50 to 1.00
</TABLE>
-9-
<PAGE> 14
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
(ii) After the Penwest Guarantee is released:
<TABLE>
<CAPTION>
PERIOD RATIO
<S> <C>
to November 30, 1998 0.62 to 1.00
from November 30, 1998
to August 31, 1999 0.60 to 1.00
from August 31, 1999
to August 31, 2000 0.57 to 1.00
from August 31, 2000
to August 31, 2001 0.52 to 1.00
on and after
August 31, 2001 0.50 to 1.00
</TABLE>
(b) its Leverage Ratio to exceed the following levels:
<TABLE>
<CAPTION>
PERIOD RATIO
<S> <C>
to August 31, 1999 3.75 to 1.00
from August 31, 1999
to August 31, 2000 3.25 to 1.00
on and after
August 31, 2000 2.75 to 1.00
</TABLE>
(c) its Interest/Rental Expense Coverage Ratio to fall below
3.0 to 1.0.
(d) the aggregate principal amount of all Indebtedness of
Subsidiaries (excluding such Indebtedness as constitutes a Penford
Products Obligation, as defined in the Intercreditor Agreement) at any
time to exceed 10% of the sum of the principal amount of all
Indebtedness and Consolidated Net Worth.
Section 5.8. Limitation on Liens. The Company will not, and will not
permit any Subsidiary to, create or incur, or suffer to be incurred or to exist,
any Lien on its or their property or assets, whether now owned or hereafter
acquired, or upon any income or profits therefrom, or transfer any property for
the purpose of subjecting the same to the payment of obligations in priority to
the payment of its or their general creditors, or acquire or agree to acquire,
or permit any Subsidiary to acquire, any property or assets upon conditional
sales agreements or other title retention devices, except:
-10-
<PAGE> 15
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
(a) Liens for property taxes and assessments or governmental
charges or levies and Liens securing claims or demands of mechanics and
materialmen, provided payment thereof is not at the time required by
Section 5.3;
(b) Liens of or resulting from any judgment or award, the
time for the appeal or petition for rehearing of which shall not have
expired, or in respect of which the Company or a Subsidiary shall at
any time in good faith be prosecuting an appeal or proceeding for a
review and in respect of which a stay of execution pending such appeal
or proceeding for review shall have been secured provided that the
aggregate amount of such judgments or awards shall not exceed
$5,000,000;
(c) Liens incidental to the conduct of business or the
ownership of properties and assets (including Liens in connection with
worker's compensation, unemployment insurance and other like laws,
warehousemen's and attorneys' liens and statutory landlords' liens) and
Liens to secure the performance of bids, tenders or trade contracts, or
to secure statutory obligations, surety or appeal bonds or other Liens
of like general nature incurred in the ordinary course of business and
not in connection with the borrowing of money; provided in each case,
the obligation secured is not overdue or, if overdue, is being
contested in good faith by appropriate actions or proceedings;
(d) existing survey exceptions or encumbrances, easements or
reservations, or rights of others for rights-of-way, utilities and
other similar purposes, or zoning or other restrictions as to the use
of real properties ("Encumbrances") or future Encumbrances, which are
necessary for the conduct of the activities of the Company and its
Subsidiaries or which customarily exist on properties of corporations
engaged in similar activities and similarly situated and which do not
in any event materially impair their use in the operation of the
business of the Company and its Subsidiaries;
(e) Liens securing Indebtedness of a Subsidiary to the
Company or to another Subsidiary;
(f) Liens existing as of the date of this Agreement and
reflected on Annex B to Exhibit B to this Agreement; and
(g) Liens incurred after the Closing Date given to secure the
payment of the purchase price incurred in connection with the
acquisition of fixed assets useful and intended to be used in carrying
on the business of the Company or a Subsidiary, including Liens
existing on such fixed assets at the time of acquisition thereof or at
the time of acquisition by the Company or a Subsidiary of any business
entity then owning such fixed assets, whether or not such existing
Liens were given to secure the payment of the purchase price of the
fixed assets to which they attach so long as they were not incurred,
extended or renewed in contemplation of such acquisition, provided that
(i) the Lien shall attach solely to the fixed assets acquired or
purchased, (ii) at the time of acquisition of such fixed assets, the
aggregate amount remaining unpaid on all Indebtedness secured by Liens
on such fixed assets whether or not assumed by the Company or a
Subsidiary shall
-11-
<PAGE> 16
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
not exceed the total purchase price at the time of acquisition of such
fixed assets, and (iii) all such Indebtedness shall have been incurred
within the applicable limitations provided in Section 5.7.
Section 5.9. Restricted Payments. The Company will not except as
hereinafter provided:
(a) Declare or pay any dividends, either in cash or property,
on any shares of its capital stock of any class (except dividends or
other distributions payable solely in shares of capital stock of the
Company);
(b) Directly or indirectly, or through any Subsidiary,
purchase, redeem or retire any shares of its capital stock of any class
or any warrants, rights or options to purchase or acquire any shares of
its capital stock (other than in exchange for or out of the net cash
proceeds to the Company from the substantially concurrent issue or sale
of other shares of capital stock of the Company or warrants, rights or
options to purchase or acquire any shares of its capital stock); or
(c) Make any other payment or distribution, either directly
or indirectly or through any Subsidiary, in respect of its capital
stock;
(such declarations or payments of dividends, purchases, redemptions or
retirements of capital stock and warrants, rights or options and all such other
payments or distributions being herein collectively called "Restricted
Payments"), if after giving effect thereto any Event of Default shall have
occurred and be continuing or the aggregate amount of Restricted Payments made
during the period from and after August 31, 1997 to and including the date of
the making of the Restricted Payment in question, would exceed the sum of (x)
$6,500,000 plus (y) 75% of Consolidated Net Income for such period, computed on
a cumulative basis for said entire period (or if such Consolidated Net Income is
a deficit figure, then minus 100% of such deficit) plus the net proceeds from
the issuance or sale of common stock after August 31, 1997 other than proceeds
from an issuance or sale of common stock described in paragraph (b) of this
Section 5.9; provided, that the foregoing limitations shall not apply to any
payment of dividends to the Company by a Subsidiary.
The Company will not declare any dividend which constitutes a
Restricted Payment payable more than 90 days after the date of declaration
thereof.
For the purposes of this Section 5.9, the amount of any Restricted
Payment declared, paid or distributed in property shall be deemed to be the
greater of the book value or fair market value (as determined in good faith by
the Board of Directors of the Company) of such property at the time of the
making of the Restricted Payment in question.
Section 5.10. Mergers, Consolidations and Sales of Assets. (a) The
Company will not, and will not permit any Subsidiary to, (i) consolidate with or
be a party to a merger with any other corporation or (ii) sell, lease or
otherwise dispose of all or any substantial part (as defined
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<PAGE> 17
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
in paragraph (d) of this Section 5.10) of the assets of the Company and
its Subsidiaries; provided, however, that:
(1) any Subsidiary may merge or consolidate with or into the
Company or any Subsidiary so long as in any merger or consolidation
involving the Company, the Company shall be the surviving or continuing
corporation;
(2) any Subsidiary may merge or consolidate with any other
corporation if the surviving or continuing corporation (i) is a United
States corporation and (ii) is a Subsidiary;
(3) the Company may consolidate or merge with any other
corporation if (i) the surviving or continuing corporation is the
Company or if not, the surviving or continuing corporation (A) is a
United States corporation, (B) concurrently with the consummation of
such merger or consolidation assumes in writing all obligations of the
Company under the Agreement and the obligation to pay all outstanding
Notes and delivers a copy thereof to all holders of such Notes, and
(ii) at the time of such consolidation or merger and after giving
effect thereto no Default or Event of Default shall have occurred and
be continuing; and
(4) any Subsidiary may sell, lease, transfer or otherwise
dispose of all or any substantial part of its assets to the Company or
any other Subsidiary.
(b) The Company will not permit any Subsidiary to issue or sell any
shares of stock of any class (including as "stock" for the purposes of this
Section 5.10, any warrants, rights or options to purchase or otherwise acquire
stock or other Securities exchangeable for or convertible into stock) of such
Subsidiary to any Person other than the Company or a Wholly-owned Subsidiary,
except for the purpose of qualifying directors, or except in satisfaction of the
validly pre-existing preemptive rights of minority shareholders in connection
with the simultaneous issuance of stock to the Company and/or a Subsidiary
whereby the Company and/or such Subsidiary maintain their same proportionate
interest in such Subsidiary.
(c) The Company will not sell, transfer or otherwise dispose of any
shares of stock of any Subsidiary (except to qualify directors) or any
Indebtedness of any Subsidiary, and will not permit any Subsidiary to sell,
transfer or otherwise dispose of (except to the Company or a Wholly-owned
Subsidiary) any shares of stock or any Indebtedness of any other Subsidiary,
unless:
(1) simultaneously with such sale, transfer, or disposition,
all shares of stock and all Indebtedness of such Subsidiary at the time
owned by the Company and by every other Subsidiary shall be sold,
transferred or disposed of as an entirety;
(2) the Board of Directors of the Company shall have
determined, as evidenced by a resolution thereof, that the proposed
sale, transfer or disposition of said shares of stock and Indebtedness
is in the best interests of the Company;
-13-
<PAGE> 18
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
(3) said shares of stock and Indebtedness are sold,
transferred or otherwise disposed of to a Person, and on terms
reasonably deemed by the Board of Directors to be adequate and
satisfactory;
(4) the Subsidiary being disposed of shall not have any
continuing investment in the Company or any other Subsidiary not being
simultaneously disposed of; and
(5) such sale or other disposition does not involve a
substantial part (as hereinafter defined) of the assets of the Company
and its Subsidiaries.
(d) As used in this Section 5.10, a sale, lease or other disposition of
assets shall be deemed to be a "substantial part" of the assets of the Company
and its Subsidiaries if the book value of such assets, when added to the book
value of all other assets sold, leased or otherwise disposed of by the Company
and its Subsidiaries (other than in the ordinary course of business) during the
12-month period ending with the date of such sale, lease or other disposition,
exceeds 10% of Total Assets, determined as of the end of the immediately
preceding fiscal year; provided, however, that assets shall not be deemed to be
sold, leased or otherwise disposed of for purposes of making the computations
required by the preceding provisions of this paragraph to the extent that the
proceeds therefrom shall, within 180 days of such sale, lease or disposition
thereof by the Company or its Subsidiary, as the case may be, either (i) be used
to purchase capital assets for use in the business of the Company and its
Subsidiaries, or (ii) applied to reduce Indebtedness of the Company or its
Subsidiaries.
Section 5.11. Guaranties. The Company will not, and will not permit any
Subsidiary to, become or be liable in respect of any Guaranty except (i)
Guaranties by the Company which are limited in amount to a stated maximum dollar
exposure; (ii) Guaranties which constitute Guaranties of obligations incurred by
any Subsidiary in compliance with the provisions of this Agreement; or (iii)
Guaranties of the Company and its Subsidiaries existing as of the date of this
Agreement and reflected on Annex B to Exhibit B hereto.
Section 5.12. Repurchase of Notes. Neither the Company nor any
Subsidiary or Affiliate, directly or indirectly, may repurchase or make any
offer to repurchase any Notes unless an offer has been made to repurchase Notes,
pro rata, from all holders of the Notes at the same time and upon the same
terms. In case the Company repurchases or otherwise acquires any Notes, such
Notes shall immediately thereafter be cancelled and no Notes shall be issued in
substitution therefor. Without limiting the foregoing, upon the repurchase or
other acquisition of any Notes by the Company, any Subsidiary or any Affiliate
(or upon the agreement of the Company, any Subsidiary or any Affiliate to
purchase or otherwise acquire any Notes), such Notes shall no longer be
outstanding for purposes of any section of this Agreement relating to the taking
by the holders of the Notes of any actions with respect hereto, including,
without limitation, Section 6.3, Section 6.4 and Section 7.1.
Section 5.13. Transactions with Affiliates. The Company will not, and
will not permit any Subsidiary to, enter into or be a party to any transaction
or arrangement with any Affiliate (including, without limitation, the purchase
from, sale to or exchange of property with, or the
-14-
<PAGE> 19
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
rendering of any service by or for, any Affiliate), except in the ordinary
course of and pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Company or such Subsidiary than would obtain in a comparable arm's-length
transaction with a Person other than an Affiliate.
Section 5.14. Multiemployer Plan Liability and Termination of Pension
Plans. The Company will not and will not permit any Subsidiary to withdraw from
any Multiemployer Plan if such withdrawal could result in withdrawal liability
(as described in Part 1 of Subtitle E of Title IV of ERISA) which could
materially and adversely affect the properties, business, prospects, profits or
condition (financial or otherwise) of the Company and its Subsidiaries taken as
a whole. The Company and any Subsidiary will not permit any employee benefit
plan maintained by it to be terminated if such termination could result in the
imposition of a Lien on any property of the Company or any Subsidiary pursuant
to Section 4068 of ERISA.
Section 5.15. Reports and Rights of Inspection. The Company will keep,
and will cause each Subsidiary to keep, proper books of record and account in
which full and correct entries will be made of all dealings or transactions of,
or in relation to, the business and affairs of the Company or such Subsidiary,
in accordance with GAAP consistently applied (except for changes disclosed in
the financial statements furnished to you pursuant to this Section 5.15 and
concurred in by the independent public accountants referred to in Section
5.15(b) hereof), and will furnish to you so long as you are the holder of any
Note and to each other Institutional Holder of the then outstanding Notes (in
duplicate if so specified below or otherwise requested):
(a) Quarterly Statements. As soon as available and in any
event within 60 days after the end of each quarterly fiscal period
(except the last) of each fiscal year, copies of:
(1) consolidated balance sheets of the Company and
its Subsidiaries as of the close of such quarterly fiscal
period, setting forth in comparative form the consolidated
figures for the fiscal year then most recently ended,
(2) consolidated statements of income of the Company
and its Subsidiaries for such quarterly fiscal period and for
the portion of the fiscal year ending with such quarterly
fiscal period, in each case setting forth in comparative form
the consolidated figures for the corresponding periods of the
preceding fiscal year, and
(3) consolidated and consolidating statements of
cash flows of the Company and its Subsidiaries for the portion
of the fiscal year ending with such quarterly fiscal period,
setting forth in comparative form the consolidated figures for
the corresponding period of the preceding fiscal year,
all in reasonable detail and certified as complete and correct by an
authorized financial officer of the Company;
-15-
<PAGE> 20
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
(b) Annual Statements. As soon as available and in any event
within 120 days after the close of each fiscal year of the Company,
copies of:
(1) consolidated balance sheets of the Company and
its Subsidiaries as of the close of such fiscal year, and
(2) consolidated statements of income and retained
earnings and cash flows of the Company and its Subsidiaries
for such fiscal year,
in each case setting forth in comparative form the consolidated figures
for the preceding fiscal year, all in reasonable detail and accompanied
by a report thereon of a firm of independent public accountants of
recognized national standing selected by the Company to the effect that
the consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Company and its
Subsidiaries as of the end of the fiscal year being reported on and the
consolidated results of the operations and cash flows for said year in
conformity with GAAP and that the examination of such accountants in
connection with such financial statements has been conducted in
accordance with generally accepted auditing standards and included such
tests of the accounting records and such other auditing procedures as
said accountants deemed necessary in the circumstances;
(c) Audit Reports. Promptly upon receipt thereof, one copy of
each interim or special audit made by independent accountants of the
books of the Company or any Subsidiary and upon written request any
annual management letter received from such accountants;
(d) SEC and Other Reports. Promptly upon their becoming
available, one copy of each financial statement, report, notice or
proxy statement sent by the Company to stockholders generally and of
each regular or periodic report, and any registration statement or
prospectus filed by the Company or any Subsidiary with any securities
exchange or the Securities and Exchange Commission or any successor
agency;
(e) ERISA Reports. Promptly upon the occurrence thereof,
written notice of (i) a Reportable Event with respect to any Plan; (ii)
the institution of any steps by the Company, any ERISA Affiliate, the
PBGC or any other person to terminate any Plan in a distress
termination under Section 4041(c) of ERISA or an involuntary
termination under Section 4042 of ERISA; (iii) the institution of any
steps by the Company or any ERISA Affiliate to withdraw from any
Multiemployer Plan if such withdrawal could result in withdrawal
liability (as described in Part 1 of Subtitle E of Title IV of ERISA)
which could materially and adversely affect the properties, business,
prospects or condition (financial or otherwise) of the Company and its
Subsidiaries taken as a whole; (iv) a transaction which is prohibited
under Section 406 of ERISA and which is not exempt under Section 408 of
ERISA in connection with any Plan if such prohibited transaction could
result in liability which could materially and adversely affect the
properties, business, prospects or condition (financial or otherwise)
of the Company and its
-16-
<PAGE> 21
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
Subsidiaries taken as a whole; (v) any material increase in the
contingent liability of the Company or any Subsidiary with respect to
any post-retirement welfare liability; or (vi) the commencement or
threatened (in writing) commencement of legal proceedings by the
Internal Revenue Service, the Department of Labor or the PBGC with
respect to any of the foregoing;
(f) Officer's Certificates. Within the periods provided in
paragraphs (a) and (b) above, a certificate of an authorized financial
officer of the Company stating that such officer has reviewed the
provisions of this Agreement and setting forth: (i) the information and
computations (in sufficient detail) required in order to establish
whether the Company was in compliance with the requirements of Section
5.6 through Section 5.14 at the end of the period covered by the
financial statements then being furnIshed, and (ii) whether there
existed as of the date of such financial statements and whether, to the
best of such officer's knowledge, there exists on the date of the
certificate or existed at any time during the period covered by such
financial statements any Default or Event of Default and, if any such
condition or event exists on the date of the certificate, specifying
the nature and period of existence thereof and the action the Company
is taking and proposes to take with respect thereto;
(g) Accountant's Certificates. Within the period provided in
paragraph (b) above, a certificate of the accountants who render an
opinion with respect to such financial statements, stating that they
have reviewed this Agreement and stating further whether, in making
their audit, such accountants have become aware of any Default or Event
of Default under any of the terms or provisions of this Agreement
insofar as any such terms or provisions pertain to or involve
accounting matters or determinations, and if any such condition or
event then exists, specifying the nature and period of existence
thereof; and
(h) Requested Information. With reasonable promptness, such
other data and information as you or any such Institutional Holder may
reasonably request.
Without limiting the foregoing, the Company will permit you, so long as you are
the holder of any Note, and each Institutional Holder of the then outstanding
Notes (or such Persons as either you or such Institutional Holder may
designate), to visit and inspect, under the Company's guidance, any of the
properties of the Company or any Subsidiary, to examine all of their books of
account, financial records, reports and other papers, to make copies and
extracts therefrom and to discuss their respective affairs, finances and
accounts with their respective officers, employees, and independent public
accountants (and by this provision the Company authorizes said accountants to
discuss with you the finances and affairs of the Company and its Subsidiaries)
all at such reasonable times and as often as may be reasonably requested. You
agree and any subsequent holder of any Note shall be deemed to agree to keep
confidential any information made available to you pursuant to such a visit or
inspection, provided that you may disclose any such information (i) as may be
appropriate in connection with enforcing compliance with the terms and
conditions of this Agreement or the Notes, (ii) as has become generally
available to the public, (iii) as may be required in any report, statement or
testimony submitted to
-17-
<PAGE> 22
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
or required by any municipal, state, or Federal regulatory body, agency,
authority or commission having or claiming to have jurisdiction over you, (iv)
as may be necessary in connection with the sale of the Notes to any prospective
bona fide purchaser, (v) to the National Association of Insurance Commissioners
(or any successor agency thereto), or (vi) to any entity utilizing such
information to rate or classify your debt or equity Securities or to report to
the public concerning the industry of which you are a part.
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR.
Section 6.1. Events of Default. Any one or more of the following shall
constitute an "Event of Default" as such term is used herein:
(a) Default shall occur in the payment of interest on any
Note when the same shall have become due and such default shall
continue for more than five Business Days; or
(b) Default shall occur in the making of any required
prepayment on any of the Notes as provided in Section 2.1; or
(c) Default shall occur in the making of any other payment of
the principal of any Note or premium, if any, thereon at the expressed
or any accelerated maturity date or at any date fixed for prepayment;
or
(d) Default shall be made in the payment when due (whether by
lapse of time, by declaration, by call for redemption or otherwise) of
the principal of or interest on (i) the Credit Agreement and such
default shall continue beyond the period of grace, if any, allowed with
respect thereto or (ii) any other Indebtedness (other than the Notes)
of the Company or any Subsidiary in an aggregate amount in excess of
$5,000,000 and such default shall continue beyond the period of grace,
if any, allowed with respect thereto; or
(e) Default or the happening of any event shall occur under
(i) the Credit Agreement and such Default or event shall continue for a
period of time sufficient to permit the acceleration of the maturity of
any Indebtedness of the Company or any Subsidiary outstanding
thereunder, or (ii) any other indenture, agreement or other instrument
under which Indebtedness of the Company or any Subsidiary may be issued
and such default or event shall continue for a period of time
sufficient to permit the acceleration of the maturity of any
Indebtedness of the Company or any Subsidiary outstanding thereunder in
an aggregate amount in excess of $5,000,000; or
(f) Default shall occur in the observance or performance of
any covenant or agreement contained in Section 5.5 through Section 5.7
and Section 5.9 through Section 5.14; or
(g) Default shall occur in the observance or performance of
any other provision of this Agreement which is not remedied within 30
days after the earlier of
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<PAGE> 23
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
(i) the day on which the Company first obtains knowledge of such
default, or (ii) the day on which written notice thereof is given to
the Company by the holder of any Note; or
(h) Any representation or warranty made by the Company herein
or made by the Guarantor in the Guaranty Agreement, or made by the
Company or the Guarantor in any statement or certificate furnished by
the Company or the Guarantor in connection with the consummation of the
issuance and delivery of the Notes or furnished by the Company pursuant
hereto or by the Guarantor pursuant to the Guaranty Agreement, is
untrue in any material respect as of the date of the issuance or making
thereof; or
(i) Final judgment or judgments for the payment of money
aggregating in excess of $5,000,000 is or are outstanding against the
Company or any Subsidiary or against any property or assets of either
and any one of such judgments has remained unpaid, unvacated, unbonded
or unstayed by appeal or otherwise for a period of 30 days from the
date of its entry; or
(j) A custodian, liquidator, trustee or receiver is appointed
for the Company or any Subsidiary or for the major part of the property
of either and is not discharged within 90 days after such appointment;
or
(k) The Company or any Subsidiary becomes insolvent or
bankrupt, is generally not paying its debts as they become due or makes
an assignment for the benefit of creditors, or the Company or any
Subsidiary applies for or consents to the appointment of a custodian,
liquidator, trustee or receiver for the Company or such Subsidiary or
for the major part of the property of either; or
(l) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors, are instituted by or
against the Company or any Subsidiary and, if instituted against the
Company or any Subsidiary, are consented to or are not dismissed within
90 days after such institution.
Section 6.2. Notice to Holders. When any Event of Default described in
the foregoing Section 6.1 has occurred, or if the holder of any Note or of any
other evidence of Funded Debt or Current Debt of the Company gives any notice or
takes any other action with respect to a claimed default, the Company agrees to
give notice within three business days of such event to all holders of the Notes
then outstanding.
Section 6.3. Acceleration of Maturities. When any Event of Default
described in paragraph (a), (b) or (c) of Section 6.1 has happened and is
continuing, any holder of any Note may, and when any Event of DeFault described
in paragraphs (d) through (i), inclusive, of said Section 6.1 has happened and
is continuing, the holder or holders of 25% or more of the principal amount of
Notes at the time outstanding may, by notice to the Company, declare the entire
principal and all interest accrued on all Notes to be, and all Notes shall
thereupon become, forthwith due and payable, without any presentment, demand,
protest or other notice of any kind, all of which are
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Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
hereby expressly waived. When any Event of Default described in paragraphs (j),
(k) or (l) of Section 6.1 has occurred, then all outstanding Notes shall
immediately become due and payable without presentment, demand or notice of any
kind. Upon the Notes becoming due and payable as a result of any Event of
Default as aforesaid, the Company will forthwith pay to the holders of the Notes
the entire principal and interest accrued on the Notes and, to the extent not
prohibited by applicable law, an amount as liquidated damages for the loss of
the bargain evidenced hereby (and not as a penalty) equal to the Make-Whole
Amount, determined as of the date on which the Notes shall so become due and
payable. No course of dealing on the part of the holder or holders of any Notes
nor any delay or failure on the part of any holder of Notes to exercise any
right shall operate as a waiver of such right or otherwise prejudice such
holder's rights, powers and remedies. The Company further agrees, to the extent
permitted by law, to pay to the holder or holders of the Notes all costs and
expenses incurred by them in the collection of any Notes upon any default
hereunder or thereon, including reasonable compensation to such holder's or
holders' attorneys for all services rendered in connection therewith.
Section 6.4. Rescission of Acceleration. The provisions of Section 6.3
are subject to the condition that if the principal of and accrued interest on
all or any outstanding Notes have been declared immediately due and payable by
reason of the occurrence of any Event of Default described in paragraphs (a)
through (i), inclusive, of Section 6.1, the holders of 66-2/3% in aggregate
principal amount of the Notes then outstanding may, by written instrument filed
with the Company, rescind and annul such declaration and the consequences
thereof, provided that at the time such declaration is annulled and rescinded:
(a) no judgment or decree has been entered for the payment of
any monies due pursuant to the Notes or this Agreement;
(b) all arrears of interest upon all the Notes and all other
sums payable under the Notes and under this Agreement (except any
principal, interest or premium on the Notes which has become due and
payable solely by reason of such declaration under Section 6.3) shall
have been duly paid; and
(c) each and every other Default and Event of Default shall
have been made good, cured or waived pursuant to Section 7.1;
and provided further, that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right consequent
thereto.
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS.
Section 7.1. Consent Required. Any term, covenant, agreement or
condition of this Agreement may, with the consent of the Company, be amended or
compliance therewith may be waived (either generally or in a particular instance
and either retroactively or prospectively), if the Company shall have obtained
the consent in writing of the holders of more than 50% in aggregate principal
amount of outstanding Notes; provided that without the written consent of the
holders of all of the Notes then outstanding, no such amendment or waiver shall
be effective
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Penford Corporation Restatement and Exchange Agreement
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(i) which will change the time of payment (including any prepayment required by
Section 2.1) of the prinCipal of or the interest on any Note or change the
principal amount thereof or change the rate of interest thereon, or (ii) which
will change any of the provisions with respect to optional prepayments, or (iii)
which will change the percentage of holders of the Notes required to consent to
any such amendment or waiver of any of the provisions of this Section 7 or
Section 6.
Section 7.2. Solicitation of Holders. So long as there are any Notes
outstanding, the Company will not solicit, request or negotiate for or with
respect to any proposed waiver or amendment of any of the provisions of this
Agreement or the Notes unless each holder of Notes (irrespective of the amount
of Notes then owned by it) shall be informed thereof by the Company and shall be
afforded the opportunity of considering the same and shall be supplied by the
Company with sufficient information to enable it to make an informed decision
with respect thereto. The Company will not, directly or indirectly, pay or cause
to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, to any holder of Notes as consideration for or as an
inducement to entering into by any holder of Notes of any waiver or amendment of
any of the terms and provisions of this Agreement or the Notes unless such
remuneration is concurrently offered, on the same terms, ratably to the holders
of all Notes then outstanding.
Section 7.3. Effect of Amendment or Waiver. Any such amendment or
waiver shall apply equally to all of the holders of the Notes and shall be
binding upon them, upon each future holder of any Note and upon the Company,
whether or not such Note shall have been marked to indicate such amendment or
waiver. No such amendment or waiver shall extend to or affect any obligation not
expressly amended or waived or impair any right consequent thereon.
SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS.
Section 8.1. Definitions. Unless the context otherwise requires, the
terms hereinafter set forth when used herein shall have the following meanings
and the following definitions shall be equally applicable to both the singular
and plural forms of any of the terms herein defined:
"Accredited Investor" shall have the meaning set forth in Rule 501(a)
of Regulation D as promulgated by the Securities and Exchange Commission under
the Securities Act of 1933, as amended.
"Affiliate" shall mean any Person (other than a Subsidiary) (i) which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, the Company, (ii) which
beneficially owns or holds 5% or more of any class of the Voting Stock of the
Company, (iii) 5% or more of the Voting Stock (or in the case of a Person which
is not a corporation, 5% or more of the equity interest) of which is
beneficially owned or held by the Company or a Subsidiary, or (iv) who is an
officer or director of the Company or any of its Subsidiaries. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of Voting Stock, by contract or otherwise.
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Penford Corporation Restatement and Exchange Agreement
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"Bank" shall mean The Bank of Nova Scotia.
"Business Day" shall mean any day other than a Saturday, Sunday or a
legal holiday for banks in the States of Washington or Iowa.
"Capitalized Lease" shall mean any lease the obligation for Rentals
with respect to which is required to be capitalized on a consolidated balance
sheet of the lessee and its subsidiaries in accordance with GAAP.
"Capitalized Lease Liabilities" shall mean all monetary obligations of
the Company and its Subsidiaries under any leasing or similar arrangement which,
in accordance with GAAP, would be classified as capitalized leases, and, for
purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP, and the stated
maturity thereof shall be the date of the last payment of rent or any other
amount due under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty.
"Capitalized Rentals" of any Person shall mean as of the date of any
determination thereof the amount at which the aggregate Rentals due and to
become due under all Capitalized Leases under which such Person is a lessee
would be reflected as a liability on a consolidated balance sheet of such
Person.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Consolidated Current Debt" shall mean all Current Debt of the Company
and its Subsidiaries, determined on a consolidated basis eliminating
intercompany items.
"Consolidated Funded Debt" shall mean all Funded Debt of the Company
and its Subsidiaries, determined on a consolidated basis eliminating
intercompany items.
"Consolidated Net Income" for any period shall mean the gross revenues
of the Company and its Subsidiaries for such period less all expenses and other
proper charges (including taxes on income), determined on a consolidated basis
after eliminating earnings or losses attributable to outstanding Minority
Interests, but excluding in any event:
(a) any gains or losses on the sale or other disposition of
Investments or fixed or capital assets, and any taxes on such excluded
gains and any tax deductions or credits on account of any such excluded
losses;
(b) the proceeds of any life insurance policy;
(c) net earnings and losses of any Subsidiary accrued prior
to the date it became a Subsidiary;
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Penford Corporation Restatement and Exchange Agreement
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(d) net earnings and losses of any corporation (other than a
Subsidiary), substantially all the assets of which have been acquired
in any manner by the Company or any Subsidiary, realized by such
corporation prior to the date of such acquisition;
(e) net earnings and losses of any corporation (other than a
Subsidiary) with which the Company or a Subsidiary shall have
consolidated or which shall have merged into or with the Company or a
Subsidiary prior to the date of such consolidation or merger;
(f) net earnings of any business entity (other than a
Subsidiary) in which the Company or any Subsidiary has an ownership
interest unless such net earnings shall have actually been received by
the Company or such Subsidiary in the form of cash distributions;
(g) any portion of the net earnings of any Subsidiary which
for any reason is unavailable for payment of dividends to the Company
or any other Subsidiary;
(h) earnings resulting from any reappraisal, revaluation or
write-up of assets;
(i) any deferred or other credit representing any excess of
the equity in any Subsidiary at the date of acquisition thereof over
the amount invested in such Subsidiary;
(j) any gain arising from the acquisition of any Securities
of the Company or any Subsidiary; and
(k) any reversal of any contingency reserve, except to the
extent that provision for such contingency reserve shall have been made
from income arising during such period.
"Consolidated Net Worth" shall mean the consolidated net worth of the
Company and its Subsidiaries, as reflected in the consolidated financial
statements of the Company and its Subsidiaries.
"Consolidated Tangible Net Worth" shall mean the consolidated net worth
of the Company and its Subsidiaries (if any) less (unless otherwise deducted in
determining consolidated net worth) the aggregate amount of any intangible
assets of the Company and its Subsidiaries, including, without limitation,
deferred financing and organizational costs (net of amortization), goodwill,
franchises, licenses, patents, trademarks, trade names, copyrights, service
marks and brand names, all as reflected in the consolidated financial statements
of the Company and its Subsidiaries.
"Contingent Liability" shall mean any agreement, undertaking or
arrangement by which any Person guarantees, endorses or otherwise becomes or is
contingently liable upon (by direct or indirect agreement, contingent or
otherwise, to provide funds for payment, to supply funds to, or otherwise to
invest in, a debtor, or otherwise to assure a creditor against loss) the
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Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
indebtedness, obligation or any other liability of any other Person (other than
by endorsements of instruments in the course of collection), or guarantees the
payment of dividends or other distributions upon the shares of any other Person.
The amount of any Person's obligation under any Contingent Liability shall
(subject to any limitation set forth therein) be calculated in accordance with
GAAP; provided, however, that the Contingent Liability of the Company or any
Subsidiary under any guarantee of any Person's obligation under a revolving
credit facility shall be deemed to be the amount of the borrowing then
outstanding under such facility plus any interest accrued thereon and any other
charges then due under such facility.
"Credit Agreement" shall mean the Credit Agreement dated as of July 2,
1998, among the Company, Penford Products and the Bank, as Agent for the Lenders
named therein, as the same may be amended from time to time.
"Current Debt" of any Person shall mean as of the date of any
determination thereof (i) all Indebtedness of such Person for borrowed money
other than Funded Debt of such Person and (ii) Guaranties by such Person of
Current Debt of others.
"Default" shall mean any event or condition the occurrence of which
would, with the lapse of time or the giving of notice, or both, constitute an
Event of Default.
"EBITDA" shall mean, for any period of four Fiscal Quarters, the
earnings from continuing operations of the Company and its Subsidiaries (as
reflected in their consolidated financial statements) before interest expense,
taxes, depreciation and amortization, calculated on a rolling four Fiscal
Quarter basis, but excluding any historical one time non-recurring charges and
the charges incurred by the Company in connection with the divestiture of
Penwest.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA shall be construed to also refer to any successor sections.
"ERISA Affiliate" shall mean any corporation, trade or business that
is, along with the Company, a member of a controlled group of corporations or a
controlled group of trades or businesses, as described in Section 414(b) and
414(c), respectively, of the Code or Section 4001 of ERISA.
"Event of Default" shall have the meaning set forth in Section 6.1.
"Exchange Act Reports" shall have the meaning specified in paragraph
4(b) of Exhibit B hereto.
"Fiscal Quarter" shall mean any quarter of a Fiscal Year.
"Fiscal Year" shall mean any period of twelve consecutive calendar
months ending on August 31; references to a Fiscal Year with a number
corresponding to any calendar year (e.g.,
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Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
the "1997 Fiscal Year") refer to the Fiscal Year ending on the August 31
occurring during such calendar year.
"Funded Debt" of any Person shall mean all Indebtedness of such Person
in each case having a final maturity of one or more than one year from the date
of origin thereof (or which is renewable or extendible at the option of the
obligor for a period or periods more than one year from the date of origin),
including all payments in respect thereof that are required to be made within
one year from the date of any determination of Funded Debt, whether or not the
obligation to make such payments shall constitute a current liability of the
obligor under GAAP.
"GAAP" shall mean generally accepted accounting principles at the time
in the United States.
"GAAP Net Income" shall mean the consolidated net income of the Company
and its Subsidiaries, determined in accordance with GAAP.
"Guaranties" by any Person shall mean all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing, or in effect guaranteeing,
any Indebtedness, dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such Person: (i) to purchase such Indebtedness or obligation or
any property or assets constituting security therefor, (ii) to advance or supply
funds (x) for the purchase or payment of such Indebtedness or obligation, (y) to
maintain working capital or other balance sheet condition or otherwise to
advance or make available funds for the purchase or payment of such Indebtedness
or obligation, (iii) to lease property or to purchase Securities or other
property or services primarily for the purpose of assuring the owner of such
Indebtedness or obligation of the ability of the primary obligor to make payment
of the Indebtedness or obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of all computations made under this Agreement, a
Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be
Indebtedness equal to the outstanding principal amount of such Indebtedness for
borrowed money which has been guaranteed, and a Guaranty in respect of any other
obligation or liability or any dividend shall be deemed to be Indebtedness equal
to the maximum aggregate amount of such obligation, liability or dividend.
"Guaranty Agreement" shall mean the Guaranty Agreement of the Guarantor
substantially in the form attached hereto as Exhibit C.
"Guarantor" shall mean Penford Products.
"Indebtedness" of any Person shall mean, without duplication:
(a) all obligations of such Person for borrowed money and all
obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments;
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Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
(b) all obligations of such Person as lessee under leases
which have been or should be, in accordance with GAAP, recorded as
Capitalized Lease Liabilities;
(c) all obligations, contingent or otherwise, relative to the
face amount of all letters of credit, whether or not drawn, and
banker's acceptances issued for the account of such Person;
(d) whether or not so included as liabilities in accordance
with GAAP, all indebtedness (excluding prepaid interest thereon)
secured by a Lien on property owned or being purchased by such Person
(including indebtedness arising under conditional sales or other title
retention agreements), whether or not such indebtedness shall have been
assumed by such Person or is limited in recourse; and
(e) all Contingent Liabilities of such Person in respect of
any of the foregoing.
For all purposes of this Agreement, (i) obligations of a Subsidiary to the
Company or a Wholly-Owned Subsidiary shall not be considered Indebtedness and
(ii) the Indebtedness of any Person shall include the Indebtedness of any
partnership or joint venture in which such Person is a general partner or a
joint venturer to the extent that either (x) such Person is directly obligated
for such Indebtedness, or (y) that such Indebtedness is a Contingent Liability
of such Person.
"Indebtedness to Consolidated Capitalization Ratio" means the ratio of
(i) the principal amount of all Indebtedness of the Company and its Subsidiaries
(if any) to (ii) the sum of the principal amount of all Indebtedness and
Consolidated Net Worth.
"Institutional Holder" shall mean any insurance company, bank, savings
and loan association, trust company, investment company, charitable foundation,
employee benefit plan (as defined in ERISA) or other institutional investor or
financial institution.
"Intercompany Agreements" shall have the meaning set forth in Section
1.1.
"Intercreditor Agreement" shall mean the Intercreditor Agreement
substantially in the form attached hereto as Exhibit D.
"Interest/Rental Expense Coverage Ratio" shall mean, for any period of
four consecutive Fiscal Quarters, the ratio of (i) the sum of the EBITDA and
Personal Property Rental Expense of the Company and its Subsidiaries for such
period to (ii) the sum of their interest expense and Personal Property Rental
Expense.
"Investments" shall mean all investments, in cash or by delivery of
property made, directly or indirectly in any Person, whether by acquisition of
shares of capital stock, indebtedness or other obligations or Securities or by
loan, advance, capital contribution or otherwise; provided, however, that
"Investments" shall not mean or include routine investments in property to be
used or consumed in the ordinary course of business.
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Penford Corporation Restatement and Exchange Agreement
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"Leverage Ratio" shall mean, for any period of four consecutive Fiscal
Quarters, the ratio of (i) the sum of the Indebtedness of the Company and its
Subsidiaries as of the end of such period to (ii) the sum of the EBITDA of the
Company and its Subsidiaries for such period.
"Lien" shall mean any security interest, mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
otherwise), charge against or interest in property to secure payment of a debt
or performance of an obligation or other priority or preferential arrangement of
any kind or nature whatsoever.
"Loan Agreement" shall mean the Loan Agreement dated as of July 2,
1998, between Penwest and the Bank, as the same may be amended from time to
time.
"Make-Whole Amount" shall mean in connection with any prepayment or
acceleration of the Notes the excess, if any, of (i) the aggregate present value
as of the date of such prepayment of each dollar of principal being prepaid
(taking into account the application of such prepayment required by Section 2.1)
and the amount of interest (exclusive of interest accrued to the date of
prepayment) that would have been payable in respect of such dollar if such
prepayment had not been made, determined by discounting such amounts at the
Reinvestment Rate from the respective dates on which they would have been
payable, over (ii) 100% of the principal amount of the outstanding Notes being
prepaid. If the Reinvestment Rate is equal to or higher than the interest rate
then borne by any Note, the Make-Whole Amount as to such Note shall be zero. For
purposes of any determination of the Make-Whole Amount:
"Reinvestment Rate" shall mean 0.50% plus the arithmetic mean
of the yields for the two columns under the heading "Week Ending"
published in the Statistical Release under the caption "Treasury
Constant Maturities" for the maturity (rounded to the nearest month)
corresponding to the Weighted Average Life to Maturity of the principal
of the Notes being prepaid (taking into account the application of such
prepayment required by Section 2.1). If no maturity exactly corresponds
to such WeiGhted Average Life to Maturity, yields for the two published
maturities most closely corresponding to such Weighted Average Life to
Maturity shall be calculated pursuant to the immediately preceding
sentence and the Reinvestment Rate shall be interpolated or
extrapolated from such yields on a straight-line basis, rounding in
each of such relevant periods to the nearest month. For the purposes of
calculating the Reinvestment Rate, the most recent Statistical Release
published prior to the date of determination of the Make-Whole Amount
shall be used.
"Statistical Release" shall mean the then most recently
published statistical release designated "H.15(519)" or any successor
publication which is published weekly by the Federal Reserve System and
which establishes yields on actively traded U.S. Government Securities
adjusted to constant maturities or, if such statistical release is not
published at the time of any determination hereunder, then such other
reasonably comparable index which shall be designated by the holders of
66-2/3% in aggregate principal amount of the outstanding Notes.
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Penford Corporation Restatement and Exchange Agreement
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"Weighted Average Life to Maturity" of the principal amount of
the Notes being prepaid shall mean, as of the time of any determination
thereof, the number of years obtained by dividing the then Remaining
Dollar-Years of such principal by the aggregate amount of such
principal. The term "Remaining Dollar-Years" of such principal shall
mean the amount obtained by (i) multiplying (x) the remainder of (1)
the amount of principal of the Notes that would have become due on each
scheduled payment date if such prepayment had not been made, less (2)
the amount of principal on the Notes scheduled to become due on such
date after giving effect to such prepayment and the application thereof
in accordance with the provisions of Section 2.1, by (y) the number of
years (calculated to the nearest one-twelfth) which will eLapse between
the date of determination and such scheduled payment date, and (ii)
totalling the products obtained in (i).
"Minority Interests" shall mean any shares of stock of any class of a
Subsidiary (other than directors' qualifying shares as required by law) that are
not owned by the Company and/or one or more of its Subsidiaries. Minority
Interests shall be valued by valuing Minority Interests constituting preferred
stock at the voluntary or involuntary liquidating value of such preferred stock,
whichever is greater, and by valuing Minority Interests constituting common
stock at the book value of capital and surplus applicable thereto adjusted, if
necessary, to reflect any changes from the book value of such common stock
required by the foregoing method of valuing Minority Interests in preferred
stock.
"Multiemployer Plan" shall have the same meaning as in ERISA.
"Net Equity Proceeds" shall mean, with respect to any issuance by the
Company or any Subsidiary of any equity securities, the gross consideration
received by or for the account of the issuer minus underwriting and brokerage
commissions, discounts and fees and other professional fees and expenses
relating to such issuance that are payable by the issuer.
"New Notes" or "Notes" shall have the meaning set forth in Section 1.3.
"Old Notes" shall have the meaning set forth in Section 1.2.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"Penford Products" shall mean Penford Products Co., a Delaware
corporation.
"Penford Products Obligation" shall have the meaning specified in the
Intercreditor Agreement.
"Penwest" shall mean Penwest Pharmaceuticals Co., a Washington
corporation.
"Penwest Guarantee" shall mean the guarantees by the Company and
Penford Products of that certain $15,000,000 revolving term credit facility
provided by Scotiabank to Penwest.
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Penford Corporation Restatement and Exchange Agreement
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"Person" shall mean any natural person, corporation, partnership, firm,
association, trust, government, governmental agency or any other entity, whether
acting in an individual, fiduciary or other capacity.
"Personal Property Rental Expense" shall mean the expense for the
rental or lease of furniture, fixtures and equipment, including without
limitation leases of rail cars.
"Pharmaceuticals Company" shall have the meaning set forth in Section
1.1.
"Plan" shall mean a "pension plan," as such term is defined in Section
3(2)(A) of ERISA, which is a defined benefit plan, established or maintained by
the Company or any ERISA Affiliate or as to which the Company or any ERISA
Affiliate contributed or is a member or otherwise may have any liability.
"PTE" shall have the meaning set forth in Section 3.2.
"Purchasers" shall have the meaning set forth in Section 1.3.
"Rentals" shall mean and include as of the date of any determination
thereof all fixed payments (including as such all payments which the lessee is
obligated to make to the lessor on termination of the lease or surrender of the
property) payable by the Company or a Subsidiary, as lessee or sublessee under a
lease of real or personal property, but shall be exclusive of any amounts
required to be paid by the Company or a Subsidiary (whether or not designated as
rents or additional rents) on account of maintenance, repairs, insurance, taxes
and similar charges. Fixed rents under any so-called "percentage leases" shall
be computed solely on the basis of the minimum rents, if any, required to be
paid by the lessee regardless of sales volume or gross revenues.
"Reportable Event" shall have the same meaning as in Section 4043(b) of
ERISA other than a Reportable Event as to which the provision of 30 days' notice
to the PBGC is waived under applicable regulations; provided, however, that the
loss of qualification of a Plan and the failure to meet the minimum funding
standard of Section 412 of the Code or Section 302 of ERISA shall constitute a
Reportable Event regardless of the issuance of any waiver of the reporting
requirement by the PBGC.
"Restricted Investments" shall mean all Investments other than
Investments described in the following subparagraphs (a) through (g):
(a) Investments by the Company and its Subsidiaries in
property to be used in, and receivables arising from the sale of goods
and services in, the ordinary course of business of the Company and its
Subsidiaries;
(b) Investments by the Company and its Subsidiaries in and to
Subsidiaries, including any Investment in a corporation which, after
giving effect to such Investment, will become a Subsidiary;
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Penford Corporation Restatement and Exchange Agreement
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(c) Investments in direct obligations of the United States of
America or any agency or instrumentality of the United States of
America, the payment or guarantee of which constitutes a full faith and
credit obligation of the United States of America, in either case,
maturing in three years or less from the date of acquisition thereof;
(d) Investments in securities maturing within three years
from the date of acquisition thereof, issued by a municipality located
in the United States which are, at the time of acquisition thereof by
the Company or a Subsidiary, accorded one of the top two rating
classifications by Standard & Poor's Corporation, Moody's Investors
Service, Inc. or other nationally recognized credit rating agency of
similar standing;
(e) Investments in certificates of deposit or banker's
acceptances maturing within one year from the date of issuance thereof,
issued by a bank or trust company organized under the laws of either
the United States, Canada, Japan or a country located in Western Europe
and having capital, surplus and undivided profits aggregating at least
$100,000,000;
(f) Investments in commercial paper maturing in 270 days or
less from the date of issuance which, at the time of acquisition by the
Company or any Subsidiary, is accorded one of the top two rating
classifications of Standard & Poor's Corporation, Moody's Investors
Service, Inc. or other nationally recognized credit rating agency of
similar standing; and
(g) other Investments of the Company and/or its Subsidiaries
existing as of the date of this Agreement which are described in Annex
B to Exhibit B to this Agreement.
In valuing any Investments for the purposes of this Agreement, such
Investments shall be taken at the original cost thereof, without allowance for
any subsequent write-offs or appreciation or depreciation therein, but less any
amount repaid or recovered on account of capital or principal.
For purposes of this definition, at any time when a corporation becomes
a Subsidiary, all Investments of such corporation at such time shall be deemed
to have been made by such corporation, as a Subsidiary, at such time.
"Scotiabank" shall mean The Bank of Nova Scotia.
"Security" shall have the same meaning as in Section 2(a)(1) of the
Securities Act of 1933, as amended.
"Spin-off" shall have the meaning set forth in Section 1.1.
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<PAGE> 35
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
"Stockholders' Equity" shall mean the sum of capital stock, premium
(exclusive of any premium arising by virtue of any appraisal or revaluation of
any assets) and retained earnings of the Company.
The term "subsidiary" shall mean as to any particular parent
corporation any corporation of which more than 50% (by number of votes) of the
Voting Stock shall be beneficially owned, directly or indirectly, by such parent
corporation. The term "Subsidiary" shall mean a subsidiary of the Company.
"Total Assets" shall mean as of the date of any determination thereof
the total amount of all assets of the Company and its Subsidiaries (less
depreciation, depletion and other properly deductible valuation reserves).
"Transaction" and "Transactions" shall have the meanings set forth in
Section 1.1.
"Voting Stock" shall mean Securities of any class or classes, the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
"Wholly-owned" when used in connection with any Subsidiary shall mean a
Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares) and all Funded Debt and Current
Debt shall be owned by the Company and/or one or more of its Wholly-owned
Subsidiaries.
Section 8.2. Accounting Principles. Where the character or amount of
any asset or liability or item of income or expense is required to be determined
or any consolidation or other accounting computation is required to be made for
the purposes of this Agreement, the same shall be done in accordance with GAAP,
to the extent applicable, except where such principles are inconsistent with the
requirements of this Agreement.
Section 8.3. Directly or Indirectly. Where any provision in this
Agreement refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether the action in
question is taken directly or indirectly by such Person.
SECTION 9. MISCELLANEOUS.
Section 9.1. Registered Notes. The Company shall cause to be kept at
its principal office a register for the registration and transfer of the Notes
(hereinafter called the "Note Register") and the Company will register or
transfer or cause to be registered or transferred as hereinafter provided any
Note issued pursuant to this Agreement.
At any time and from time to time the registered holder of any Note
which has been duly registered as hereinabove provided may transfer such Note
upon surrender thereof at the principal office of the Company duly endorsed or
accompanied by a written instrument of
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<PAGE> 36
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
transfer duly executed by the registered holder of such Note or its attorney
duly authorized in writing.
The Person in whose name (or in whose nominee's name) any registered
Note shall be registered shall be deemed and treated as the owner and holder
thereof for all purposes of this Agreement. Payment of or on account of the
principal, premium, if any, and interest on any registered Note shall be made to
or upon the written order of such Person.
Section 9.2. Exchange of Notes. At any time and from time to time, upon
not less than ten days' notice to that effect given by the holder of any Note
initially delivered or of any Note substituted therefor pursuant to Section 9.1,
this Section 9.2 or Section 9.3, and, upon surrender of such Note at its office,
the Company will deliver in exchange therefor, without expense to such holder,
except as set forth below, a Note for the same aggregate principal amount as the
then unpaid principal amount of the Note so surrendered, or Notes in the
denomination of $50,000 or any amount in excess thereof as such holder shall
specify, dated as of the date to which interest has been paid on the Note so
surrendered or, if such surrender is prior to the payment of any interest
thereon, then dated as of the date of issue, registered in the name of such
Person or Persons as may be designated by such holder, and otherwise of the same
form and tenor as the Notes so surrendered for exchange. The Company may require
the payment of a sum sufficient to cover any stamp tax or governmental charge
imposed upon such exchange or transfer. For a period of three years after the
Closing Date, the Company may require representations, an opinion of counsel or
other documentation reasonable to verify that any transfer of a Note is not in
violation of the registration requirements of the Securities Act of 1933, as
amended or similar state securities laws; provided that the Company shall
reimburse or pay directly any out-of-pocket expenses incurred by any Holder of a
Note in connection with the compliance by such Holder with the requirements of
this sentence.
Section 9.3. Loss, Theft, Etc. of Notes. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of any
Note, and in the case of any such loss, theft or destruction upon delivery of a
bond of indemnity in such form and amount as shall be reasonably satisfactory to
the Company, or in the event of such mutilation upon surrender and cancellation
of the Note, the Company will make and deliver without expense to the holder
thereof, a new Note, of like tenor, in lieu of such lost, stolen, destroyed or
mutilated Note. If the Purchasers or any subsequent Institutional Holder is the
owner of any such lost, stolen or destroyed Note, then the affidavit of an
authorized officer of such owner setting forth the fact of loss, theft or
destruction and of its ownership of such Note at the time of such loss, theft or
destruction shall be accepted as satisfactory evidence thereof and no further
indemnity shall be required as a condition to the execution and delivery of a
new Note other than the written agreement of such owner to indemnify the
Company; provided, that upon request by the Company such owner shall verify the
authority of any such authorized officer by the delivery to the Company of a
certificate to such effect from senior officials of such owner who have
supervisory responsibility of such officer.
Section 9.4. Expenses, Stamp Tax Indemnity. Whether or not the
transactions herein contemplated shall be consummated, the Company agrees to pay
directly all of your out-of-
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<PAGE> 37
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
pocket expenses in connection with the preparation, execution and delivery of
this Agreement and the transactions contemplated hereby, including but not
limited to the reasonable charges and disbursements of Chapman and Cutler, your
special counsel, duplicating and printing costs and charges for shipping the
Notes, adequately insured to you at your home office or at such other place as
you may designate, and all such expenses relating to any amendment, waivers or
consents pursuant to the provisions hereof, including, without limitation, any
amendments, waivers, or consents resulting from any work-out, renegotiation or
restructuring relating to the performance by the Company of its obligations
under this Agreement and the Notes. The Company also agrees that it will pay and
save you harmless against any and all liability with respect to stamp and other
taxes, if any, which may be payable or which may be determined to be payable in
connection with the execution and delivery of this Agreement or the Notes,
whether or not any Notes are then outstanding. The Company agrees to protect and
indemnify you against any liability for any and all brokerage fees and
commissions payable or claimed to be payable to any Person in connection with
the transactions contemplated by this Agreement. You represent that you have not
engaged any broker or finder in connection with the negotiation, execution or
delivery of this Agreement.
Section 9.5. Powers and Rights Not Waived; Remedies Cumulative. No
delay or failure on the part of the holder of any Note in the exercise of any
power or right shall operate as a waiver thereof; nor shall any single or
partial exercise of the same preclude any other or further exercise thereof, or
the exercise of any other power or right, and the rights and remedies of the
holder of any Note are cumulative to, and are not exclusive of, any rights or
remedies any such holder would otherwise have.
Section 9.6. Notices. All communications provided for hereunder shall
be in writing and, if to you, delivered or mailed prepaid by registered or
certified mail or overnight air courier, or by facsimile communication, in each
case addressed to you at your address appearing on Schedule I to this Agreement
or such other address as you or the subsequent holder of any Note initially
issued to you may designate to the Company in writing, and if to the Company,
delivered or mailed by registered or certified mail or overnight air courier, or
by facsimile communication, to the Company at 777-108th Avenue N.E., Suite 2390,
Bellevue, Washington 98004-5193, Attention: Jeffrey T. Cook or to such other
address as the Company may in writing designate to you or to a subsequent holder
of the Note initially issued to you; provided, however, that a notice to you by
overnight air courier shall only be effective if delivered to you at a street
address designated for such purpose in Schedule I, and a notice to you by
facsimile communication shall only be effective if made by confirmed
transmission to you at a telephone number designated for such purpose in
Schedule I, or, in either case, as you or a subsequent holder of any Note
initially issued to you may designate to the Company in writing.
Section 9.7. Successors and Assigns. This Agreement shall be binding
upon the Company and its successors and assigns and shall inure to your benefit
and to the benefit of your successors and assigns, including each successive
holder or holders of any Notes.
Section 9.8. Survival of Covenants and Representations. All covenants,
representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto,
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<PAGE> 38
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
whether or not in connection with the Closing Date, shall survive the closing
and the delivery of this Agreement and the Notes.
Section 9.9. Severability. Should any part of this Agreement for any
reason be declared invalid or unenforceable, such decision shall not affect the
validity or enforceability of any remaining portion, which remaining portion
shall remain in force and effect as if this Agreement had been executed with the
invalid or unenforceable portion thereof eliminated and it is hereby declared
the intention of the parties hereto that they would have executed the remaining
portion of this Agreement without including therein any such part, parts or
portion which may, for any reason, be hereafter declared invalid or
unenforceable.
Section 9.10. Governing Law. This Agreement and the Notes issued and
sold hereunder shall be governed by and construed in accordance with Washington
law.
Section 9.11. Captions. The descriptive headings of the various
Sections or parts of this Agreement are for convenience only and shall not
affect the meaning or construction of any of the provisions hereof.
Section 9.12. Oral Agreements. Oral agreements or oral commitments to
loan money, extend credit, or to forbear from enforcing repayment of a debt are
not enforceable under Washington law.
-34-
<PAGE> 39
Penford Corporation Restatement and Exchange Agreement
(1992 Note Agreements)
The execution hereof by you shall constitute a contract between us for
the uses and purposes hereinabove set forth, and this Agreement may be executed
in any number of counterparts, each executed counterpart constituting an
original but all together only one agreement.
PENFORD CORPORATION
By /s/ Victor W. Breed
Name: Victor W. Breed
Title: Corporate Director of Finance
Accepted as of August 1, 1998.
UNITED OF OMAHA LIFE INSURANCE COMPANY
By /s/ Edwin H. Garrison Jr.
Name: Edwin H. Garrison Jr.
Title: First Vice President
MUTUAL OF OMAHA INSURANCE COMPANY
By /s/ Edwin H. Garrison Jr.
Name: Edwin H. Garrison Jr.
Title: First Vice President
UNITED WORLD LIFE INSURANCE COMPANY
By /s/ Edwin H. Garrison Jr.
Name: Edwin H. Garrison Jr.
Title: Authorized Signer
COMPANION LIFE INSURANCE COMPANY
By /s/ Edwin H. Garrison Jr.
Name: Edwin H. Garrison Jr.
Title: Assistant Treasurer
By /s/ Jeffry F. Sailer
Name: Jeffry F. Sailer
Title: Assistant Treasurer
AMERICAN REPUBLIC INSURANCE COMPANY
By /s/ G. F. Sheldon
Name: G. F. Sheldon
Title: Senior Vice President,
Investments
FARMERS AND TRADERS LIFE INSURANCE
COMPANY
By /s/ Frank J. D'Onofrio, Jr.
Name: Frank J. D'Onofrio, Jr.
Title: Vice President-Investments
-35-
<PAGE> 40
SCHEDULE I
PRINCIPAL AMOUNT
NAME AND ADDRESS OF NOTES TO BE
OF PURCHASERS ACQUIRED
UNITED OF OMAHA LIFE INSURANCE COMPANY $8,928,500
Mutual of Omaha Plaza
Omaha, Nebraska 68175-1011
Attention: 4-Investment Loan Administration
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Penford Corporation, Adjustable Rate Senior Notes due 2002, PPN 707051 A# 5,
principal, premium or interest") to:
Chase Manhattan Bank
ABA #021-000-021
Private Income Processing
for credit to: United of Omaha Life Insurance Company
Account Number 900-9000200
a/c G07097
PPN: 707051 A# 5
Interest Amount: ____________________________________________
Principal Amount: ___________________________________________
Notices
All notices of payments, on or in respect of the Notes and written confirmation
of each such payment, corporate actions and reorganization notifications to:
The Chase Manhattan Bank
4 New York Plaza-13th Floor
New York, New York 10004
Attention: Investment Processing-J. Pipperato
a/c: G07097
All other notices and communications (i.e., quarterly/annual reports, tax
filings, modifications, waivers regarding the indenture) to be addressed as
first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 47-0322111
SCHEDULE I
(to Restatement and Exchange Agreement)
<PAGE> 41
PRINCIPAL AMOUNT
NAME AND ADDRESS OF NOTES TO BE
OF PURCHASERS ACQUIRED
MUTUAL OF OMAHA INSURANCE COMPANY $3,214,260
Mutual of Omaha Plaza
Omaha, Nebraska 68175-1011
Attention: 4-Investment Loan Administration
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Penford Corporation, Adjustable Rate Senior Notes due 2002, PPN 707051 A# 5,
principal, premium or interest") to:
Chase Manhattan Bank
ABA #021-000-021
Private Income Processing
for credit to: Mutual of Omaha Insurance Company
Account Number 900-9000200
a/c G07096
PPN: 707051 A# 5
Interest Amount: ____________________________________________
Principal Amount: ___________________________________________
Notices
All notices of payments, on or in respect of the Notes and written confirmation
of each such payment, corporate actions and reorganization notifications to:
The Chase Manhattan Bank
4 New York Plaza-13th Floor
New York, New York 10004
Attention: Investment Processing-J. Pipperato
a/c: G07096
All other notices and communications (i.e., quarterly/annual reports, tax
filings, modifications, waivers regarding the indenture) to be addressed as
first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 47-0246511
I-2
<PAGE> 42
PRINCIPAL AMOUNT
NAME AND ADDRESS OF NOTES TO BE
OF PURCHASERS ACQUIRED
COMPANION LIFE INSURANCE COMPANY $714,280
Mutual of Omaha Plaza
Omaha, Nebraska 68175
Attention: Investment Division
Telefacsimile: (402) 351-2913
Confirmation: (402) 351-2583
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds to:
Companion Life Insurance Company
c/o The Bank of New York (ABA #0210-0001-8)
Account Number 111566 Income Collection
Attention: P&I Department
For Payment on: Penford Corporation, Adjustable Rate Senior Notes due
2002, PPN 707051 A# 5
Interest Amount: ____________________________________________
Principal Amount:_____________________________________________
Payable Date: _______________________________________________
CLICO
Notices
All notices of payment, on or in respect of the Notes and written confirmation
of each such payment, to:
Companion Life Insurance Company
Mutual of Omaha Plaza
Omaha, Nebraska 68175
Attention: Investment Securities Accounting
with duplicate notice to:
Companion Life Insurance Company
401 Theodore Fremd Avenue
Rye, New York 10580-1493
Attention: Financial Division
All notices and communications other than those in respect to payments to be
addressed as first provided above
I-3
<PAGE> 43
with duplicate notice to:
Companion Life Insurance Company
401 Theodore Fremd Avenue
Rye, New York 10580-1493
Attention: Financial Division
Name of Nominee in which Notes are to be issued: HARE & CO.
Taxpayer I.D. Number for HARE & CO.: 13-6062916
I-4
<PAGE> 44
PRINCIPAL AMOUNT
NAME AND ADDRESS OF NOTES TO BE
OF PURCHASERS ACQUIRED
AMERICAN REPUBLIC INSURANCE COMPANY $714,280
P. O. Box One
Des Moines, Iowa 50301
Attention: G. F. Sheldon
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Penford Corporation, Adjustable Rate Senior Notes due 2002, PPN 707051 A# 5,
principal, premium or interest") to:
Norwest Bank Iowa, N.A. (ABA #073-000-228)
666 Walnut Street
Des Moines, Iowa 50304
for credit to: American Republic Insurance Company
Account Number 045671
For Payment on: Penford Corporation, Adjustable Rate Senior Notes
due 2002, PPN 707051 A# 5
Interest Amount: [$_________]
Principal Amount: [$_________]
Payable Date: [Payment Date]
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed as first provided
above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 42-0113630
I-5
<PAGE> 45
PRINCIPAL AMOUNT
NAME AND ADDRESS OF NOTES TO BE
OF PURCHASERS ACQUIRED
UNITED WORLD LIFE INSURANCE COMPANY $357,140
c/o Mutual of Omaha Insurance Company
Mutual of Omaha Plaza
Omaha, Nebraska 68175
Attention: Investment Division
Telefacsimile: (402) 351-2913
Confirmation: (402) 351-2583
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Penford Corporation, Adjustable Rate Senior Notes due 2002, PPN 707051 A# 5,
principal, premium or interest") to:
FirsTier Bank-Omaha (ABA #1040-0002-9)
17th and Farnam Streets
Omaha, Nebraska 68102
for credit to: United World Life Insurance Company
Account Number 016-7-039
For Payment on: Penford Corporation, Adjustable Rate Senior Notes due
2002, PPN 707051 A# 5
Interest Amount: ____________________________________________
Principal Amount: ___________________________________________
Payable Date: _______________________________________________
Notices
All notices and communications to be addressed as first provided above, except
notices with respect to payment and written confirmation of each such payment,
to be addressed: Attention: Investments/Securities Accounting.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 75-6010770
I-6
<PAGE> 46
PRINCIPAL AMOUNT
NAME AND ADDRESS OF NOTES TO BE
OF PURCHASERS ACQUIRED
FARMERS AND TRADERS LIFE INSURANCE COMPANY $357,140
960 James Street, P. O. Box 1056
Syracuse, New York 13201
Attention: Frank J. D'Onofrio, Jr.
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Penford Corporation, Adjustable Rate Senior Notes due 2002, PPN 707051 A# 5,
principal, premium or interest") to:
US TR NYC (ABA #021-001318)
Account Number 47363300
Attention: Collection Department
for credit to: Farmers and Traders Life Insurance Company
Account Number 898280
For Payment on: Penford Corporation, Adjustable Rate Senior Notes due
2002, PPN 707051 A# 5
Interest Amount: [$_________]
Principal Amount: [$_________]
Payable Date: [Payment Date]
Notices
All notices with respect to payments and written confirmation of each such
payment, to be addressed as follows:
Atwell & Company
P. O. Box 456, Wall Street Station
New York, New York 10005
For the account of: Farmers and Traders Life Insurance Company
Account Number 898280
Name of Nominee in which Notes are to be issued: Atwell and Company
Taxpayer I.D. Number: 13-6065575
I-7
<PAGE> 47
PENFORD CORPORATION
Adjustable Rate Senior Note
Due November 30, 2002
No.
____________, 19__
$
Penford Corporation, a Washington corporation (the "Company"), for
value received, hereby promises to pay to
or registered assigns
on the thirtieth day of November, 2002
the principal amount of
DOLLARS ($___________)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at the
rate of 8.43% per annum from the date hereof until maturity, or at such other
rate as may be determined from time to time in accordance with Section 1.3(b) of
the Restatement and Exchange Agreements (as hereinafter defined), payable
semiannually on the thirtieth day of each May and November in each year
(commencing on November 30, 1998) and at maturity. The Company agrees to pay
interest on overdue principal (including any overdue required or optional
prepayment of principal) and premium, if any, and (to the extent legally
enforceable) on any overdue installment of interest, at the rate of interest
then borne by such Note plus 2.0% per annum after the due date, whether by
acceleration or otherwise, until paid. Both the principal hereof and interest
hereon are payable at the principal office of the Company in Bellevue,
Washington in coin or currency of the United States of America which at the time
of payment shall be legal tender for the payment of public and private debts.
This Note is one of the Company's $14,285,600 aggregate principal
amount Adjustable Rate Senior Notes due November 30, 2002 (the "Notes") issued
or to be issued under and pursuant and subject to the terms and provisions of
the separate Restatement and Exchange Agreements, each dated as of August 1,
1998 (the "Restatement and Exchange Agreements"), entered into by the Company
with the original Purchasers therein referred to. This Note and the holder
hereof are entitled equally and ratably with the holders of all other Notes
outstanding under the Restatement and Exchange Agreements to all the benefits
provided for thereby or referred to therein. Reference is hereby made to the
Restatement and Exchange Agreements for a statement of such rights and benefits.
EXHIBIT A
(to Restatement and Exchange Agreement)
<PAGE> 48
This Note and the other Notes outstanding under the Restatement and
Exchange Agreements may be declared due prior to their expressed maturity dates
and certain prepayments are required to be made thereon, all in the events, on
the terms and in the manner and amounts as provided in the Restatement and
Exchange Agreements.
The Notes are not subject to prepayment or redemption at the option of
the Company prior to their expressed maturity dates except on the terms and
conditions and in the amounts and with the premium, if any, set forth in the
Restatement and Exchange Agreements.
This Note is registered on the books of the Company and is transferable
only by surrender thereof at the principal office of the Company duly endorsed
or accompanied by a written instrument of transfer duly executed by the
registered holder of this Note or its attorney duly authorized in writing.
Payment of or on account of principal, premium, if any, and interest on this
Note shall be made only to or upon the order in writing of the registered
holder.
PENFORD CORPORATION
By__________________________________
Its
A-2
<PAGE> 49
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to you as follows:
1. Subsidiaries. Annex A attached hereto states the name of each of
the Company's Subsidiaries, its jurisdiction of incorporation and the percentage
of its Voting Stock owned by the Company and/or its Subsidiaries. The Company
and each Subsidiary has good and marketable title to all of the shares it
purports to own of the stock of each Subsidiary, free and clear in each case of
any Lien. All such shares have been duly issued and are fully paid and
non-assessable.
2. Corporate Organization and Authority. The Company, and each
Subsidiary,
(a) is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation;
(b) has all requisite power and authority and all necessary
licenses and permits to own and operate its properties and to carry on
its business as now conducted and as presently proposed to be
conducted; and
(c) is duly licensed or qualified and is in good standing as
a foreign corporation in each jurisdiction wherein the nature of the
business transacted by it or the nature of the property owned or leased
by it makes such licensing or qualification necessary.
3. Compliance with Law. Neither the Company nor any Subsidiary (a) is
in violation of any law, ordinance, franchise, governmental rule or regulation
to which it is subject; or (b) has failed to obtain any license, permit,
franchise or other governmental authorization necessary to the ownership of its
property or to the conduct of its business, which violation or failure to obtain
would materially adversely affect the business, prospects, profits, properties
or condition (financial or otherwise) of the Company and its Subsidiaries, taken
as a whole, or impair the ability of the Company to perform its obligations
contained in the Agreements or the Notes. Neither the Company nor any Subsidiary
is in default with respect to any order of any court or governmental authority
or arbitration board or tribunal.
4. Financial Statements. (a) The consolidated balance sheets of the
Company and its consolidated Subsidiaries as of August 31 in each of the years
1992 to 1997, both inclusive, and the statements of income and retained earnings
and changes in financial position or cash flows for the fiscal years ended on
said dates, each accompanied by a report thereon containing an opinion
unqualified as to scope limitations imposed by the Company and otherwise without
qualification except as therein noted, by Ernst & Young, have been prepared in
accordance with GAAP consistently applied except as therein noted, are correct
and complete and present fairly the financial position of the Company and its
Subsidiaries as of such dates and the results of their operations and changes in
their financial position or cash flows for such periods.
EXHIBIT B
(to Restatement and Exchange Agreement)
<PAGE> 50
(b) Since August 31, 1997, except as set forth in the Company's Form
10-K Annual Report filed November 26, 1997, 10-Q Quarterly Reports filed January
14, 1998, April 3, 1998, July 10, 1998 (copies of which have been furnished to
the Purchasers), pursuant to Section 13 of the Securities Exchange Act of 1934
(the "Exchange Act Reports"), there has been no change in the condition,
financial or otherwise, of the Company and its consolidated Subsidiaries as
shown on the consolidated balance sheet as of such date except changes in the
ordinary course of business, none of which individually or in the aggregate has
been materially adverse.
5. Indebtedness. Annex B attached hereto correctly describes all
Current Debt, Funded Debt and Capitalized Leases of the Company and its
Subsidiaries outstanding on August 24, 1998.
6. Full Disclosure. Neither the financial statements referred to in
paragraph 4 hereof nor the Agreements or any other written statement furnished
by the Company to you in connection with the negotiation of the sale of the
Notes, contains any untrue statement of a material fact or omits a material fact
necessary to make the statements contained therein or herein not misleading.
There is no fact peculiar to the Company or its Subsidiaries which the Company
has not disclosed to you in writing which materially affects adversely nor, so
far as the Company can now foresee, will materially affect adversely the
properties, business, prospects, profits or condition (financial or otherwise)
of the Company and its Subsidiaries, taken as a whole.
7. Pending Litigation. Except as set forth in the Exchange Act
Reports, there are no proceedings pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary in any court or before any
governmental authority or arbitration board or tribunal which involve the
possibility of materially and adversely affecting the properties, business,
prospects, profits or condition (financial or otherwise) of the Company and its
Subsidiaries.
8. Title to Properties. The Company and each Subsidiary has good and
marketable title in fee simple (or its equivalent under applicable law) to all
material parcels of real property which it purports to own, and has good title
to all the other material items of property which it purports to own, including
that reflected in the most recent balance sheet referred to in paragraph 4
hereof, except as sold or otherwise disposed of in the ordinary course of
business and except for Liens permitted by the Agreements.
9. Patents and Trademarks. The Company and each Subsidiary owns or
possesses all the patents, trademarks, trade names, service marks, copyright,
licenses and rights with respect to the foregoing necessary for the present and
planned future conduct of its business, without any known conflict with the
rights of others.
10. Sale is Legal and Authorized. The delivery of the New Notes and
compliance by the Company with all of the provisions of the Agreements and the
New Notes --
(a) are within the corporate powers of the Company;
(b) will not violate any provisions of any law or any order
of any court or governmental authority or agency and will not conflict
with or result in any breach of any
B-2
<PAGE> 51
of the terms, conditions or provisions of, or constitute a default
under the Certificate of Incorporation or By-laws of the Company or any
indenture or other agreement or instrument to which the Company is a
party or by which it may be bound or result in the imposition of any
Liens or encumbrances on any property of the Company; and
(c) have been duly authorized by proper corporate action on
the part of the Company (no action by the stockholders of the Company
being required by law, by the Certificate of Incorporation or By-laws
of the Company or otherwise which action has not been taken), executed
and delivered by the Company and the Agreements and the Notes
constitute the legal, valid and binding obligations, contracts and
agreements of the Company enforceable in accordance with their
respective terms.
11. No Defaults. No Default or Event of Default has occurred and is
continuing. Neither the Company nor any Subsidiary is in default in the payment
of principal or interest on any Funded Debt or Current Debt or is not in default
under any instrument or instruments or agreements under and subject to which any
Funded Debt or Current Debt has been issued and no event has occurred and is
continuing under the provisions of any such instrument or agreement which with
the lapse of time or the giving of notice, or both, would constitute an event of
default thereunder.
12. Governmental Consent. No approval, consent or withholding of
objection on the part of any regulatory body, state, Federal or local, is
necessary in connection with the execution and delivery by the Company of the
Agreements or the Notes or compliance by the Company with any of the provisions
of the Agreements or the Notes.
13. Taxes. All tax returns required to be filed by the Company or any
Subsidiary in any jurisdiction have, in fact, been filed, and all taxes,
assessments, fees and other governmental charges upon the Company or any
Subsidiary or upon any of their respective properties, income or franchises,
which are shown to be due and payable in such returns have been paid. For all
taxable years ending on or before August 31, 1994, the Federal income tax
liability of the Company and its Subsidiaries has been satisfied and either the
period of limitations on assessment of additional Federal income tax has expired
or the Company and its Subsidiaries have entered into an agreement with the
Internal Revenue Service closing conclusively the total tax liability for the
taxable year. The Company does not know of any proposed additional tax
assessment against it for which adequate provision has not been made on its
accounts, and no material controversy in respect of additional Federal or state
income taxes due since said date is pending or to the knowledge of the Company
threatened. The provisions for taxes on the books of the Company and each
Subsidiary are adequate for all open years, and for its current fiscal period.
14. Use of Proceeds. None of the transactions contemplated in the
Agreements will violate or result in a violation of Section 7 of the Securities
Exchange Act of 1934, as amended, or any regulation issued pursuant thereto,
including, without limitation, Regulations T, U and X of the Board of Governors
of the Federal Reserve System, 12 C.F.R., Chapter II. Neither the Company nor
any Subsidiary owns or intends to carry or purchase any "margin stock" within
the meaning of said Regulation U. None of the proceeds from the sale of the
Notes will be used
B-3
<PAGE> 52
to purchase, or refinance any borrowing the proceeds of which were used to
purchase, any "security" within the meaning of the Securities Exchange Act of
1934, as amended.
15. Private Offering. Neither the Company, directly or indirectly, nor
any agent on its behalf, has offered or will offer the Notes or any similar
Security or has solicited or will solicit an offer to acquire the Notes or any
similar Security from or has otherwise approached or negotiated or will approach
or negotiate in respect of the Notes or any similar Security with any Person
other than the Purchasers. Neither the Company, directly or indirectly, nor any
agent on its behalf, has offered or will offer the Notes or any similar Security
or has solicited or will solicit an offer to acquire the Notes or any similar
Security from any Person so as to bring the issuance and sale of the Notes
within the provisions of Section 5 of the Securities Act of 1933, as amended.
16. ERISA. The consummation of the transactions provided for in the
Agreements and compliance by the Company with the provisions thereof and the
Notes issued thereunder will not involve any nonexempt prohibited transaction
with respect to any Plan as to which the Company is a party-in-interest within
the meaning of ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended. Each Plan complies in all material respects with all applicable
statutes and governmental rules and regulations, and (a) no Reportable Event has
occurred and is continuing with respect to any Plan, (b) neither the Company nor
any ERISA Affiliate has withdrawn from any Plan or Multiemployer Plan or
instituted steps to do so which has or would result in withdrawal liability (as
described in Part 1 of Subtitle E of Title IV of ERISA) which could materially
and adversely affect the properties, business, prospects, profits or condition
(financial or otherwise) of the Company and its Subsidiaries taken as a whole
and (c) no steps have been instituted to terminate any Plan in a distress
termination under Section 4041(c) of ERISA or a termination instituted by the
PBGC under Section 4042 of ERISA. No condition exists or event or transaction
has occurred in connection with any Plan which could result in the incurrence by
the Company or any ERISA Affiliate of any material liability, fine or penalty.
No Plan maintained by the Company or any ERISA Affiliate, nor any trust created
thereunder, has incurred any "accumulated funding deficiency" as defined in
Section 302 of ERISA nor does the present value of all benefits vested under all
Plans exceed, as of the last annual valuation date, the value of the assets of
the Plans allocable to such vested benefits by an amount greater than $1,000,000
in the aggregate. Neither the Company nor any ERISA Affiliate has any contingent
liability with respect to any post-retirement "welfare benefit plan" (as such
term is defined in ERISA) except as has been disclosed to the Purchasers.
17. Compliance with Environmental Laws. Neither the Company nor any
Subsidiary is in material violation of any applicable Federal, state, or local
laws, statutes, rules, regulations or ordinances relating to public health,
safety or the environment, including, without limitation, relating to releases,
discharges, emissions or disposals to air, water, land or ground water, to the
withdrawal or use of ground water, to the use, handling or disposal of
polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde, to the
treatment, storage, disposal or management of hazardous substances (including,
without limitation, petroleum, crude oil or any fraction thereof, or other
hydrocarbons), pollutants or contaminants, to exposure to toxic, hazardous or
other controlled, prohibited or regulated substances which violation could have
a material adverse effect on the business, prospects, profits, properties or
condition (financial or otherwise) of the
B-4
<PAGE> 53
Company and its Subsidiaries, taken as a whole. The Company does not know of any
material liability or class of liability of the Company or any Subsidiary under
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (42 U.S.C. Section 9601 et seq.), or the Resource Conservation
and Recovery Act of 1976, as amended (42 U.S.C. Section 6901 et seq.).
B-5
<PAGE> 54
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION OWNERSHIP
<S> <C> <C>
Penford Products Co. Delaware 100%
Penford Export Corporation Virgin Islands 100%
</TABLE>
ANNEX A
(to Exhibit B)
<PAGE> 55
DESCRIPTION OF DEBT, LEASES,
INVESTMENTS, GUARANTIES AND LIENS
(As of August 24, 1998)
1. Current Debt: None other than as disclosed in No. 2 and No. 5 below.
2. Funded Debt:
<TABLE>
<S> <C> <C>
Seafirst Overnight Borrowings $3,566,000
The Bank of Nova Scotia,
Keybank National Association
U.S. Bank National Association Credit Agreement $34,000,000
Seafirst 9.55% unsecured Note $420,000
United of Omaha Life Insurance
Co. (among others) 7.93% Senior Notes $14,285,600
Principal Mutual Life Insurance 7.59% Series A Senior Notes $10,000,000
Co. (among others) 8.35% Series B Senior Notes $10,000,000
</TABLE>
3. Capital Leases: None
4. Investments:
<TABLE>
<S> <C>
Note Receivable from Tod R. Hamachek $1,215,000
Penford Products Co. 100% outstanding stock
Penford Export Corporation 100% outstanding stock
</TABLE>
5. Guaranties:
(a) The Penwest Guarantee, by Penford Corporation and Penford
Products, of an amount up to a maximum of $18,000,000.
(b) The co-borrowing by Penford Products Co. and Penford
Corporation under the Credit Agreement with The Bank of Nova Scotia,
KeyBank National Association and U.S. Bank National Association.
6. Liens: None
ANNEX B
(to Exhibit B)
<PAGE> 56
DESCRIPTION OF SPECIAL COUNSEL'S CLOSING OPINION
The closing opinion of Chapman and Cutler, special counsel to the
Purchasers, called for by Section 4.1 of the Agreements, shall be dated the
Closing Date and addressed to the Purchasers, shall be satisfactory in form and
substance to the Purchasers and shall be to the effect that:
1. The Company is a corporation, validly existing and in
good standing under the laws of the State of Washington and has the
corporate power and the corporate authority to execute and deliver the
Agreements and to issue the Notes.
2. The Agreements have been duly authorized by all necessary
corporate action on the part of the Company, have been duly executed
and delivered by the Company and constitute the legal, valid and
binding contract of the Company enforceable in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent conveyance and
similar laws affecting creditors' rights generally, and general
principles of equity (regardless of whether the application of such
principles is considered in a proceeding in equity or at law).
3. The Notes have been duly authorized by all necessary
corporate action on the part of the Company, and the Notes being
delivered on the date hereof have been duly executed and delivered by
the Company and constitute the legal, valid and binding obligations of
the Company enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent conveyance and similar laws
affecting creditors' rights generally, and general principles of equity
(regardless of whether the application of such principles is considered
in a proceeding in equity or at law).
4. The issuance, sale and delivery of the Notes under the
circumstances contemplated by the Agreements do not, under existing
law, require the registration of the Notes under the Securities Act of
1933, as amended, or the qualification of an indenture under the Trust
Indenture Act of 1939, as amended.
The opinion of Chapman and Cutler shall also state that the opinion of
Bogle & Gates is satisfactory in scope and form to Chapman and Cutler and that,
in their opinion, the Purchasers are justified in relying thereon.
In rendering the opinion set forth in paragraph 1 above, Chapman and
Cutler may rely, as to matters referred to in paragraph 1, solely upon an
examination of the Certificate of Incorporation certified by, and a certificate
of good standing of the Company from, the Secretary of State of the State of
Washington, the By-laws of the Company and the General Corporation Law of the
State of Washington. The opinion of Chapman and Cutler is limited to the laws of
the State of Washington and the Federal laws of the United States. Chapman and
Cutler may rely on the opinion of Bogle & Gates as to all matters of Washington
law.
With respect to matters of fact upon which such opinion is based,
Chapman and Cutler may rely on appropriate certificates of public officials and
officers of the Company and upon
EXHIBIT E
(to Restatement and Exchange Agreement)
<PAGE> 57
representations of the Company and the Purchasers delivered in connection with
the issuance and sale of the Notes.
E-2
<PAGE> 58
FORM OF CLOSING OPINION
OF COUNSEL TO THE COMPANY AND THE GUARANTOR
August __, 1998
To the Parties Listed on
the Attached Schedule
Re: Penford Corporation
Ladies and Gentlemen:
We have acted as counsel for Penford Corporation, a Washington
corporation ("Penford"), and Penford Products Co., a Delaware corporation
("Products"), in connection with the preparation of the separate Restatement and
Exchange Agreements, each dated as of August 1, 1998 between Penford and the
Purchasers listed on Schedule I thereto relating to the amendment, restatement
and exchange of certain Note Agreements dated as of November 1, 1992
(collectively, the "Restatement Agreements").
In so acting, we have examined the following documents, instruments and
certificates:
(1) The Restatement Agreements.
(2) Adjustable Rate Senior Note dated August 28, 1998 in the
stated principal amount of $8,928,000 made by Penford payable to United
of Omaha Life Insurance Company or registered assigns.
(3) Adjustable Rate Senior Note dated August 28, 1998 in the
stated principal amount of $3,214,260 made by Penford payable to Mutual
of Omaha Insurance Company or registered assigns.
(4) Adjustable Rate Senior Note dated August 28, 1998 in the
stated principal amount of $714,280, made by Penford payable to Hare &
Co. or registered assigns.
(5) Adjustable Rate Senior Note dated August 28, 1998 in the
stated principal amount of $714,280, made by Penford payable to
American Republic Insurance Company or registered assigns.
(6) Adjustable Rate Senior Note dated August 28, 1998 in the
stated principal amount of $357,140, made by Penford payable to United
World Life Insurance Company or registered assigns.
EXHIBIT F
(to Restatement and Exchange Agreement)
<PAGE> 59
(7) Adjustable Rate Senior Note dated August 28, 1998 in the
stated principal amount of $357,140, made by Penford payable to Atwell
and Company or registered assigns.
(8) Guaranty Agreement dated as of August 1, 1998 (the
"Guaranty") made by Penford Products Co. ("Products").
(9) A Certificate of Existence/Authorization, dated August
25, 1998, issued with respect to Penford by the Secretary of State of
the State of Washington.
(10) A Certificate issued by the Secretary of State of the
State of Delaware dated August 24, 1998, issued with respect to the
good standing of Products.
(11) An Officer's Certificate, dated as of August 28, 1998, of
the Corporate Director of Finance of Penford with respect to certain
factual matters.
(12) An Officer's Certificate, dated as of August 28, 1998, of
the Vice President and Assistant Secretary of Products with respect to
certain factual matters.
(13) A Certificate of Secretary of Penford, dated as of August
28, 1998.
(14) A Certificate of Secretary of Products, dated as of
August 28, 1998.
(15) The Articles of Incorporation of Penford together with
all amendments thereto, certified as of August 25, 1998 by the
Secretary of State of the State of Washington.
(16) The Bylaws of Penford together with all amendments
thereto.
(17) The Restated Certificate of Incorporation of Products
together with all amendments thereto, certified as of August 24, 1998
by the Secretary of State of the State of Delaware.
(18) The Bylaws of Products together with all amendments
thereto.
(19) Originals or copies certified to our satisfaction of such
other corporate records of Penford and Products, and certificates of
public officials and officers of Penford and Products, as we have
deemed necessary as a basis for the opinions expressed below.
For the purposes of this letter, the documents listed above are
referred to individually as a Document and collectively as the "Documents"; the
Documents listed as items (1) through (8) above are sometimes referred to
individually as a "Credit Document" and collectively as the "Credit Documents".
Items (11) and (12) above are referred to as the "Officer's Certificates". As to
questions of fact material to our opinions, we have relied without independent
verification solely on the Credit Documents and the other documents, instruments
and certificates submitted
F-2
<PAGE> 60
to us. However, whenever our opinions relate to our "knowledge," by the use of
terms such as "to our knowledge," with your permission, the facts upon which
such opinions are based are solely those contained in the Officer's Certificates
and those in the conscious awareness of attorneys in this firm who are actively
involved in the legal representation of the Penford or Products.
In rendering the opinions expressed below in this letter, we have
assumed with your permission and without independent verification:
(i) the genuineness of all signatures, the authenticity of all
documents, instruments and certificates submitted to us as originals or
copies, and the exact conformity with the executed originals of all
documents, instruments and certificates submitted to us as copies;
(ii) that each Document has been duly executed and delivered
by or on behalf of all persons and entities (other than Penford or
Products) that are signatories thereto and that in each case such
execution and such delivery have been pursuant to all requisite power
and authority, corporate and otherwise;
(iii) that the execution and delivery by each Purchaser of
each Document to which it is a party, and the performance by Purchasers
of all of its obligations under each Document to which it is a party,
have been duly authorized by all necessary corporate and other action;
(iv) that each Document to which any person (other than
Penford or Products) is a party constitutes a valid and binding
obligation of such person, enforceable against such person in
accordance with its terms;
(v) that neither the execution and delivery by Penford or
Products of any Credit Document to which it is a party, nor the
performance by Penford or Products of its obligations under any Credit
Document to which it is a party, contravenes, or is rendered invalid,
not binding or unenforceable under any law other than the laws of the
State of Washington, the General Corporation Law of Delaware and the
Federal laws of the United States;
(vi) that each Purchaser is an entity duly organized and
validly existing under the laws of its jurisdiction of organization and
is in good standing under such laws;
(vii) that all parties have negotiated the transaction, and
will exercise their rights and remedies, under the Credit Documents and
applicable law, in good faith and with fair dealing and in a
commercially reasonable manner;
(viii) that all parties have no notice of any defense against
the enforcement of the Credit Documents;
F-3
<PAGE> 61
(ix) that there has not been any mutual mistake of fact or
misunderstanding; and
(x) that there are no agreements or understandings among the
parties, written or oral, and there is no usage of trade or course of
prior dealing among the parties that would, in either case, define,
supplement or qualify the terms of the Credit Documents.
We are qualified to practice law in the State of Washington, and we do
not express any opinions in this letter concerning any laws other than the laws
of the State of Washington, the General Corporation Law of the State of Delaware
and the Federal laws of the United States of America. However, we express no
opinion in this letter as to statutes, ordinances, administrative decisions,
rules and regulations of counties, cities, towns, municipalities, special
political subdivisions (whether created or enacted through federal, state or
regional action) and the like, and decisions and interpretations thereof. As
used in opinion paragraph 6 below, the term "Material Agreement" means any
agreement or instrument listed as an exhibit to Penford's 10-K report filed
pursuant to the Securities Exchange Act of 1934 for the fiscal year ended August
31, 1997 and the three 10-Q reports for the three subsequent quarters.
Based upon and subject to the foregoing, and further subject to the
qualifications set forth below, we are of the opinion that:
1. Penford is a corporation duly incorporated and validly
existing under the laws of the State of Washington and is duly
authorized to transact business in the corporate form in the State of
Washington. Penford has all requisite corporate power and corporate
authority to execute and perform the Restatement Agreements, to issue
the Notes and to carry on the business described in Penford's most
recent 10-K report.
2. Products is a corporation duly incorporated under the
laws of the State of Delaware and is in good standing and has a legal
corporate existence in Delaware. Products is duly qualified to do
business as a foreign corporation and is in good standing in the states
of Idaho, Iowa, Colorado and Washington. All outstanding shares of
Products are owned of record by Penford.
3. The execution and performance by Penford of the
Restatement Agreements have been duly authorized by all necessary
corporate action. The Restatement Agreements have been duly executed
and delivered by Penford, and constitute the legal, valid and binding
obligations of Penford, enforceable against Penford in accordance with
their respective terms.
4. The execution and performance by Penford of the Notes
have been duly authorized by all necessary corporate action. The Notes
have been duly executed and delivered by Penford, and constitute the
legal, valid and binding obligations of Penford, enforceable against
Penford in accordance with their respective terms.
5. No approval, consent or withholding of objection on the
part of, or filing, registration or qualification with any State of
Washington or United States Federal
F-4
<PAGE> 62
governmental body, is necessary for the valid execution and delivery of
the Restatement Agreements or the issuance of the Notes.
6. The issuance and sale of the Notes and the execution,
delivery and performance by Penford of the Restatement Agreements do
not result in any breach of any of the provisions of, or constitute a
default under or result in the creation or imposition of any Lien (as
that term is defined in Section 8.1 of the Restatement Agreements) upon
any of the property of Penford pursuant to the provisions of the
Articles of Incorporation or Bylaws of Penford or any Material
Agreement.
7. Assuming the accuracy of the representations and
warranties of the Purchasers contained in Section 3.2 of the
Restatement Agreements, the issuance, sale and delivery of the Notes
under the circumstances contemplated by the Restatement Agreements do
not require the registration of the Notes under the Securities Act of
1933, as amended, or the qualification of an indenture under the Trust
Indenture Act of 1939, as amended.
8. The execution and performance by Products of the Guaranty
have been duly authorized by all necessary corporate action. The
Guaranty has been duly executed and delivered by Products, and
constitutes the legal, valid and binding obligation of Products,
enforceable against Products in accordance with its terms.
The opinions expressed above are subject to the following
qualifications:
A. The validity and enforceability of obligations, and the
availability of rights and remedies, under the Credit Documents are
subject to and may be limited by (i) bankruptcy, insolvency,
reorganization, arrangement, fraudulent conveyance or transfer,
preference, receivership, moratorium and similar laws now or hereafter
in effect relating to or affecting creditors' rights generally, (ii)
general principles of equity (including, but not limited to, concepts
of materiality, reasonableness, good faith and fair dealing and
principles that may limit the availability of specific performance or
injunctive or other equitable relief), whether such validity or
enforceability of obligations or availability of rights and remedies is
considered in an action or proceeding in equity or at law.
B. As to the opinion expressed in paragraph 6 above relating
to Material Agreements, we express no opinion in this letter as to, (a)
financial covenants or similar provisions in Material Agreements which
require financial calculations or determinations to ascertain
compliance, (b) provisions in such agreements or instruments which
relate to the occurrence or existence of any material adverse change or
event or similar concept or (c) patrol or other extrinsic evidence
bearing on the interpretation or construction of such agreements or
instruments. In addition, if any Material Agreements are governed by
the laws of a jurisdiction other than the State of Washington, then,
with your permission, our opinion as to the Material Agreements
expressed in paragraph 6 above is based solely upon the plain meaning
of the language in such agreements and instruments without
F-5
<PAGE> 63
regard to interpretation or construction that might be indicated by the
laws governing such agreements and instruments.
C. Although we express no opinion as to the effect of any
fraudulent conveyance or transfer laws, we call to your attention that
such laws may be implicated by certain aspects of the transaction
contemplated by the Credit Documents, including, without limitation,
the guarantee by Products of liability for the obligations of Penford
under the Credit Documents. Such liability, and security interests
securing such liability, could be rendered unenforceable by the
application of fraudulent conveyance or transfer laws. The effect of
any fraudulent conveyance or transfer laws depends upon the solvency
and adequacy of capital of, and other factual matters relating to,
Products after giving effect to the transactions contemplated by the
Credit Documents. We have not undertaken any investigations or
verification of, and we express no opinion as to, any such factual
matters.
D. We express no opinion as to:
(i) the effect of the law of any jurisdiction, other
than the State of Washington and the United States, in which
enforcement of any Credit Document may be sought which limits
the rates of interest legally chargeable or collectible;
(ii) any provisions in any Credit Document pertaining
to jurisdiction, venue or choice of law; and
(iii) any other provisions in the Credit Documents
insofar as such provisions purport (A) to require amendments,
modifications or waivers of any provisions of the Credit
Documents to be in writing, (B) to provide that any person or
entity (1) may have rights to release, exculpation, indemnity
or contribution, (2) may have rights to forfeiture or the
payment of any sum as liquidated damages, late charges or
prepayment premiums, to the extent such sum constitutes a
penalty, (3) may have rights to any increase in any rate of
interest upon delinquency in payment or the occurrence of a
default, to the extent such increase constitutes a penalty,
(4) may pursue inconsistent remedies or (5) waives any right,
remedy or defense, including without limitation the right to a
trial by jury and the right to appeal; or (C) to allow
Purchasers to charge interest on interest.
E. We call to your attention that:
(i) under the laws of the State of Washington, any
provision in an agreement requiring a party to pay another
party's attorneys' fees and costs in any action to enforce the
provisions of such agreement will be construed to entitle the
prevailing party in any such action, whether or not such party
is the party specified in such agreement, to be awarded its
reasonable attorneys' fees, costs and necessary disbursements;
F-6
<PAGE> 64
(ii) the courts of the State of Washington may
consider extrinsic evidence (both oral and written) of
circumstances surrounding the Credit Documents to ascertain
the intent of the parties thereto in using the language set
forth in the Credit Documents, regardless of whether or not
the language set forth in the Credit Documents is plain and
unambiguous on its face and regardless of any statement by the
parties thereto in the Credit Documents that the Credit
Documents constitute an integrated expression of the agreement
of the parties thereto, and such courts may incorporate
additional or supplementary terms into the Credit Documents.
F. We express no opinion as to any matters whatsoever relating
to:
(i) the adequacy of consideration for the
indebtedness evidenced by the Credit Documents;
(ii) the accuracy or completeness of any information
furnished to any party;
(iii) the accuracy or completeness of any
representations made by any party;
(iv) the financial status of any party; and
(v) the ability of any party to meet its obligations
under the Credit Documents.
This letter is furnished to you pursuant to Section 4.1(e) of the
Restatement Agreements, and is intended solely for your benefit and may not be
used or relied upon by you for any other purpose, or be quoted or delivered to,
or used or relied upon by any other person or entity for any purpose, in each
case without our prior written consent, provided, however, participants in or
assignees of the Credit Documents ("Additional Reliance Parties") may rely on
our opinions expressed herein, subject to the following understandings: (a) this
opinion is based solely on our examination of the Credit Documents, and in
reliance on the assumptions and qualifications contained herein, and on the law
in effect on the date hereof, (b) this opinion is rendered solely as of the date
hereof, (c) we have not reviewed the nature or documentation of any Additional
Reliance Parties' right, title, or interest in, to, or under the Credit
Documents, and we have not been advised of the identity, nature, nationality or
other characteristics of the Additional Reliance Parties, and our opinions are
further qualified to the extent of the consequences that would be revealed by an
examination and knowledge thereof, (d) the definition of "Purchaser" or
"Purchasers" as used in this opinion does not include any Additional Reliance
Parties, and (e) none of the Additional Reliance Parties shall become clients of
our firm based upon any reliance by them on this letter.
The opinions expressed above are rendered as of the date of this
letter. We expressly disclaim any obligation to update this letter or otherwise
to advise you of any matters (including, but not limited to, any subsequently
enacted, published or reported laws, rules, regulations or
F-7
<PAGE> 65
judicial decisions having retroactive effect) which may come to our attention
after the date of this letter and which affect any of the opinions expressed in
this letter.
Nothing contained in this opinion shall be deemed to constitute a
waiver of the attorney-client privilege between this firm and Penford and
Products.
Very truly yours,
F-8
<PAGE> 66
SCHEDULE
United of Omaha Life Insurance Company
Mutual of Omaha Plaza
Omaha, Nebraska 68175
Mutual of Omaha Insurance Company
Mutual of Omaha Plaza
Omaha, Nebraska 68175
Companion Life Insurance Company
Mutual of Omaha Plaza
Omaha, Nebraska 68175
United World Life Insurance Company
c/o Mutual of Omaha Insurance Company
Mutual of Omaha Plaza
Omaha, Nebraska 68175
American Republic Insurance Company
P. O. Box One
Des Moines, Iowa 50301
Farmers and Traders Life Insurance Company
960 James Street, P. O. Box 1056
Syracuse, New York 13201
<PAGE> 1
Exhibit 10.17
================================================================================
GUARANTY AGREEMENT
Dated as of August 1, 1998
of
PENFORD PRODUCTS CO.
Re:
$14,285,600 Adjustable Rate Senior Notes
Due November 30, 2002
of
PENFORD CORPORATION
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C>
Parties...............................................................................................1
Recitals..............................................................................................1
SECTION 1. GUARANTY...............................................................................1
SECTION 2. PAYMENT UPON CERTAIN EVENTS............................................................1
SECTION 3. GENERAL PROVISIONS RELATING TO THE GUARANTY............................................2
SECTION 4. WAIVERS; OBLIGATION UNCONDITIONAL......................................................2
SECTION 5. COLLECTION EXPENSES....................................................................3
SECTION 6. NO SUBROGATION UNTIL PAYMENT IN FULL...................................................3
SECTION 7. REPRESENTATIONS AND WARRANTIES OF GUARANTOR............................................3
SECTION 8. CORPORATE EXISTENCE....................................................................3
SECTION 9. LIMITATION ON CONSOLIDATION, MERGER, SALE, LEASE OR OTHER DISPOSITION
BY GUARANTOR...........................................................................4
SECTION 10. INTERPRETATION.........................................................................4
SECTION 11. SUCCESSORS AND ASSIGNS.................................................................4
SECTION 12. NOTICES................................................................................4
SECTION 13. COUNTERPARTS...........................................................................5
SECTION 14. SEVERABILITY...........................................................................5
SECTION 15. GOVERNING LAW..........................................................................5
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
Signatures............................................................................................6
</TABLE>
ATTACHMENT TO GUARANTY AGREEMENT:
Exhibit A -- Representations and Warranties of Guarantor
-ii-
<PAGE> 4
GUARANTY AGREEMENT
GUARANTY AGREEMENT (this "Guaranty") dated as of August 1, 1998 by
PENFORD PRODUCTS CO., a Delaware corporation (the "Guarantor").
RECITALS:
A. Penford Corporation, a Washington corporation (the "Company") has
entered into those separate Restatement and Exchange Agreements each dated as of
August 1, 1998 (the "Agreements") with the institutional investors (the
"Purchasers") named in Schedule I to the Agreements, providing for the sale by
the Company of $14,285,600 aggregate principal amount of its Adjustable Rate
Senior Notes (the "Notes").
B. The Guarantor is desirous that the Purchasers enter into the
Agreements and purchase the Notes, and by doing so the Purchasers will be
conferring financial and other benefits on the Guarantor, and as an inducement
to enter into the Agreements and in consideration therefor the Purchasers have
required that the Guarantor enter into this Guaranty.
C. Capitalized terms used herein shall have the meanings assigned in
the Agreements.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and to aid the sale of the Notes and to induce the
Purchasers, and every future holder of the Notes, to purchase the Notes, it is
hereby agreed as follows:
SECTION 1. GUARANTY.
The Guarantor hereby unconditionally guarantees to each holder of any
Note (collectively the "Noteholders" and each individually a "Noteholder") (1)
the due and punctual payment at maturity, whether at stated maturity, by
acceleration, by notice of prepayment or otherwise, of the principal of and
premium, if any, and interest on the Notes in accordance with the terms and
conditions thereof and of the Agreements, and (2) the prompt performance and
compliance by the Company with each of its other obligations under the
Agreements. This is a guaranty of payment and not a guaranty of performance.
SECTION 2. PAYMENT UPON CERTAIN EVENTS.
The Guarantor agrees that, if any of the Events of Default described in
SECTION6.1(J), (K) or (L) of the Agreements occurs, the Guarantor shall pay
forthwith to the Noteholders, without demand or notice and whether or not there
has been any other default under the Agreements or the Notes, the whole amount
of the principal of the Notes then outstanding and any unpaid interest thereon,
with interest thereon, so far as permitted by law, at the then current rate of
interest payable on such Notes.
<PAGE> 5
Penford Corporation Guaranty Agreement
SECTION 3. GENERAL PROVISIONS RELATING TO THE GUARANTY.
Each and every Event of Default under the Agreements shall give rise to
a separate claim and cause of action hereunder, and separate claims or suits may
be made and brought, as the case may be, hereunder as each such default occurs.
The obligations hereunder are independent of the obligations of the Company to
pay the principal of and premium, if any, and interest on the Notes, and a
separate action or actions may be brought and prosecuted against the Guarantor
whether such action is brought and prosecuted against the Company or any other
guarantor, or whether the Company is joined in any such action or actions. The
obligations of the Guarantor hereunder shall be reinstated and revived, and the
rights of the Noteholders shall continue, with respect to any amount at any time
paid on account of the obligations guaranteed hereby, which shall thereafter be
required to be restored or returned by the Noteholders upon the bankruptcy,
insolvency or reorganization of the Company, or otherwise, all as though such
amount had not been paid.
SECTION 4. WAIVERS; OBLIGATION UNCONDITIONAL.
The Guarantor assents to all the terms, covenants and conditions of the
Notes and the Agreements, and irrevocably waives presentation, demand for
payment, or protest, of any of the Notes, any and all notice of any such
presentation, demand or protest, notice of any default or event of default under
the Agreements, notice of acceptance of this guarantee or of the terms and
provisions thereof by any Noteholder, any requirement of diligence or promptness
on the part of any Noteholder in the enforcement of rights under the provisions
hereof, of the Agreements or of the Notes, or any right to require any
Noteholder to proceed first against the Company. The obligations of the
Guarantor hereunder shall be unconditional irrespective of the genuineness,
validity, regularity or enforceability of the Agreements or of the Notes or of
any other circumstance which might otherwise constitute a legal or equitable
discharge of a surety or guarantor. The obligations of the Guarantor hereunder
shall not be affected by:
(a) the recovery of any judgment against the Company, or by
the levy of any writ or process of execution under any such judgment,
or by any action or proceeding taken by any Noteholder, either under
the Notes or under the Agreements for the enforcement thereof, or
hereof, or in the exercise of any right or power given or conferred
thereby, or hereby, or
(b) any delay, failure or omission upon the part of any
Noteholder to enforce any of the rights or powers given or conferred
hereby or by the Agreements, or by any delay, failure or omission upon
the part of any Noteholder to enforce any right of any Noteholder
against the Company, or by any action by any Noteholder in granting
indulgence to the Company, or in waiving or acquiescing in any default
or event of default upon the part of the Company under the Notes or
under the Agreements, or
(c) the consolidation or merger of the Company with or into
any other corporation or corporations or any sale, lease or other
disposition of the Company's properties as an entirety or substantially
as an entirety to any other corporation, or
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<PAGE> 6
Penford Corporation Guaranty Agreement
(d) any other act or delay or failure to act, or any other
thing, which may or might in any manner or to any extent vary the risk
of the Guarantor hereunder;
it being the purpose and intent of the parties hereto that the obligations of
the Guarantor hereunder shall be absolute and unconditional under any and all
circumstances, and shall not be discharged except by payment as herein provided,
and then only to the extent of such payment or payments.
SECTION 5. COLLECTION EXPENSES.
In the event that the Guarantor shall be required to make any payment
to any Noteholder pursuant to this Guaranty, it shall, in addition to such
payment, pay to such Noteholder such further amount as shall be sufficient to
cover the reasonable costs and expenses of collection, including a reasonable
compensation to attorneys, and any expenses or liabilities incurred by any
Noteholder hereunder. The covenants contained in this Guaranty may be enforced
by any Noteholder.
SECTION 6. NO SUBROGATION UNTIL PAYMENT IN FULL.
No payment by the Guarantor pursuant to the provisions hereof to any
Noteholder shall entitle the Guarantor by subrogation to the rights of the
holders of the Notes in respect of which such payment is made or otherwise, to
any payment by the Company or out of the property of the Company, except after
payment in full of the entire principal of and premium, if any, interest on the
Notes and any other amounts due under the Agreements, or provision for such
payment satisfactory to the holders of the Notes.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF GUARANTOR.
The Guarantor does hereby represent and warrant that:
(a) the representations and warranties set forth in Exhibit A
are true and correct in all material respects as of the date hereof
(or, to the extent any such representations or warranties expressly
relate to an earlier date, as of such earlier date); and
(b) the execution of the Agreements will result in a
financial benefit to the Guarantor.
SECTION 8. CORPORATE EXISTENCE.
The Guarantor will do all things necessary to preserve and keep in full
force and effect its corporate existence, rights and franchises; provided,
however, that nothing in this Section shall prevent the withdrawal by the
Guarantor from any State or jurisdiction of its qualification as a foreign
corporation and its authorization to do business in such State or jurisdiction
or a consolidation or merger permitted by Section 9 hereof.
-3-
<PAGE> 7
Penford Corporation Guaranty Agreement
SECTION 9. LIMITATION ON CONSOLIDATION, MERGER, SALE, LEASE OR OTHER DISPOSITION
BY GUARANTOR.
The Guarantor agrees that it will not consolidate with, merge into, or
sell, lease or otherwise dispose of all or substantially all its property as an
entirety to, any other corporation unless the corporation (if other than the
Guarantor) resulting from any such consolidation or merger or to which such
sale, lease or other disposition shall have been made shall, immediately upon
such consolidation, merger, sale, lease or other disposition,
(a) expressly assume in writing the due and punctual
performance and observance of all the terms, covenants, agreements and
conditions of this Guaranty to be performed or observed by the
Guarantor to the same extent as if such successor corporation instead
of the Guarantor had been the original party hereto, and
(b) furnish a true and complete copy of the assumption to
each Noteholder, together with an opinion of counsel opining favorably
as to the due authorization, execution and enforceability of the
assumption;
provided, however, that no such sale, lease or other disposition shall release
the Guarantor from any of its obligations under this Guaranty.
SECTION 10. INTERPRETATION.
The Guarantor acknowledges and agrees that the obligations and
agreements contained herein including, without limitation thereof, the
agreements of the Guarantor under Sections 7 and 8 hereof are in addition to,
and not in limitation of, any limitations or restrictions to which the Guarantor
may be subject under the Agreements.
SECTION 11. SUCCESSORS AND ASSIGNS.
All covenants and agreements contained in this Guaranty by or on behalf
of the Guarantor shall be binding upon the Guarantor and its successors and
assigns and shall inure to the benefit of the Purchasers and each and every
Noteholder.
SECTION 12. NOTICES.
All notices, requests, demands, waivers or other communications
required or contemplated hereby shall be given or made in the manner provided in
Section 9.6 of the Agreements to the Guarantor at 777 108th Avenue N.E., Suite
2390, Bellevue, Washington 98004.
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<PAGE> 8
Penford Corporation Guaranty Agreement
SECTION 13. COUNTERPARTS.
This Guaranty may be executed simultaneously in several counterparts,
each of which shall be deemed an original, and all of which together shall
constitute one and the same instrument.
SECTION 14. SEVERABILITY.
(a) In case any one or more of the provisions contained in this
Guaranty shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions of this
Guaranty shall not in any way be affected or impaired thereby.
(b) Without limitation of the preceding subsection (a), to the extent
that mandatory applicable law (including but not limited to applicable law
pertaining to fraudulent conveyance or fraudulent transfer) otherwise would
render the full amount of the Guarantor's obligations hereunder invalid or
unenforceable, the Guarantor's obligations hereunder shall be limited to the
maximum amount which does not result in such invalidity or unenforceability.
SECTION 15. GOVERNING LAW.
This Guaranty and all rights arising hereunder shall be construed and
determined in accordance with the laws of the State of Washington and the
performance thereof shall be governed and enforced in accordance with such laws.
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<PAGE> 9
Penford Corporation Guaranty Agreement
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed as of the day and year first above written.
PENFORD PRODUCTS CO.
By /s/ Victor W. Breed
Its Vice President
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<PAGE> 10
REPRESENTATIONS AND WARRANTIES
The Guarantor represents and warrants to the Purchasers as follows:
1. Corporate Organization and Authority. The Guarantor,
(a) is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation;
(b) has all requisite power and authority and all necessary
licenses and permits to own and operate its properties and to carry on
its business as now conducted and as presently proposed to be
conducted; and
(c) is duly licensed or qualified and is in good standing as a
foreign corporation in each jurisdiction wherein the nature of the
business transacted by it or the nature of the property owned or leased
by it makes such licensing or qualification necessary.
2. Business and Property. The Purchasers have heretofore been furnished
with a copy of the Private Placement Memorandum dated June, 1998 (the
"Memorandum") prepared by Continental Bank, N.A. which generally sets forth the
business conducted and proposed to be conducted by the Company and its
Subsidiaries and the principal properties of the Company and its Subsidiaries.
3. Full Disclosure. Neither the Agreements, the Memorandum or any other
written statement furnished by the Company or the Guarantor to the Purchasers in
connection with the negotiation of the sale of the Notes, contains any untrue
statement of a material fact or omits a material fact necessary to make the
statements contained therein or herein not misleading. There is no fact peculiar
to the Company or its Subsidiaries which the Company has not disclosed to each
Purchaser in writing which materially affects adversely nor, so far as the
Company can now foresee, will materially affect adversely the properties,
business, profits or condition (financial or otherwise) of the Company and its
Restricted Subsidiaries, taken as a whole.
4. Pending Litigation. There are no proceedings pending or, to the
knowledge of the Guarantor, threatened against or affecting the Company or any
Restricted Subsidiary in any court or before any governmental authority or
arbitration board or tribunal which involve the possibility of materially and
adversely affecting the properties, business, profits or condition (financial or
otherwise) of the Company and its Restricted Subsidiaries.
5. Title to Properties. The Guarantor has good and marketable title in
fee simple (or its equivalent under applicable law) to all material parcels of
real property and has good title to all the other material items of property it
purports to own, except as sold
EXHIBIT A
(to Guaranty Agreement)
<PAGE> 11
Penford Corporation Guaranty Agreement
or otherwise disposed of in the ordinary course of business and except for Liens
permitted by the Agreements.
6. Patents and Trademarks. The Guarantor and the Company, taken as a
whole, own or possess all the patents, trademarks, trade names, service marks,
copyrights, licenses and rights with respect to the foregoing necessary for the
present and planned future conduct of their business, without any known conflict
with the rights of others.
7. Guaranty is Legal and Authorized. Execution of the Guaranty and
compliance by the Guarantor with all of the provisions of the Guaranty--
(a) are within the corporate powers of the Guarantor;
(b) will not violate any provisions of any law or any order of
any court or governmental authority or agency and will not conflict
with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under the Certificate of
Incorporation or By-laws of the Guarantor or any indenture or other
agreement or instrument to which the Guarantor is a party or by which
it may be bound or result in the imposition of any Liens or
encumbrances on any property of the Guarantor; and
(c) have been duly authorized by proper corporate action on
the part of the Guarantor (no action by the stockholders of the
Guarantor being required by law, by the Certificate of Incorporation or
By-laws of the Guarantor or otherwise), and the Guaranty has been
executed and delivered by the Guarantor and the Guaranty constitutes
the legal, valid and binding obligation, contract and agreement of the
Guarantor enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally, and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or law).
8. No Defaults. The Guarantor is not in default in the payment of
principal or interest on any Funded Debt or Current Debt and is not in default
under any instrument or instruments or agreements under and subject to which any
Funded Debt or Current Debt has been issued and no event has occurred and is
continuing under the provisions of any such instrument or agreement which with
the lapse of time or the giving of notice, or both, would constitute an event of
default thereunder.
9. Governmental Consent. No approval, consent or withholding of
objection on the part of any regulatory body, state, Federal or local, is
necessary in connection with the execution and delivery by the Guarantor of the
Guaranty or compliance by the Guarantor with any of the provisions of the
Guaranty.
10. Compliance with Law. The Guarantor (a) is not in violation of any
law, ordinance, franchise, governmental rule or regulation to which it is
subject; or (b) has not failed to obtain any license, permit, franchise or other
governmental authorization
A-2
<PAGE> 12
Penford Corporation Guaranty Agreement
necessary to the ownership of its property or to the conduct of its business,
which violation or failure to obtain would materially adversely affect the
business, profits, properties or condition (financial or otherwise) of the
Company and its Restricted Subsidiaries, taken as a whole, or impair the ability
of the Guarantor to perform its obligations contained in the Guaranty. The
Guarantor is in not default with respect to any order of any court or
governmental authority or arbitration board or tribunal.
11. Compliance with Environmental Laws. The Guarantor is not in
material violation of any applicable Federal, state, or local laws, statutes,
rules, regulations or ordinances relating to public health, safety or the
environment, including, without limitation, relating to releases, discharges,
emissions or disposals to air, water, land or ground water, to the withdrawal or
use of ground water, to the use, handling or disposal of polychlorinated
biphenyls (PCB's), asbestos or urea formaldehyde, to the treatment, storage,
disposal or management of hazardous substances (including, without limitation,
petroleum, crude oil or any fraction thereof, or other hydrocarbons), pollutants
or contaminants, to exposure to toxic, hazardous or other controlled, prohibited
or regulated substances which violation could have a material adverse effect on
the business, profits, properties or condition (financial or otherwise) of the
Guarantor and the Company, taken as a whole. The Guarantor does not know of any
liability or class of liability of the Guarantor under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. Section 9601 et seq.), or the Resource Conservation and Recovery Act of
1976, as amended (42 U.S.C. Section 6901 et seq.).
A-3
<PAGE> 1
Exhibit 10.18
================================================================================
INTERCREDITOR AGREEMENT
Dated as of August 1, 1998
Re:
Penford Corporation
and Subsidiaries
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C>
Parties....................................................................................................................1
Recitals...................................................................................................................1
SECTION 1. DEFINITIONS...........................................................................................2
SECTION 2. SHARING OF RECOVERIES.................................................................................4
SECTION 3. AGREEMENTS AMONG THE CREDITORS........................................................................5
Section 3.1. Independent Actions by Creditors..................................................................5
Section 3.2. Relation of Creditors.............................................................................5
Section 3.3. Acknowledgment of Guaranties......................................................................5
SECTION 4. MISCELLANEOUS.........................................................................................5
Section 4.1. Entire Agreement..................................................................................5
Section 4.2. Notices...........................................................................................6
Section 4.3. Successors and Assigns............................................................................6
Section 4.4. Consents, Amendment, Waivers......................................................................6
Section 4.5. Governing Law.....................................................................................6
Section 4.6. Counterparts......................................................................................6
Section 4.7. Sale of Interest..................................................................................6
Section 4.8. Severability......................................................................................6
Section 4.9. Expenses..........................................................................................6
Section 4.10. Term of Agreement.................................................................................6
Signatures.................................................................................................................7
</TABLE>
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<PAGE> 3
Penford Products Co. Intercreditor Agreement
INTERCREDITOR AGREEMENT
INTERCREDITOR AGREEMENT dated as of August 1, 1998 among the Creditors
(as defined below) of PENFORD PRODUCTS CO., a Delaware corporation ("Penford
Products"), a wholly-owned subsidiary of Penford Corporation, a Washington
corporation (the "Company").
R E C I T A L S:
A. Under and pursuant to (i) separate and several Restatement and
Exchange Agreements, each dated as of August 1, 1998 (the "Restatement of the
1992 Agreements"), between the Company and the purchasers named on Schedule I
attached to the Restatement of the 1992 Agreements, the Company proposes to
issue and deliver $14,285,600 aggregate principal amount of its Adjustable Rate
Senior Notes due November 30, 2002 (the "2002 Notes"), and (ii) separate and
several Restatement and Exchange Agreements, each dated as of August 1, 1998
(the "Restatement of the 1994 Agreements"), between the Company and the
purchasers named on Schedule I attached to the Restatement of the 1994
Agreements, the Company proposes to issue and deliver $10,000,000 aggregate
principal amount of its Adjustable Rate Series A Senior Notes due December 15,
1998 and $10,000,000 aggregate principal amount of its Adjustable Rate Series B
Senior Notes due December 15, 2006 (respectively the "1998 Notes" and the "2006
Notes"). The Restatement of the 1992 Agreements and the Restatement of the 1994
Agreements are hereinafter referred to collectively as the "Restatement and
Exchange Agreements"; the 1998 Notes, the 2002 Notes and the 2006 Notes are
hereinafter referred to collectively as the "Notes"; and the purchasers of the
Notes are hereinafter referred to individually as a "Noteholder" and
collectively as the "Noteholders".
B. The Noteholders have required as a condition of their acquisition of
the Notes that Penford Products enter into guaranties of the Notes and
accordingly Penford Products has agreed to provide such guaranties. Penford
Products proposes to execute and deliver Guaranty Agreements (the "Noteholders'
Guaranties") dated as of August 1, 1998,
<PAGE> 4
Penford Products Co. Intercreditor Agreement
pursuant to which Penford Products will irrevocably, absolutely and
unconditionally guarantee to the Noteholders the payment of the principal of,
premium, if any, and interest on the Notes and the payment and performance of
all other obligations of the Company under the Restatement and Exchange
Agreements.
C. Under and pursuant to that certain Credit Agreement dated as of July
2, 1998 (as such agreement may be modified, amended, renewed or replaced,
including any increase in the amount thereof, the "Credit Agreement") among the
Company, Penford Products, various lending institutions and The Bank of Nova
Scotia (the "Bank"), as Agent (individually a "Credit Agreement Lender" and
collectively the "Credit Agreement Lenders"), the Credit Agreement Lenders have
made available to the Company and Penford Products, jointly and severally,
certain credit facilities in a current aggregate principal amount up to
$75,000,000 (all amounts outstanding in respect of said credit facilities being
hereinafter collectively referred to as the "Penford Loans").
D. In connection with the execution and delivery of a loan agreement
dated as of July 2, 1998 (as such agreement may be modified, amended, renewed or
replaced, including any increase in the amount thereof, the "Penwest Loan
Agreement"), between Penwest Pharmaceuticals Co., a Washington corporation
("Penwest"), pursuant to which the Bank has made available to Penwest certain
credit facilities in a current aggregate principal amount up to $15,000,000 (all
amounts outstanding in respect of such credit facilities being hereinafter
collectively referred to as the "Penwest Loan"), Penford Products has guaranteed
to the Bank the payment of the Penwest Loan and all other obligations of Penwest
under the Penwest Loan Agreement under that certain Specific Guaranty dated July
2, 1998 (as such agreement may be modified, amended, renewed or replaced,
including any increase in the amount thereof, the "Penwest Guaranty").
E. The Noteholders' Guaranties, the Penwest Guaranty and the payment
obligations of Penford Products under the Credit Agreement are each hereinafter
individually referred to as a "Penford Products Obligation" and collectively
referred to as the "Penford Products Obligations".
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<PAGE> 5
Penford Products Co. Intercreditor Agreement
F. Pursuant to the requirements of the Restatement and Exchange
Agreements, the Company has requested and the Lenders have agreed to enter into
this Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, the parties hereto hereby agree a follows:
SECTION 1. DEFINITIONS.
The following terms shall have the meanings assigned to them below in
this SECTION 1 or in the provisions of this Agreement referred to below:
"Bank" shall have the meaning assigned thereto in the Recitals hereof.
"Bankruptcy Proceeding" shall mean, with respect to any Person, a
general assignment of such Person for the benefit of its creditors, or the
institution by or against such Person of any proceeding seeking relief as
debtor, or seeking to adjudicate such Person as bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment or composition of such Person or
its debts, under any law relating to bankruptcy, insolvency, reorganization or
relief of debtors, or seeking appointment of a receiver, trustee, custodian or
other similar official for such Person or for any substantial part of its
property.
"Company" shall have the meaning assigned thereto in the Recitals
hereof.
"Credit Agreement" shall have the meaning assigned thereto in the
Recitals hereof.
"Credit Agreement Lender" and "Credit Agreement Lenders" shall have the
meanings assigned thereto in the Recitals hereof.
"Creditor" shall individually mean any Lender or Noteholder and
"Creditors" shall mean all of the Lenders and the Noteholders.
-3-
<PAGE> 6
Penford Products Co. Intercreditor Agreement
"Excess Penford Products Payment" shall mean as to any Creditor an
amount equal to the Penford Products Payment received by such Creditor less the
Pro Rata Share of Penford Products Payments to which such Creditor is then
entitled.
"Lender" shall mean any Credit Agreement Lender or the Bank under the
Penwest Guaranty, and "Lenders" shall mean all of the Credit Agreement Lenders
and the Bank under the Penwest Guaranty.
"Noteholder" and "Noteholders" shall have the meanings assigned thereto
in the Recitals hereof.
"Noteholders' Guaranties" shall have the meaning assigned thereto in
the Recitals hereof.
"Notes" shall have the meaning assigned thereto in the Recitals hereof.
"Penford Loans" shall have the meaning assigned thereto in the Recitals
hereof.
"Penford Products" shall have the meaning assigned thereto in the
Recitals hereof.
"Penford Products Obligation" and "Penford Products Obligations" shall
have the meanings assigned thereto in the Recitals hereof.
"Penford Products Payment" shall have the meaning assigned thereto in
SECTION 2.
"Penwest" shall have the meaning assigned thereto in the Recitals
hereof.
"Penwest Guaranty" shall have the meaning assigned thereto in the
Recitals hereof.
"Penwest Loan" shall have the meaning assigned thereto in the Recitals
hereof.
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<PAGE> 7
Penford Products Co. Intercreditor Agreement
"Penwest Loan Agreement" shall have the meaning assigned thereto in the
Recitals hereto.
"Person" shall mean an individual, partnership, limited liability
company, corporation, trust or unincorporated organization, and a government or
agency or political subdivision thereof.
"Pro Rata Share of Penford Products Payments" shall mean as of the date
of any Penford Products Payment to a Creditor in respect to a Penford Products
Obligation an amount equal to the product obtained by multiplying (a) the amount
of all Penford Products Payments made by Penford Products to all Creditors on
such date less all reasonable costs incurred by such Creditors in connection
with the collection of such Penford Products Payments by (b) a fraction, the
numerator of which shall be the Specified Amount owing to such Creditor, and the
denominator of which is the aggregate amount of all outstanding Subject
Obligations (without giving effect in the denominator to the application of any
such Penford Products Payments).
"Receiving Creditor" shall have the meaning assigned thereto in SECTION
2.
"Restatement and Exchange Agreements" shall have the meaning assigned
thereto in the Recitals hereof.
"Specified Amount" shall mean as to any Creditor the aggregate amount
of the Subject Obligations owed to such Creditor.
"Subject Obligations" shall mean all principal of, Make-Whole Amount,
if any, and interest on, the Notes, the Penford Loans and the Penwest Loan and
all other obligations of the Company under or in respect of the Notes, the
Penford Loans and the Penwest Loan and under the Restatement and Exchange
Agreements, the Credit Agreement or the Penwest Loan Agreement and any other
obligations of the Company to the Lenders which are the subject of a Penford
Products Obligation; provided, however, that obligations in respect of the
Penwest Loan and the Penwest Loan Agreement shall be excluded from "Subject
Obligations" until such time as the Bank makes a demand under the Penwest
Guaranty for payment of all or part of the Penwest Loan.
-5-
<PAGE> 8
Penford Products Co. Intercreditor Agreement
SECTION 2. SHARING OF RECOVERIES.
Each Creditor hereby agrees with each other Creditor that payments
(including payments made through setoff of deposit balances or otherwise or
payments or recoveries from any security interest granted to any Creditor) made
pursuant to the terms of any Penford Products Obligation (a "Penford Products
Payment") (a) within 90 days prior to the commencement of a Bankruptcy
Proceeding with respect to Penford Products or the Company or (b) following the
acceleration of the Notes or the Penford Loans or the acceleration of any other
Subject Obligation (other than the Penwest Loan) or (c) at a time when the Bank
has made a demand under the Penwest Guaranty for payment of all or part of the
Penwest Loan and an Event of Default, as defined in the Restatement and Exchange
Agreements, shall have occurred and be continuing (including any such Event of
Default which arises as a result of any payment by Penford Products under the
Penwest Guaranty), shall be shared so that each Creditor shall receive its Pro
Rata Share of Penford Products Payments. Accordingly, each Creditor hereby
agrees that in the event (i) an event described in clauses (a), (b) or (c) above
shall have occurred, (ii) any Creditor shall receive a Penford Products Payment
(a "Receiving Creditor"), and (iii) any other Creditor shall not concurrently
receive its Pro Rata Share of Penford Products Payments from Penford Products,
then the Receiving Creditor shall promptly remit the Excess Penford Products
Payment to each other Creditor who shall then be entitled thereto so that after
giving effect to such payment (and any other payments then being made by any
other Receiving Creditor pursuant to this SECTION 2) each Creditor shall have
received its Pro Rata Share of Penford Products Payments.
Any such payments shall be deemed to be and shall be made in
consideration of the purchase for cash at face value, but without recourse,
ratably from the other Creditors such amount of Notes, Penford Loans or Penwest
Loan (or interest therein), as the case may be, to the extent necessary to cause
such Receiving Creditor to share such Excess Penford Products Payment with the
other Creditors as hereinabove provided; provided, however, that if any such
purchase or payment is made by any Receiving Creditor and if such Excess Penford
Products Payment or part thereof is thereafter recovered from such Receiving
Creditor by Penford Products (including, without limitation, by any trustee in
bankruptcy of
-6-
<PAGE> 9
Penford Products Co. Intercreditor Agreement
Penford Products or any creditor thereof), the related purchase from the other
Creditors shall be rescinded ratably and the purchase price restored as to the
portion of such Excess Penford Products Payment so recovered, but without
interest; and provided further nothing herein contained shall obligate any
Creditor to resort to any setoff, application of deposit balance or other means
of payment under any Penford Products Obligation or avail itself of any recourse
by resort to any property of the Company, Penford Products or Penwest, the
taking of any such action to remain within the absolute discretion of such
Creditor without obligation of any kind to the other Creditors to take any such
action.
SECTION 3. AGREEMENTS AMONG THE CREDITORS.
Section 3.1. Independent Actions by Creditors. Nothing contained in
this Agreement shall prohibit any Creditor from accelerating the maturity of, or
demanding payment from Penford Products on, any Subject Obligation to such
Creditor or from instituting legal action against the Company, Penford Products
or Penwest to obtain a judgment or other legal process in respect of such
Subject Obligation, but any funds received from Penford Products in connection
with any recovery therefrom shall be subject to the terms of this Agreement.
Section 3.2. Relation of Creditors. This Agreement is entered into
solely for the purposes set forth herein, and no Creditor assumes any
responsibility to any other party hereto to advise such other party of
information known to such other party regarding the financial condition of the
Company, Penford Products or Penwest or of any other circumstances bearing upon
the risk of nonpayment of the Subject Obligation. Each Creditor specifically
acknowledges and agrees that nothing contained in this Agreement is or is
intended to be for the benefit of the Company, Penford Products or Penwest and
nothing contained herein shall limit or in any way modify any of the obligations
of the Company, Penford Products or Penwest to any Creditor.
Section 3.3. Acknowledgment of Guaranties. The Lenders and the
Noteholders hereby expressly acknowledge the existence of the Penford Products
Obligations.
-7-
<PAGE> 10
Penford Products Co. Intercreditor Agreement
SECTION 4. MISCELLANEOUS.
Section 4.1. Entire Agreement. This Agreement represents the entire
Agreement among the Creditors and, except as otherwise provided, this Agreement
may not be altered, amended or modified except in a writing executed by all the
parties to this Agreement.
Section 4.2. Notices. Notices hereunder shall be given to the Creditors
at their addresses as set forth in the Restatement and Exchange Agreements or
the Credit Agreement, as the case may be, or at such other address as may be
designated by each in a written notice to the other parties hereto.
Section 4.3. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of each of the Creditors and their respective
successors and assigns, whether so expressed or not, and, in particular, shall
inure to the benefit of and be enforceable by any future holder or holders of
any Subject Obligations, and the term "Creditor" shall include any such
subsequent holder of Subject Obligations, wherever the context permits.
Section 4.4. Consents, Amendment, Waivers. All amendments, waivers or
consents of any provision of this Agreement shall be effective only if the same
shall be in writing and signed by all of the Creditors.
Section 4.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Washington.
Section 4.6. Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one Agreement, and
any of the parties hereto may execute this Agreement by signing any such
counterpart.
Section 4.7. Sale of Interest. No Creditor will sell, transfer or
otherwise dispose of any interest in the Subject Obligations unless such
purchaser or transferee shall agree, in writing, to be bound by the terms of
this Agreement.
-8-
<PAGE> 11
Penford Products Co. Intercreditor Agreement
Section 4.8. Severability. In case any one or more of the provisions
contained in this Agreement shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
of this Agreement shall not in any way be affected or impaired thereby.
Section 4.9. Expenses. In the event of any litigation to enforce this
Agreement, the prevailing party shall, if not reimbursed by the Company, be
entitled to its reasonable attorney's fees.
Section 4.10. Term of Agreement. This Agreement shall terminate when
all Subject Obligations are paid in full and such payments are not subject to
any possibility of revocation or rescission or until all of the parties hereto
mutually agree in a writing to terminate this Agreement.
-9-
<PAGE> 12
Penford Products Co. Intercreditor Agreement
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the date first above written.
PRINCIPAL LIFE INSURANCE COMPANY
By /s/ JAMES C. FIFIELD
--------------------------------
Name: James C. Fifield
Title: Counsel
By /s/ CHRISTOPHER J. HENDERSON
--------------------------------
Name: Christopher J. Henderson
Title: Counsel
TMG LIFE INSURANCE COMPANY
By: THE MUTUAL GROUP, its Agent
By /s/ CONSTANCE L. KELLER
--------------------------------
Name: Constance L. Keller
Title: Director, Private
Placements
By Michael J. Steppe
Name: Michael J. Steppe
Title: Senior Vice
President
-10-
<PAGE> 13
Penford Products Co. Intercreditor Agreement
UNITED OF OMAHA LIFE INSURANCE COMPANY
By /s/ EDWIN H. GARRISON JR.
--------------------------------
Name: Edwin H. Garrison Jr.
Title: First Vice President
MUTUAL OF OMAHA INSURANCE COMPANY
By /s/ EDWIN H. GARRISON JR.
--------------------------------
Name: Edwin H. Garrison Jr.
Title: First Vice President
UNITED WORLD LIFE INSURANCE COMPANY
By /s/ EDWIN H. GARRISON JR.
--------------------------------
Name: Edwin H. Garrison Jr.
Title: Authorized Signer
COMPANION LIFE INSURANCE COMPANY
By /s/ EDWIN H. GARRISON JR.
--------------------------------
Name: Edwin H. Garrison Jr.
Title: Assistant Treasurer
By /s/ JEFFRY F. SAILER
--------------------------------
Name: Jeffry F. Sailer
Title: Assistant Treasurer
-11-
<PAGE> 14
Penford Products Co. Intercreditor Agreement
AMERICAN REPUBLIC INSURANCE COMPANY
By /s/ G. F. SHELDON
---------------------------------
Name: G. F. Sheldon
Title: Senior Vice President,
Investments
FARMERS AND TRADERS LIFE INSURANCE
COMPANY
By /s/ FRANK J. D'ONOFRIO, JR.
---------------------------------
Name: Frank J. D'Onofrio, Jr.
Title: Vice President-Investments
THE BANK OF NOVA SCOTIA
By /s/ M. BROWN
---------------------------------
Name: M. Brown
Title: Officer
KEYBANK NATIONAL ASSOCIATION
By /s/ KATHLEEN J. JOHANSON
---------------------------------
Name: Kathleen J. Johanson
Title: Vice President
-12-
<PAGE> 15
Penford Products Co. Intercreditor Agreement
U.S. BANK NATIONAL ASSOCIATION
By /s/ L. M. MANLEY
--------------------------------
Name: L. M. Manley
Title: Senior Vice President
The undersigned hereby acknowledge and agree to the foregoing
Agreement.
PENFORD PRODUCTS CO.
By /s/ VICTOR W. BREED
--------------------------------
Name: Victor W. Breed
Title: Vice President
PENFORD CORPORATION
By /s/ VICTOR W. BREED
--------------------------------
Name: Victor W. Breed
Title: Corporate Director of
Finance
PENWEST PHARMACEUTICALS CO.
By /s/ JENNIFER L. GOOD
--------------------------------
Name: Jennifer L. Good
Title: Vice President Finance and
Chief Financial Officer
-13-
<PAGE> 1
Exhibit 10.19
================================================================================
PENFORD CORPORATION
RESTATEMENT AND EXCHANGE AGREEMENT
Dated as of August 1, 1998
Re: $10,000,000 Adjustable Rate Series A Senior Notes
Due December 15, 1998
and
$10,000,000 Adjustable Rate Series B Senior Notes
Due December 15, 2006
================================================================================
<PAGE> 2
TABLE OF CONTENTS
(Not a part of the Agreement)
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C> <C>
SECTION 1. DESCRIPTION OF REORGANIZATION, NOTES AND COMMITMENT....................................1
Section 1.1. Reorganization.........................................................................1
Section 1.2. Description of Old Notes...............................................................2
Section 1.3. Description of New Notes...............................................................3
Section 1.4. Commitment, Closing Date...............................................................4
Section 1.5. Other Agreement........................................................................4
SECTION 2. PREPAYMENT OF NOTES....................................................................5
Section 2.1. No Required Prepayments................................................................5
Section 2.2. Optional Prepayment With Premium.......................................................5
Section 2.3. Notice of Optional Prepayments.........................................................5
Section 2.4. Application of Prepayments.............................................................5
Section 2.5. Direct Payment.........................................................................5
SECTION 3. REPRESENTATIONS........................................................................6
Section 3.1. Representations of the Company.........................................................6
Section 3.2. Representations of the Purchaser.......................................................6
SECTION 4. CLOSING CONDITIONS.....................................................................7
Section 4.1. Conditions.............................................................................7
Section 4.2. Waiver of Conditions...................................................................8
SECTION 5. COMPANY COVENANTS......................................................................8
Section 5.1. Corporate Existence, Etc...............................................................8
Section 5.2. Insurance..............................................................................8
Section 5.3. Taxes, Claims for Labor and Materials, Compliance with Laws............................8
Section 5.4. Maintenance, Etc.......................................................................9
Section 5.5. Nature of Business.....................................................................9
Section 5.6. Consolidated Tangible Net Worth........................................................9
Section 5.7. Indebtedness...........................................................................9
Section 5.8. Limitation on Liens...................................................................11
Section 5.9. Restricted Payments...................................................................12
Section 5.10. Mergers, Consolidations and Sales of Assets...........................................13
Section 5.11. Guaranties............................................................................14
Section 5.12. Repurchase of Notes...................................................................15
Section 5.13. Transactions with Affiliates..........................................................15
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 5.14. Multiemployer Plan Liability and Termination of Pension Plans.........................15
Section 5.15. Reports and Rights of Inspection......................................................15
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR...............................................18
Section 6.1. Events of Default.....................................................................18
Section 6.2. Notice to Holders.....................................................................20
Section 6.3. Acceleration of Maturities............................................................20
Section 6.4. Rescission of Acceleration............................................................20
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS......................................................21
Section 7.1. Consent Required......................................................................21
Section 7.2. Solicitation of Holders...............................................................21
Section 7.3. Effect of Amendment or Waiver.........................................................21
SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS..............................................21
Section 8.1. Definitions...........................................................................21
Section 8.2. Accounting Principles.................................................................32
Section 8.3. Directly or Indirectly................................................................32
SECTION 9. MISCELLANEOUS.........................................................................32
Section 9.1. Registered Notes......................................................................32
Section 9.2. Exchange of Notes.....................................................................32
Section 9.3. Loss, Theft, Etc. of Notes............................................................33
Section 9.4. Expenses, Stamp Tax Indemnity.........................................................33
Section 9.5. Powers and Rights Not Waived; Remedies Cumulative.....................................34
Section 9.6. Notices...............................................................................34
Section 9.7. Successors and Assigns................................................................34
Section 9.8. Survival of Covenants and Representations.............................................34
Section 9.9. Severability..........................................................................34
Section 9.10. Governing Law.........................................................................34
Section 9.11. Captions..............................................................................34
Section 9.12. Oral Agreements.......................................................................35
Signature........................................................................................................36
</TABLE>
-ii-
<PAGE> 4
ATTACHMENTS TO RESTATEMENT AND EXCHANGE AGREEMENT
<TABLE>
<S> <C>
Schedule I -- Names and Addresses of Note Purchasers and Amounts of Commitments
Exhibit A-1 -- Form of Adjustable Rate Series A Senior Note due December 15, 1998
Exhibit A-2 -- Form of Adjustable Rate Series B Senior Note due December 15, 2006
Exhibit B -- Representations and Warranties of the Company
Exhibit C -- Form of Guaranty Agreement
Exhibit D -- Form of Intercreditor Agreement
Exhibit E -- Description of Special Counsel's Closing Opinion
Exhibit F -- Form of Closing Opinion of Counsel to the Company and the Guarantor
</TABLE>
-iii-
<PAGE> 5
PENFORD CORPORATION
777-108TH AVENUE N.E., SUITE 2390
BELLEVUE, WASHINGTON 98004
RESTATEMENT AND EXCHANGE AGREEMENT
Re: $10,000,000 Adjustable Rate Series A Senior Notes
Due December 15, 1998
and
$10,000,000 Adjustable Rate Series B Senior Notes
Due December 15, 2006
Dated as of
August 1, 1998
To the Purchaser named in Schedule I
hereto which is a signatory of this
Agreement
Gentlemen:
Reference is made to the separate Note Agreements, each dated as of
October 1, 1994 (the "Note Agreements"), between the undersigned, PENFORD
CORPORATION, a Washington corporation which is the successor to Penwest, Ltd., a
Delaware corporation (the "Company"), and the Purchasers named in Schedule I to
this Restatement and Exchange Agreement (the or this "Agreement"). The Company
and the Purchasers entered into a First Amendment, Waiver and Consent dated as
of December 1, 1997 (the "First Amendment"), relating to the Note Agreements,
but the conditions to the effectiveness of the First Amendment were not
satisfied. The Company now wishes to amend and restate the Note Agreements as
hereinafter set forth, subject to the terms and conditions hereof and on the
basis of the representations and warranties hereinafter set forth, you agree to
such amendment and restatement.
SECTION 1. DESCRIPTION OF REORGANIZATION, NOTES AND COMMITMENT.
Section 1.1. Reorganization. The Company proposes the following
corporate reorganization transactions (being referred to individually as a
"Transaction" and collectively as the "Transactions"):
<PAGE> 6
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
(a) the transfer of certain assets currently used in the
Company's pharmaceuticals business to the Restricted Subsidiary of the
Company which is primarily engaged in the pharmaceuticals business,
formerly known as Edward Mendell Co., Inc., a Washington corporation
(the "Pharmaceuticals Company"), and the change of the name of the
Pharmaceuticals Company to Penwest Pharmaceuticals Co.;
(b) the distribution by the Company to its shareholders of
the outstanding Common Stock of the Pharmaceuticals Company (the
"Spin-off");
(c) the entering into of the following agreements between the
Company and the Pharmaceuticals Company in connection with the Spin-off
(collectively, the "Inter-Company Agreements"): (i) a service agreement
pursuant to which the Company will, on an interim basis, provide the
Pharmaceuticals Company with certain general corporate services after
the Spin-off; (ii) an excipient supply agreement pursuant to which the
Company will manufacture and supply exclusively to the Pharmaceuticals
Company all of the Pharmaceuticals Company's EMDEX and CANDEX
requirements; (iii) an employee benefits agreement pursuant to which
the Company will, for a specified period of time, permit employees of
the Pharmaceuticals Company to continue to be covered under certain of
the Company's employee benefit plans; (iv) a tax allocation agreement
pursuant to which, as long as the Pharmaceuticals Company participates
in the Company's consolidated return, the Pharmaceuticals Company will
be required to pay to the Company, or will be entitled to receive from
the Company, the Pharmaceuticals Company's allocable portion of
consolidated federal or state income tax liability or credits; and (v)
a separation agreement between the Company and the Pharmaceuticals
Company setting forth the agreements of the parties with respect to the
separation of the pharmaceuticals business from the Company's food and
paper business and the Spin-off; and
(d) the Penwest Guarantee.
In order to permit the Transactions, the Company now requests the following
amendment and restatement of the Note Agreements and waivers and consents in
connection therewith, and, based on the representations and warranties of the
Company herein set forth and subject to the terms and conditions herein
provided, the Purchasers are willing to enter into such amendment and
restatement and to extend such waivers and consents.
Section 1.2. Description of Old Notes. Pursuant to the Original Note
Agreements, the Company issued and sold to the Purchasers:
(a) $10,000,000 aggregate principal amount of its 7.59% Series
A Senior Notes due October 1, 1998 (the "Old Series A Notes"); and
(b) $10,000,000 aggregate principal amount of its 8.35% Series
B Senior Notes due December 15, 2006 (the "Old Series B Notes").
-2-
<PAGE> 7
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
The Old Series A Notes and the Old Series B Notes are hereinafter collectively
referred to as the "Old Notes".
Section 1.3. Description of New Notes. (a) The Company will authorize
the issue in exchange for the Old Notes of:
(i) $10,000,000 aggregate principal amount of its Adjustable
Rate Series A Senior Notes due December 15, 1998 (the "New Series A
Notes" or the "Series A Notes"), to be dated the date of issue, to bear
interest from such date at the rate of 8.09% per annum (subject to
adjustment as set forth in paragraph (b) of this Section), payable at
maturity, to be expressed to mature on December 15, 1998, and to be
substantially in the form attached hereto as Exhibit A-1.
(ii) $10,000,000 aggregate principal amount of its Adjustable
Rate Series B Senior Notes due December 15, 2006 (the "New Series B
Notes" or the "Series B Notes" ), to be dated the date of issue, to
bear interest from such date at the rate of 8.85% per annum (subject to
adjustment as set forth in paragraph (b) of this Section), payable
semiannually on the fifteenth day of each June and December in each
year (commencing December 15, 1998) and at maturity, to be expressed to
mature on December 15, 2006, and to be substantially in the form
attached hereto as Exhibit A-2.
The New Series A Notes and the New Series B Notes are hereinafter collectively
referred to as the "New Notes" or the "Notes"; and the term "Series" shall
include all of the New Series A Notes or all of the New Series B Notes, as the
case may be. Interest on the New Notes shall be computed on the basis of a
360-day year of twelve 30-day months. If the date on which a payment shall be
due is not a Business Day, then the payment date shall be the next Business Day.
The term "New Notes" or "Notes" as used herein shall include each New Note
delivered pursuant to this Agreement and the separate agreement with the other
purchaser named in Schedule I. You and the other purchaser named in Schedule I
are hereinafter sometimes referred to as the "Purchasers".
(b) In the event the Indebtedness to Consolidated Capitalization Ratio
exceeds 62% as at the end of any fiscal quarter of the Company, the interest
rate borne by the Series A Notes shall be increased to 8.59% per annum, and the
interest rate borne by the Series B Notes shall be increased to 9.35% per annum,
in each case commencing with the first interest payments to become due 60 days
or more after the end of such fiscal period and applicable to the calculation of
the entire semiannual interest payment then due.
(c) Each Series of the New Notes shall bear interest on overdue
principal (including any overdue required or optional prepayment of principal)
and premium, if any, and (to the extent legally enforceable) on any overdue
installment of interest at the rate of interest otherwise then borne by such
Series of New Notes plus 2% per annum after the date due, whether by
acceleration or otherwise, until paid.
-3-
<PAGE> 8
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
Section 1.4. Commitment, Closing Date. Subject to the terms and
conditions hereof and on the basis of the representations and warranties
hereinafter set forth:
(a) you hereby agree with the Company as follows:
(i) You waive any Default or Event of Default under
Sections 5.9, 5.10 and 5.13 hereof arising solely from the
Transactions;
(ii) The Spin-off will not constitute a Restricted
Payment for purposes of Section 5.9 hereof, provided that the
Spin-off is completed by November 1, 1998;
(iii) None of the Transactions will constitute a
disposition of assets for purposes of Section 5.10 hereof,
provided that the Spin-off is completed by November 1, 1998;
and
(iv) None of the Inter-Company Agreements will
constitute a transaction or arrangement with any Affiliate for
purposes of Section 5.13 hereof; and
(b) the Company agrees to issue to you in exchange for the
Old Notes held by you, and you agree to surrender such Old Notes to the
Company in exchange therefor and for payment of accrued interest on the
Old Notes to and including the Closing Date, New Notes of the Series
and in the principal amount set forth opposite your name on Schedule I
hereto in a principal amount equal to the principal amount of such Old
Notes on the Closing Date hereafter mentioned.
Delivery of the New Notes will be made at the offices of Chapman and
Cutler, 111 West Monroe Street, Chicago, Illinois 60603, against surrender of
Old Notes of the same series and in the same principal amount as the New Notes
at 10:00 A.M., Chicago, Illinois, time, on August 28, 1998 or such earlier date
as may be determined by not less than five Business Days' prior written notice
from the Company to the Purchasers (the "Closing Date").
The New Notes delivered to you on the Closing Date will be delivered to
you in the form of a registered Note or registered Notes of each Series to be
acquired by you in the form attached hereto as Exhibit A-1 or A-2, as
appropriate, for the full amount to be acquired by you (in the denominations
specified by you in Schedule I), registered in your name or in the name of your
nominee, all as you may specify at any time prior to the date fixed for
delivery.
Section 1.5. Other Agreement. Simultaneously with the execution and
delivery of this Agreement, the Company is entering into a similar agreement
with the other Purchaser under which such other Purchaser agrees to acquire from
the Company the principal amount of New Notes of the Series set forth opposite
such Purchaser's name in Schedule I, and your obligation and the obligations of
the Company hereunder are subject to the execution and delivery of the similar
agreement by the other Purchaser. This Agreement and said similar agreement with
the
-4-
<PAGE> 9
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
other Purchaser are herein collectively referred to as the "Agreements". The
obligations of each Purchaser shall be several and not joint and no Purchaser
shall be liable or responsible for the acts of the other Purchaser.
SECTION 2. PREPAYMENT OF NOTES.
Section 2.1. No Required Prepayments. No mandatory prepayments of
principal of the Notes are scheduled to be made prior to their expressed
maturity date, and the Notes are not subject to prepayment or redemption at the
option of the Company prior to their expressed maturity date except on the terms
and conditions and in the amounts and with the premium, if any, set forth below
in this SECTION 2.
Section 2.2. Optional Prepayment With Premium. Upon compliance with
SECTION 2.3 the Company shall have the privilege of prepaying the outstanding
Notes on any interest payment date, either in whole or in part (but if in part
then in a minimum aggregate principal amount of $100,000) by payment of the
principal amount of the Notes, or portion thereof to be prepaid, and accrued
interest thereon to the date of such prepayment, together with a premium equal
to the Make-Whole Amount, determined as of five business days prior to the date
of such prepayment pursuant to this SECTION 2.2.
Section 2.3. Notice of Optional Prepayments. The Company will give
notice of any prepayment of the Notes pursuant to SECTION 2.2 to each holder
thereof not less than 30 days nor more than 60 days before the date fixed for
such optional prepayment specifying (i) such date, (ii) the principal amount of
the holder's Notes of each Series to be prepaid on such date, (iii) that a
premium may be payable, (iv) the date when such premium will be calculated, (v)
the estimated premium, together with a reasonably detailed computation of such
estimated premium, and (vi) the accrued interest applicable to the prepayment.
Such notice of prepayment shall also certify all facts, if any, which are
conditions precedent to any such prepayment. Notice of prepayment having been so
given, the aggregate principal amount of the Notes of each Series specified in
such notice, together with accrued interest thereon and the premium, if any,
payable with respect thereto shall become due and payable on the prepayment date
specified in said notice. Not later than two business days prior to the
prepayment date specified in such notice, the Company shall provide each holder
of a Note written notice of the premium, if any, payable in connection with the
prepayment of such Note and, whether or not any premium is payable, a reasonably
detailed computation of the Make-Whole Amount applicable to such prepayment.
Section 2.4. Application of Prepayments. All partial prepayments shall
be applied on all outstanding Notes of both Series ratably in accordance with
the unpaid principal amounts thereof.
Section 2.5. Direct Payment. Notwithstanding anything to the contrary
contained in this Agreement or the Notes regarding the place or manner of
payment of the Notes, in the case of any Note owned and registered in accordance
with SECTION 9.1 by you or by any subsequent Institutional Holder which has
given written notice to the Company requesting that the provisions of this
SECTION 2.5 shall apply, the Company will punctually pay when due the principal
thereof, interest thereon and
-5-
<PAGE> 10
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
premium, if any, due with respect to said principal, without any presentment
thereof, directly to you, to your nominee or to such subsequent Institutional
Holder at your address or your nominee's address set forth in Schedule I hereto
or such other address as you or such subsequent Institutional Holder may from
time to time designate in writing to the Company or, if a bank account with a
United States bank is designated for you or your nominee on Schedule I hereto or
in any written notice to the Company from you or from any such subsequent
Institutional Holder, the Company will make such payments in immediately
available funds to such bank account, marked for attention as indicated, or in
such other manner or to such other account in any United States bank as you or
any such subsequent Institutional Holder may from time to time direct in
writing.
SECTION 3. REPRESENTATIONS.
Section 3.1. Representations of the Company. The Company represents and
warrants that all representations and warranties set forth in Exhibit B are true
and correct as of the date hereof and are incorporated herein by reference with
the same force and effect as though herein set forth in full.
Section 3.2. Representations of the Purchaser. You represent, and in
entering into this Agreement the Company understands, that you are an Accredited
Investor and acquiring the Notes for the purpose of investment and not with a
view to the distribution thereof, and that you have no present intention of
selling, negotiating or otherwise disposing of the Notes; it being understood,
however, that the disposition of your property shall at all times be and remain
within your control. You further represent that at least one of the following
statements is an accurate representation as to each account (an "Account") in
which the Old Notes to be surrendered by you for cancellation are held and for
which the Notes being acquired by you are being acquired:
(a) the Account is an "insurance company general account"
within the meaning of Department of Labor Prohibited Transaction
Exemption ("PTE") 95-60 (issued July 12, 1995) and there is no employee
benefit plan, treating as a single plan, all plans maintained by the
same employer or employee organization, with respect to which the
amount of the general account reserves and liabilities for all
contracts held by or on behalf of such plan, exceeds 10% of the total
reserves and liabilities of such general account (exclusive of separate
account liabilities) plus surplus, as set forth in the NAIC Annual
Statement filed with your state of domicile; or
(b) the Account is either (i) an insurance company pooled
separate account, within the meaning of PTE 90-1 (issued January 29,
1990), or (ii) a bank collective investment fund, within the meaning of
the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed
to the Company in writing pursuant to this paragraph (b), no employee
benefit plan or group of plans maintained by the same employer or
employee organization beneficially owns more than 10% of all assets
allocated to such pooled separate account or collective investment
fund.
-6-
<PAGE> 11
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
As used in this SECTION 3.2, the terms "employee benefit plan" and
"separate account" shall have the respective meanings assigned to such terms in
Section 3 of ERISA.
SECTION 4. CLOSING CONDITIONS.
Section 4.1. Conditions. Your obligation to acquire the Notes on the
Closing Date shall be subject to the performance by the Company of its
agreements hereunder which by the terms hereof are to be performed at or prior
to the time of delivery of the Notes and to the following further conditions
precedent:
(a) Guaranty Agreement. The Guaranty Agreement substantially
in the form attached hereto as Exhibit C shall have been duly executed
and delivered by the Guarantor and shall be in full force and effect.
(b) Intercreditor Agreement. The Intercreditor Agreement
substantially in the form attached hereto as Exhibit D shall have been
duly executed and delivered by the parties thereto and shall be in full
force and effect.
(c) Closing Certificate of the Company. You shall have
received a certificate dated the Closing Date, signed by the President,
a Vice President or the Corporate Director of Finance of the Company,
the truth and accuracy of which shall be a condition to your obligation
to acquire the Notes proposed to be delivered to you and to the effect
that (i) the representations and warranties of the Company set forth in
Exhibit B hereto are true and correct on and with respect to the
Closing Date, (ii) the Company has performed all of its obligations
hereunder which are to be performed on or prior to the Closing Date,
and (iii) no Default or Event of Default has occurred and is
continuing.
(d) Closing Certificate of the Guarantor. You shall have
received a certificate dated the Closing Date, signed by the President,
a Vice President or the Corporate Director of Finance of the Guarantor,
the truth and accuracy of which shall be a condition to your obligation
to acquire the Notes proposed to be delivered to you and to the effect
that the representations and warranties of the Guarantor set forth in
the Guaranty Agreement hereto are true and correct on and with respect
to the Closing Date.
(e) Legal Opinions. You shall have received from Chapman and
Cutler, who are acting as your special counsel in this transaction, and
from Bogle & Gates, counsel for the Company and the Guarantor, their
respective opinions dated the Closing Date, in form and substance
satisfactory to you, and covering the matters set forth in Exhibits E
and F, respectively, hereto.
(f) Related Transactions. The Company shall have consummated
the exchange of the entire principal amount of the New Notes for the
Old Notes pursuant to this Agreement and the other Agreement referred
to in SECTION 1.3. This shall also be a condition to the Company's
obligation to deliver any New Notes pursuant to this Agreement or the
other Agreement.
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<PAGE> 12
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
(g) Amendment Fee and Accrued Interest. Each Purchaser shall
have received a fee equal to 0.25% of the unpaid principal amount of
the Old Notes held by such Purchaser and accrued interest on the Old
Notes held by such Purchaser through and including the Closing Date.
(h) Satisfactory Proceedings. All proceedings taken in
connection with the transactions contemplated by this Agreement, and
all documents necessary to the consummation thereof, shall be
satisfactory in form and substance to you and your special counsel, and
you shall have received a copy (executed or certified as may be
appropriate) of all legal documents or proceedings taken in connection
with the consummation of said transactions.
Section 4.2. Waiver of Conditions. If on the Closing Date the Company
fails to tender to you the Notes to be issued to you on such date or if the
conditions specified in SECTION 4.1 have not been fulfilled, you may thereupon
elect to be relieved of all further obligations under this Agreement. Without
limiting the foregoing, if the conditions specified in SECTION 4.1 have not been
fulfilled, you may waive compliance by the Company with any such condition to
such extent as you may in your sole discretion determine. Nothing in this
SECTION 4.2 shall operate to relieve the Company of any of its obligations
hereunder or to waive any of your rights against the Company.
SECTION 5. COMPANY COVENANTS.
From and after the date of this Agreement and continuing so long as any
amount remains unpaid on any Note:
Section 5.1. Corporate Existence, Etc. The Company will preserve and
keep in full force and effect, and will cause each Subsidiary to preserve and
keep in full force and effect, its corporate existence and all licenses and
permits necessary to the proper conduct of its business; provided, however, that
the foregoing shall not prevent any transaction permitted by SECTION 5.10.
Section 5.2. Insurance. The Company will maintain, and will cause each
Subsidiary to maintain, insurance coverage by financially sound and reputable
insurers in such forms and amounts and against such risks as are customary for
corporations of established reputation engaged in the same or a similar business
and owning and operating similar properties.
Section 5.3. Taxes, Claims for Labor and Materials, Compliance with
Laws. The Company will promptly pay and discharge, and will cause each
Subsidiary promptly to pay and discharge, all lawful taxes, assessments and
governmental charges or levies imposed upon the Company or such Subsidiary,
respectively, or upon or in respect of all or any part of the property or
business of the Company or such Subsidiary, all trade accounts payable in
accordance with usual and customary business terms, and all claims for work,
labor or materials, which if unpaid might become a Lien upon any property of the
Company or such Subsidiary; provided, however, that the Company or such
Subsidiary shall not be required to pay any such tax, assessment, charge, levy,
account payable or claim if (i) the validity, applicability or amount thereof is
being contested in good faith by appropriate actions or proceedings which will
prevent the forfeiture or
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<PAGE> 13
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
sale of any property of the Company or such Subsidiary or any material
interference with the use thereof by the Company or such Subsidiary, and (ii)
the Company or such Subsidiary shall set aside on its books, reserves deemed by
it to be adequate with respect thereto. The Company will promptly comply and
will cause each Subsidiary to comply with all laws, ordinances or governmental
rules and regulations to which it is subject including, without limitation, the
Occupational Safety and Health Act of 1970, as amended, ERISA and all laws,
ordinances, governmental rules and regulations relating to environmental
protection in all applicable jurisdictions, the violation of which could
materially and adversely affect the properties, business, prospects, profits or
condition of the Company and its Subsidiaries or would result in any Lien not
permitted under SECTION 5.8.
Section 5.4. Maintenance, Etc. The Company will maintain, preserve and
keep, and will cause each Subsidiary to maintain, preserve and keep, its
properties which are used or useful in the conduct of its business (whether
owned in fee or a leasehold interest) in good repair and working order and from
time to time will make all necessary repairs, replacements, renewals and
additions so that at all times the efficiency thereof shall be maintained.
Section 5.5. Nature of Business. Neither the Company nor any Subsidiary
will engage in any business if, as a result, the general nature of the business,
taken on a consolidated basis, which would then be engaged in by the Company and
its Subsidiaries would be substantially changed from the general nature of the
business engaged in by the Company and its Subsidiaries on the date of this
Agreement.
Section 5.6. Consolidated Tangible Net Worth. The Company will not
permit Consolidated Tangible Net Worth at any time to be less than (i)
$40,000,000 plus (ii) 50% of GAAP Net Income (without giving effect to any
losses) for each Fiscal Quarter beginning on or after May 31, 1998 plus (iii)
75% of the Net Equity Proceeds from any equity offering by the Company or any of
its Subsidiaries after May 31, 1998.
Section 5.7. Indebtedness. The Company will not at any time permit:
(a) the Indebtedness to Consolidated Capitalization Ratio to
exceed the following levels at any time during the periods set forth
below:
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<PAGE> 14
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
(i) While the Penwest Guarantee is in effect:
<TABLE>
<CAPTION>
PERIOD RATIO
<S> <C> <C>
to August 31, 1999 0.65 to 1.00
from August 31, 1999
to August 31, 2000 0.62 to 1.00
from August 31, 2000
to August 31, 2001 0.52 to 1.00
on and after
August 31, 2001 0.50 to 1.00
</TABLE>
(ii) After the Penwest Guarantee is released:
<TABLE>
<CAPTION>
PERIOD RATIO
<S> <C> <C>
to November 30, 1998 0.62 to 1.00
from November 30, 1998
to August 31, 1999 0.60 to 1.00
from August 31, 1999
to August 31, 2000 0.57 to 1.00
from August 31, 2000
to August 31, 2001 0.52 to 1.00
on and after
August 31, 2001 0.50 to 1.00
</TABLE>
(b) its Leverage Ratio to exceed the following levels:
<TABLE>
<CAPTION>
PERIOD RATIO
<S> <C> <C>
to August 31, 1999 3.75 to 1.00
from August 31, 1999
to August 31, 2000 3.25 to 1.00
on and after
August 31, 2000 2.75 to 1.00
</TABLE>
-10-
<PAGE> 15
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
(c) its Interest/Rental Expense Coverage Ratio to fall below
3.0 to 1.0.
(d) the aggregate principal amount of all Indebtedness of
Subsidiaries (excluding such Indebtedness as constitutes a Penford
Products Obligation, as defined in the Intercreditor Agreement) at any
time to exceed 10% of the sum of the principal amount of all
Indebtedness and Consolidated Net Worth.
Section 5.8. Limitation on Liens. The Company will not, and will not
permit any Subsidiary to, create or incur, or suffer to be incurred or to exist,
any Lien on its or their property or assets, whether now owned or hereafter
acquired, or upon any income or profits therefrom, or transfer any property for
the purpose of subjecting the same to the payment of obligations in priority to
the payment of its or their general creditors, or acquire or agree to acquire,
or permit any Subsidiary to acquire, any property or assets upon conditional
sales agreements or other title retention devices, except:
(a) Liens for property taxes and assessments or governmental
charges or levies and Liens securing claims or demands of mechanics and
materialmen, provided payment thereof is not at the time required by
SECTION 5.3;
(b) Liens of or resulting from any judgment or award, the
time for the appeal or petition for rehearing of which shall not have
expired, or in respect of which the Company or a Subsidiary shall at
any time in good faith be prosecuting an appeal or proceeding for a
review and in respect of which a stay of execution pending such appeal
or proceeding for review shall have been secured provided that the
aggregate amount of such judgments or awards shall not exceed
$5,000,000;
(c) Liens incidental to the conduct of business or the
ownership of properties and assets (including Liens in connection with
worker's compensation, unemployment insurance and other like laws,
warehousemen's and attorneys' liens and statutory landlords' liens) and
Liens to secure the performance of bids, tenders or trade contracts, or
to secure statutory obligations, surety or appeal bonds or other Liens
of like general nature incurred in the ordinary course of business and
not in connection with the borrowing of money; provided in each case,
the obligation secured is not overdue or, if overdue, is being
contested in good faith by appropriate actions or proceedings;
(d) existing survey exceptions or encumbrances, easements or
reservations, or rights of others for rights-of-way, utilities and
other similar purposes, or zoning or other restrictions as to the use
of real properties ("Encumbrances") or future Encumbrances, which are
necessary for the conduct of the activities of the Company and its
Subsidiaries or which customarily exist on properties of corporations
engaged in similar activities and similarly situated and which do not
in any event materially impair their use in the operation of the
business of the Company and its Subsidiaries;
(e) Liens securing Indebtedness of a Subsidiary to the Company
or to another Subsidiary;
-11-
<PAGE> 16
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
(f) Liens existing as of the date of this Agreement and
reflected on Annex B to Exhibit B to this Agreement; and
(g) Liens incurred after the Closing Date given to secure the
payment of the purchase price incurred in connection with the
acquisition of fixed assets useful and intended to be used in carrying
on the business of the Company or a Subsidiary, including Liens
existing on such fixed assets at the time of acquisition thereof or at
the time of acquisition by the Company or a Subsidiary of any business
entity then owning such fixed assets, whether or not such existing
Liens were given to secure the payment of the purchase price of the
fixed assets to which they attach so long as they were not incurred,
extended or renewed in contemplation of such acquisition, provided that
(i) the Lien shall attach solely to the fixed assets acquired or
purchased, (ii) at the time of acquisition of such fixed assets, the
aggregate amount remaining unpaid on all Indebtedness secured by Liens
on such fixed assets whether or not assumed by the Company or a
Subsidiary shall not exceed the total purchase price at the time of
acquisition of such fixed assets, and (iii) all such Indebtedness shall
have been incurred within the applicable limitations provided in
SECTION 5.7.
Section 5.9. Restricted Payments. The Company will not except as
hereinafter provided:
(a) Declare or pay any dividends, either in cash or property,
on any shares of its capital stock of any class (except dividends or
other distributions payable solely in shares of capital stock of the
Company);
(b) Directly or indirectly, or through any Subsidiary,
purchase, redeem or retire any shares of its capital stock of any class
or any warrants, rights or options to purchase or acquire any shares of
its capital stock (other than in exchange for or out of the net cash
proceeds to the Company from the substantially concurrent issue or sale
of other shares of capital stock of the Company or warrants, rights or
options to purchase or acquire any shares of its capital stock); or
(c) Make any other payment or distribution, either directly
or indirectly or through any Subsidiary, in respect of its capital
stock;
(such declarations or payments of dividends, purchases, redemptions or
retirements of capital stock and warrants, rights or options and all such other
payments or distributions being herein collectively called "Restricted
Payments"), if after giving effect thereto any Event of Default shall have
occurred and be continuing or the aggregate amount of Restricted Payments made
during the period from and after August 31, 1997 to and including the date of
the making of the Restricted Payment in question, would exceed the sum of (x)
$6,500,000 plus (y) 75% of Consolidated Net Income for such period, computed on
a cumulative basis for said entire period (or if such Consolidated Net Income is
a deficit figure, then minus 100% of such deficit) plus the net proceeds from
the issuance or sale of common stock after August 31, 1997 other than proceeds
from an issuance or sale of common stock described in paragraph (b) of this
SECTION 5.9;
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<PAGE> 17
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
provided, that the foregoing limitations shall not apply to any payment of
dividends to the Company by a Subsidiary.
The Company will not declare any dividend which constitutes a
Restricted Payment payable more than 90 days after the date of declaration
thereof.
For the purposes of this SECTION 5.9, the amount of any Restricted
Payment declared, paid or distributed in property shall be deemed to be the
greater of the book value or fair market value (as determined in good faith by
the Board of Directors of the Company) of such property at the time of the
making of the Restricted Payment in question.
Section 5.10. Mergers, Consolidations and Sales of Assets. (a) The
Company will not, and will not permit any Subsidiary to, (i) consolidate with or
be a party to a merger with any other corporation or (ii) sell, lease or
otherwise dispose of all or any substantial part (as defined in paragraph (d) of
this SECTION 5.10) of the assets of the Company and its Subsidiaries; provided,
however, that:
(1) any Subsidiary may merge or consolidate with or into the
Company or any Subsidiary so long as in any merger or consolidation
involving the Company, the Company shall be the surviving or continuing
corporation;
(2) any Subsidiary may merge or consolidate with any other
corporation if the surviving or continuing corporation (i) is a United
States corporation and (ii) is a Subsidiary;
(3) the Company may consolidate or merge with any other
corporation if (i) the surviving or continuing corporation is the
Company or if not, the surviving or continuing corporation (A) is a
United States corporation, (B) concurrently with the consummation of
such merger or consolidation assumes in writing all obligations of the
Company under the Agreement and the obligation to pay all outstanding
Notes and delivers a copy thereof to all holders of such Notes, and
(ii) at the time of such consolidation or merger and after giving
effect thereto no Default or Event of Default shall have occurred and
be continuing; and
(4) any Subsidiary may sell, lease, transfer or otherwise
dispose of all or any substantial part of its assets to the Company or
any other Subsidiary.
(b) The Company will not permit any Subsidiary to issue or sell any
shares of stock of any class (including as "stock" for the purposes of this
SECTION 5.10, any warrants, rights or options to purchase or otherwise acquire
stock or other Securities exchangeable for or convertible into stock) of such
Subsidiary to any Person other than the Company or a Wholly-owned Subsidiary,
except for the purpose of qualifying directors, or except in satisfaction of the
validly pre-existing preemptive rights of minority shareholders in connection
with the simultaneous issuance of stock to the Company and/or a Subsidiary
whereby the Company and/or such Subsidiary maintain their same proportionate
interest in such Subsidiary.
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<PAGE> 18
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
(c) The Company will not sell, transfer or otherwise dispose of any
shares of stock of any Subsidiary (except to qualify directors) or any
Indebtedness of any Subsidiary, and will not permit any Subsidiary to sell,
transfer or otherwise dispose of (except to the Company or a Wholly-owned
Subsidiary) any shares of stock or any Indebtedness of any other Subsidiary,
unless:
(1) simultaneously with such sale, transfer, or disposition,
all shares of stock and all Indebtedness of such Subsidiary at the time
owned by the Company and by every other Subsidiary shall be sold,
transferred or disposed of as an entirety;
(2) the Board of Directors of the Company shall have
determined, as evidenced by a resolution thereof, that the proposed
sale, transfer or disposition of said shares of stock and Indebtedness
is in the best interests of the Company;
(3) said shares of stock and Indebtedness are sold,
transferred or otherwise disposed of to a Person, and on terms
reasonably deemed by the Board of Directors to be adequate and
satisfactory;
(4) the Subsidiary being disposed of shall not have any
continuing investment in the Company or any other Subsidiary not being
simultaneously disposed of; and
(5) such sale or other disposition does not involve a
substantial part (as hereinafter defined) of the assets of the Company
and its Subsidiaries.
(d) As used in this SECTION 5.10, a sale, lease or other disposition of
assets shall be deemed to be a "substantial part" of the assets of the Company
and its Subsidiaries if the book value of such assets, when added to the book
value of all other assets sold, leased or otherwise disposed of by the Company
and its Subsidiaries (other than in the ordinary course of business) during the
12-month period ending with the date of such sale, lease or other disposition,
exceeds 10% of Total Assets, determined as of the end of the immediately
preceding fiscal year; provided, however, that assets shall not be deemed to be
sold, leased or otherwise disposed of for purposes of making the computations
required by the preceding provisions of this paragraph to the extent that the
proceeds therefrom shall, within 180 days of such sale, lease or disposition
thereof by the Company or its Subsidiary, as the case may be, either (i) be used
to purchase capital assets for use in the business of the Company and its
Subsidiaries, or (ii) applied to reduce Indebtedness of the Company or its
Subsidiaries.
Section 5.11. Guaranties. The Company will not, and will not permit any
Subsidiary to, become or be liable in respect of any Guaranty except (i)
Guaranties by the Company which are limited in amount to a stated maximum dollar
exposure; (ii) Guaranties which constitute Guaranties of obligations incurred by
any Subsidiary in compliance with the provisions of this Agreement; or (iii)
Guaranties of the Company and its Subsidiaries existing as of the date of this
Agreement and reflected on Annex B to Exhibit B hereto.
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<PAGE> 19
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
Section 5.12. Repurchase of Notes. Neither the Company nor any
Subsidiary or Affiliate, directly or indirectly, may repurchase or make any
offer to repurchase any Notes unless an offer has been made to repurchase Notes,
pro rata, from all holders of the Notes at the same time and upon the same
terms. In case the Company repurchases or otherwise acquires any Notes, such
Notes shall immediately thereafter be cancelled and no Notes shall be issued in
substitution therefor. Without limiting the foregoing, upon the repurchase or
other acquisition of any Notes by the Company, any Subsidiary or any Affiliate
(or upon the agreement of the Company, any Subsidiary or any Affiliate to
purchase or otherwise acquire any Notes), such Notes shall no longer be
outstanding for purposes of any section of this Agreement relating to the taking
by the holders of the Notes of any actions with respect hereto, including,
without limitation, SECTION 6.3, SECTION 6.4 and SECTION 7.1.
Section 5.13. Transactions with Affiliates. The Company will not, and
will not permit any Subsidiary to, enter into or be a party to any transaction
or arrangement with any Affiliate (including, without limitation, the purchase
from, sale to or exchange of property with, or the rendering of any service by
or for, any Affiliate), except in the ordinary course of and pursuant to the
reasonable requirements of the Company's or such Subsidiary's business and upon
fair and reasonable terms no less favorable to the Company or such Subsidiary
than would obtain in a comparable arm's-length transaction with a Person other
than an Affiliate.
Section 5.14. Multiemployer Plan Liability and Termination of Pension
Plans. The Company will not and will not permit any Subsidiary to withdraw from
any Multiemployer Plan if such withdrawal could result in withdrawal liability
(as described in Part 1 of Subtitle E of Title IV of ERISA) which could
materially and adversely affect the properties, business, prospects, profits or
condition (financial or otherwise) of the Company and its Subsidiaries taken as
a whole. The Company and any Subsidiary will not permit any employee benefit
plan maintained by it to be terminated if such termination could result in the
imposition of a Lien on any property of the Company or any Subsidiary pursuant
to Section 4068 of ERISA.
Section 5.15. Reports and Rights of Inspection. The Company will keep,
and will cause each Subsidiary to keep, proper books of record and account in
which full and correct entries will be made of all dealings or transactions of,
or in relation to, the business and affairs of the Company or such Subsidiary,
in accordance with GAAP consistently applied (except for changes disclosed in
the financial statements furnished to you pursuant to this SECTION 5.15 and
concurred in by the independent public accountants referred to in SECTION
5.15(b) hereof), and will furnish to you so long as you are the holder of any
Note and to each other Institutional Holder of the then outstanding Notes (in
duplicate if so specified below or otherwise requested):
(a) Quarterly Statements. As soon as available and in any
event within 60 days after the end of each quarterly fiscal period
(except the last) of each fiscal year, copies of:
(1) consolidated balance sheets of the Company and
its Subsidiaries as of the close of such quarterly fiscal
period, setting forth in comparative form the consolidated
figures for the fiscal year then most recently ended,
-15-
<PAGE> 20
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
(2) consolidated statements of income of the Company
and its Subsidiaries for such quarterly fiscal period and for
the portion of the fiscal year ending with such quarterly
fiscal period, in each case setting forth in comparative form
the consolidated figures for the corresponding periods of the
preceding fiscal year, and
(3) consolidated and consolidating statements of
cash flows of the Company and its Subsidiaries for the portion
of the fiscal year ending with such quarterly fiscal period,
setting forth in comparative form the consolidated figures for
the corresponding period of the preceding fiscal year,
all in reasonable detail and certified as complete and correct by an
authorized financial officer of the Company;
(b) Annual Statements. As soon as available and in any event
within 120 days after the close of each fiscal year of the Company,
copies of:
(1) consolidated balance sheets of the Company and
its Subsidiaries as of the close of such fiscal year, and
(2) consolidated statements of income and retained
earnings and cash flows of the Company and its Subsidiaries
for such fiscal year,
in each case setting forth in comparative form the consolidated figures
for the preceding fiscal year, all in reasonable detail and accompanied
by a report thereon of a firm of independent public accountants of
recognized national standing selected by the Company to the effect that
the consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Company and its
Subsidiaries as of the end of the fiscal year being reported on and the
consolidated results of the operations and cash flows for said year in
conformity with GAAP and that the examination of such accountants in
connection with such financial statements has been conducted in
accordance with generally accepted auditing standards and included such
tests of the accounting records and such other auditing procedures as
said accountants deemed necessary in the circumstances;
(c) Audit Reports. Promptly upon receipt thereof, one copy of
each interim or special audit made by independent accountants of the
books of the Company or any Subsidiary and upon written request any
annual management letter received from such accountants;
(d) SEC and Other Reports. Promptly upon their becoming
available, one copy of each financial statement, report, notice or
proxy statement sent by the Company to stockholders generally and of
each regular or periodic report, and any registration statement or
prospectus filed by the Company or any Subsidiary with any securities
exchange or the Securities and Exchange Commission or any successor
agency;
-16-
<PAGE> 21
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
(e) ERISA Reports. Promptly upon the occurrence thereof,
written notice of (i) a Reportable Event with respect to any Plan; (ii)
the institution of any steps by the Company, any ERISA Affiliate, the
PBGC or any other person to terminate any Plan in a distress
termination under Section 4041(c) of ERISA or an involuntary
termination under Section 4042 of ERISA; (iii) the institution of any
steps by the Company or any ERISA Affiliate to withdraw from any
Multiemployer Plan if such withdrawal could result in withdrawal
liability (as described in Part 1 of Subtitle E of Title IV of ERISA)
which could materially and adversely affect the properties, business,
prospects or condition (financial or otherwise) of the Company and its
Subsidiaries taken as a whole; (iv) a transaction which is prohibited
under Section 406 of ERISA and which is not exempt under Section 408 of
ERISA in connection with any Plan if such prohibited transaction could
result in liability which could materially and adversely affect the
properties, business, prospects or condition (financial or otherwise)
of the Company and its Subsidiaries taken as a whole; (v) any material
increase in the contingent liability of the Company or any Subsidiary
with respect to any post-retirement welfare liability; or (vi) the
commencement or threatened (in writing) commencement of legal
proceedings by the Internal Revenue Service, the Department of Labor or
the PBGC with respect to any of the foregoing;
(f) Officer's Certificates. Within the periods provided in
paragraphs (a) and (b) above, a certificate of an authorized financial
officer of the Company stating that such officer has reviewed the
provisions of this Agreement and setting forth: (i) the information and
computations (in sufficient detail) required in order to establish
whether the Company was in compliance with the requirements of SECTION
5.6 through SECTION 5.14 at the end of the period covered by the
financial statements then being furnIshed, and (ii) whether there
existed as of the date of such financial statements and whether, to the
best of such officer's knowledge, there exists on the date of the
certificate or existed at any time during the period covered by such
financial statements any Default or Event of Default and, if any such
condition or event exists on the date of the certificate, specifying
the nature and period of existence thereof and the action the Company
is taking and proposes to take with respect thereto;
(g) Accountant's Certificates. Within the period provided in
paragraph (b) above, a certificate of the accountants who render an
opinion with respect to such financial statements, stating that they
have reviewed this Agreement and stating further whether, in making
their audit, such accountants have become aware of any Default or Event
of Default under any of the terms or provisions of this Agreement
insofar as any such terms or provisions pertain to or involve
accounting matters or determinations, and if any such condition or
event then exists, specifying the nature and period of existence
thereof; and
(h) Requested Information. With reasonable promptness, such
other data and information as you or any such Institutional Holder may
reasonably request.
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<PAGE> 22
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
Without limiting the foregoing, the Company will permit you, so long as you are
the holder of any Note, and each Institutional Holder of the then outstanding
Notes (or such Persons as either you or such Institutional Holder may
designate), to visit and inspect, under the Company's guidance, any of the
properties of the Company or any Subsidiary, to examine all of their books of
account, financial records, reports and other papers, to make copies and
extracts therefrom and to discuss their respective affairs, finances and
accounts with their respective officers, employees, and independent public
accountants (and by this provision the Company authorizes said accountants to
discuss with you the finances and affairs of the Company and its Subsidiaries)
all at such reasonable times and as often as may be reasonably requested. You
agree and any subsequent holder of any Note shall be deemed to agree to keep
confidential any information made available to you pursuant to such a visit or
inspection, provided that you may disclose any such information (i) as may be
appropriate in connection with enforcing compliance with the terms and
conditions of this Agreement or the Notes, (ii) as has become generally
available to the public, (iii) as may be required in any report, statement or
testimony submitted to or required by any municipal, state, or Federal
regulatory body, agency, authority or commission having or claiming to have
jurisdiction over you, (iv) as may be necessary in connection with the sale of
the Notes to any prospective bona fide purchaser, (v) to the National
Association of Insurance Commissioners (or any successor agency thereto), or
(vi) to any entity utilizing such information to rate or classify your debt or
equity Securities or to report to the public concerning the industry of which
you are a part.
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR.
Section 6.1. Events of Default. Any one or more of the following shall
constitute an "Event of Default" as such term is used herein:
(a) Default shall occur in the payment of interest on any
Note when the same shall have become due and such default shall
continue for more than five Business Days; or
(b) Default shall occur in the making of any payment of the
principal of any Note or premium, if any, thereon at any date fixed for
prepayment; or
(c) Default shall occur in the making of any other payment of
the principal of any Note or premium, if any, thereon at the expressed
or any accelerated maturity date; or
(d) Default shall be made in the payment when due (whether by
lapse of time, by declaration, by call for redemption or otherwise) of
the principal of or interest on (i) the Credit Agreement and such
default shall continue beyond the period of grace, if any, allowed with
respect thereto or (ii) any other Indebtedness (other than the Notes)
of the Company or any Subsidiary in an aggregate amount in excess of
$5,000,000 and such default shall continue beyond the period of grace,
if any, allowed with respect thereto; or
(e) Default or the happening of any event shall occur under
(i) the Credit Agreement and such Default or event shall continue for a
period of time sufficient to
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Penford Corporation Restatement and Exchange Agreement
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permit the acceleration of the maturity of any Indebtedness of the
Company or any Subsidiary outstanding thereunder, or (ii) any other
indenture, agreement or other instrument under which Indebtedness of
the Company or any Subsidiary may be issued and such default or event
shall continue for a period of time sufficient to permit the
acceleration of the maturity of any Indebtedness of the Company or any
Subsidiary outstanding thereunder in an aggregate amount in excess of
$5,000,000; or
(f) Default shall occur in the observance or performance of
any covenant or agreement contained in SECTION 5.5 through SECTION 5.7
and SECTION 5.9 through SECTION 5.14; or
(g) Default shall occur in the observance or performance of
any other provision of this Agreement which is not remedied within 30
days after the earlier of (i) the day on which the Company first
obtains knowledge of such default, or (ii) the day on which written
notice thereof is given to the Company by the holder of any Note; or
(h) Any representation or warranty made by the Company herein
or made by the Guarantor in the Guaranty Agreement, or made by the
Company or the Guarantor in any statement or certificate furnished by
the Company or the Guarantor in connection with the consummation of the
issuance and delivery of the Notes or furnished by the Company pursuant
hereto or by the Guarantor pursuant to the Guaranty Agreement, is
untrue in any material respect as of the date of the issuance or making
thereof; or
(i) Final judgment or judgments for the payment of money
aggregating in excess of $5,000,000 is or are outstanding against the
Company or any Subsidiary or against any property or assets of either
and any one of such judgments has remained unpaid, unvacated, unbonded
or unstayed by appeal or otherwise for a period of 30 days from the
date of its entry; or
(j) A custodian, liquidator, trustee or receiver is appointed
for the Company or any Subsidiary or for the major part of the property
of either and is not discharged within 90 days after such appointment;
or
(k) The Company or any Subsidiary becomes insolvent or
bankrupt, is generally not paying its debts as they become due or makes
an assignment for the benefit of creditors, or the Company or any
Subsidiary applies for or consents to the appointment of a custodian,
liquidator, trustee or receiver for the Company or such Subsidiary or
for the major part of the property of either; or
(l) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors, are instituted by or
against the Company or any Subsidiary and, if instituted against the
Company or any Subsidiary, are consented to or are not dismissed within
90 days after such institution.
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Penford Corporation Restatement and Exchange Agreement
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Section 6.2. Notice to Holders. When any Event of Default described in
the foregoing SECTION 6.1 has occurred, or if the holder of any Note or of any
other evidence of Funded Debt or Current Debt of the Company gives any notice or
takes any other action with respect to a claimed default, the Company agrees to
give notice within three business days of such event to all holders of the Notes
then outstanding.
Section 6.3. Acceleration of Maturities. When any Event of Default
described in paragraph (a), (b) or (c) of SECTION 6.1 has happened and is
continuing, any holder of any Note may, and when any Event of DeFault described
in paragraphs (d) through (i), inclusive, of said SECTION 6.1 has happened and
is continuing, the holdEr or holders of 25% or more of the principal amount of
Notes of either Series at the time outstanding may, by notice to the Company,
declare the entire principal and all interest accrued on all Notes to be, and
all Notes shall thereupon become, forthwith due and payable, without any
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived. When any Event of Default described in paragraphs (j),
(k) or (l) of SECTION 6.1 has occurred, then all outstanding Notes shall
immediately become due and payable wiThout presentment, demand or notice of any
kind. Upon the Notes becoming due and payable as a result of any Event of
Default as aforesaid, the Company will forthwith pay to the holders of the Notes
the entire principal and interest accrued on the Notes and, to the extent not
prohibited by applicable law, an amount as liquidated damages for the loss of
the bargain evidenced hereby (and not as a penalty) equal to the Make-Whole
Amount, determined as of the date on which the Notes shall so become due and
payable. No course of dealing on the part of the holder or holders of any Notes
nor any delay or failure on the part of any holder of Notes to exercise any
right shall operate as a waiver of such right or otherwise prejudice such
holder's rights, powers and remedies. The Company further agrees, to the extent
permitted by law, to pay to the holder or holders of the Notes all costs and
expenses incurred by them in the collection of any Notes upon any default
hereunder or thereon, including reasonable compensation to such holder's or
holders' attorneys for all services rendered in connection therewith.
Section 6.4. Rescission of Acceleration. The provisions of SECTION 6.3
are subject to the condition that if the principal of and accrued interest on
all or any outstanding Notes have been declared immediately due and payable by
reason of the occurrence of any Event of Default described in paragraphs (a)
through (i), inclusive, of SECTION 6.1, the holders of 66-2/3% in aggregate
principal amount of the Notes of each Series then outstanding may, by written
instrument filed with the Company, rescind and annul such declaration and the
consequences thereof, provided that at the time such declaration is annulled and
rescinded:
(a) no judgment or decree has been entered for the payment of
any monies due pursuant to the Notes or this Agreement;
(b) all arrears of interest upon all the Notes and all other
sums payable under the Notes and under this Agreement (except any
principal, interest or premium on the Notes which has become due and
payable solely by reason of such declaration under SECTION 6.3) shall
have been duly paid; and
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Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
(c) each and every other Default and Event of Default shall
have been made good, cured or waived pursuant to SECTION 7.1;
and provided further, that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right consequent
thereto.
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS.
Section 7.1. Consent Required. Any term, covenant, agreement or
condition of this Agreement may, with the consent of the Company, be amended or
compliance therewith may be waived (either generally or in a particular instance
and either retroactively or prospectively), if the Company shall have obtained
the consent in writing of the holders of more than 50% in aggregate principal
amount of outstanding Notes of each Series; provided that without the written
consent of the holders of all of the Notes then outstanding, no such amendment
or waiver shall be effective (i) which will change the time of payment of the
principal of or the interest on any Note or change the principal amount thereof
or change the rate of interest thereon, or (ii) which will change any of the
provisions with respect to optional prepayments, or (iii) which will change the
percentage of holders of the Notes required to consent to any such amendment or
waiver of any of the provisions of this SECTION 7 or SECTION 6.
Section 7.2. Solicitation of Holders. So long as there are any Notes
outstanding, the Company will not solicit, request or negotiate for or with
respect to any proposed waiver or amendment of any of the provisions of this
Agreement or the Notes unless each holder of Notes (irrespective of the amount
of Notes then owned by it) shall be informed thereof by the Company and shall be
afforded the opportunity of considering the same and shall be supplied by the
Company with sufficient information to enable it to make an informed decision
with respect thereto. The Company will not, directly or indirectly, pay or cause
to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, to any holder of Notes as consideration for or as an
inducement to entering into by any holder of Notes of any waiver or amendment of
any of the terms and provisions of this Agreement or the Notes unless such
remuneration is concurrently offered, on the same terms, ratably to the holders
of all Notes then outstanding.
Section 7.3. Effect of Amendment or Waiver. Any such amendment or
waiver shall apply equally to all of the holders of the Notes and shall be
binding upon them, upon each future holder of any Note and upon the Company,
whether or not such Note shall have been marked to indicate such amendment or
waiver. No such amendment or waiver shall extend to or affect any obligation not
expressly amended or waived or impair any right consequent thereon.
SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS.
Section 8.1. Definitions. Unless the context otherwise requires, the
terms hereinafter set forth when used herein shall have the following meanings
and the following definitions shall be equally applicable to both the singular
and plural forms of any of the terms herein defined:
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Penford Corporation Restatement and Exchange Agreement
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"Accredited Investor" shall have the meaning set forth in Rule 501(a)
of Regulation D as promulgated by the Securities and Exchange Commission under
the Securities Act of 1933, as amended.
"Affiliate" shall mean any Person (other than a Subsidiary) (i) which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, the Company, (ii) which
beneficially owns or holds 5% or more of any class of the Voting Stock of the
Company, (iii) 5% or more of the Voting Stock (or in the case of a Person which
is not a corporation, 5% or more of the equity interest) of which is
beneficially owned or held by the Company or a Subsidiary, or (iv) who is an
officer or director of the Company or any of its Subsidiaries. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of Voting Stock, by contract or otherwise.
"Bank" shall mean The Bank of Nova Scotia.
"Business Day" shall mean any day other than a Saturday, Sunday or a
legal holiday for banks in the States of Washington or Iowa.
"Capitalized Lease" shall mean any lease the obligation for Rentals
with respect to which is required to be capitalized on a consolidated balance
sheet of the lessee and its subsidiaries in accordance with GAAP.
"Capitalized Lease Liabilities" shall mean all monetary obligations of
the Company and its Subsidiaries under any leasing or similar arrangement which,
in accordance with GAAP, would be classified as capitalized leases, and, for
purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP, and the stated
maturity thereof shall be the date of the last payment of rent or any other
amount due under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty.
"Capitalized Rentals" of any Person shall mean as of the date of any
determination thereof the amount at which the aggregate Rentals due and to
become due under all Capitalized Leases under which such Person is a lessee
would be reflected as a liability on a consolidated balance sheet of such
Person.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Consolidated Current Debt" shall mean all Current Debt of the Company
and its Subsidiaries, determined on a consolidated basis eliminating
intercompany items.
"Consolidated Funded Debt" shall mean all Funded Debt of the Company
and its Subsidiaries, determined on a consolidated basis eliminating
intercompany items.
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Penford Corporation Restatement and Exchange Agreement
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"Consolidated Net Income" for any period shall mean the gross revenues
of the Company and its Subsidiaries for such period less all expenses and other
proper charges (including taxes on income), determined on a consolidated basis
after eliminating earnings or losses attributable to outstanding Minority
Interests, but excluding in any event:
(a) any gains or losses on the sale or other disposition of
Investments or fixed or capital assets, and any taxes on such excluded
gains and any tax deductions or credits on account of any such excluded
losses;
(b) the proceeds of any life insurance policy;
(c) net earnings and losses of any Subsidiary accrued prior to
the date it became a Subsidiary;
(d) net earnings and losses of any corporation (other than a
Subsidiary), substantially all the assets of which have been acquired
in any manner by the Company or any Subsidiary, realized by such
corporation prior to the date of such acquisition;
(e) net earnings and losses of any corporation (other than a
Subsidiary) with which the Company or a Subsidiary shall have
consolidated or which shall have merged into or with the Company or a
Subsidiary prior to the date of such consolidation or merger;
(f) net earnings of any business entity (other than a
Subsidiary) in which the Company or any Subsidiary has an ownership
interest unless such net earnings shall have actually been received by
the Company or such Subsidiary in the form of cash distributions;
(g) any portion of the net earnings of any Subsidiary which
for any reason is unavailable for payment of dividends to the Company
or any other Subsidiary;
(h) earnings resulting from any reappraisal, revaluation or
write-up of assets;
(i) any deferred or other credit representing any excess of
the equity in any Subsidiary at the date of acquisition thereof over
the amount invested in such Subsidiary;
(j) any gain arising from the acquisition of any Securities of
the Company or any Subsidiary; and
(k) any reversal of any contingency reserve, except to the
extent that provision for such contingency reserve shall have been made
from income arising during such period.
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Penford Corporation Restatement and Exchange Agreement
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"Consolidated Net Worth" shall mean the consolidated net worth of the
Company and its Subsidiaries, as reflected in the consolidated financial
statements of the Company and its Subsidiaries.
"Consolidated Tangible Net Worth" shall mean the consolidated net worth
of the Company and its Subsidiaries (if any) less (unless otherwise deducted in
determining consolidated net worth) the aggregate amount of any intangible
assets of the Company and its Subsidiaries, including, without limitation,
deferred financing and organizational costs (net of amortization), goodwill,
franchises, licenses, patents, trademarks, trade names, copyrights, service
marks and brand names, all as reflected in the consolidated financial statements
of the Company and its Subsidiaries.
"Contingent Liability" shall mean any agreement, undertaking or
arrangement by which any Person guarantees, endorses or otherwise becomes or is
contingently liable upon (by direct or indirect agreement, contingent or
otherwise, to provide funds for payment, to supply funds to, or otherwise to
invest in, a debtor, or otherwise to assure a creditor against loss) the
indebtedness, obligation or any other liability of any other Person (other than
by endorsements of instruments in the course of collection), or guarantees the
payment of dividends or other distributions upon the shares of any other Person.
The amount of any Person's obligation under any Contingent Liability shall
(subject to any limitation set forth therein) be calculated in accordance with
GAAP; provided, however, that the Contingent Liability of the Company or any
Subsidiary under any guarantee of any Person's obligation under a revolving
credit facility shall be deemed to be the amount of the borrowing then
outstanding under such facility plus any interest accrued thereon and any other
charges then due under such facility.
"Credit Agreement" shall mean the Credit Agreement dated as of July 2,
1998, among the Company, Penford Products and the Bank, as Agent for the Lenders
named therein, as the same may be amended from time to time.
"Current Debt" of any Person shall mean as of the date of any
determination thereof (i) all Indebtedness of such Person for borrowed money
other than Funded Debt of such Person and (ii) Guaranties by such Person of
Current Debt of others.
"Default" shall mean any event or condition the occurrence of which
would, with the lapse of time or the giving of notice, or both, constitute an
Event of Default.
"EBITDA" shall mean, for any period of four Fiscal Quarters, the
earnings from continuing operations of the Company and its Subsidiaries (as
reflected in their consolidated financial statements) before interest expense,
taxes, depreciation and amortization, calculated on a rolling four Fiscal
Quarter basis, but excluding any historical one time non-recurring charges and
the charges incurred by the Company in connection with the divestiture of
Penwest.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and any successor statute of similar import, together with the
regulations thereunder, in
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Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
each case as in effect from time to time. References to sections of ERISA shall
be construed to also refer to any successor sections.
"ERISA Affiliate" shall mean any corporation, trade or business that
is, along with the Company, a member of a controlled group of corporations or a
controlled group of trades or businesses, as described in section 414(b) and
414(c), respectively, of the Code or Section 4001 of ERISA.
"Event of Default" shall have the meaning set forth in SECTION 6.1.
"Exchange Act Reports" shall have the meaning specified in paragraph
4(b) of Exhibit B hereto.
"Fiscal Quarter" shall mean any quarter of a Fiscal Year.
"Fiscal Year" shall mean any period of twelve consecutive calendar
months ending on August 31; references to a Fiscal Year with a number
corresponding to any calendar year (e.g., the "1997 Fiscal Year") refer to the
Fiscal Year ending on the August 31 occurring during such calendar year.
"Funded Debt" of any Person shall mean all Indebtedness of such Person
in each case having a final maturity of one or more than one year from the date
of origin thereof (or which is renewable or extendible at the option of the
obligor for a period or periods more than one year from the date of origin),
including all payments in respect thereof that are required to be made within
one year from the date of any determination of Funded Debt, whether or not the
obligation to make such payments shall constitute a current liability of the
obligor under GAAP.
"GAAP" shall mean generally accepted accounting principles at the time
in the United States.
"GAAP Net Income" shall mean the consolidated net income of the Company
and its Subsidiaries, determined in accordance with GAAP.
"Guaranties" by any Person shall mean all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing, or in effect guaranteeing,
any Indebtedness, dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such Person: (i) to purchase such Indebtedness or obligation or
any property or assets constituting security therefor, (ii) to advance or supply
funds (x) for the purchase or payment of such Indebtedness or obligation, (y) to
maintain working capital or other balance sheet condition or otherwise to
advance or make available funds for the purchase or payment of such Indebtedness
or obligation, (iii) to lease property or to purchase Securities or other
property or services primarily for the purpose of assuring the owner of such
Indebtedness or obligation of the ability of the primary obligor to make payment
of the Indebtedness or obligation, or
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Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
(iv) otherwise to assure the owner of the Indebtedness or obligation of the
primary obligor against loss in respect thereof. For the purposes of all
computations made under this Agreement, a Guaranty in respect of any
Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the
outstanding principal amount of such Indebtedness for borrowed money which has
been guaranteed, and a Guaranty in respect of any other obligation or liability
or any dividend shall be deemed to be Indebtedness equal to the maximum
aggregate amount of such obligation, liability or dividend.
"Guaranty Agreement" shall mean the Guaranty Agreement of the Guarantor
substantially in the form attached hereto as Exhibit C.
"Guarantor" shall mean Penford Products.
"Indebtedness" of any Person shall mean, without duplication:
(a) all obligations of such Person for borrowed money and all
obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments;
(b) all obligations of such Person as lessee under leases
which have been or should be, in accordance with GAAP, recorded as
Capitalized Lease Liabilities;
(c) all obligations, contingent or otherwise, relative to the
face amount of all letters of credit, whether or not drawn, and
banker's acceptances issued for the account of such Person;
(d) whether or not so included as liabilities in accordance
with GAAP, all indebtedness (excluding prepaid interest thereon)
secured by a Lien on property owned or being purchased by such Person
(including indebtedness arising under conditional sales or other title
retention agreements), whether or not such indebtedness shall have been
assumed by such Person or is limited in recourse; and
(e) all Contingent Liabilities of such Person in respect of
any of the foregoing.
For all purposes of this Agreement, (i) obligations of a Subsidiary to the
Company or a Wholly-Owned Subsidiary shall not be considered Indebtedness and
(ii) the Indebtedness of any Person shall include the Indebtedness of any
partnership or joint venture in which such Person is a general partner or a
joint venturer to the extent that either (x) such Person is directly obligated
for such Indebtedness, or (y) that such Indebtedness is a Contingent Liability
of such Person.
"Indebtedness to Consolidated Capitalization Ratio" means the ratio of
(i) the principal amount of all Indebtedness of the Company and its Subsidiaries
(if any) to (ii) the sum of the principal amount of all Indebtedness and
Consolidated Net Worth.
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Penford Corporation Restatement and Exchange Agreement
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"Institutional Holder" shall mean any insurance company, bank, savings
and loan association, trust company, investment company, charitable foundation,
employee benefit plan (as defined in ERISA) or other institutional investor or
financial institution.
"Intercompany Agreements" shall have the meaning set forth in SECTION
1.1.
"Intercreditor Agreement" shall mean the Intercreditor Agreement
substantially in the form attached hereto as Exhibit D.
"Interest/Rental Expense Coverage Ratio" shall mean, for any period of
four consecutive Fiscal Quarters, the ratio of (i) the sum of the EBITDA and
Personal Property Rental Expense of the Company and its Subsidiaries for such
period to (ii) the sum of their interest expense and Personal Property Rental
Expense.
"Investments" shall mean all investments, in cash or by delivery of
property made, directly or indirectly in any Person, whether by acquisition of
shares of capital stock, indebtedness or other obligations or Securities or by
loan, advance, capital contribution or otherwise; provided, however, that
"Investments" shall not mean or include routine investments in property to be
used or consumed in the ordinary course of business.
"Leverage Ratio" shall mean, for any period of four consecutive Fiscal
Quarters, the ratio of (i) the sum of the Indebtedness of the Company and its
Subsidiaries as of the end of such period to (ii) the sum of the EBITDA of the
Company and its Subsidiaries for such period.
"Lien" shall mean any security interest, mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
otherwise), charge against or interest in property to secure payment of a debt
or performance of an obligation or other priority or preferential arrangement of
any kind or nature whatsoever.
"Loan Agreement" shall mean the Loan Agreement dated as of July 2,
1998, between Penwest and the Bank, as the same may be amended from time to
time.
"Make-Whole Amount" shall mean in connection with any prepayment or
acceleration of the Notes of any Series the excess, if any, of (i) the aggregate
present value as of the date of such prepayment of each dollar of principal
being prepaid and the amount of interest (exclusive of interest accrued to the
date of prepayment) that would have been payable in respect of such dollar if
such prepayment had not been made, determined by discounting such amounts at the
Reinvestment Rate from the respective dates on which they would have been
payable, over (ii) 100% of the principal amount of the outstanding Notes of such
Series being prepaid. If the Reinvestment Rate is equal to or higher than the
interest rate then borne by any Note, the Make-Whole Amount as to such Note
shall be zero. For purposes of any determination of the Make-Whole Amount:
As to the Notes of either Series, "Reinvestment Rate" shall
mean 0.50% plus the arithmetic mean of the yields for the two columns
under the heading "Week Ending"
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Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
published in the Statistical Release under the caption "Treasury
Constant Maturities" for the maturity (rounded to the nearest month)
corresponding to the Weighted Average Life to Maturity of the principal
of the Notes of such Series being prepaid. If no maturity exactly
corresponds to such Weighted Average Life to Maturity, yields for the
two published maturities most closely corresponding to such Weighted
Average Life to Maturity shall be calculated pursuant to the
immediately preceding sentence and the Reinvestment Rate shall be
interpolated or extrapolated from such yields on a straight-line basis,
rounding in each of such relevant periods to the nearest month. For the
purposes of calculating the Reinvestment Rate, the most recent
Statistical Release published prior to the date of determination of the
Make-Whole Amount shall be used.
"Statistical Release" shall mean the then most recently
published statistical release designated "H.15(519)" or any successor
publication which is published weekly by the Federal Reserve System and
which establishes yields on actively traded U.S. Government Securities
adjusted to constant maturities or, if such statistical release is not
published at the time of any determination hereunder, then such other
reasonably comparable index which shall be designated by the holders of
66-2/3% in aggregate principal amount of the outstanding Notes.
"Weighted Average Life to Maturity" of the principal amount of
the Notes of either Series being prepaid shall mean, as of the time of
any determination thereof, the number of years obtained by dividing the
then Remaining Dollar-Years of such principal by the aggregate amount
of such principal. The term "Remaining Dollar-Years" of such principal
shall mean the amount obtained by (i) multiplying (x) the remainder of
(1) the amount of principal of the Notes of such Series that would have
become due on each scheduled payment date if such prepayment had not
been made, less (2) the amount of principal on the Notes of such Series
scheduled to become due on such date after giving effect to such
prepayment, by (y) the number of years (calculated to the nearest
one-twelfth) which will elapse between the date of determination and
such scheduled payment date, and (ii) totalling the products obtained
in (i).
"Minority Interests" shall mean any shares of stock of any class of a
Subsidiary (other than directors' qualifying shares as required by law) that are
not owned by the Company and/or one or more of its Subsidiaries. Minority
Interests shall be valued by valuing Minority Interests constituting preferred
stock at the voluntary or involuntary liquidating value of such preferred stock,
whichever is greater, and by valuing Minority Interests constituting common
stock at the book value of capital and surplus applicable thereto adjusted, if
necessary, to reflect any changes from the book value of such common stock
required by the foregoing method of valuing Minority Interests in preferred
stock.
"Multiemployer Plan" shall have the same meaning as in ERISA.
"Net Equity Proceeds" shall mean, with respect to any issuance by the
Company or any Subsidiary of any equity securities, the gross consideration
received by or for the account of the
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Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
issuer minus underwriting and brokerage commissions, discounts and fees and
other professional fees and expenses relating to such issuance that are payable
by the issuer.
"New Series A Notes" or "Series A Notes" shall have the meaning set
forth in SECTION 1.3(a).
"New Series B Notes" or "Series B Notes" shall have the meaning set
forth in SECTION 1.3(b).
"New Notes" or "Notes" shall have the meaning set forth in SECTION 1.3.
"Old Notes" shall have the meaning set forth in SECTION 1.2.
"Old Series A Notes" shall have the meaning set forth in SECTION
1.2(a).
"Old Series B Notes" shall have the meaning set forth in SECTION
1.2(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"Penford Products" shall mean Penford Products Co., a Delaware
corporation.
"Penford Products Obligation" shall have the meaning specified in the
Intercreditor Agreement.
"Penwest" shall mean Penwest Pharmaceuticals Co., a Washington
corporation.
"Penwest Guarantee" shall mean the guarantees by the Company and
Penford Products of that certain $15,000,000 revolving term credit facility
provided by Scotiabank to Penwest.
"Person" shall mean any natural person, corporation, partnership, firm,
association, trust, government, governmental agency or any other entity, whether
acting in an individual, fiduciary or other capacity.
"Personal Property Rental Expense" shall mean the expense for the
rental or lease of furniture, fixtures and equipment, including without
limitation leases of rail cars.
"Pharmaceuticals Company" shall have the meaning set forth in SECTION
1.1.
"Plan" shall mean a "pension plan," as such term is defined in Section
3(2)(A) of ERISA, which is a defined benefit plan, established or maintained by
the Company or any ERISA Affiliate or as to which the Company or any ERISA
Affiliate contributed or is a member or otherwise may have any liability.
"PTE" shall have the meaning set forth in SECTION 3.2.
"Purchasers" shall have the meaning set forth in SECTION 1.3.
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Penford Corporation Restatement and Exchange Agreement
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"Rentals" shall mean and include as of the date of any determination
thereof all fixed payments (including as such all payments which the lessee is
obligated to make to the lessor on termination of the lease or surrender of the
property) payable by the Company or a Subsidiary, as lessee or sublessee under a
lease of real or personal property, but shall be exclusive of any amounts
required to be paid by the Company or a Subsidiary (whether or not designated as
rents or additional rents) on account of maintenance, repairs, insurance, taxes
and similar charges. Fixed rents under any so-called "percentage leases" shall
be computed solely on the basis of the minimum rents, if any, required to be
paid by the lessee regardless of sales volume or gross revenues.
"Reportable Event" shall have the same meaning as in Section 4043(b) of
ERISA other than a Reportable Event as to which the provision of 30 days' notice
to the PBGC is waived under applicable regulations; provided, however, that the
loss of qualification of a Plan and the failure to meet the minimum funding
standard of Section 412 of the Code or Section 302 of ERISA shall constitute a
Reportable Event regardless of the issuance of any waiver of the reporting
requirement by the PBGC.
"Restricted Investments" shall mean all Investments other than
Investments described in the following subparagraphs (a) through (g):
(a) Investments by the Company and its Subsidiaries in
property to be used in, and receivables arising from the sale of goods
and services in, the ordinary course of business of the Company and its
Subsidiaries;
(b) Investments by the Company and its Subsidiaries in and to
Subsidiaries, including any Investment in a corporation which, after
giving effect to such Investment, will become a Subsidiary;
(c) Investments in direct obligations of the United States of
America or any agency or instrumentality of the United States of
America, the payment or guarantee of which constitutes a full faith and
credit obligation of the United States of America, in either case,
maturing in three years or less from the date of acquisition thereof;
(d) Investments in securities maturing within three years
from the date of acquisition thereof, issued by a municipality located
in the United States which are, at the time of acquisition thereof by
the Company or a Subsidiary, accorded one of the top two rating
classifications by Standard & Poor's Corporation, Moody's Investors
Service, Inc. or other nationally recognized credit rating agency of
similar standing;
(e) Investments in certificates of deposit or banker's
acceptances maturing within one year from the date of issuance thereof,
issued by a bank or trust company organized under the laws of either
the United States, Canada, Japan or a country located in Western Europe
and having capital, surplus and undivided profits aggregating at least
$100,000,000;
-30-
<PAGE> 35
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
(f) Investments in commercial paper maturing in 270 days or
less from the date of issuance which, at the time of acquisition by the
Company or any Subsidiary, is accorded one of the top two rating
classifications of Standard & Poor's Corporation, Moody's Investors
Service, Inc. or other nationally recognized credit rating agency of
similar standing; and
(g) other Investments of the Company and/or its Subsidiaries
existing as of the date of this Agreement which are described in Annex
B to Exhibit B to this Agreement.
In valuing any Investments for the purposes of this Agreement, such
Investments shall be taken at the original cost thereof, without allowance for
any subsequent write-offs or appreciation or depreciation therein, but less any
amount repaid or recovered on account of capital or principal.
For purposes of this definition, at any time when a corporation becomes
a Subsidiary, all Investments of such corporation at such time shall be deemed
to have been made by such corporation, as a Subsidiary, at such time.
"Scotiabank" shall mean The Bank of Nova Scotia.
"Security" shall have the same meaning as in Section 2(a)(1) of the
Securities Act of 1933, as amended.
"Series" shall have the meaning set forth in SECTION 1.3.
"Spin-off" shall have the meaning set forth in SECTION 1.1.
"Stockholders' Equity" shall mean the sum of capital stock, premium
(exclusive of any premium arising by virtue of any appraisal or revaluation of
any assets) and retained earnings of the Company.
The term "subsidiary" shall mean as to any particular parent
corporation any corporation of which more than 50% (by number of votes) of the
Voting Stock shall be beneficially owned, directly or indirectly, by such parent
corporation. The term "Subsidiary" shall mean a subsidiary of the Company.
"Total Assets" shall mean as of the date of any determination thereof
the total amount of all assets of the Company and its Subsidiaries (less
depreciation, depletion and other properly deductible valuation reserves).
"Transaction" and "Transactions" shall have the meanings set forth in
SECTION 1.1.
-31-
<PAGE> 36
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
"Voting Stock" shall mean Securities of any class or classes, the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
"Wholly-owned" when used in connection with any Subsidiary shall mean a
Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares) and all Funded Debt and Current
Debt shall be owned by the Company and/or one or more of its Wholly-owned
Subsidiaries.
Section 8.2. Accounting Principles. Where the character or amount of
any asset or liability or item of income or expense is required to be determined
or any consolidation or other accounting computation is required to be made for
the purposes of this Agreement, the same shall be done in accordance with GAAP,
to the extent applicable, except where such principles are inconsistent with the
requirements of this Agreement.
Section 8.3. Directly or Indirectly. Where any provision in this
Agreement refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether the action in
question is taken directly or indirectly by such Person.
SECTION 9. MISCELLANEOUS.
Section 9.1. Registered Notes. The Company shall cause to be kept at
its principal office a register for the registration and transfer of the Notes
(hereinafter called the "Note Register") and the Company will register or
transfer or cause to be registered or transferred as hereinafter provided any
Note issued pursuant to this Agreement.
At any time and from time to time the registered holder of any Note
which has been duly registered as hereinabove provided may transfer such Note
upon surrender thereof at the principal office of the Company duly endorsed or
accompanied by a written instrument of transfer duly executed by the registered
holder of such Note or its attorney duly authorized in writing.
The Person in whose name (or in whose nominee's name) any registered
Note shall be registered shall be deemed and treated as the owner and holder
thereof for all purposes of this Agreement. Payment of or on account of the
principal, premium, if any, and interest on any registered Note shall be made to
or upon the written order of such Person.
Section 9.2. Exchange of Notes. At any time and from time to time, upon
not less than ten days' notice to that effect given by the holder of any Note
initially delivered or of any Note substituted therefor pursuant to Section 9.1,
this Section 9.2 or Section 9.3, and, upon surrender of such Note at its office,
the CompanY will deliver in exchange therefor, without expense to such holder,
except as set forth below, a Note for the same aggregate principal amount as the
then unpaid principal amount of the Note so surrendered, or Notes in the
denomination of $50,000 or any amount in excess thereof as such holder shall
specify, dated as of the date to which interest has been paid on the Note so
surrendered or, if such surrender is prior to the payment of any interest
thereon, then
-32-
<PAGE> 37
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
dated as of the date of issue, registered in the name of such Person or Persons
as may be designated by such holder, and otherwise of the same form and tenor as
the Notes so surrendered for exchange. The Company may require the payment of a
sum sufficient to cover any stamp tax or governmental charge imposed upon such
exchange or transfer. For a period of three years after the Closing Date, the
Company may require representations, an opinion of counsel or other
documentation reasonable to verify that any transfer of a Note is not in
violation of the registration requirements of the Securities Act of 1933, as
amended or similar state securities laws; provided that the Company shall
reimburse or pay directly any out-of-pocket expenses incurred by any Holder of a
Note in connection with the compliance by such Holder with the requirements of
this sentence.
Section 9.3. Loss, Theft, Etc. of Notes. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of any
Note, and in the case of any such loss, theft or destruction upon delivery of a
bond of indemnity in such form and amount as shall be reasonably satisfactory to
the Company, or in the event of such mutilation upon surrender and cancellation
of the Note, the Company will make and deliver without expense to the holder
thereof, a new Note, of like tenor, in lieu of such lost, stolen, destroyed or
mutilated Note. If the Purchaser or any subsequent Institutional Holder is the
owner of any such lost, stolen or destroyed Note, then the affidavit of an
authorized officer of such owner setting forth the fact of loss, theft or
destruction and of its ownership of such Note at the time of such loss, theft or
destruction shall be accepted as satisfactory evidence thereof and no further
indemnity shall be required as a condition to the execution and delivery of a
new Note other than the written agreement of such owner to indemnify the
Company; provided, that upon request by the Company such owner shall verify the
authority of any such authorized officer by the delivery to the Company of a
certificate to such effect from senior officials of such owner who have
supervisory responsibility of such officer.
Section 9.4. Expenses, Stamp Tax Indemnity. Whether or not the
transactions herein contemplated shall be consummated, the Company agrees to pay
directly all of your out-of-pocket expenses in connection with the preparation,
execution and delivery of this Agreement and the transactions contemplated
hereby, including but not limited to the reasonable charges and disbursements of
Chapman and Cutler, your special counsel, duplicating and printing costs and
charges for shipping the Notes, adequately insured to you at your home office or
at such other place as you may designate, and all such expenses relating to any
amendment, waivers or consents pursuant to the provisions hereof, including,
without limitation, any amendments, waivers, or consents resulting from any
work-out, renegotiation or restructuring relating to the performance by the
Company of its obligations under this Agreement and the Notes. The Company also
agrees that it will pay and save you harmless against any and all liability with
respect to stamp and other taxes, if any, which may be payable or which may be
determined to be payable in connection with the execution and delivery of this
Agreement or the Notes, whether or not any Notes are then outstanding. The
Company agrees to protect and indemnify you against any liability for any and
all brokerage fees and commissions payable or claimed to be payable to any
Person in connection with the transactions contemplated by this Agreement. You
represent that you have not engaged any broker or finder in connection with the
negotiation, execution or delivery of this Agreement.
-33-
<PAGE> 38
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
Section 9.5. Powers and Rights Not Waived; Remedies Cumulative. No
delay or failure on the part of the holder of any Note in the exercise of any
power or right shall operate as a waiver thereof; nor shall any single or
partial exercise of the same preclude any other or further exercise thereof, or
the exercise of any other power or right, and the rights and remedies of the
holder of any Note are cumulative to, and are not exclusive of, any rights or
remedies any such holder would otherwise have.
Section 9.6. Notices. All communications provided for hereunder shall
be in writing and, if to you, delivered or mailed prepaid by registered or
certified mail or overnight air courier, or by facsimile communication, in each
case addressed to you at your address appearing on Schedule I to this Agreement
or such other address as you or the subsequent holder of any Note initially
issued to you may designate to the Company in writing, and if to the Company,
delivered or mailed by registered or certified mail or overnight air courier, or
by facsimile communication, to the Company at 777-108th Avenue N.E., Suite 2390,
Bellevue, Washington 98004-5193, Attention: Jeffrey T. Cook or to such other
address as the Company may in writing designate to you or to a subsequent holder
of the Note initially issued to you; provided, however, that a notice to you by
overnight air courier shall only be effective if delivered to you at a street
address designated for such purpose in Schedule I, and a notice to you by
facsimile communication shall only be effective if made by confirmed
transmission to you at a telephone number designated for such purpose in
Schedule I, or, in either case, as you or a subsequent holder of any Note
initially issued to you may designate to the Company in writing.
Section 9.7. Successors and Assigns. This Agreement shall be binding
upon the Company and its successors and assigns and shall inure to your benefit
and to the benefit of your successors and assigns, including each successive
holder or holders of any Notes.
Section 9.8. Survival of Covenants and Representations. All covenants,
representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto, whether or not in connection with the
Closing Date, shall survive the closing and the delivery of this Agreement and
the Notes.
Section 9.9. Severability. Should any part of this Agreement for any
reason be declared invalid or unenforceable, such decision shall not affect the
validity or enforceability of any remaining portion, which remaining portion
shall remain in force and effect as if this Agreement had been executed with the
invalid or unenforceable portion thereof eliminated and it is hereby declared
the intention of the parties hereto that they would have executed the remaining
portion of this Agreement without including therein any such part, parts or
portion which may, for any reason, be hereafter declared invalid or
unenforceable.
Section 9.10. Governing Law. This Agreement and the Notes issued and
sold hereunder shall be governed by and construed in accordance with Washington
law.
Section 9.11. Captions. The descriptive headings of the various
Sections or parts of this Agreement are for convenience only and shall not
affect the meaning or construction of any of the provisions hereof.
-34-
<PAGE> 39
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
Section 9.12. Oral Agreements. Oral agreements or oral commitments to
loan money, extend credit, or to forbear from enforcing repayment of a debt are
not enforceable under Washington law.
-35-
<PAGE> 40
Penford Corporation Restatement and Exchange Agreement
(1994 Note Agreements)
The execution hereof by you shall constitute a contract between us for
the uses and purposes hereinabove set forth, and this Agreement may be executed
in any number of counterparts, each executed counterpart constituting an
original but all together only one agreement.
PENFORD CORPORATION
By /s/ Victor W. Breed
Name: Victor W. Breed
Title: Corporate Director of Finance
Accepted as of August 1, 1998.
PRINCIPAL LIFE INSURANCE COMPANY
By /s/ James C. Fifield
Name: James C. Fifield
Title: Counsel
By /s/ Christopher J. Henderson
Name: Christopher J. Henderson
Title: Counsel
TMG LIFE INSURANCE COMPANY
By: THE MUTUAL GROUP, its Agent
By /s/ Constance L. Keller
Name: Constance L. Keller
Title: Director, Private Placements
By /s/ Michael J. Steppe
Name: Michael J. Steppe
Title: Senior Vice President
-36-
<PAGE> 41
SCHEDULE I
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
NAME AND ADDRESS OF SERIES A NOTES TO BE OF SERIES B NOTES TO BE
OF PURCHASERS ACQUIRED ACQUIRED
<S> <C> <C>
PRINCIPAL LIFE INSURANCE $6,800,000 $4,500,000
COMPANY $1,700,000 $4,000,000
(Formerly known as Principal Mutual
Life Insurance Company)
711 High Street
Des Moines, Iowa 50392-0800
Attention: Investment Department--Securities Division
Regarding Bond No. 1-B-60161 (with respect to the $6,800,000 Series A Note)
Regarding Bond No. 16-B-60161 (with respect to the $1,700,000 Series A Note)
Regarding Bond No. 1-B-60162 (with respect to the $4,500,000 Series B Note)
Regarding Bond No. 16-B-60162 (with respect to the $4,000,000 Series B Note)
Telefacsimile: (515) 248-2490
Confirmation: (515) 248-3495
</TABLE>
Payments
All payments on or in respect of the $6,800,000 Series A Note to be by bank wire
transfer of Federal or other immediately available funds to:
ABA #073000228
Norwest Bank Iowa, N.A.
7th and Walnut Streets
Des Moines, Iowa 50309
For credit to Principal Life Insurance Company
Account No. 014752
OBI PFGSE (S) 1-B-60161() Penford Corporation Adjustable Rate Series A
Senior Notes due December 15, 1998
With sufficient information (including interest rate, maturity date,
interest amount, principal amount and premium amount, if applicable) to
identify the source and application of such funds.
All payments on or in respect of the $1,700,000 Series A Note to be by bank wire
transfer of Federal or other immediately available funds to:
SCHEDULE I
(to Restatement and Exchange Agreement)
<PAGE> 42
ABA #073000228
Norwest Bank Iowa, N.A.
7th and Walnut Streets
Des Moines, Iowa 50309
For credit to Principal Life Insurance Company
Separate Account No. 032395
OBI PFGSE (S) 16-B-60161() Penford Corporation Adjustable Rate Series A
Senior Notes due December 15, 1998
With sufficient information (including interest rate, maturity date,
interest amount, principal amount and premium amount, if applicable) to
identify the source and application of such funds.
All payments on or in respect of the $4,500,000 Series B Note to be by bank wire
transfer of Federal or other immediately available funds to:
ABA #073000228
Norwest Bank Iowa, N.A.
7th and Walnut Streets
Des Moines, Iowa 50309
For credit to Principal Life Insurance Company
Account No. 014752
OBI PFGSE (S) 1-B-60162() Penford Corporation Adjustable Rate Series B
Senior Notes due December 15, 2006
With sufficient information (including interest rate, maturity date,
interest amount, principal amount and premium amount, if applicable) to
identify the source and application of such funds.
All payments on or in respect of the $4,000,000 Series B Note to be by bank wire
transfer of Federal or other immediately available funds to:
ABA #073000228
Norwest Bank Iowa, N.A.
7th and Walnut Streets
Des Moines, Iowa 50309
For credit to Principal Life Insurance Company
Separate Account No. 032395
OBI PFGSE (S) 16-B-60162() Penford Corporation Adjustable Rate Series B
Senior Notes due December 15, 2006
With sufficient information (including interest rate, maturity date,
interest amount, principal amount and premium amount, if applicable) to
identify the source and application of such funds.
I-2
<PAGE> 43
Notices
All notices with respect to payments to:
Principal Life Insurance Company
711 High Street
Des Moines, Iowa 50392-0960
Attention: Investment Accounting - Securities
Re: Bond No. ___________ (fill in appropriate Bond No. from above)
Telefacsimile: (515) 248-2643
Confirmation: (515) 247-0689
All other notices and communications to be addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. No.: 42-0127290
I-3
<PAGE> 44
SCHEDULE I
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
NAME AND ADDRESS OF SERIES A NOTES TO BE OF SERIES B NOTES TO BE
OF PURCHASERS ACQUIRED ACQUIRED
<S> <C> <C>
TMG LIFE INSURANCE COMPANY $1,500,000 $1,500,000
401 North Executive Drive
Brookfield, Wisconsin 53008-0980
</TABLE>
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment with
respect to the Series A Notes as "Penford Corporation, Adjustable Rate Series A
Senior Notes due December 15, 1998, PPN 707051 A* 9, principal, premium or
interest" and identifying each payment with respect to the Series B Notes as
"Penford Corporation, Adjustable Rate Series B Senior Notes due December 15,
2006, PPN 707051 A@ 7, principal, premium or interest") to:
Federal Reserve Bank Minneapolis
Norwest Bank MN/Trust (ABA #091000019)
Credit Account Number: 08-40-245
For credit to: TMG Life Universal
Account Number 12250600
Contact: Michael Eiynck
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed to:
Lisa Harris
The Mutual Group (U.S.)
401 North Executive Drive
Brookfield, Wisconsin 53008-0980
Telephone Number: (414) 797-2305
Facsimile Number: (414) 797-2318
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 45-0208990
I-4
<PAGE> 45
PENFORD CORPORATION
Adjustable Rate Series A Senior Note
Due December 15, 1998
No.
_________, 19__
$
Penford Corporation, a Washington corporation (the "Company"), for
value received, hereby promises to pay to
or registered assigns
on the fifteenth day of December, 1998
the principal amount of
DOLLARS ($____________)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at the
rate of 8.09% per annum from the date hereof until maturity, or at such other
rate as may be determined from time to time in accordance with Section 1.3(b) of
the Restatement and Exchange Agreements (as hereinafter defined), payable at
maturity. The Company agrees to pay interest on overdue principal (including any
overdue required or optional prepayment of principal) and premium, if any, and
(to the extent legally enforceable) on any overdue installment of interest, at
the rate of interest then borne by such Note plus 2.0% per annum after the due
date, whether by acceleration or otherwise, until paid. Both the principal
hereof and interest hereon are payable at the principal office of the Company in
Bellevue, Washington in coin or currency of the United States of America which
at the time of payment shall be legal tender for the payment of public and
private debts.
This Note is one of the Company's $10,000,000 aggregate principal
amount Adjustable Rate Series A Senior Notes due December 15, 1998 (the "Series
A Notes") issued or to be issued, together with the Company's $10,000,000
aggregate principal amount Adjustable Rate Series B Senior Notes due December
15, 2006 (the "Series B Notes", said Series B Notes together with the Series A
Notes are hereinafter referred to collectively as the "Notes") under and
pursuant and subject to the terms and provisions of the separate Restatement and
Exchange Agreements, each dated as of August 1, 1998 (the "Restatement and
Exchange Agreements"), entered into by the Company with the original Purchasers
therein referred to. This Note and the holder hereof are entitled equally and
ratably with the holders of all other Notes outstanding
EXHIBIT A-1
(to Restatement and Exchange Agreement)
<PAGE> 46
under the Restatement and Exchange Agreements to all the benefits provided for
thereby or referred to therein. Reference is hereby made to the Restatement and
Exchange Agreements for a statement of such rights and benefits.
This Note and the other Notes outstanding under the Restatement and
Exchange Agreements may be declared due prior to their expressed maturity dates,
all in the events, on the terms and in the manner and amounts as provided in the
Restatement and Exchange Agreements.
The Notes are not subject to prepayment or redemption at the option of
the Company prior to their expressed maturity dates except on the terms and
conditions and in the amounts and with the premium, if any, set forth in the
Restatement and Exchange Agreements.
This Note is registered on the books of the Company and is transferable
only by surrender thereof at the principal office of the Company duly endorsed
or accompanied by a written instrument of transfer duly executed by the
registered holder of this Note or its attorney duly authorized in writing.
Payment of or on account of principal, premium, if any, and interest on this
Note shall be made only to or upon the order in writing of the registered
holder.
PENFORD CORPORATION
By
---------------------------------------
Its
A-1-2
<PAGE> 47
PENFORD CORPORATION
Adjustable Rate Series B Senior Note
Due December 15, 2006
No.
_________, 19__
$
Penford Corporation, a Washington corporation (the "Company"), for
value received, hereby promises to pay to
or registered assigns
on the fifteenth day of December, 2006
the principal amount of
DOLLARS ($____________)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at the
rate of 8.85% per annum from the date hereof until maturity, or at such other
rate as may be determined from time to time in accordance with Section 1.3(b) of
the Restatement and Exchange Agreements (as hereinafter defined), payable
semiannually on the fifteenth day of each June and December in each year
(commencing on December 15, 1998) and at maturity. The Company agrees to pay
interest on overdue principal (including any overdue required or optional
prepayment of principal) and premium, if any, and (to the extent legally
enforceable) on any overdue installment of interest, at the rate of interest
then borne by such Note plus 2.0% per annum after the due date, whether by
acceleration or otherwise, until paid. Both the principal hereof and interest
hereon are payable at the principal office of the Company in Bellevue,
Washington in coin or currency of the United States of America which at the time
of payment shall be legal tender for the payment of public and private debts.
This Note is one of the Company's $10,000,000 aggregate principal
amount Adjustable Rate Series B Senior Notes due December 15, 2006 (the "Series
B Notes") issued or to be issued, together with the Company's $10,000,000
aggregate principal amount Adjustable Rate Series A Senior Notes due December
15, 1998 (the "Series A Notes", said Series A Notes together with the Series B
Notes are hereinafter referred to collectively as the "Notes") under and
pursuant and subject to the terms and provisions of the separate Restatement and
Exchange Agreements, each dated as of August 1, 1998 (the "Restatement and
Exchange Agreements"), entered into by the Company with the original Purchasers
therein referred to. This Note and the
EXHIBIT A-2
(to Restatement and Exchange Agreement)
<PAGE> 48
holder hereof are entitled equally and ratably with the holders of all other
Notes outstanding under the Restatement and Exchange Agreements to all the
benefits provided for thereby or referred to therein. Reference is hereby made
to the Restatement and Exchange Agreements for a statement of such rights and
benefits.
This Note and the other Notes outstanding under the Restatement and
Exchange Agreements may be declared due prior to their expressed maturity dates,
all in the events, on the terms and in the manner and amounts as provided in the
Restatement and Exchange Agreements.
The Notes are not subject to prepayment or redemption at the option of
the Company prior to their expressed maturity dates except on the terms and
conditions and in the amounts and with the premium, if any, set forth in the
Restatement and Exchange Agreements.
This Note is registered on the books of the Company and is transferable
only by surrender thereof at the principal office of the Company duly endorsed
or accompanied by a written instrument of transfer duly executed by the
registered holder of this Note or its attorney duly authorized in writing.
Payment of or on account of principal, premium, if any, and interest on this
Note shall be made only to or upon the order in writing of the registered
holder.
PENFORD CORPORATION
By
---------------------------------------
Its
A-2-2
<PAGE> 49
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to you as follows:
1. Subsidiaries. Annex A attached hereto states the name of each of
the Company's Subsidiaries, its jurisdiction of incorporation and the percentage
of its Voting Stock owned by the Company and/or its Subsidiaries. The Company
and each Subsidiary has good and marketable title to all of the shares it
purports to own of the stock of each Subsidiary, free and clear in each case of
any Lien. All such shares have been duly issued and are fully paid and
non-assessable.
2. Corporate Organization and Authority. The Company, and each
Subsidiary,
(a) is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation;
(b) has all requisite power and authority and all necessary
licenses and permits to own and operate its properties and to carry on
its business as now conducted and as presently proposed to be
conducted; and
(c) is duly licensed or qualified and is in good standing as a
foreign corporation in each jurisdiction wherein the nature of the
business transacted by it or the nature of the property owned or leased
by it makes such licensing or qualification necessary.
3. Compliance with Law. Neither the Company nor any Subsidiary (a) is
in violation of any law, ordinance, franchise, governmental rule or regulation
to which it is subject; or (b) has failed to obtain any license, permit,
franchise or other governmental authorization necessary to the ownership of its
property or to the conduct of its business, which violation or failure to obtain
would materially adversely affect the business, prospects, profits, properties
or condition (financial or otherwise) of the Company and its Subsidiaries, taken
as a whole, or impair the ability of the Company to perform its obligations
contained in the Agreements or the Notes. Neither the Company nor any Subsidiary
is in default with respect to any order of any court or governmental authority
or arbitration board or tribunal.
4. Financial Statements. (a) The consolidated balance sheets of the
Company and its consolidated Subsidiaries as of August 31 in each of the years
1992 to 1997, both inclusive, and the statements of income and retained earnings
and changes in financial position or cash flows for the fiscal years ended on
said dates, each accompanied by a report thereon containing an opinion
unqualified as to scope limitations imposed by the Company and otherwise without
qualification except as therein noted, by Ernst & Young, have been prepared in
accordance with GAAP consistently applied except as therein noted, are correct
and complete and present fairly the financial position of the Company and its
Subsidiaries as of such dates and the results of their operations and changes in
their financial position or cash flows for such periods.
EXHIBIT B
(to Restatement and Exchange Agreement)
<PAGE> 50
(b) Since August 31, 1997, except as set forth in the Company's Form
10-K Annual Report filed November 26, 1997, 10-Q Quarterly Reports filed January
14, 1998, April 3, 1998, July 10, 1998 (copies of which have been furnished to
the Purchasers), pursuant to Section 13 of the Securities Exchange Act of 1934
(the "Exchange Act Reports"), there has been no change in the condition,
financial or otherwise, of the Company and its consolidated Subsidiaries as
shown on the consolidated balance sheet as of such date except changes in the
ordinary course of business, none of which individually or in the aggregate has
been materially adverse.
5. Indebtedness. Annex B attached hereto correctly describes all
Current Debt, Funded Debt and Capitalized Leases of the Company and its
Subsidiaries outstanding on August 24, 1998.
6. Full Disclosure. Neither the financial statements referred to in
paragraph 4 hereof nor the Agreements or any other written statement furnished
by the Company to you in connection with the negotiation of the sale of the
Notes, contains any untrue statement of a material fact or omits a material fact
necessary to make the statements contained therein or herein not misleading.
There is no fact peculiar to the Company or its Subsidiaries which the Company
has not disclosed to you in writing which materially affects adversely nor, so
far as the Company can now foresee, will materially affect adversely the
properties, business, prospects, profits or condition (financial or otherwise)
of the Company and its Subsidiaries, taken as a whole.
7. Pending Litigation. Except as set forth in the Exchange Act
Reports, there are no proceedings pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary in any court or before any
governmental authority or arbitration board or tribunal which involve the
possibility of materially and adversely affecting the properties, business,
prospects, profits or condition (financial or otherwise) of the Company and its
Subsidiaries.
8. Title to Properties. The Company and each Subsidiary has good and
marketable title in fee simple (or its equivalent under applicable law) to all
material parcels of real property which it purports to own, and has good title
to all the other material items of property which it purports to own, including
that reflected in the most recent balance sheet referred to in paragraph 4
hereof, except as sold or otherwise disposed of in the ordinary course of
business and except for Liens permitted by the Agreements.
9. Patents and Trademarks. The Company and each Subsidiary owns or
possesses all the patents, trademarks, trade names, service marks, copyright,
licenses and rights with respect to the foregoing necessary for the present and
planned future conduct of its business, without any known conflict with the
rights of others.
10. Sale is Legal and Authorized. The delivery of the New Notes and
compliance by the Company with all of the provisions of the Agreements and the
New Notes --
(a) are within the corporate powers of the Company;
(b) will not violate any provisions of any law or any order
of any court or governmental authority or agency and will not conflict
with or result in any breach of any
B-2
<PAGE> 51
of the terms, conditions or provisions of, or constitute a default
under the Certificate of Incorporation or By-laws of the Company or any
indenture or other agreement or instrument to which the Company is a
party or by which it may be bound or result in the imposition of any
Liens or encumbrances on any property of the Company; and
(c) have been duly authorized by proper corporate action on
the part of the Company (no action by the stockholders of the Company
being required by law, by the Certificate of Incorporation or By-laws
of the Company or otherwise which action has not been taken), executed
and delivered by the Company and the Agreements and the Notes
constitute the legal, valid and binding obligations, contracts and
agreements of the Company enforceable in accordance with their
respective terms.
11. No Defaults. No Default or Event of Default has occurred and is
continuing. Neither the Company nor any Subsidiary is in default in the payment
of principal or interest on any Funded Debt or Current Debt or is not in default
under any instrument or instruments or agreements under and subject to which any
Funded Debt or Current Debt has been issued and no event has occurred and is
continuing under the provisions of any such instrument or agreement which with
the lapse of time or the giving of notice, or both, would constitute an event of
default thereunder.
12. Governmental Consent. No approval, consent or withholding of
objection on the part of any regulatory body, state, Federal or local, is
necessary in connection with the execution and delivery by the Company of the
Agreements or the Notes or compliance by the Company with any of the provisions
of the Agreements or the Notes.
13. Taxes. All tax returns required to be filed by the Company or any
Subsidiary in any jurisdiction have, in fact, been filed, and all taxes,
assessments, fees and other governmental charges upon the Company or any
Subsidiary or upon any of their respective properties, income or franchises,
which are shown to be due and payable in such returns have been paid. For all
taxable years ending on or before August 31, 1994, the Federal income tax
liability of the Company and its Subsidiaries has been satisfied and either the
period of limitations on assessment of additional Federal income tax has expired
or the Company and its Subsidiaries have entered into an agreement with the
Internal Revenue Service closing conclusively the total tax liability for the
taxable year. The Company does not know of any proposed additional tax
assessment against it for which adequate provision has not been made on its
accounts, and no material controversy in respect of additional Federal or state
income taxes due since said date is pending or to the knowledge of the Company
threatened. The provisions for taxes on the books of the Company and each
Subsidiary are adequate for all open years, and for its current fiscal period.
14. Use of Proceeds. None of the transactions contemplated in the
Agreements will violate or result in a violation of Section 7 of the Securities
Exchange Act of 1934, as amended, or any regulation issued pursuant thereto,
including, without limitation, Regulations T, U and X of the Board of Governors
of the Federal Reserve System, 12 C.F.R., Chapter II. Neither the Company nor
any Subsidiary owns or intends to carry or purchase any "margin stock" within
the meaning of said Regulation U. None of the proceeds from the sale of the
Notes will be used
B-3
<PAGE> 52
to purchase, or refinance any borrowing the proceeds of which were used to
purchase, any "security" within the meaning of the Securities Exchange Act of
1934, as amended.
15. Private Offering. Neither the Company, directly or indirectly, nor
any agent on its behalf, has offered or will offer the Notes or any similar
Security or has solicited or will solicit an offer to acquire the Notes or any
similar Security from or has otherwise approached or negotiated or will approach
or negotiate in respect of the Notes or any similar Security with any Person
other than the Purchasers. Neither the Company, directly or indirectly, nor any
agent on its behalf, has offered or will offer the Notes or any similar Security
or has solicited or will solicit an offer to acquire the Notes or any similar
Security from any Person so as to bring the issuance and sale of the Notes
within the provisions of Section 5 of the Securities Act of 1933, as amended.
16. ERISA. The consummation of the transactions provided for in the
Agreements and compliance by the Company with the provisions thereof and the
Notes issued thereunder will not involve any nonexempt prohibited transaction
with respect to any Plan as to which the Company is a party-in-interest within
the meaning of ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended. Each Plan complies in all material respects with all applicable
statutes and governmental rules and regulations, and (a) no Reportable Event has
occurred and is continuing with respect to any Plan, (b) neither the Company nor
any ERISA Affiliate has withdrawn from any Plan or Multiemployer Plan or
instituted steps to do so which has or would result in withdrawal liability (as
described in Part 1 of Subtitle E of Title IV of ERISA) which could materially
and adversely affect the properties, business, prospects, profits or condition
(financial or otherwise) of the Company and its Subsidiaries taken as a whole
and (c) no steps have been instituted to terminate any Plan in a distress
termination under Section 4041(c) of ERISA or a termination instituted by the
PBGC under Section 4042 of ERISA. No condition exists or event or transaction
has occurred in connection with any Plan which could result in the incurrence by
the Company or any ERISA Affiliate of any material liability, fine or penalty.
No Plan maintained by the Company or any ERISA Affiliate, nor any trust created
thereunder, has incurred any "accumulated funding deficiency" as defined in
Section 302 of ERISA nor does the present value of all benefits vested under all
Plans exceed, as of the last annual valuation date, the value of the assets of
the Plans allocable to such vested benefits by an amount greater than $1,000,000
in the aggregate. Neither the Company nor any ERISA Affiliate has any contingent
liability with respect to any post-retirement "welfare benefit plan" (as such
term is defined in ERISA) except as has been disclosed to the Purchasers.
17. Compliance with Environmental Laws. Neither the Company nor any
Subsidiary is in material violation of any applicable Federal, state, or local
laws, statutes, rules, regulations or ordinances relating to public health,
safety or the environment, including, without limitation, relating to releases,
discharges, emissions or disposals to air, water, land or ground water, to the
withdrawal or use of ground water, to the use, handling or disposal of
polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde, to the
treatment, storage, disposal or management of hazardous substances (including,
without limitation, petroleum, crude oil or any fraction thereof, or other
hydrocarbons), pollutants or contaminants, to exposure to toxic, hazardous or
other controlled, prohibited or regulated substances which violation could have
a material adverse effect on the business, prospects, profits, properties or
condition (financial or otherwise) of the
B-4
<PAGE> 53
Company and its Subsidiaries, taken as a whole. The Company does not know of any
material liability or class of liability of the Company or any Subsidiary under
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (42 U.S.C. Section 9601 et seq.), or the Resource Conservation
and Recovery Act of 1976, as amended (42 U.S.C. Section 6901 et seq.).
B-5
<PAGE> 54
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION OWNERSHIP
<S> <C> <C>
Penford Products Co. Delaware 100%
Penford Export Corporation Virgin Islands 100%
</TABLE>
ANNEX A
(to Exhibit B)
<PAGE> 55
DESCRIPTION OF DEBT, LEASES,
INVESTMENTS, GUARANTIES AND LIENS
(As of August 24, 1998)
1. Current Debt: None other than as disclosed in No. 2 and No. 5 below.
2. Funded Debt:
<TABLE>
<S> <C> <C>
Seafirst Overnight Borrowings $3,566,000
The Bank of Nova Scotia,
Keybank National Association
U.S. Bank National Association Credit Agreement $34,000,000
Seafirst 9.55% unsecured Note $420,000
United of Omaha Life Insurance
Co. (among others) 7.93% Senior Notes $14,285,600
Principal Mutual Life Insurance 7.59% Series A Senior Notes $10,000,000
Co. (among others) 8.35% Series B Senior Notes $10,000,000
</TABLE>
3. Capital Leases: None
4. Investments:
<TABLE>
<S> <C>
Note Receivable from Tod R. Hamachek $1,215,000
Penford Products Co. 100% outstanding stock
Penford Export Corporation 100% outstanding stock
</TABLE>
5. Guaranties:
(a) The Penwest Guarantee, by Penford Corporation and Penford
Products, of an amount up to a maximum of $18,000,000.
(b) The co-borrowing by Penford Products Co. and Penford
Corporation under the Credit Agreement with The Bank of Nova Scotia,
KeyBank National Association and U.S. Bank National Association.
6. Liens: None
ANNEX B
(to Exhibit B)
<PAGE> 56
DESCRIPTION OF SPECIAL COUNSEL'S CLOSING OPINION
The closing opinion of Chapman and Cutler, special counsel to the
Purchasers, called for by SECTION 4.1 of the Agreements, shall be dated the
Closing Date and addressed to the Purchasers, shall be satisfactory in form and
substance to the Purchasers and shall be to the effect that:
1. The Company is a corporation, validly existing and in
good standing under the laws of the State of Washington and has the
corporate power and the corporate authority to execute and deliver the
Agreements and to issue the Notes.
2. The Agreements have been duly authorized by all necessary
corporate action on the part of the Company, have been duly executed
and delivered by the Company and constitute the legal, valid and
binding contract of the Company enforceable in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent conveyance and
similar laws affecting creditors' rights generally, and general
principles of equity (regardless of whether the application of such
principles is considered in a proceeding in equity or at law).
3. The Notes have been duly authorized by all necessary
corporate action on the part of the Company, and the Notes being
delivered on the date hereof have been duly executed and delivered by
the Company and constitute the legal, valid and binding obligations of
the Company enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent conveyance and similar laws
affecting creditors' rights generally, and general principles of equity
(regardless of whether the application of such principles is considered
in a proceeding in equity or at law).
4. The issuance, sale and delivery of the Notes under the
circumstances contemplated by the Agreements do not, under existing
law, require the registration of the Notes under the Securities Act of
1933, as amended, or the qualification of an indenture under the Trust
Indenture Act of 1939, as amended.
The opinion of Chapman and Cutler shall also state that the opinion of
Bogle & Gates is satisfactory in scope and form to Chapman and Cutler and that,
in their opinion, the Purchasers are justified in relying thereon.
In rendering the opinion set forth in paragraph 1 above, Chapman and
Cutler may rely, as to matters referred to in paragraph 1, solely upon an
examination of the Certificate of Incorporation certified by, and a certificate
of good standing of the Company from, the Secretary of State of the State of
Washington, the By-laws of the Company and the General Corporation Law of the
State of Washington. The opinion of Chapman and Cutler is limited to the laws of
the State of Washington and the Federal laws of the United States. Chapman and
Cutler may rely on the opinion of Bogle & Gates as to all matters of Washington
law.
With respect to matters of fact upon which such opinion is based,
Chapman and Cutler may rely on appropriate certificates of public officials and
officers of the Company and upon
EXHIBIT E
(to Restatement and Exchange Agreement)
<PAGE> 57
representations of the Company and the Purchasers delivered in connection with
the issuance and sale of the Notes.
E-2
<PAGE> 58
FORM OF CLOSING OPINION
OF COUNSEL TO THE COMPANY AND THE GUARANTOR
August __, 1998
Principal Life Insurance Company
711 High Street
Des Moines, Iowa 50392-0800
TMG Life Insurance Company
401 North Executive Drive
Brookfield, Wisconsin 53008-0980
Re: Penford Corporation
Ladies and Gentlemen:
We have acted as counsel for Penford Corporation, a Washington
corporation ("Penford"), and Penford Products Co., a Delaware corporation
("Products"), in connection with the preparation of the separate Restatement and
Exchange Agreements, each dated as of August 1, 1998 between Penford and the
Purchasers listed on Schedule I thereto relating to the amendment, restatement
and exchange of certain Note Agreements dated as of October 1, 1994
(collectively, the "Restatement Agreements").
In so acting, we have examined the following documents, instruments and
certificates:
(1) The Restatement Agreements.
(2) Series A Notes each dated August 28, 1998 in the stated
principal amounts of $6,800,000 and $1,700,000, respectively, made by
Penford payable to Principal Life Insurance Company or registered
assigns.
(3) Series B Notes each dated August 28, 1998 in the stated
principal amounts of $4,500,000 and $4,000,000, respectively, made by
Penford payable to Principal Life Insurance Company or registered
assigns.
(4) Series A Note dated August 28, 1998 in the stated
principal amount of $1,500,000, made by Penford payable to TMG Life
Insurance Company or registered assigns.
EXHIBIT F
(to Restatement and Exchange Agreement)
<PAGE> 59
(5) Series B Note dated August 28, 1998 in the stated
principal amount of $1,500,000, made by Penford payable to TMG Life
Insurance Company or registered assigns.
(6) Guaranty Agreement dated as of August 1, 1998 (the
"Guaranty") made by Penford Products Co. ("Products").
(7) A Certificate of Existence/Authorization, dated August 25,
1998, issued with respect to Penford by the Secretary of State of the
State of Washington.
(8) A Certificate issued by the Secretary of State of the
State of Delaware dated August 24, 1998, issued with respect to the
good standing of Products.
(9) An Officer's Certificate, dated as of August 28, 1998, of
the Corporate Director of Finance of Penford with respect to certain
factual matters.
(10) An Officer's Certificate, dated as of August 28, 1998, of
the Vice President and Assistant Secretary of Products with respect to
certain factual matters.
(11) A Certificate of Secretary of Penford, dated as of August
28, 1998.
(12) A Certificate of Secretary of Products, dated as of
August 28, 1998.
(13) The Articles of Incorporation of Penford together with
all amendments thereto, certified as of August 25, 1998 by the
Secretary of State of the State of Washington.
(14) The Bylaws of Penford together with all amendments
thereto.
(15) The Restated Certificate of Incorporation of Products
together with all amendments thereto, certified as of August 24, 1998
by the Secretary of State of the State of Delaware.
(16) The Bylaws of Products together with all amendments
thereto.
(17) Originals or copies certified to our satisfaction of such
other corporate records of Penford and Products, and certificates of
public officials and officers of Penford and Products, as we have
deemed necessary as a basis for the opinions expressed below.
For the purposes of this letter, the documents listed above are
referred to individually as a Document and collectively as the "Documents"; the
Documents listed as items (1) through (6) above are sometimes referred to
individually as a "Credit Document" and collectively as the "Credit Documents".
Items (9) and (10) above are referred to as the "Officer's Certificates". As to
questions of fact material to our opinions, we have relied without independent
verification solely on the Credit Documents and the other documents, instruments
and certificates submitted
F-2
<PAGE> 60
to us. However, whenever our opinions relate to our "knowledge," by the use of
terms such as "to our knowledge," with your permission, the facts upon which
such opinions are based are solely those contained in the Officer's Certificates
and those in the conscious awareness of attorneys in this firm who are actively
involved in the legal representation of the Penford or Products.
In rendering the opinions expressed below in this letter, we have
assumed with your permission and without independent verification:
(i) the genuineness of all signatures, the authenticity of
all documents, instruments and certificates submitted to us as
originals or copies, and the exact conformity with the executed
originals of all documents, instruments and certificates submitted to
us as copies;
(ii) that each Document has been duly executed and delivered
by or on behalf of all persons and entities (other than Penford or
Products) that are signatories thereto and that in each case such
execution and such delivery have been pursuant to all requisite power
and authority, corporate and otherwise;
(iii) that the execution and delivery by each Purchaser of each
Document to which it is a party, and the performance by Purchaser of
all of its obligations under each Document to which it is a party, have
been duly authorized by all necessary corporate and other action;
(iv) that each Document to which any person (other than
Penford or Products) is a party constitutes a valid and binding
obligation of such person, enforceable against such person in
accordance with its terms;
(v) that neither the execution and delivery by Penford or
Products of any Credit Document to which it is a party, nor the
performance by Penford or Products of its obligations under any Credit
Document to which it is a party, contravenes, or is rendered invalid,
not binding or unenforceable under any law other than the laws of the
State of Washington, the General Corporation Law of Delaware and the
Federal laws of the United States;
(vi) that each Purchaser is an entity duly organized and
validly existing under the laws of its jurisdiction of organization and
is in good standing under such laws;
(vii) that all parties have negotiated the transaction, and
will exercise their rights and remedies, under the Credit Documents and
applicable law, in good faith and with fair dealing and in a
commercially reasonable manner;
(viii) that all parties have no notice of any defense against
the enforcement of the Credit Documents;
F-3
<PAGE> 61
(ix) that there has not been any mutual mistake of fact or
misunderstanding; and
(x) that there are no agreements or understandings among the
parties, written or oral, and there is no usage of trade or course of
prior dealing among the parties that would, in either case, define,
supplement or qualify the terms of the Credit Documents.
We are qualified to practice law in the State of Washington, and we do
not express any opinions in this letter concerning any laws other than the laws
of the State of Washington, the General Corporation Law of the State of Delaware
and the Federal laws of the United States of America. However, we express no
opinion in this letter as to statutes, ordinances, administrative decisions,
rules and regulations of counties, cities, towns, municipalities, special
political subdivisions (whether created or enacted through federal, state or
regional action) and the like, and decisions and interpretations thereof. As
used in opinion paragraph 6 below, the term "Material Agreement" means any
agreement or instrument listed as an exhibit to Penford's 10-K report filed
pursuant to the Securities Exchange Act of 1934 for the fiscal year ended August
31, 1997 and the three 10-Q reports for the three subsequent quarters.
Based upon and subject to the foregoing, and further subject to the
qualifications set forth below, we are of the opinion that:
1. Penford is a corporation duly incorporated and validly
existing under the laws of the State of Washington and is duly
authorized to transact business in the corporate form in the State of
Washington. Penford has all requisite corporate power and corporate
authority to execute and perform the Restatement Agreements, to issue
the Notes and to carry on the business described in Penford's most
recent 10-K report.
2. Products is a corporation duly incorporated under the
laws of the State of Delaware and is in good standing and has a legal
corporate existence in Delaware. Products is duly qualified to do
business as a foreign corporation and is in good standing in the states
of Idaho, Iowa, Colorado and Washington. All outstanding shares of
Products are owned of record by Penford.
3. The execution and performance by Penford of the
Restatement Agreements have been duly authorized by all necessary
corporate action. The Restatement Agreements have been duly executed
and delivered by Penford, and constitute the legal, valid and binding
obligations of Penford, enforceable against Penford in accordance with
their respective terms.
4. The execution and performance by Penford of the Notes
have been duly authorized by all necessary corporate action. The Notes
have been duly executed and delivered by Penford, and constitute the
legal, valid and binding obligations of Penford, enforceable against
Penford in accordance with their respective terms.
5. No approval, consent or withholding of objection on the
part of, or filing, registration or qualification with any State of
Washington or United States Federal
F-4
<PAGE> 62
governmental body, is necessary for the valid execution and delivery of
the Restatement Agreements or the issuance of the Notes.
6. The issuance and sale of the Notes and the execution,
delivery and performance by Penford of the Restatement Agreements do
not result in any breach of any of the provisions of, or constitute a
default under or result in the creation or imposition of any Lien (as
that term is defined in Section 8.1 of the Restatement Agreements) upon
any of the property of Penford pursuant to the provisions of the
Articles of Incorporation or Bylaws of Penford or any Material
Agreement.
7. Assuming the accuracy of the representations and
warranties of the Purchasers contained in Section 3.2 of the
Restatement Agreements, the issuance, sale and delivery of the Notes
under the circumstances contemplated by the Restatement Agreements do
not require the registration of the Notes under the Securities Act of
1933, as amended, or the qualification of an indenture under the Trust
Indenture Act of 1939, as amended.
8. The execution and performance by Products of the Guaranty
have been duly authorized by all necessary corporate action. The
Guaranty has been duly executed and delivered by Products, and
constitutes the legal, valid and binding obligation of Products,
enforceable against Products in accordance with its terms.
The opinions expressed above are subject to the following
qualifications:
A. The validity and enforceability of obligations, and the
availability of rights and remedies, under the Credit Documents are
subject to and may be limited by (i) bankruptcy, insolvency,
reorganization, arrangement, fraudulent conveyance or transfer,
preference, receivership, moratorium and similar laws now or hereafter
in effect relating to or affecting creditors' rights generally, (ii)
general principles of equity (including, but not limited to, concepts
of materiality, reasonableness, good faith and fair dealing and
principles that may limit the availability of specific performance or
injunctive or other equitable relief), whether such validity or
enforceability of obligations or availability of rights and remedies is
considered in an action or proceeding in equity or at law.
B. As to the opinion expressed in paragraph 6 above relating
to Material Agreements, we express no opinion in this letter as to, (a)
financial covenants or similar provisions in Material Agreements which
require financial calculations or determinations to ascertain
compliance, (b) provisions in such agreements or instruments which
relate to the occurrence or existence of any material adverse change or
event or similar concept or (c) patrol or other extrinsic evidence
bearing on the interpretation or construction of such agreements or
instruments. In addition, if any Material Agreements are governed by
the laws of a jurisdiction other than the State of Washington, then,
with your permission, our opinion as to the Material Agreements
expressed in paragraph 6 above is based solely upon the plain meaning
of the language in such agreements and instruments without
F-5
<PAGE> 63
regard to interpretation or construction that might be indicated by the
laws governing such agreements and instruments.
C. Although we express no opinion as to the effect of any
fraudulent conveyance or transfer laws, we call to your attention that
such laws may be implicated by certain aspects of the transaction
contemplated by the Credit Documents, including, without limitation,
the guarantee by Products of liability for the obligations of Penford
under the Credit Documents. Such liability, and security interests
securing such liability, could be rendered unenforceable by the
application of fraudulent conveyance or transfer laws. The effect of
any fraudulent conveyance or transfer laws depends upon the solvency
and adequacy of capital of, and other factual matters relating to,
Products after giving effect to the transactions contemplated by the
Credit Documents. We have not undertaken any investigations or
verification of, and we express no opinion as to, any such factual
matters.
D. We express no opinion as to:
(i) the effect of the law of any jurisdiction, other
than the State of Washington and the United States, in which
enforcement of any Credit Document may be sought which limits
the rates of interest legally chargeable or collectible;
(ii) any provisions in any Credit Document pertaining
to jurisdiction, venue or choice of law; and
(iii) any other provisions in the Credit Documents
insofar as such provisions purport (A) to require amendments,
modifications or waivers of any provisions of the Credit
Documents to be in writing, (B) to provide that any person or
entity (1) may have rights to release, exculpation, indemnity
or contribution, (2) may have rights to forfeiture or the
payment of any sum as liquidated damages, late charges or
prepayment premiums, to the extent such sum constitutes a
penalty, (3) may have rights to any increase in any rate of
interest upon delinquency in payment or the occurrence of a
default, to the extent such increase constitutes a penalty,
(4) may pursue inconsistent remedies or (5) waives any right,
remedy or defense, including without limitation the right to a
trial by jury and the right to appeal; or (C) to allow
Purchasers to charge interest on interest.
E. We call to your attention that:
(i) under the laws of the State of Washington, any
provision in an agreement requiring a party to pay another
party's attorneys' fees and costs in any action to enforce the
provisions of such agreement will be construed to entitle the
prevailing party in any such action, whether or not such party
is the party specified in such agreement, to be awarded its
reasonable attorneys' fees, costs and necessary disbursements;
F-6
<PAGE> 64
(ii) the courts of the State of Washington may
consider extrinsic evidence (both oral and written) of
circumstances surrounding the Credit Documents to ascertain
the intent of the parties thereto in using the language set
forth in the Credit Documents, regardless of whether or not
the language set forth in the Credit Documents is plain and
unambiguous on its face and regardless of any statement by the
parties thereto in the Credit Documents that the Credit
Documents constitute an integrated expression of the agreement
of the parties thereto, and such courts may incorporate
additional or supplementary terms into the Credit Documents.
F. We express no opinion as to any matters whatsoever relating
to:
(i) the adequacy of consideration for the
indebtedness evidenced by the Credit Documents;
(ii) the accuracy or completeness of any information
furnished to any party;
(iii) the accuracy or completeness of any
representations made by any party;
(iv) the financial status of any party; and
(v) the ability of any party to meet its obligations
under the Credit Documents.
This letter is furnished to you pursuant to Section 4.1(e) of the
Restatement Agreements, and is intended solely for your benefit and may not be
used or relied upon by you for any other purpose, or be quoted or delivered to,
or used or relied upon by any other person or entity for any purpose, in each
case without our prior written consent, provided, however, participants in or
assignees of the Credit Documents ("Additional Reliance Parties") may rely on
our opinions expressed herein, subject to the following understandings: (a) this
opinion is based solely on our examination of the Credit Documents, and in
reliance on the assumptions and qualifications contained herein, and on the law
in effect on the date hereof, (b) this opinion is rendered solely as of the date
hereof, (c) we have not reviewed the nature or documentation of any Additional
Reliance Parties' right, title, or interest in, to, or under the Credit
Documents, and we have not been advised of the identity, nature, nationality or
other characteristics of the Additional Reliance Parties, and our opinions are
further qualified to the extent of the consequences that would be revealed by an
examination and knowledge thereof, (d) the definition of "Purchaser" or
"Purchasers" as used in this opinion does not include any Additional Reliance
Parties, and (e) none of the Additional Reliance Parties shall become clients of
our firm based upon any reliance by them on this letter.
The opinions expressed above are rendered as of the date of this
letter. We expressly disclaim any obligation to update this letter or otherwise
to advise you of any matters (including, but not limited to, any subsequently
enacted, published or reported laws, rules, regulations or
F-7
<PAGE> 65
judicial decisions having retroactive effect) which may come to our attention
after the date of this letter and which affect any of the opinions expressed in
this letter.
Nothing contained in this opinion shall be deemed to constitute a
waiver of the attorney-client privilege between this firm and Penford and
Products.
Very truly yours,
F-8
<PAGE> 1
Exhibit 10.20
================================================================================
GUARANTY AGREEMENT
Dated as of August 1, 1998
of
PENFORD PRODUCTS CO.
Re:
$10,000,000 Adjustable Rate Series A Senior Notes
and
$10,000,000 Adjustable Rate Series B Senior Notes
of
PENFORD CORPORATION
================================================================================
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TABLE OF CONTENTS
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SECTION HEADING PAGE
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Parties...........................................................................................................1
Recitals..........................................................................................................1
SECTION 1. GUARANTY...............................................................................1
SECTION 2. PAYMENT UPON CERTAIN EVENTS............................................................1
SECTION 3. GENERAL PROVISIONS RELATING TO THE GUARANTY............................................2
SECTION 4. WAIVERS; OBLIGATION UNCONDITIONAL......................................................2
SECTION 5. COLLECTION EXPENSES....................................................................3
SECTION 6. NO SUBROGATION UNTIL PAYMENT IN FULL...................................................3
SECTION 7. REPRESENTATIONS AND WARRANTIES OF GUARANTOR............................................3
SECTION 8. CORPORATE EXISTENCE....................................................................3
SECTION 9. LIMITATION ON CONSOLIDATION, MERGER, SALE, LEASE OR OTHER DISPOSITION
BY GUARANTOR...........................................................................4
SECTION 10. INTERPRETATION.........................................................................4
SECTION 11. SUCCESSORS AND ASSIGNS.................................................................4
SECTION 12. NOTICES................................................................................4
SECTION 13. COUNTERPARTS...........................................................................5
SECTION 14. SEVERABILITY...........................................................................5
SECTION 15. GOVERNING LAW..........................................................................5
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Signatures........................................................................................................6
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ATTACHMENT TO GUARANTY AGREEMENT:
Exhibit A -- Representations and Warranties of Guarantor
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GUARANTY AGREEMENT
GUARANTY AGREEMENT (this "Guaranty") dated as of August 1, 1998 by
PENFORD PRODUCTS CO., a Delaware corporation (the "Guarantor").
RECITALS:
A. Penford Corporation, a Washington corporation (the "Company") has
entered into those separate Restatement and Exchange Agreements each dated as of
August 1, 1998 (the "Agreements") with the institutional investors (the
"Purchasers") named in Schedule I to the Agreements, providing for the sale by
the Company of $10,000,000 aggregate principal amount of its Adjustable Rate
Series A Senior Notes and $10,000,000 aggregate principal amount of its
Adjustable Rate Series B Senior Notes (collectively, the "Notes").
B. The Guarantor is desirous that the Purchasers enter into the
Agreements and purchase the Notes, and by doing so the Purchasers will be
conferring financial and other benefits on the Guarantor, and as an inducement
to enter into the Agreements and in consideration therefor the Purchasers have
required that the Guarantor enter into this Guaranty.
C. Capitalized terms used herein shall have the meanings assigned in
the Agreements.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and to aid the sale of the Notes and to induce the
Purchasers, and every future holder of the Notes, to purchase the Notes, it is
hereby agreed as follows:
SECTION 1. GUARANTY.
The Guarantor hereby unconditionally guarantees to each holder of any
Note (collectively the "Noteholders" and each individually a "Noteholder") (1)
the due and punctual payment at maturity, whether at stated maturity, by
acceleration, by notice of prepayment or otherwise, of the principal of and
premium, if any, and interest on the Notes in accordance with the terms and
conditions thereof and of the Agreements, and (2) the prompt performance and
compliance by the Company with each of its other obligations under the
Agreements. This is a guaranty of payment and not a guaranty of performance.
SECTION 2. PAYMENT UPON CERTAIN EVENTS.
The Guarantor agrees that, if any of the Events of Default described in
SECTION 6.1(j), (k) or (l) of the Agreements occurs, the Guarantor shall pay
forthwith to the Noteholders, without demand or notice and whether or not there
has been any other default under the Agreements or the Notes, the whole amount
of the principal of the Notes then outstanding and any unpaid interest thereon,
with interest thereon, so far as permitted by law, at the then current rate of
interest payable on such Notes.
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Penford Corporation Guaranty Agreement
SECTION 3. GENERAL PROVISIONS RELATING TO THE GUARANTY.
Each and every Event of Default under the Agreements shall give rise to
a separate claim and cause of action hereunder, and separate claims or suits may
be made and brought, as the case may be, hereunder as each such default occurs.
The obligations hereunder are independent of the obligations of the Company to
pay the principal of and premium, if any, and interest on the Notes, and a
separate action or actions may be brought and prosecuted against the Guarantor
whether such action is brought and prosecuted against the Company or any other
guarantor, or whether the Company is joined in any such action or actions. The
obligations of the Guarantor hereunder shall be reinstated and revived, and the
rights of the Noteholders shall continue, with respect to any amount at any time
paid on account of the obligations guaranteed hereby, which shall thereafter be
required to be restored or returned by the Noteholders upon the bankruptcy,
insolvency or reorganization of the Company, or otherwise, all as though such
amount had not been paid.
SECTION 4. WAIVERS; OBLIGATION UNCONDITIONAL.
The Guarantor assents to all the terms, covenants and conditions of the
Notes and the Agreements, and irrevocably waives presentation, demand for
payment, or protest, of any of the Notes, any and all notice of any such
presentation, demand or protest, notice of any default or event of default under
the Agreements, notice of acceptance of this guarantee or of the terms and
provisions thereof by any Noteholder, any requirement of diligence or promptness
on the part of any Noteholder in the enforcement of rights under the provisions
hereof, of the Agreements or of the Notes, or any right to require any
Noteholder to proceed first against the Company. The obligations of the
Guarantor hereunder shall be unconditional irrespective of the genuineness,
validity, regularity or enforceability of the Agreements or of the Notes or of
any other circumstance which might otherwise constitute a legal or equitable
discharge of a surety or guarantor. The obligations of the Guarantor hereunder
shall not be affected by:
(a) the recovery of any judgment against the Company, or by
the levy of any writ or process of execution under any such judgment,
or by any action or proceeding taken by any Noteholder, either under
the Notes or under the Agreements for the enforcement thereof, or
hereof, or in the exercise of any right or power given or conferred
thereby, or hereby, or
(b) any delay, failure or omission upon the part of any
Noteholder to enforce any of the rights or powers given or conferred
hereby or by the Agreements, or by any delay, failure or omission upon
the part of any Noteholder to enforce any right of any Noteholder
against the Company, or by any action by any Noteholder in granting
indulgence to the Company, or in waiving or acquiescing in any default
or event of default upon the part of the Company under the Notes or
under the Agreements, or
(c) the consolidation or merger of the Company with or into
any other corporation or corporations or any sale, lease or other
disposition of the Company's properties as an entirety or substantially
as an entirety to any other corporation, or
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Penford Corporation Guaranty Agreement
(d) any other act or delay or failure to act, or any other
thing, which may or might in any manner or to any extent vary the risk
of the Guarantor hereunder;
it being the purpose and intent of the parties hereto that the obligations of
the Guarantor hereunder shall be absolute and unconditional under any and all
circumstances, and shall not be discharged except by payment as herein provided,
and then only to the extent of such payment or payments.
SECTION 5. COLLECTION EXPENSES.
In the event that the Guarantor shall be required to make any payment
to any Noteholder pursuant to this Guaranty, it shall, in addition to such
payment, pay to such Noteholder such further amount as shall be sufficient to
cover the reasonable costs and expenses of collection, including a reasonable
compensation to attorneys, and any expenses or liabilities incurred by any
Noteholder hereunder. The covenants contained in this Guaranty may be enforced
by any Noteholder.
SECTION 6. NO SUBROGATION UNTIL PAYMENT IN FULL.
No payment by the Guarantor pursuant to the provisions hereof to any
Noteholder shall entitle the Guarantor by subrogation to the rights of the
holders of the Notes in respect of which such payment is made or otherwise, to
any payment by the Company or out of the property of the Company, except after
payment in full of the entire principal of and premium, if any, interest on the
Notes and any other amounts due under the Agreements, or provision for such
payment satisfactory to the holders of the Notes.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF GUARANTOR.
The Guarantor does hereby represent and warrant that:
(a) the representations and warranties set forth in Exhibit A
are true and correct in all material respects as of the date hereof
(or, to the extent any such representations or warranties expressly
relate to an earlier date, as of such earlier date); and
(b) the execution of the Agreements will result in a
financial benefit to the Guarantor.
SECTION 8. CORPORATE EXISTENCE.
The Guarantor will do all things necessary to preserve and keep in full
force and effect its corporate existence, rights and franchises; provided,
however, that nothing in this Section shall prevent the withdrawal by the
Guarantor from any State or jurisdiction of its qualification as a foreign
corporation and its authorization to do business in such State or jurisdiction
or a consolidation or merger permitted by Section 9 hereof.
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Penford Corporation Guaranty Agreement
SECTION 9. LIMITATION ON CONSOLIDATION, MERGER, SALE, LEASE OR OTHER
DISPOSITION BY GUARANTOR.
The Guarantor agrees that it will not consolidate with, merge into, or
sell, lease or otherwise dispose of all or substantially all its property as an
entirety to, any other corporation unless the corporation (if other than the
Guarantor) resulting from any such consolidation or merger or to which such
sale, lease or other disposition shall have been made shall, immediately upon
such consolidation, merger, sale, lease or other disposition,
(a) expressly assume in writing the due and punctual
performance and observance of all the terms, covenants, agreements and
conditions of this Guaranty to be performed or observed by the
Guarantor to the same extent as if such successor corporation instead
of the Guarantor had been the original party hereto, and
(b) furnish a true and complete copy of the assumption to
each Noteholder, together with an opinion of counsel opining favorably
as to the due authorization, execution and enforceability of the
assumption;
provided, however, that no such sale, lease or other disposition shall release
the Guarantor from any of its obligations under this Guaranty.
SECTION 10. INTERPRETATION.
The Guarantor acknowledges and agrees that the obligations and
agreements contained herein including, without limitation thereof, the
agreements of the Guarantor under Sections 7 and 8 hereof are in addition to,
and not in limitation of, any limitations or restrictions to which the Guarantor
may be subject under the Agreements.
SECTION 11. SUCCESSORS AND ASSIGNS.
All covenants and agreements contained in this Guaranty by or on behalf
of the Guarantor shall be binding upon the Guarantor and its successors and
assigns and shall inure to the benefit of the Purchasers and each and every
Noteholder.
SECTION 12. NOTICES.
All notices, requests, demands, waivers or other communications
required or contemplated hereby shall be given or made in the manner provided in
Section 9.6 of the Agreements to the Guarantor at 777 108th Avenue N.E., Suite
2390, Bellevue, Washington 98004.
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Penford Corporation Guaranty Agreement
SECTION 13. COUNTERPARTS.
This Guaranty may be executed simultaneously in several counterparts,
each of which shall be deemed an original, and all of which together shall
constitute one and the same instrument.
SECTION 14. SEVERABILITY.
(a) In case any one or more of the provisions contained in this
Guaranty shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions of this
Guaranty shall not in any way be affected or impaired thereby.
(b) Without limitation of the preceding subsection (a), to the extent
that mandatory applicable law (including but not limited to applicable law
pertaining to fraudulent conveyance or fraudulent transfer) otherwise would
render the full amount of the Guarantor's obligations hereunder invalid or
unenforceable, the Guarantor's obligations hereunder shall be limited to the
maximum amount which does not result in such invalidity or unenforceability.
SECTION 15. GOVERNING LAW.
This Guaranty and all rights arising hereunder shall be construed and
determined in accordance with the laws of the State of Washington and the
performance thereof shall be governed and enforced in accordance with such laws.
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Penford Corporation Guaranty Agreement
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed as of the day and year first above written.
PENFORD PRODUCTS CO.
By /s/ VICTOR W. BREED
-----------------------------
Its Vice President
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REPRESENTATIONS AND WARRANTIES
The Guarantor represents and warrants to the Purchasers as follows:
1. Corporate Organization and Authority. The Guarantor,
(a) is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation;
(b) has all requisite power and authority and all necessary
licenses and permits to own and operate its properties and to carry on
its business as now conducted and as presently proposed to be
conducted; and
(c) is duly licensed or qualified and is in good standing as a
foreign corporation in each jurisdiction wherein the nature of the
business transacted by it or the nature of the property owned or leased
by it makes such licensing or qualification necessary.
2. Business and Property. The Purchasers have heretofore been furnished
with a copy of the Private Placement Memorandum dated June, 1998 (the
"Memorandum") prepared by Continental Bank, N.A. which generally sets forth the
business conducted and proposed to be conducted by the Company and its
Subsidiaries and the principal properties of the Company and its Subsidiaries.
3. Full Disclosure. Neither the Agreements, the Memorandum or any other
written statement furnished by the Company or the Guarantor to the Purchasers in
connection with the negotiation of the sale of the Notes, contains any untrue
statement of a material fact or omits a material fact necessary to make the
statements contained therein or herein not misleading. There is no fact peculiar
to the Company or its Subsidiaries which the Company has not disclosed to each
Purchaser in writing which materially affects adversely nor, so far as the
Company can now foresee, will materially affect adversely the properties,
business, profits or condition (financial or otherwise) of the Company and its
Restricted Subsidiaries, taken as a whole.
4. Pending Litigation. There are no proceedings pending or, to the
knowledge of the Guarantor, threatened against or affecting the Company or any
Restricted Subsidiary in any court or before any governmental authority or
arbitration board or tribunal which involve the possibility of materially and
adversely affecting the properties, business, profits or condition (financial or
otherwise) of the Company and its Restricted Subsidiaries.
5. Title to Properties. The Guarantor has good and marketable title in
fee simple (or its equivalent under applicable law) to all material parcels of
real property and has good title to all the other material items of property it
purports to own, except as sold
EXHIBIT A
(to Guaranty Agreement)
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Penford Corporation Guaranty Agreement
or otherwise disposed of in the ordinary course of business and except for Liens
permitted by the Agreements.
6. Patents and Trademarks. The Guarantor and the Company, taken as a
whole, own or possess all the patents, trademarks, trade names, service marks,
copyrights, licenses and rights with respect to the foregoing necessary for the
present and planned future conduct of their business, without any known conflict
with the rights of others.
7. Guaranty is Legal and Authorized. Execution of the Guaranty and
compliance by the Guarantor with all of the provisions of the Guaranty--
(a) are within the corporate powers of the Guarantor;
(b) will not violate any provisions of any law or any order of
any court or governmental authority or agency and will not conflict
with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under the Certificate of
Incorporation or By-laws of the Guarantor or any indenture or other
agreement or instrument to which the Guarantor is a party or by which
it may be bound or result in the imposition of any Liens or
encumbrances on any property of the Guarantor; and
(c) have been duly authorized by proper corporate action on
the part of the Guarantor (no action by the stockholders of the
Guarantor being required by law, by the Certificate of Incorporation or
By-laws of the Guarantor or otherwise), and the Guaranty has been
executed and delivered by the Guarantor and the Guaranty constitutes
the legal, valid and binding obligation, contract and agreement of the
Guarantor enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally, and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or law).
8. No Defaults. The Guarantor is not in default in the payment of
principal or interest on any Funded Debt or Current Debt and is not in default
under any instrument or instruments or agreements under and subject to which any
Funded Debt or Current Debt has been issued and no event has occurred and is
continuing under the provisions of any such instrument or agreement which with
the lapse of time or the giving of notice, or both, would constitute an event of
default thereunder.
9. Governmental Consent. No approval, consent or withholding of
objection on the part of any regulatory body, state, Federal or local, is
necessary in connection with the execution and delivery by the Guarantor of the
Guaranty or compliance by the Guarantor with any of the provisions of the
Guaranty.
10. Compliance with Law. The Guarantor (a) is not in violation of any
law, ordinance, franchise, governmental rule or regulation to which it is
subject; or (b) has not failed to obtain any license, permit, franchise or other
governmental authorization
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Penford Corporation Guaranty Agreement
necessary to the ownership of its property or to the conduct of its business,
which violation or failure to obtain would materially adversely affect the
business, profits, properties or condition (financial or otherwise) of the
Company and its Restricted Subsidiaries, taken as a whole, or impair the ability
of the Guarantor to perform its obligations contained in the Guaranty. The
Guarantor is in not default with respect to any order of any court or
governmental authority or arbitration board or tribunal.
11. Compliance with Environmental Laws. The Guarantor is not in
material violation of any applicable Federal, state, or local laws, statutes,
rules, regulations or ordinances relating to public health, safety or the
environment, including, without limitation, relating to releases, discharges,
emissions or disposals to air, water, land or ground water, to the withdrawal or
use of ground water, to the use, handling or disposal of polychlorinated
biphenyls (PCB's), asbestos or urea formaldehyde, to the treatment, storage,
disposal or management of hazardous substances (including, without limitation,
petroleum, crude oil or any fraction thereof, or other hydrocarbons), pollutants
or contaminants, to exposure to toxic, hazardous or other controlled, prohibited
or regulated substances which violation could have a material adverse effect on
the business, profits, properties or condition (financial or otherwise) of the
Guarantor and the Company, taken as a whole. The Guarantor does not know of any
liability or class of liability of the Guarantor under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. Section 9601 et seq.), or the Resource Conservation and Recovery Act of
1976, as amended (42 U.S.C. Section 6901 et seq.).
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EXHIBIT 10.21
U.S. $75,000,000
CREDIT AGREEMENT,
dated as of July 2, 1998
among
PENFORD CORPORATION
and
PENFORD PRODUCTS CO.
as the Borrowers,
CERTAIN COMMERCIAL LENDING INSTITUTIONS
as the Lenders,
and
THE BANK OF NOVA SCOTIA,
as the Agent for the Lenders.
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TABLE OF CONTENTS
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1 DEFINITIONS AND ACCOUNTING TERMS............................................ 1
1.1 Defined Terms.......................................................... 1
1.2 Use of Defined Terms................................................... 11
1.3 Cross References....................................................... 12
1.4 Accounting and Financial Determinations................................ 12
2 LOAN COMMITMENTS, BORROWING PROCEDURES AND NOTES............................ 12
2.1 Loan Commitments....................................................... 12
2.1.1 Loan Commitment............................................... 12
2.1.2 Lenders Not Permitted or Required to Make Loans............... 12
2.2 Joint and Several Liability............................................ 12
2.3 Optional Reduction Of Loan Commitment Amounts.......................... 12
2.4 Borrowing Procedure.................................................... 12
2.5 Continuation and Conversion Elections.................................. 13
2.6 Funding................................................................ 13
2.7 Notes.................................................................. 13
3 REPAYMENTS, PREPAYMENTS, INTEREST AND FEES, AND SECURITY.................... 14
3.1 Repayments and Prepayments............................................. 14
3.1.1 Voluntary Prepayments......................................... 14
3.1.2 Exceeding the Loan Commitment................................. 14
3.1.3 Acceleration.................................................. 14
3.2 Application of Payments and Prepayments................................ 14
3.2.1 Voluntary Prepayments......................................... 14
3.3 Interest Provisions.................................................... 14
3.3.1 Rates......................................................... 14
3.3.2 Post-Maturity Rates........................................... 15
3.3.3 Payment Dates................................................. 15
3.3.4 Interest Rate Determination................................... 16
3.4 Fees................................................................... 16
3.4.1 Commitment Fee................................................ 16
3.4.2 Agent's Fees.................................................. 16
3.5 Future Subsidiaries.................................................... 16
4 CERTAIN LIBO RATE AND OTHER PROVISIONS...................................... 16
4.1 LIBO Rate Lending Unlawful............................................. 16
4.2 Deposits Unavailable................................................... 17
4.3 Increased LIBO Rate Loan Costs, etc.................................... 17
4.4 Funding Losses......................................................... 17
4.5 Increased Capital Costs................................................ 18
4.6 Taxes.................................................................. 18
4.7 Payments, Computations, etc............................................ 19
4.8 Sharing of Payments.................................................... 19
4.9 Setoff................................................................. 20
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4.10 Use of Proceeds....................................................... 20
4.11 Actions of Affected Lenders........................................... 20
5 CONDITIONS TO EFFECTIVENESS AND INITIAL BORROWING........................... 20
5.1 Initial Borrowing...................................................... 20
5.1.1 Resolutions, etc.............................................. 20
5.1.2 Delivery of Documentation..................................... 21
5.1.3 Opinion of Counsel............................................ 21
5.1.4 Organizational Documents...................................... 21
5.1.5 Closing Fees, Expenses, etc................................... 21
5.2 All Borrowings......................................................... 21
5.2.1 Compliance with Warranties, No Default, etc................... 21
5.2.2 Borrowing Request............................................. 22
5.2.3 Satisfactory Legal Form....................................... 22
6 REPRESENTATIONS AND WARRANTIES.............................................. 22
6.1 Organization, etc...................................................... 22
6.2 Due Authorization, Non-Contravention, etc.............................. 22
6.3 Government Approval Regulation, etc.................................... 23
6.4 Validity, etc.......................................................... 23
6.5 Financial Information.................................................. 23
6.6 No Material Adverse Change............................................. 23
6.7 Litigation, Labor Controversies, etc................................... 23
6.8 Subsidiaries........................................................... 23
6.9 Ownership of Properties................................................ 24
6.10 Taxes................................................................. 24
6.11 Pension and Welfare Plans............................................. 24
6.12 Environmental Warranties.............................................. 24
6.13 Regulations G, U and X................................................ 24
6.14 Year 2000 Compliance.................................................. 24
6.15 Accuracy of Information............................................... 24
7 COVENANTS................................................................... 25
7.1 Affirmative Covenant................................................... 25
7.1.1 Financial Information, Reports, Notices, etc.................. 25
7.1.2 Compliance with Laws, etc..................................... 26
7.1.3 Maintenance of Properties..................................... 26
7.1.4 Insurance..................................................... 26
7.1.5 Books and Records............................................. 27
7.1.6 Environmental Covenant........................................ 27
7.2 Negative Covenants..................................................... 27
7.2.1 Business Activities........................................... 27
7.2.2 Indebtedness.................................................. 27
7.2.3 Liens......................................................... 28
7.2.4 Financial Condition........................................... 29
7.2.5 Investments................................................... 30
7.2.6 Restricted Payments, etc...................................... 30
7.2.7 Consolidation, Merger, etc.................................... 31
7.2.8 Asset Dispositions, etc....................................... 31
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7.2.9 Transactions with Affiliates.................................. 31
7.2.10 Restrictive Agreements, etc.................................. 31
8 EVENTS OF DEFAULT........................................................... 32
8.1 Listing of Events of Default........................................... 32
8.1.1 Non-Payment of Obligations.................................... 32
8.1.2 Breach of Warranty............................................ 32
8.1.3 Non-Performance of Certain Covenants and Obligations.......... 32
8.1.4 Non-Performance of Other Covenants and Obligations............ 33
8.1.5 Default on Other Indebtedness................................. 33
8.1.6 Loss, Destruction or Condemnation of Property................. 33
8.1.7 Judgments..................................................... 33
8.1.8 Pension Plans................................................. 33
8.1.9 Control of the Borrowers...................................... 33
8.1.10 Bankruptcy, Insolvency, etc.................................. 34
8.1.11 Impairment of Enforceability, etc............................ 34
8.1.12 Environmental Matters........................................ 34
8.2 Action if Bankruptcy................................................... 34
8.3 Action if Other Event of Default....................................... 34
9 THE AGENT................................................................... 35
9.1 Actions................................................................ 35
9.2 Funding Reliance, etc.................................................. 35
9.3 Exculpation............................................................ 35
9.4 Successor.............................................................. 36
9.5 Loans by Scotiabank.................................................... 36
9.6 Credit Decisions....................................................... 36
9.7 Copies, etc............................................................ 37
10 MISCELLANEOUS PROVISIONS.................................................... 37
10.1 Waivers, Amendments, etc.............................................. 37
10.2 Notices............................................................... 37
10.3 Payment of Costs and Expenses......................................... 38
10.4 Indemnification....................................................... 38
10.5 Survival.............................................................. 39
10.6 Severability.......................................................... 39
10.7 Headings.............................................................. 39
10.8 Execution in Counterparts, Effectiveness, etc......................... 39
10.9 Governing Law; Entire Agreement....................................... 39
10.10 Successors and Assigns............................................... 40
10.11 Sale and Transfer of Loans and Notes; Participations in Loans
and Notes............................................................ 40
10.11.1 Assignments................................................. 40
10.11.2 Participations.............................................. 41
10.12 Confidentiality...................................................... 42
10.13 Other Transactions................................................... 42
10.14 Forum Selection and Consent to Jurisdiction.......................... 42
10.15 Waiver of Jury Trial................................................. 43
10.16 Statutory Disclosure................................................. 44
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of July 2, 1998, among PENFORD
CORPORATION, a Washington corporation ("Penford Corporation"), and PENFORD
PRODUCTS CO., a Delaware corporation ("Penford Products"), (collectively the
"Borrowers" and individually a "Borrower"), the various financial institutions
as are or may become parties hereto (collectively, the "Lenders"), and THE BANK
OF NOVA SCOTIA ("Scotiabank") as agent (the "Agent") for the Lenders,
W I T N E S S E T H:
WHEREAS, the Borrowers are engaged in the business of manufacturing
modified starches primarily for the paper and food ingredients industries, and,
until Penford Corporation's Subsidiary, Penwest Pharmaceuticals Co., a
Washington corporation, ("Penwest"), is divested in the fall of 1998, are also
engaged in the pharmaceuticals business;
WHEREAS, the Borrowers desire to obtain Loan Commitments from the
Lenders pursuant to which Loans, in a maximum aggregate principal amount at any
one time outstanding not to exceed $75,000,000, will be made to the Borrowers
from time to time prior to the applicable Commitment Termination Date for such
Loan Commitments;
WHEREAS, the Lenders are willing, on the terms and subject to the
conditions hereinafter set forth (including Article ), to extend such Loan
Commitments and make such Loans to the Borrowers; and
WHEREAS, the proceeds of such Loans will be used for refinancing
existing indebtedness of the Borrowers and for general corporate purposes and
working capital purposes, including capital expenditures, of the Borrowers and
their domestic subsidiaries (if any);
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 Defined Terms. The following terms (whether or not
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
"Affiliate" of any Person means any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person. A Person shall be deemed to be "controlled by" any other Person if such
other Person possesses, directly or indirectly, power
(a) to vote 15% or more of the securities (on a fully diluted
basis) having ordinary voting power for the election of directors or
managing general partners; or
(b) to direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
1 - CREDIT AGREEMENT
<PAGE> 6
"Agent" is defined in the preamble and includes each other Person as
shall have subsequently been appointed as the successor Agent pursuant to
Section 9.4.
"Agreement" means, on any date, this Credit Agreement as originally in
effect on the Effective Date and as thereafter from time to time amended,
supplemented, amended and restated, or otherwise modified and in effect on such
date.
"Alternate Base Rate" means, on any date and with respect to all Base
Rate Loans, a fluctuating rate of interest per annum equal to the higher of
(a) the rate of interest most recently announced by Scotiabank at
its Portland, Oregon branch as its prime rate; and
(b) the Federal Funds Rate most recently determined by the Agent
plus 1/2 of 1%.
The Alternate Base Rate is not necessarily intended to be the lowest rate of
interest determined by Scotiabank in connection with extensions of credit.
Changes in the rate of interest on that portion of any Loans maintained as Base
Rate Loans will take effect simultaneously with each change in the Alternate
Base Rate. The Agent will give notice promptly to the Borrowers and the Lenders
of changes in the Alternate Base Rate.
"Applicable Margin" means the rate of interest per annum added to the
LIBO Rate (Reserve Adjusted) pursuant to Section 3.3.1, determined based upon
the Leverage Ratio as of the end of then most recent Fiscal Quarter of Penford
Corporation in the following manner:
<TABLE>
<CAPTION>
Leverage Applicable
Ratio Margin
----- ------
<S> <C>
> 3.50 1.000%
> 3.00 0.875%
> 2.50 0.750%
> 2.00 0.625%
< 2.00 0.500%
</TABLE>
"Authorized Officer" means, relative to any Obligor, those of its
officers (or in the case of a Borrowing Request, any other employee) whose
signatures and incumbency shall have been certified to the Agent and the Lenders
pursuant to Section 5.1.1 or from time to time after the Effective Date.
"Base Rate Loan" means a Loan bearing interest at a fluctuating rate
determined by reference to the Alternate Base Rate.
"Borrowers" and "Borrower" mean Penford Corporation, Penford Products
and any other Subsidiary of Penford Corporation which becomes a Borrower
pursuant to Section 3.5.
"Borrowing" means the Loans of the same Type and, in the case of LIBO
Rate Loans, having the same Interest Period made by all Lenders on the same
Business Day and pursuant to the same Borrowing Request.
"Borrowing Request" means a loan request and certificate duly executed
by an Authorized Officer of a Borrower, substantially in the form of Exhibit B
hereto.
2 - CREDIT AGREEMENT
<PAGE> 7
"Business Day" means
(a) any day which is neither a Saturday or Sunday nor a legal
holiday on which banks are authorized or required to be closed in
Atlanta, Georgia, New York, New York, Seattle, Washington or Portland,
Oregon; and
(b) relative to the making, continuing, prepaying or repaying of
any LIBO Rate Loans, any day which is a Business Day for purposes of
clause (a) above and which is also a day on which dealings in Dollars
are carried on in the interbank eurodollar markets of the Reference
Lender's LIBO Office.
"Capitalized Lease Liabilities" means all monetary obligations of the
Borrowers or any of their Subsidiaries under any leasing or similar arrangement
which, in accordance with GAAP, would be classified as capitalized leases, and,
for purposes of this Agreement and each other Loan Document, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with GAAP, and the stated maturity thereof shall be the date of the last payment
of rent or any other amount due under such lease prior to the first date upon
which such lease may be terminated by the lessee without payment of a penalty.
"Cash Equivalent Investment" means, at any time:
(a) any obligation, maturing not more than one year after such
time, issued or guaranteed by the United States Government;
(b) municipal notes or note funds rated at the time of purchase,
SP-1/A-1 or SP-2/A-2 by Standard & Poor's Ratings Group or VMIG1 or
VMIG2 by Moody's Investors Service, Inc.; municipal bonds or bond funds
rated at the time of purchase, AAA or AA by Standard & Poor's Ratings
Group or Aaa or Aa by Moody's Investors Service, Inc.; or money market
funds rated at the time of purchase, A-1 by Standard & Poor's Ratings
Group or P-1 by Moody's Investors Service, Inc.;
(c) commercial paper, maturing not more than nine months from the
date of issue, which is issued by (i) a corporation (other than an
Affiliate of any Obligor) organized under the laws of any state of the
United States or of the District of Columbia and rated at least A-2 by
Standard & Poor's Ratings Group or at least P-2 by Moody's Investors
Service, Inc., or (ii) any Lender (or its holding company); or
(d) any certificate of deposit or bankers acceptance, maturing
not more than one year after such time, which is issued by either (i) a
commercial banking institution that is a member of the Federal Reserve
System and has a combined capital and surplus and undivided profits of
not less than $500,000,000, or (ii) any Lender.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, 42 U.S.C. Section 9601, et seq., as amended.
"Change in Control" means the acquisition by any Person, or two or more
Persons acting in concert, of beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934, as amended) of one-third (1/3) or more of the outstanding shares of
voting stock of a Borrower.
3 - CREDIT AGREEMENT
<PAGE> 8
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time, and any successor statute of similar
import.
"Commitment Fee Rate" means a percentage per annum determined quarterly
based upon the Leverage Ratio as of the end of the applicable Fiscal Quarter, as
follows:
<TABLE>
<CAPTION>
Leverage Commitment
Ratio Fee Rate
----- --------
<S> <C>
> 3.00 0.300%
> 2.50 0.250%
> 2.00 0.200%
< 2.00 0.175%
</TABLE>
"Commitment Termination Event" means
(a) the occurrence of any Default described in clauses (a)
through (d) of Section 8.1.10; or
(b) the occurrence and continuance of any other Event of Default
and either
(i) the declaration of the Loans to be due and payable
pursuant to Section 8.3, or
(ii) in the absence of such declaration, the giving of
notice by the Agent, acting at the direction of the Required
Lenders, to the Borrowers that the Loan Commitments have been
terminated.
"Compliance Certificate" means a certificate duly executed by an
Authorized Officer of Penford Corporation, substantially in the form of Exhibit
D hereto.
"Consolidated Net Worth" means the consolidated net worth of the
Borrowers and their Subsidiaries (if any), as reflected in the consolidated
financial statements of Penford Corporation.
"Consolidated Tangible Net Worth" means the consolidated net worth of
the Borrowers and their Subsidiaries (if any) less (unless otherwise deducted in
determining consolidated net worth) the aggregate amount of any intangible
assets of the Borrowers and their Subsidiaries, including, without limitation,
deferred financing and organizational costs (net of amortization), goodwill,
franchises, licenses, patents, trademarks, trade names, copyrights, service
marks and brand names, all as reflected in the consolidated financial statements
of Penford Corporation.
"Contingent Liability" means any agreement, undertaking or arrangement
by which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to, or otherwise to invest in, a
debtor, or otherwise to assure a creditor against loss) the indebtedness,
obligation or any other liability of any other Person (other than by
endorsements of instruments in the course of collection), or guarantees the
payment of dividends or other distributions upon the shares of any other Person.
The amount of any Person's obligation under any Contingent Liability shall
(subject to any limitation set forth therein) be calculated in accordance with
GAAP; provided, however, that the Contingent Liability of a Borrower under any
guarantee of any Person's obligation under a revolving credit facility shall be
deemed to be
4 - CREDIT AGREEMENT
<PAGE> 9
the amount of the borrowings then outstanding under such facility plus any
interest accrued thereon and any other charges then due under such facility.
"Continuation/Conversion Notice" means a notice of continuation or
conversion and certificate duly executed by an Authorized Officer of a Borrower,
substantially in the form of Exhibit C hereto.
"Controlled Group" means all members of a controlled group of
corporations and all members of a controlled group of trades or businesses
(whether or not incorporated) under common control which, together with a
Borrower, are treated as a single employer under Section 414(b) or 414(c) of the
Code or Section 4001 of ERISA.
"Default" means any Event of Default or any condition, occurrence or
event which, after notice or lapse of time or both, would constitute an Event of
Default.
"Disclosure Schedule" means the Disclosure Schedule attached hereto as
Schedule 1, as it may be amended, supplemented or otherwise modified from time
to time by the Borrowers with the written consent of the Agent and the Required
Lenders.
"Dollar" and the sign "$" mean lawful money of the United States.
"Domestic Office" means, relative to any Lender, the office of such
Lender designated as such below its signature hereto or designated in the Lender
Assignment Agreement or such other office of a Lender (or any successor or
assign of such Lender) within the United States as may be designated from time
to time by notice from such Lender, as the case may be, to each other Person
party hereto.
"EBITDA" means, for any period of four Fiscal Quarters, the Borrowers'
and their Subsidiaries' (if any) earnings from continuing operations (as
reflected in the consolidated financial statements of Penford Corporation)
before interest expense, taxes, depreciation and amortization, calculated on a
rolling four Fiscal Quarter basis, but excluding any historical one time
non-recurring charges and the charges incurred by Penford Corporation in
connection with the divesting of Penwest.
"Effective Date" means the date this Agreement becomes effective
pursuant to Section 10.8.
"Environmental Laws" means all applicable federal, state or local
statutes, laws, ordinances, codes, rules, regulations and guidelines (including
consent decrees and administrative orders) relating to protection of the
environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA also refer to any successor sections.
"Event of Default" is defined in Section 8.1.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to
(a) the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by
federal funds brokers, as published for such day (or, if such day is not
a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York; or
5 - CREDIT AGREEMENT
<PAGE> 10
(b) if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such
transactions received by Scotiabank from three federal funds brokers of
recognized standing selected by it.
"Fiscal Quarter" means any quarter of a Fiscal Year.
"Fiscal Year" means any period of twelve consecutive calendar months
ending on August 31; references to a Fiscal Year with a number corresponding to
any calendar year (e.g., the "1997 Fiscal Year") refer to the Fiscal Year ending
on the August 31 occurring during such calendar year.
"F.R.S. Board" means the Board of Governors of the Federal Reserve
System or any successor thereto.
"GAAP" is defined in Section 1.4.
"Hazardous Material" means
(a) any "hazardous substance", as defined by CERCLA;
(b) any "hazardous waste", as defined by the Resource
Conservation and Recovery Act, as amended; or
(c) any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material or substance within the meaning of any other
applicable federal, state or local law, regulation, ordinance or
requirement (including consent decrees and administrative orders)
relating to or imposing liability or standards of conduct concerning any
hazardous, toxic or dangerous waste, substance or material, all as
amended or hereafter amended.
"herein", "hereof", "hereto", "hereunder" and similar terms contained in
this Agreement or any other Loan Document refer to this Agreement or such other
Loan Document, as the case may be, as a whole and not to any particular Section,
paragraph or provision of this Agreement or such other Loan Document.
"including" means including without limiting the generality of any
description preceding such term.
"Indebtedness" of any Person means, without duplication:
(a) all obligations of such Person for borrowed money and all
obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments;
(b) all obligations of such Person as lessee under leases which
have been or should be, in accordance with GAAP, recorded as Capitalized
Lease Liabilities;
(c) all obligations, contingent or otherwise, relative to the
face amount of all letters of credit, whether or not drawn, and banker's
acceptances issued for the account of such Person;
(e) whether or not so included as liabilities in accordance with
GAAP, all indebtedness (excluding prepaid interest thereon) secured by a
Lien on property owned or being purchased by such Person (including
indebtedness arising under conditional sales or other title
6 - CREDIT AGREEMENT
<PAGE> 11
retention agreements), whether or not such indebtedness shall have been
assumed by such Person or is limited in recourse; and
(f) all Contingent Liabilities of such Person in respect of any
of the foregoing.
For all purposes of this Agreement, (i) Permitted Intercompany Loans shall not
be considered Indebtedness and (ii) the Indebtedness of any Person shall include
the Indebtedness of any partnership or joint venture in which such Person is a
general partner or a joint venturer to the extent that either (x) such Person is
directly obligated for such Indebtedness, or (y) that such Indebtedness is a
Contingent Liability of such Person.
"Indebtedness to Consolidated Capitalization Ratio means the ratio of
(i) the principal amount of all Indebtedness of the Borrowers and their
Subsidiaries (if any) to (ii) the sum of the principal amount of all
Indebtedness and Consolidated Net Worth.
"Indemnified Liabilities" is defined in Section 10.4.
"Indemnified Parties" is defined in Section 10.4.
"Interest Period" means, relative to any LIBO Rate Loans, the period
beginning on (and including) the date on which such LIBO Rate Loan is made or
continued as, or converted into, a LIBO Rate Loan pursuant to Section 2.4 or 2.5
and shall end on (but exclude) the day which numerically corresponds to such
date one, two, three or six months thereafter (or, if such month has no
numerically corresponding day, on the last Business Day of such month), as a
Borrower may select in its relevant notice pursuant to Section 2.4 or 2.5;
provided, however, that
(a) Interest Periods commencing on the same date for Loans
comprising part of the same Borrowing shall be of the same duration;
(b) if such Interest Period would otherwise end on a day which is
not a Business Day, such Interest Period shall end on the next following
Business Day (unless such next following Business Day is the first
Business Day of a calendar month, in which case such Interest Period
shall end on the Business Day next preceding such numerically
corresponding day); and
(c) no Interest Period for any Loan may end later than the Stated
Maturity Date for such Loan.
"Investment" means, relative to any Person,
(a) any loan or advance made by such Person to any other Person
(excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business) other than Permitted
Intercompany Loans;
(b) any Contingent Liability of such Person (provided, however,
that the Penwest Guarantee shall not be deemed an Investment of a
Borrower); and
(c) any ownership or similar interest held by such Person in any
other Person.
The amount of any Investment shall be the original principal or capital amount
thereof less all returns of principal or equity thereon (and without adjustment
by reason of the financial condition of such other
7 - CREDIT AGREEMENT
<PAGE> 12
Person) and shall, if made by the transfer or exchange of property other than
cash, be deemed to have been made in an original principal or capital amount
equal to the fair market value of such property at the time of such Investment.
"Interest/Rental Expense Coverage Ratio" means, for any period of four
consecutive Fiscal Quarters, the ratio of (i) the sum of the Borrowers' and
their Subsidiaries' (if any) EBITDA and Personal Property Rental Expense for
such period to (ii) the sum of the Borrowers' and their Subsidiaries' interest
expense and Personal Property Rental Expense.
"Lender Assignment Agreement" means a Lender Assignment Agreement
substantially in the form of Exhibit E hereto.
"KeyBank" means KeyBank National Association.
"Lenders" is defined in the preamble.
"Leverage Ratio" means, for any period of four consecutive Fiscal
Quarters, the ratio of (i) the sum of the Borrowers' and their Subsidiaries'(if
any) Indebtedness as of the end of such period to (ii) the sum of the Borrowers'
and their Subsidiaries' EBITDA for such period.
"LIBO Rate" is defined in Section 3.3.1.
"LIBO Rate Loan" means a Loan bearing interest, at all times during an
Interest Period applicable to such Loan, at a fixed rate of interest determined
by reference to the LIBO Rate (Reserve Adjusted).
"LIBO Rate (Reserve Adjusted)" is defined in Section 3.3.1.
"LIBOR Office" means, relative to any Lender, the office of such Lender
designated as such below its signature hereto or designated in the Lender
Assignment Agreement or such other office of a Lender has designated from time
to time by notice from such Lender to the Borrowers and the Agent, whether or
not outside the United States, which shall be making or maintaining LIBO Rate
Loans of such Lender hereunder.
"LIBOR Reserve Percentage" is defined in Section 3.3.1.
"Lien" means any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property to secure payment of a debt or
performance of an obligation or other priority or preferential arrangement of
any kind or nature whatsoever.
"Loan" is defined in Section 2.1.1.
"Loan Commitment" means, relative to any Lender, such Lender's
obligation to make Loans pursuant to Section 2.1.1.
"Loan Commitment Amount" means, on any date, $75,000,000, as such amount
may be reduced from time to time pursuant to Section 2.1.
8 - CREDIT AGREEMENT
<PAGE> 13
"Loan Commitment Termination Date" means the earliest of
(a) July 2, 2003;
(b) the date on which the Loan Commitment Amount is terminated in
full or reduced to zero pursuant to Section 2.3; and
(c) the date on which any Commitment Termination Event occurs.
Upon the occurrence of any event described above, the Loan Commitments shall
terminate automatically and without any further action.
"Loan Document" means this Agreement, the Notes, and each other
agreement, document or instrument delivered in connection with this Agreement.
"Material Adverse Effect" means any circumstance or event which is
reasonably likely to (i) have a material adverse effect on the validity or
enforceability of this Agreement, the Notes or any other Loan Document, (ii)
have a material adverse effect on the financial condition, operations, assets,
business or properties of the Borrowers and their Subsidiaries, taken as a
whole, or (iii) materially impair the ability of the Borrowers to fulfill their
respective obligations under this Agreement or any other Loan Document.
"Monthly Payment Date" means the last day of each calendar month or, if
any such day is not a Business Day, the next succeeding Business Day.
"Net Equity Proceeds" means, with respect to any issuance by a Borrower
or any Subsidiary of any equity securities, the gross consideration received by
or for the account of the issuer minus underwriting and brokerage commissions,
discounts and fees and other professional fees and expenses relating to such
issuance that are payable by the issuer.
"Net Income" means the consolidated net income of the Borrowers and
their Subsidiaries (if any), determined in accordance with GAAP.
"Note" means a promissory note of the Borrowers payable to any Lender,
in the form of Exhibit A hereto (as such promissory note may be amended,
endorsed or otherwise modified from time to time), evidencing the aggregate
Indebtedness of the Borrowers to such Lender resulting from outstanding Loans,
and also means all other promissory notes accepted from time to time in
substitution therefor or renewal thereof.
"Obligations" means all obligations (monetary or otherwise) of the
Borrowers and each other Obligor arising under or in connection with this
Agreement, the Notes and each other Loan Document.
"Obligor" means, as the context may require, the Borrowers or any other
Person (other than the Agent or any Lender) obligated under any Loan Document.
"Organic Document" means, relative to any Obligor, its articles of
incorporation, its by-laws and all shareholder agreements, voting trusts and
similar arrangements to which such Obligor is a party applicable to any of its
authorized shares of capital stock.
9 - CREDIT AGREEMENT
<PAGE> 14
"Participant" is defined in Section 10.11.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Penford Corporation" is defined in the preamble.
"Penford Products" is defined in the preamble.
"Pension Plan" means a "pension plan", as such term is defined in
Section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a
multi-employer plan as defined in Section 4001(a)(3) of ERISA), and to which a
Borrower or any corporation, trade or business that is, along with such
Borrower, a member of a Controlled Group, may have liability, including any
liability by reason of having been a substantial employer within the meaning of
Section 4063 of ERISA at any time during the preceding five years, or by reason
of being deemed to be a contributing sponsor under Section 4069 of ERISA.
"Penwest" is defined in the first Whereas clause.
"Penwest Guarantee" means the guarantees by Penford Corporation, Penford
Products or any of their Subsidiaries of that certain $15,000,000 revolving term
credit facility provided by Scotiabank to Penwest.
"Percentage" means, relative to any Lender, the percentage set forth
opposite its signature hereto or set forth in the Lender Assignment Agreement,
as such percentage may be adjusted from time to time pursuant to Lender
Assignment Agreement(s) executed by such Lender and its Assignee Lender(s) and
delivered pursuant to Section 10.11.1.
"Permitted Dispositions" means any sale, transfer, lease or conveyance
by a Borrower or any of its Subsidiaries of any assets that is (i) made in the
ordinary course of its business, (ii) made to a Borrower or any of its
Subsidiaries, or (iii) a distribution of Penford Corporation's shares of the
common stock of Penwest to the holders of Penford Corporation's common stock and
the cancellation of all Indebtedness of Penwest to Penford Corporation.
"Permitted Intercompany Loans" means any loans from a Borrower to
another Borrower or to a Subsidiary of a Borrower or from a Subsidiary of a
Borrower to a Borrower or another Subsidiary of a Borrower.
"Person" means any natural person, corporation, partnership, firm,
association, trust, government, governmental agency or any other entity, whether
acting in an individual, fiduciary or other capacity.
"Personal Property Rental Expense" means the expense for the rental or
lease of furniture, fixtures and equipment, including without limitation leases
of rail cars.
"Plan" means any Pension Plan or Welfare Plan.
"Portland time" means the time in Portland, Oregon.
10 - CREDIT AGREEMENT
<PAGE> 15
"Quarterly Payment Date" means the last day of each February, May,
August, and November or, if any such day is not a Business Day, the next
succeeding Business Day.
"Reference Lender" means Scotiabank.
"Release" means a "release", as such term is defined in CERCLA.
"Required Lenders" means, at any time, Lenders holding at least 51% of
the then aggregate outstanding principal amount of the Notes, or, if no such
principal amount is then outstanding, Lenders having at least 51% of the
aggregate Loan Commitments.
"Resource Conservation and Recovery Act" means the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901, et seq., as amended.
"Restricted Disposition" means any sale, transfer, lease, contribution
or conveyance by a Borrower or any Subsidiary of its assets that is not a
Permitted Disposition.
"Scotiabank" is defined in the Preamble.
"Stated Maturity Date" means July 2, 2003.
"Subsidiary" means, with respect to any Person, any corporation of which
more than 50% of the outstanding capital stock having ordinary voting power to
elect a majority of the board of directors of such corporation (irrespective of
whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such Person, by such
Person and one or more other Subsidiaries of such Person, or by one or more
other Subsidiaries of such Person.
"Taxes" is defined in Section 4.6.
"Type" means, relative to any Loan, the portion thereof, if any, being
maintained as a Base Rate Loan or a LIBO Rate Loan.
"United States" or "U.S." means the United States of America, its fifty
States and the District of Columbia.
"Unused Commitment Amount" means, for any given Quarterly Payment Date,
the average daily unused amount of the Loan Commitment for the Fiscal Quarter
ending on the Quarterly Payment Date.
"U.S. Bank" means U.S. Bank National Association.
"Welfare Plan" means a "welfare plan", as such term is defined in
Section 3(i) of ERISA.
SECTION 1.2 Use of Defined Terms. Unless otherwise defined or the
context otherwise requires, terms for which meanings are provided in this
Agreement shall have such meanings when used in the Disclosure Schedule and in
each Note, Borrowing Request, Continuation/Conversion Notice, Loan Document,
notice and other communication delivered from time to time in connection with
this Agreement or any other Loan Document.
11 - CREDIT AGREEMENT
<PAGE> 16
SECTION 1.3 Cross References. Unless otherwise specified, references in
this Agreement and in each other Loan Document to any Article or Section are
references to such Article or Section of this Agreement or such other Loan
Document, as the case may be, and, unless otherwise specified, references in any
Article, Section or definition to any clause are references to such clause of
such Article, Section or definition.
SECTION 1.4 Accounting and Financial Determinations. Unless otherwise
specified, all accounting terms used herein or in any other Loan Document shall
be interpreted, all accounting determinations and commutations hereunder or
thereunder (including under Section 7.2.4) shall be made, and all financial
statements required to be delivered hereunder or thereunder shall be prepared in
accordance with, those generally accepted accounting principles ("GAAP") applied
in the preparation of the audited financial statements referred to in Section
6.5.
ARTICLE 2
LOAN COMMITMENTS, BORROWING PROCEDURES AND NOTES
SECTION 2.1 Loan Commitments. On the terms and subject to the conditions
of this Agreement (including Article 5), each Lender severally agrees to make
Loans pursuant to the Loan Commitments described in this Section 2.1.
SECTION 2.1.1 Loan Commitment. From time to time on any Business Day
occurring prior to the Loan Commitment Termination Date, each Lender will make
revolving loans (relative to such Lender, its "Loans") to a Borrower equal to
such Lender's Percentage of the aggregate amount of the Borrowing of Loans
requested by such Borrower to be made on such day. The commitment of each Lender
described in this Section 2.1.1 is herein referred to as its "Loan Commitment".
On the terms and subject to the conditions hereof, a Borrower may from time to
time borrow, repay, prepay and reborrow Loans.
SECTION 2.1.2 Lenders Not Permitted or Required to Make Loans. No Lender
shall be permitted or required to make any Loan if, after giving effect thereto,
(i) the aggregate outstanding principal amount of all
Loans of all Lenders would exceed the Loan Commitment Amount; or
(ii) the aggregate outstanding principal amount of all
Loans of such Lender would exceed such Lender's Percentage of the
Loan Commitment Amount.
SECTION 2.2 Joint and Several Liability. Each Borrower shall be jointly
and severally liable for all of the Obligations.
SECTION 2.3 Optional Reduction Of Loan Commitment Amounts. The Borrowers
may, from time to time on any Business Day occurring after the time of the
initial Borrowing hereunder, voluntarily reduce the amount of the Loan
Commitment Amount by giving joint notice to the Agent; provided, however, that
all such reductions shall require at least five Business Day's prior notice from
the Borrowers to the Agent and be permanent, and any partial reduction of the
Loan Commitment Amount shall be in a minimum amount of $5,000,000 and in an
integral multiple of $1,000,000.
SECTION 2.4 Borrowing Procedure. A Borrower may from time to time
irrevocably request, on not less than three Business Days' notice in the case of
LIBO Rate Loans and not less than one
12 - CREDIT AGREEMENT
<PAGE> 17
Business Day's notice in the case of Base Rate Loans, that a Borrowing of Loans
be made in a minimum amount of $1,000,000 and an integral multiple of $500,000
in the case of LIBOR Rate Loans and in a minimum amount of $500,000 and an
integral multiple of $100,000 in the case of Base Rate Loans, or, if less, in
the unused amount of the Loan Commitment; provided, however, that in no event
shall there be more than seven LIBOR Rate Loans from each Lender outstanding at
any one time. To be deemed delivered on a Business Day, a Borrowing Request must
be delivered to the Agent on or before 10:00 a.m., Portland time, on the
Business Day. Not later than 12:00 noon, Portland time, on the date of receipt,
the Agent shall give notice to each Lender of the terms of each Borrowing
Request for Loans submitted by the requesting Borrower on the terms and subject
to the conditions of this Agreement. Each Borrowing shall be comprised of the
Type of Loans, and shall be made on the Business Day, specified in such
Borrowing Request. On or before 11:00 a.m., Portland time, on the Business Day
specified in the Borrowing Request, each Lender shall deposit with the Agent
same day funds in an amount equal to such Lender's Percentage of the requested
Borrowing. Such deposit will be made to an account which the Agent shall specify
from time to time by notice to the Lenders. To the extent funds are received
from the Lenders, the Agent shall make such funds available to the requesting
Borrower by deposit to the accounts the requesting Borrower shall have specified
in its Borrowing Request. No Lender's obligation to make any Loan shall be
affected by any other Lender's failure to make any Loan.
SECTION 2.5 Continuation and Conversion Elections. By delivering a
Continuation/Conversion Notice to the Agent on or before 9:00 a.m., Portland
time, on a Business Day, a Borrower may from time to time irrevocably elect, on
not less than three nor more than five Business Days' notice that (a) all, or
any portion, in an aggregate minimum amount of $1,000,000 and an integral
multiple of $500,000, of any Base Rate Loans be converted into LIBO Rate Loans,
(b) all, or any portion in an aggregate minimum amount of $500,000 and an
integral multiple of $100,000, of any LIBO Rate Loans be converted into a Base
Rate Loan, or (c) all, or any portion in an aggregate minimum amount of
$1,000,000 and an integral multiple of $500,000, of any LIBO Rate Loan be
continued as a LIBO Rate Loan (in the absence of delivery of a
Continuation/Conversion Notice with respect to any LIBO Rate Loan at least three
Business Days before the last day of the then current Interest Period with
respect thereto, such LIBO Rate Loan shall, on such last day, automatically
convert to a Base Rate Loan); provided, however, that (i) each such conversion
or continuation shall be prorated among the applicable outstanding Loans of all
Lenders, and (ii) no portion of the outstanding principal amount of any Loans
may be continued as, or be converted into, LIBO Rate Loans when any Default has
occurred and is continuing. Not later than 12:00 noon, Portland time, on the
date of receipt, the Agent shall give notice to each Lender of the terms of each
Continuation/Conversion Notice delivered to it by a Borrower.
SECTION 2.6 Funding. Each Lender may, if it so elects, fulfill its
obligation to make, continue or convert LIBO Rate Loans hereunder by causing one
of its foreign branches or Affiliates (or an international banking facility
created by such Lender) to make or maintain such LIBO Rate Loan; provided,
however, that such LIBO Rate Loan shall nonetheless be deemed to have been made
and to be held by such Lender, and the obligation of a Borrower to repay such
LIBO Rate Loan shall nevertheless be to such Lender for the account of such
foreign branch, Affiliate or international banking facility. In addition, the
Borrowers hereby consent and agree that, for purposes of any determination to be
made for purposes of Sections 4.1, 4.2, 4.2, or 4.4, it shall be conclusively
assumed that each Lender elected to fund all LIBO Rate Loans by purchasing
Dollar deposits in its LIBOR Office's interbank eurodollar market.
SECTION 2.7 Notes. Each Lender's Loans under its Loan Commitment shall
be evidenced by a Note payable to the order of such Lender in a maximum
principal amount equal to such Lender's Percentage of the original applicable
Loan Commitment Amount. The Borrowers hereby irrevocably authorize each Lender
to make (or cause to be made) appropriate notations on the grid attached to such
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Lender's Note (or on any continuation of such grid), which notations, if made,
shall evidence, inter alia, the date of, the outstanding principal of, and the
interest rate and Interest Period applicable to the Loans evidenced thereby.
Such notations shall be conclusive and binding on the Borrowers absent manifest
error; provided, however, that the failure of any Lender to make any such
notations shall not limit or otherwise affect any Obligations of the Borrowers
or any other Obligor.
ARTICLE 3
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES, AND SECURITY
SECTION 3.1 Repayments and Prepayments. The Borrowers shall repay in
full the unpaid principal amount of each Loan upon the Stated Maturity Date
therefor. Prior thereto, payments and prepayments of Loans shall be made as set
forth below:
SECTION 3.1.1 Voluntary Prepayments. From time to time on any Business
Day, a Borrower may make a voluntary prepayment, in whole or in part, of the
outstanding principal amount of any Loans; provided, however, that any such
prepayment shall be applied to such Loans as shall be specified by such Borrower
in a written notice to the Agent, or in the absence of such notice, as the Agent
shall specify.
SECTION 3.1.2 Exceeding the Loan Commitment. Immediately after the Agent
notifies the Borrowers that the sum of the aggregate outstanding principal
amount of all Loans exceeds the Loan Commitment Amount (as it may be reduced
from time to time), the Borrowers shall make a mandatory prepayment of the Loans
in an aggregate amount equal to such excess.
SECTION 3.1.3 Acceleration. The Borrowers shall, immediately upon any
acceleration of the Stated Maturity Date of any Loans pursuant to Section 8.2 or
Section 8.3, repay all Loans, unless, pursuant to Section 8.3, only a portion of
all Loans is so accelerated.
SECTION 3.2 Application of Payments and Prepayments.
SECTION 3.2.1 Voluntary Prepayments. Each prepayment of any Loans made
pursuant to this Section shall be without premium or penalty, except as may be
required by Section 4.4. No voluntary prepayment of principal of any Loans shall
cause a reduction in the Loan Commitment Amount.
SECTION 3.3 Interest Provisions. Interest on the outstanding principal
amount of Loans shall accrue and be payable in accordance with this Section 3.3.
SECTION 3.3.1 Rates. Pursuant to an appropriately delivered Borrowing
Request or Continuation/Conversion Notice, a Borrower may elect that Loans
comprising a Borrowing accrue interest at a rate per annum:
(a) on that portion maintained from time to time as a Base Rate
Loan, equal to the Alternate Base Rate from time to time in effect; and
(b) on that portion maintained as a LIBO Rate Loan, during each
Interest Period applicable thereto, equal to the sum of the LIBO Rate
(Reserve Adjusted) for such Interest Period plus the Applicable Margin.
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<PAGE> 19
The "LIBO Rate (Reserve Adjusted)" means, relative to any Loan to be
made, continued or maintained as, or converted into, a LIBO Rate Loan for any
Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest
1/16 of 1%) determined pursuant to the following formula:
<TABLE>
<S> <C>
LIBO Rate = LIBO Rate
(Reserve Adjusted) 1.00 - LIBOR Reserve Percentage
</TABLE>
The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate Loans
will be determined by the Agent on the basis of the LIBOR Reserve Percentage in
effect on, and the applicable rate furnished to and received by the Agent from
the Reference Lender, two Business Days before the first day of such Interest
Period, subject, however, to the provisions of Section 3.3.4.
"LIBO Rate" means, relative to any Interest Period for LIBO Rate Loans,
the rate of interest equal to the rate per annum at which Dollar deposits in
immediately available funds are offered to the Reference Lender's LIBOR Office
in the interbank eurodollar market as at or about 12:00 noon New York time two
Business Days prior to the beginning of such Interest Period for delivery on the
first day of such Interest Period, and in an amount approximately equal to the
amount of the Reference Lender's LIBO Rate Loan and for a period approximately
equal to such Interest Period.
"LIBOR Reserve Percentage" means, relative to any Interest Period for
LIBO Rate Loans, the reserve percentage (expressed as a decimal) equal to the
maximum aggregate reserve requirements (including all basic, emergency,
supplemental, marginal and other reserves and taking into account any
transitional adjustments or other scheduled changes in reserve requirements)
specified under regulations issued from time to time by the F.R.S. Board and
then applicable to assets or liabilities consisting of and including
"Eurocurrency Liabilities", as currently defined in Regulation D of the F.R.S.
Board, having a term approximately equal or comparable to such Interest Period.
All LIBO Rate Loans shall bear interest from and including the first day
of the applicable Interest Period to (but not including) the last day of such
Interest Period at the interest rate determined as applicable to such LIBO Rate
Loan.
SECTION 3.3.2 Post-Maturity Rates. After the date any principal amount
of any Loan is due and payable (whether on the Stated Maturity Date, upon
acceleration or otherwise), or after any other monetary Obligation of the
Borrowers shall have become due and payable, the Borrowers shall pay, but only
to the extent permitted by law, interest (after as well as before judgment) on
such amounts at a rate per annum equal to the sum of the Alternate Base Rate
plus 2%.
SECTION 3.3.3 Payment Dates. Interest accrued on each Loan shall be
payable, without duplication:
(a) on the Stated Maturity Date therefor;
(b) on the date of any payment or repayment, in whole or in part,
of principal outstanding on such Loan;
(c) with respect to Base Rate Loans, on each Monthly Payment Date
occurring after the Effective Date;
(d) with respect to LIBO Rate Loans, the last day of each
applicable Interest Period (and, if such Interest Period shall exceed
three months, on the day three months after the
15 - CREDIT AGREEMENT
<PAGE> 20
beginning of the Interest Period which numerically corresponds to the
beginning date of the Interest period (or, if the third month has no
numerically corresponding day, on the last Business Day of such month));
and
(e) on that portion of any Loans the Stated Maturity Date of
which is accelerated pursuant to Section 8.2 or Section 8.3, immediately
upon such acceleration.
Interest accrued on Loans or other monetary Obligations arising under this
Agreement or any other Loan Document after the date such amount is due and
payable (whether on the Stated Maturity Date, upon acceleration or otherwise)
shall be payable upon demand.
SECTION 3.3.4 Interest Rate Determination. The Reference Lender agrees
to furnish to the Agent timely information for the purpose of determining each
LIBO Rate.
SECTION 3.4 Fees. The Borrowers agree to pay the fees set forth in this
Section 3.4. All such fees shall be nonrefundable.
SECTION 3.4.1 Commitment Fee. The Borrowers agree to pay to the Agent
for the account of each Lender, for the period (including any portion thereof
when a Lender's Loan Commitment is suspended by reason of a Borrower's inability
to satisfy any condition of Article 5) commencing on the Effective Date and
continuing through the final Commitment Termination Date, a commitment fee
calculated at the Commitment Fee Rate per annum on such Lender's Percentage of
the Unused Commitment Amount. Such commitment fee shall be payable by the
Borrowers in arrears on each Quarterly Payment Date, commencing with the first
such day following the Effective Date, and on each Commitment Termination Date.
SECTION 3.4.2 Agent's Fees. The Borrowers agree to pay to the Agent for
its own account, in addition to all other amounts payable by the Borrowers under
Section 3.4.1, such other fees as were described in the fee letter dated May 13,
1998 between Penford Corporation and Scotiabank.
SECTION 3.5 Future Subsidiaries. The Borrowers agree that if any
Borrower hereafter forms any Subsidiary of such Borrower which owns assets with
a value equal to 10% or more of the value of the consolidated assets of Penford
Corporation and its Subsidiaries, such Borrower shall cause the newly formed
Subsidiary to become a party to this Agreement as a Borrower. For purposes of
this Section 3.5, "value" shall mean the value that is or would be shown on the
subject entity's financial statements dated as of the date the value is to be
determined.
ARTICLE 4
CERTAIN LIBO RATE AND OTHER PROVISIONS
SECTION 4.1 LIBO Rate Lending Unlawful. If any Lender shall determine
(which determination shall, upon notice thereof to the Borrowers and the
Lenders, be conclusive and binding on the Borrowers) that the introduction of or
any change in or in the interpretation of any law makes it unlawful, or any
central bank or other governmental authority asserts that it is unlawful, for
such Lender to make, continue or maintain any Loan as, or to convert any Loan
into, a LIBO Rate Loan, the obligations of such Lender to make, continue,
maintain or convert any such Loans shall, upon such determination, forthwith be
suspended until such Lender shall notify the Agent that the circumstances
causing such suspension no longer exist, and all LIBO Rate Loans of such Lender
shall automatically
16 - CREDIT AGREEMENT
<PAGE> 21
convert into Base Rate Loans at the end of the then current Interest Periods
with respect thereto or sooner, if required by such law or assertion.
SECTION 4.2 Deposits Unavailable. If the Agent shall have determined
that
(a) Dollar deposits in the relevant amount and for the relevant
Interest Period are not available to the Reference Lender in its
relevant markets; or
(b) by reason of circumstances affecting the Reference Lender's
relevant markets, adequate means do not exist for ascertaining the
interest rate applicable hereunder to LIBO Rate Loans,
then, upon notice from the Agent to the Borrowers and the Lenders, the
obligations of all Lenders under Section 2.4 and Section 2.5, to make or
continue any Loans as, or to convert any Loans into, LIBO Rate Loans shall
forthwith be suspended until the Agent shall notify the Borrowers and the
Lenders that the circumstances causing such suspension no longer exist.
SECTION 4.3 Increased LIBO Rate Loan Costs, etc. The Borrowers agree to
reimburse each Lender for any increase in the cost to such Lender of, or any
reduction in the amount of any sum receivable by such Lender in respect of,
making, continuing or maintaining (or of its obligation to make, continue or
maintain) any Loans as, or of converting (or of its obligation to convert) any
Loans into, LIBO Rate Loans which results from the introduction of or any change
since the date of this Agreement in any applicable law, governmental rule,
regulation, guideline, order or request (whether or not having the force of
law), or in the interpretation or administration thereof (including, by way of
example, but not limited to, a change in official reserve requirements). Such
Lender shall promptly notify the Agent and the Borrowers in writing of the
occurrence of any such event, such notice to state, in reasonable detail, the
reasons therefor and a calculation of the additional amount required fully to
compensate such Lender for such increased cost or reduced amount. Such
additional amounts shall be payable by the Borrowers directly to such Lender
within five days of its receipt of such notice, and such notice shall, in the
absence of manifest error, be conclusive and binding on the Borrowers.
SECTION 4.4 Funding Losses. In the event any Lender shall incur any loss
or expense (including any loss or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by such Lender to make,
continue or maintain any portion of the principal amount of any Loan as, or to
convert any portion of the principal amount of any Loan into, a LIBO Rate Loan)
as a result of
(a) any conversion or repayment or prepayment of the principal
amount of any LIBO Rate Loans on a date other than the scheduled last
day of the Interest Period applicable thereto, whether pursuant to
Section or otherwise;
(b) any Loans not being made as LIBO Rate Loans in accordance
with the Borrowing Request therefor, except as a result of a Lender's
breach of its Loan Commitment hereunder; or
(c) any Loans not being continued as, or converted into LIBO Rate
Loans in accordance with the Continuation/Conversion Notice therefor,
except as a result of a Lender's breach of its Loan Commitment
hereunder,
then, upon the written notice of such Lender to the Borrowers (with a copy to
the Agent), the Borrowers shall, within five days of their receipt thereof, pay
directly to such Lender such amount as will (in the
17 - CREDIT AGREEMENT
<PAGE> 22
reasonable determination of such Lender) reimburse such Lender for such loss or
expense. Such written notice (which shall include calculations in reasonable
detail) shall, in the absence of manifest error, be conclusive and binding on
the Borrowers.
SECTION 4.5 Increased Capital Costs. If any change in, or the
introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any law or regulation, directive, guideline, decision or request
(whether or not having the force of law) of any court, central bank, regulator
or other governmental authority affects or would affect the amount of capital
required or expected to be maintained by any Lender or any Person controlling
such Lender, and such Lender determines (in its sole and absolute discretion)
that the rate of return on its or such controlling Person's capital as a
consequence of its Loan Commitment or the Loans made by such Lender is reduced
to a level below that which such Lender or such controlling Person could have
achieved but for the occurrence of any such circumstance, then, in any such case
upon notice from time to time by such Lender to the Borrowers and the Agent, the
Borrowers shall immediately pay directly to such Lender additional amounts
sufficient to compensate such Lender or such controlling Person for such
reduction in rate of return. A statement of such Lender as to any such
additional amount or amounts (including calculations thereof in reasonable
detail) shall, in the absence of manifest error, be conclusive and binding on
the Borrowers. In determining such amount, such Lender may use any method of
averaging and attribution that it (in its reasonable discretion) shall deem
applicable.
SECTION 4.6 Taxes. All payments by the Borrowers of principal of, and
interest on, the Loans and all other amounts payable hereunder shall be made
free and clear of and without deduction for any present or future income,
excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or
other charges of any nature whatsoever imposed by any taxing authority, but
excluding franchise taxes and taxes imposed on or measured by any Lender's net
income or receipts (such nonexcluded items being called "Taxes"). In the event
that any withholding or deduction from any payment to be made by a Borrower
hereunder is required in respect of any Taxes pursuant to any applicable law,
rule or regulation, then such Borrower will
(a) pay directly to the relevant authority the full amount
required to be so withheld or deducted;
(b) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment to such
authority; and
(c) pay to the Agent for the account of the Lenders such
additional amount or amounts as is necessary to ensure that the net
amount actually received by each Lender will equal the full amount such
Lender would have received had no such withholding or deduction been
required.
Moreover, if any Taxes are directly asserted against the Agent or any Lender
with respect to any payment received by the Agent or such Lender hereunder, the
Agent or such Lender may pay such Taxes and the Borrowers will promptly pay such
additional amounts (including any penalties, interest or expenses) as is
necessary in order that the net amount received by such person after the payment
of such Taxes (including any Taxes on such additional amount) shall equal the
amount such person would have received had not such Taxes been asserted.
If a Borrower fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the Agent, for the account of the respective
Lenders, the required receipts or other required documentary evidence, the
Borrowers shall indemnify the Lenders for any incremental Taxes, interest
18 - CREDIT AGREEMENT
<PAGE> 23
or penalties that may become payable by any Lender as a result of any such
failure. For purposes of this Section , a distribution hereunder by the Agent or
any Lender to or for the account of any Lender shall be deemed a payment by the
Borrowers.
Upon the request of the Agent or a Borrower, each Lender that is
organized under the laws of a jurisdiction other than the United States shall,
prior to the due date of any payments under the Notes, execute and deliver to
the Borrowers and the Agent, on or about the first scheduled payment date in
each Fiscal Year, one or more (as the Agent may reasonably request) United
States Internal Revenue Service Forms 4224 or Forms 1001 or such other forms or
documents (or successor forms or documents), appropriately completed, as may be
applicable to establish that payments to such Lender are exempt from withholding
or deduction of Taxes.
SECTION 4.7 Payments, Computations, etc. Unless otherwise expressly
provided, all payments by a Borrower pursuant to this Agreement, the Notes or
any other Loan Document shall be made by such Borrower to the Agent for the pro
rata account of the Lenders entitled to receive such payment. All such payments
required to be made to the Agent shall be made, without setoff, deduction or
counterclaim, not later than 10:00 a.m., Portland time, on the date due, in same
day or immediately available funds, to such account as the Agent shall specify
from time to time by notice to the Borrowers. Funds received after that time
shall be deemed to have been received by the Agent on the next succeeding
Business Day. The Agent shall promptly remit in same day funds to each Lender
its share, if any, of such payments received by the Agent for the account of
such Lender. All interest and fees shall be computed on the basis of the actual
number of days (including the first day but excluding the last day) occurring
during the period for which such interest or fee is payable, over a year
comprised of 360 days; provided, however, that with respect to Base Rate Loans,
a year comprised of 365 or 366 days, as the case may be, shall be used. Whenever
any payment to be made shall otherwise be due on a day which is not a Business
Day, such payment shall (except as otherwise required by the definition of the
term "Interest Period" with respect to LIBO Rate Loans) be made on the next
succeeding Business Day and such extension of time shall be included in
computing interest and fees, if any, in connection with such payment.
SECTION 4.8 Sharing of Payments. If any Lender shall obtain any payment
or other recovery (whether voluntary, involuntary, by application of setoff or
otherwise) on account of any Loan (other than pursuant to the terms of Sections
4.3, 4.4 and 4.5) in excess of its pro rata share of payments then or therewith
obtained by all Lenders, such Lender shall purchase from the other Lenders such
participation in Loans made by them as shall be necessary to cause such
purchasing Lender to share the excess payment or other recovery ratably with
each of them; provided, however, that if all or any portion of the excess
payment or other recovery is thereafter recovered from such purchasing Lender,
the purchase shall be rescinded and each Lender which has sold a participation
to the purchasing Lender shall repay to the purchasing Lender the purchase price
to the ratable extent of such recovery together with an amount equal to such
selling Lender's ratable share (according to the proportion of (a) the amount of
such selling Lender's required repayment to the purchasing Lender to (b) the
total amount so recovered from the purchasing Lender) of any interest or other
amount paid or payable by the purchasing Lender in respect of the total amount
so recovered. The Borrowers agree that any Lender so purchasing a participation
from another Lender pursuant to this Section may, to the fullest extent
permitted by law, exercise all its rights of payment (including pursuant to
Section ) with respect to such participation as fully as if such Lender were the
direct creditor of the Borrowers in the amount of such participation. If under
any applicable bankruptcy, insolvency or other similar law, any Lender receives
a secured claim in lieu of a setoff to which this Section applies, such Lender
shall, to the extent practicable, exercise its rights in respect of such secured
claim in a manner consistent with the rights of the Lenders entitled under this
Section to share in the benefits of any recovery on such secured claim.
19 - CREDIT AGREEMENT
<PAGE> 24
SECTION 4.9 Setoff. Each Lender shall, upon the occurrence of any
Default described in clauses (a) through (d) of Section 8.1.10 or any other
Event of Default, have the right to appropriate and apply to the payment of the
Obligations owing to it (whether or not then due), any and all balances,
credits, deposits, accounts or moneys of a Borrower then or thereafter
maintained with such Lender; provided, however, that any such appropriation and
application shall be subject to the provisions of Section 4.8. Each Lender
agrees promptly to notify the Borrowers and the Agent after any such setoff and
application made by such Lender; provided, however, that the failure to give
such notice shall not affect the validity of such setoff and application. The
rights of each Lender under this Section are in addition to other rights and
remedies (including other rights of setoff under applicable law or otherwise)
which such Lender may have.
SECTION 4.10 Use of Proceeds. The Borrowers shall apply the proceeds of
each Borrowing for refinancing existing indebtedness of the Borrowers and for
general corporate purposes and working capital purposes, including capital
expenditures, of the Borrowers and their Subsidiaries (if any). Without limiting
the foregoing, no proceeds of any Loan will be used to acquire any equity
security of a class which is registered pursuant to Section 12 of the Securities
Exchange Act of 1934 or any "margin stock", as defined in F.R.S. Board
Regulation U.
SECTION 4.11 Actions of Affected Lenders. Each Lender agrees to use
reasonable efforts (including reasonable efforts to change the booking office
for its Loans) to avoid or minimize any illegality pursuant to Section 4.1 or
any amounts which might otherwise be payable pursuant to Sections 4.3, 4.5 or
4.6; provided, however, that such efforts shall not cause the imposition on such
Lender of any additional costs or legal or regulatory burdens deemed by such
Lender to be material. In the event that such reasonable efforts are
insufficient to avoid all such illegality pursuant to Section 4.1 or all amounts
that might be payable pursuant to Sections 4.3, 4.5 or 4.6, then the Borrowers
shall have the right, but not the obligation, at their own expense, to request
such Lender (the "Affected Lender") to transfer its Loan Commitment hereunder to
any other Lender (which itself is not then an Affected Lender) or financial
institution designated by the Borrowers and approved by the Agent (which
approval shall not be unreasonably withheld or delayed), and such Lender hereby
agrees to transfer and assign without recourse (in accordance with and subject
to the restrictions contained in this Agreement) all its interests, rights and
obligations under this Agreement to such assignee; provided, however, that no
Lender shall be obligated to make any such assignment unless (i) such assignment
shall not conflict with any law or any rule, regulation or order of any
governmental authority, (ii) such assignee shall pay to the Affected Lender in
immediately available funds on the date of such assignment the principal of the
Loans made by such Lender hereunder, and (iii) the Borrowers shall pay to the
Affected Lender in immediately available funds on the date of such assignment
the interest accrued to the date of such assignment hereunder and all other
amounts accrued for such Lender's account or owed to thereunder.
ARTICLE 5
CONDITIONS TO EFFECTIVENESS AND INITIAL BORROWING
SECTION 5.1 Initial Borrowing. The obligations of the Lenders to fund
the initial Borrowing shall be subject to the prior or concurrent satisfaction
of each of the conditions precedent set forth in this Section .
SECTION 5.1.1 Resolutions, etc. The Agent shall have received from each
Borrower a certificate, dated the date of the initial Borrowing, of its
Secretary or Assistant Secretary as to
20 - CREDIT AGREEMENT
<PAGE> 25
(a) resolutions of its Board of Directors then in full force and
effect authorizing the execution, delivery and performance of this
Agreement, the Notes and each other Loan Document to be executed by it;
and
(b) the incumbency and signatures of those of its officers
authorized to act with respect to this Agreement, the Notes and each
other Loan Document executed by it,
upon which certificate each Lender may conclusively rely until it shall have
received a further certificate of the Secretary of such Borrower canceling or
amending such prior certificate.
SECTION 5.1.2 Delivery of Documentation. The Agent shall have received
(a) for the account of each Lender, its Notes and a copy of this Agreement duly
executed and delivered by the Borrowers, and (b) evidence of the termination of
that certain Credit Agreement dated as of December 22, 1995, by and among
Penwest Ltd, Penford Products Co., Edward Mendell Co., Inc., Bank of America
National Trust and Savings Association and other financial institutions party
thereto.
SECTION 5.1.3 Opinion of Counsel. The Agent shall have received
opinions, dated as of the Effective Date and addressed to the Agent and all
Lenders, from Bogle & Gates PLLC, counsel to the Borrowers, substantially in the
form of Exhibit F hereto.
SECTION 5.1.4 Organizational Documents. The Agent shall have received
from each Borrower a certificate, dated the date of this Agreement, of its
Secretary or Assistant Secretary as to
(a) its articles or certificate of incorporation as in effect on
such date, certified by the Secretary of State of the state of its
incorporation as of a recent date (to the extent such certification is
available), and its bylaws as in effect on such date, certified by the
Secretary or an Assistant Secretary as of such date; and
(b) a certificate of its existence, authorization to do business
and good standing from the Secretary of State of the state of its
incorporation as of a recent date (to the extent such certification is
available).
SECTION 5.1.5 Closing Fees, Expenses, etc. The Agent shall have received
for its own account, or for the account of the Agent and each Lender, as the
case may be, all fees, costs and expenses due and payable pursuant to Sections
3.4 and 10.3, if then invoiced.
SECTION 5.2 All Borrowings. The obligation of each Lender to fund any
Loan on the occasion of any Borrowing (including the initial Borrowing) shall be
subject to the satisfaction of each of the conditions precedent set forth in
this Section 5.2.
SECTION 5.2.1 Compliance with Warranties, No Default, etc. Both before
and after giving effect to any Borrowing (but, if any Default of the nature
referred to in Section 8.1.5 shall have occurred with respect to any other
Indebtedness, without giving effect to the application, directly or indirectly,
of the proceeds thereof) the following statements shall be true and correct
(a) the representations and warranties set forth in Article
(excluding, however, those contained in Section 6.7) shall be true and
correct with the same effect as if then made (unless stated to relate
solely to an earlier date, in which case such representations and
warranties shall be true and correct as of such earlier date);
21 - CREDIT AGREEMENT
<PAGE> 26
(b) except as disclosed by the Borrowers to the Agent and the
Lenders pursuant to Section 6.7;
(i) no labor controversy, litigation, arbitration or
governmental investigation or proceeding shall be pending or, to
the knowledge of the Borrowers, threatened against a Borrower or
any of its Subsidiaries which constitutes a Material Adverse
Effect; and
(ii) no development shall have occurred in any labor
controversy, litigation, arbitration or governmental
investigation or proceeding disclosed pursuant to Section 6.7
which constitutes a Material Adverse Effect; and
(c) no Default shall have then occurred and be continuing, and no
Borrower, no other Obligor, nor any of the Borrowers' Subsidiaries are
in material violation of any law or governmental regulation or court
order or decree, which violation would have a Material Adverse Effect.
SECTION 5.2.2 Borrowing Request. For all Borrowings of Loans, the Agent
shall have received a Borrowing Request for such Borrowing. Each of the delivery
of a Borrowing Request and the acceptance by a Borrower of the proceeds of such
Borrowing shall constitute a representation and warranty by the Borrowers that
on the date of such Borrowing (both immediately before and after giving effect
to such Borrowing and the application of the proceeds thereof) the statements
made in Section 5.2.1 are true and correct.
SECTION 5.2.3 Satisfactory Legal Form. All documents executed or
submitted pursuant hereto by or on behalf of the Borrowers or any of their
Subsidiaries or any other Obligors shall be satisfactory in form and substance
to the Agent and the Agent's counsel; and the Agent and the Agent's counsel
shall have received all information, approvals, opinions, documents or
instruments as the Agent or the Agent's counsel may reasonably request.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders and the Agent to enter into this
Agreement and to make Loans hereunder, the Borrowers represent and warrant unto
the Agent and each Lender as set forth in this Article 6.
SECTION 6.1 Organization, etc. Each Borrower and each of its
Subsidiaries (if any) is a corporation validly organized and existing and in
good standing under the laws of the state of its incorporation, is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction where the nature of its business requires such qualification
(except where the failure to so qualify shall not have a Material Adverse
Effect), and has full power and authority and holds all requisite governmental
licenses, permits and other approvals to enter into and perform its Obligations
under this Agreement, the Notes and each other Loan Document to which it is a
party and to own and hold under lease its property and to conduct its business
substantially as currently conducted by it.
SECTION 6.2 Due Authorization, Non-Contravention, etc. The execution,
delivery and performance by a Borrower of this Agreement, the Notes and each
other Loan Document executed or to be executed by it, and the execution,
delivery and performance by each other Obligor of each Loan
22 - CREDIT AGREEMENT
<PAGE> 27
Document executed or to be executed by it are within such Borrower's and each
such Obligor's corporate powers, have been duly authorized by all necessary
corporate action, and do not
(a) contravene such Borrower's or any such Obligor's Organic
Documents;
(b) contravene any contractual restriction, law or governmental
regulation or court decree or order binding on or affecting such
Borrower or any such Obligor; or
(c) result in, or require the creation or imposition of, any Lien
on any of any Obligor's properties, except for the Liens created
pursuant to the Loan Documents.
SECTION 6.3 Government Approval Regulation, etc. No authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other Person is required for the due execution,
delivery or performance by the Borrowers or any other Obligor of this Agreement,
the Notes or any other Loan Document to which it is a party. No Borrower nor any
Subsidiary of a Borrower is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
SECTION 6.4 Validity, etc. This Agreement constitutes, and the Notes and
each other Loan Document executed by the Borrowers will, on the due execution
and delivery thereof, constitute, the legal, valid and binding obligations of
the Borrowers enforceable in accordance with their respective terms, and each
Loan Document executed pursuant hereto by each other Obligor will, on the due
execution and delivery thereof by such Obligor, be the legal, valid and binding
obligation of such Obligor enforceable in accordance with its terms, all subject
to applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws, now or hereafter in effect, relating to creditors' rights
generally, and subject to general principles of equity.
SECTION 6.5 Financial Information. The consolidated audited balance
sheets of Penford Corporation as at August 31, 1997, and the related statements
of earnings and cash flow of Penford Corporation, and the consolidated unaudited
financial statements of Penford Corporation as at February 28, 1998, copies of
which have been furnished to the Agent and each Lender, have been prepared in
accordance with GAAP consistently applied, and present fairly the consolidated
financial condition of Penford Corporation as at the dates thereof and the
results of its operations for the periods then ended.
SECTION 6.6 No Material Adverse Change. Since the date of the audited
financial statements described in Section 6.5, except as otherwise disclosed in
Item 6.6 ("Material Developments") of the Disclosure Schedule, there has been no
Material Adverse Effect.
SECTION 6.7 Litigation, Labor Controversies, etc. There is no pending
or, to the knowledge of the Borrowers, threatened litigation, action,
proceeding, or labor controversy affecting a Borrower or any of its
Subsidiaries, or any of their respective properties, businesses, assets or
revenues, which the Borrowers believe may have a Material Adverse Effect, except
as disclosed in Item 6.7 ("Litigation") of the Disclosure Schedule.
SECTION 6.8 Subsidiaries. Penford Products is a Subsidiary of Penford
Corporation. The Borrowers have no other Subsidiaries, except those Subsidiaries
23 - CREDIT AGREEMENT
<PAGE> 28
(a) which are identified in Item ("Existing Subsidiaries") of
the Disclosure Schedule; or
(b) which are permitted to have been acquired in accordance with
Section 7.2.5 or 7.2.10.
SECTION 6.9 Ownership of Properties. Each Borrower and each of its
Subsidiaries (if any) owns good and marketable title to all of its properties
and assets, real and personal, tangible and intangible, of any nature whatsoever
(including patents, trademarks, trade names, service marks and copyrights), free
and clear of all Liens, charges or claims (including infringement claims with
respect to parents, trademarks, copyrights and the like) except as permitted
pursuant to Section 7.2.3and except for any defects in title that will not have
a Material Adverse Effect.
SECTION 6.10 Taxes. Each Borrower and each of its Subsidiaries (if any)
has filed all tax returns and reports required by law to have been filed by it
and has paid all taxes and governmental charges thereby shown to be owing,
except any such taxes or charges which are being diligently contested in good
faith by appropriate proceedings and for which adequate reserves in accordance
with GAAP shall have been set aside on its books.
SECTION 6.11 Pension and Welfare Plans. During the twelve consecutive
month period prior to the date of the execution and delivery of this Agreement
and prior to the date of any Borrowing hereunder, no steps have been taken to
terminate any Pension Plan, and no contribution failure has occurred with
respect to any Pension Plan sufficient to give rise to a Lien under Section
302(f) of ERISA. No condition exists or event or transaction has occurred with
respect to any Pension Plan which might result in the incurrence by a Borrower
or any member of a Controlled Group of any material liability, fine or penalty.
Except as disclosed in Item 6.11 ("Employee Benefit Plans") of the Disclosure
Schedule, neither the Borrowers nor any member of a Controlled Group has any
contingent liability with respect to any post-retirement benefit under a Welfare
Plan, other than liability for continuation coverage described in Part 6 of
Title I of ERISA.
SECTION 6.12 Environmental Warranties. Except as set forth in the
Disclosure Schedule, each Borrower hereby represents and warrants that such
Borrower's businesses and assets and those of its Subsidiaries (if any) are
operated in material compliance with applicable Environmental Laws and that no
enforcement action in respect thereof is threatened or pending.
SECTION 6.13 Regulations G, U and X. No Borrower is engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock, and no proceeds of any Loans will be used for a purpose which violates,
or would be inconsistent with, F.R.S. Board Regulation G, U or X. Terms for
which meanings are provided in F.R.S. Board Regulation G, U or X or any
regulations substituted therefor, as from time to time in effect, are used in
this Section with such meanings.
SECTION 6.14 Year 2000 Compliance. Each Borrower has conducted a
comprehensive review and assessment of such Borrower's computer applications and
made inquiry of such Borrower's key suppliers, vendors and customers with
respect to the "year 2000 problem" (that is, the risk that computer applications
may not be able to properly perform date-sensitive functions after December 31,
1999) and, based on that review and inquiry, the Borrowers do not believe the
year 2000 problem will have a Material Adverse Effect.
SECTION 6.15 Accuracy of Information. All factual information heretofore
or contemporaneously furnished by or on behalf of a Borrower in writing to the
Agent or any Lender for
24 - CREDIT AGREEMENT
<PAGE> 29
purposes of or in connection with this Agreement or any transaction contemplated
hereby is, and all other such factual information hereafter furnished by or on
behalf of a Borrower to the Agent or any Lender will be, true and accurate in
every material respect on the date as of which such information is dated or
certified and as of the date of execution and delivery of this Agreement by the
Agent and such Lender, and such information is not, or shall not be, as the case
may be, incomplete by omitting to state any material fact necessary to make such
information not misleading.
ARTICLE 7
COVENANTS
SECTION 7.1 Affirmative Covenant. The Borrowers agree with the Agent and
each Lender that, until all Loan Commitments have terminated and all Obligations
have been paid and performed in full, the Borrowers will perform the obligations
set forth in this Section 7.1.
SECTION 7.1.1 Financial Information, Reports, Notices, etc. Penford
Corporation will furnish, or will cause to be furnished, to the Agent for the
further distribution to each of the Lenders copies of the following financial
statements, reports, notices and information
(a) as soon as available and in any event within 60 days after
the end of each of the first three Fiscal Quarters of each Fiscal Year
of Penford Corporation, consolidated and consolidating balance sheets of
Penford Corporation and its Subsidiaries as of the end of such Fiscal
Quarter and consolidated and consolidating statements of earnings and
consolidated statements of cash flow of Penford Corporation and its
Subsidiaries for such Fiscal Quarter and for the period commencing at
the end of the previous Fiscal Year and ending with the end of such
Fiscal Quarter, certified by an Authorized Officer of Penford
Corporation;
(b) as soon as available and in any event within 120 days after
the end of each Fiscal Year of Penford Corporation, a copy of the annual
unqualified audit report for such Fiscal Year for Penford Corporation
and its Subsidiaries, including therein consolidated and consolidating
balance sheets of Penford Corporation and its Subsidiaries as of the end
of such Fiscal Year and consolidated and consolidating statements of
earnings and consolidated statements of cash flow of Penford Corporation
and its Subsidiaries for such Fiscal Year, in each case certified in a
manner acceptable to the Agent by independent public accountants
acceptable to the Agent, together with a certificate from such
accountants to the effect that, in making the examination necessary for
the signing of such annual report by such accountants, they have not
become aware of any noncompliance with the covenants set forth in
Section 7.2.4 that has occurred and is continuing, or, if they have
become aware of such noncompliance, describing such noncompliance;
(c) as soon as available and in any event within 60 days after
the end of each of the first three Fiscal Quarters of each Fiscal Year
and 120 days after the end of each Fiscal Year, a Compliance
Certificate, executed by an Authorized Officer of Penford Corporation,
showing (in reasonable detail and with appropriate calculations and
computations in all respects satisfactory to the Agent) compliance with
the financial covenants set forth in Section 7.2.4;
(d) as soon as possible and in any event within five Business
Days after the occurrence of each Default, a statement of an Authorized
Officer of Penford Corporation setting forth details of such Default and
the action which the Borrowers have taken and propose to take with
respect thereto;
25 - CREDIT AGREEMENT
<PAGE> 30
(e) as soon as possible and in any event within five Business
Days after (x) the occurrence of any material adverse development with
respect to any litigation, action, proceeding, or labor controversy
described in Section 6.7 or (y) the commencement of any material labor
controversy, litigation, action, or proceeding of the type described in
Section 6.7, notice thereof and copies of all documentation relating
thereto;
(f) immediately upon becoming aware of the institution of any
steps by a Borrower or any other Person to terminate any Pension Plan,
or the failure to make a required contribution to any Pension Plan if
such failure is sufficient to give rise to a Lien under Section 302(f)
of ERISA, or the taking of any action with respect to a Pension Plan
which could result in the requirement that a Borrower furnish a bond or
other security to the PBGC or such Pension Plan, or the occurrence of
any event with respect to any Pension Plan which could result in the
incurrence by a Borrower of any material liability, fine or penalty, or
any material increase in the contingent liability of a Borrower with
respect to any post-retirement Welfare Plan benefit, notice thereof and
copies of all documentation relating thereto; and
(g) such other information concerning the condition or
operations, financial or otherwise, of the Borrowers or any of their
Subsidiaries as any Lender through the Agent may from time to time
reasonably request.
SECTION 7.1.2 Compliance with Laws, etc. Each Borrower will, and will
cause each of its Subsidiaries (if any) to, comply in all material respects with
all applicable laws, rules, regulations and orders, such compliance to include
(without limitation):
(a) the maintenance and preservation of its corporate existence
and, except to the extent that such failure will not have a Material
Adverse Effect, qualification as a foreign corporation;
(b) the payment, before the same become delinquent, of all
material taxes, assessments and governmental charges imposed upon it or
upon its property, except to the extent being diligently contested in
good faith by appropriate proceedings and for which adequate reserves in
accordance with GAAP shall have been set aside on its books; and
(c) compliance in all material respects with the federal Fair
Labor Standards Act or any comparable state wage and hour law.
SECTION 7.1.3 Maintenance of Properties. Each Borrower will, and will
cause each of its Subsidiaries (if any) to, maintain, preserve protect and keep
its properties in good repair, working order and condition, and make necessary
and proper repairs, renewals and replacements so that its business carried on in
connection therewith may be properly conducted at all times unless such Borrower
determines in good faith that the continued maintenance of any of its properties
is no longer economically desirable and except for properties that may be the
subject of Permitted Dispositions.
SECTION 7.1.4 Insurance. Each Borrower will, and will cause each of its
Subsidiaries (if any) to, maintain or cause to be maintained with responsible
insurance companies insurance with respect to its properties and business
against such casualties and contingencies and of such types and in such amounts
as is customary in the case of similar businesses and will, upon request of the
Agent, furnish to the Agent at reasonable intervals a certificate of an
Authorized Officer of such Borrower setting forth the nature and extent of all
insurance maintained by such Borrower and its Subsidiaries in accordance with
this Section.
26 - CREDIT AGREEMENT
<PAGE> 31
SECTION 7.1.5 Books and Records. Each Borrower will, and will cause each
of its Subsidiaries (if any) to, keep books and records which accurately reflect
all of its business affairs and transactions and permit the Agent or any of
their respective representatives, at reasonable times and intervals and upon
reasonable notice, to visit all of its offices, to discuss its financial matters
with its officers and independent public accountant and to examine (and, at the
expense of such Borrower, photocopy extracts from) any of its books or other
corporate records. The Borrowers shall pay any fees of such independent public
accountant incurred in connection with any Agent's exercise of its rights
pursuant to this Section.
SECTION 7.1.6 Environmental Covenant. Each Borrower will, and will cause
each of its Subsidiaries (if any) to:
(a) use and operate all of its facilities and properties in
material compliance with all Environmental Laws, keep all necessary
permits, approvals, certificates, licenses and other authorizations
relating to environmental matters in effect (except for permits
associated with properties that have been the subject of a Permitted
Disposition) and remain in material compliance therewith, and handle all
Hazardous Materials in material compliance with all applicable
Environmental Laws;
(b) permit the Agent to conduct inspections, audits and
appraisals of all or any of the records, business and assets of such
Borrower and its Subsidiaries (if any) at any time and from time to time
to ensure material compliance with applicable Environmental Laws, and if
any material violation of applicable Environmental Laws is identified,
indemnify the Agent for the Agent's reasonable costs incurred in
connection with the inspections, audits and appraisals that resulted in
such identification;
(c) immediately notify the Agent and provide copies upon receipt
of all material adverse written claims, complaints, notices or inquiries
relating to the condition of its facilities and properties or compliance
with Environmental Laws, and shall promptly cure and have dismissed with
prejudice to the satisfaction of the Agent any actions and proceedings
relating to compliance with Environmental Laws, except for those being
diligently contested in good faith and by appropriate proceedings and
for which adequate reserves in accordance with GAAP shall have been set
aside on its books; and
(d) provide such information and certifications which the Agent
may reasonably request from time to time to evidence compliance with
this Section 7.1.6.
SECTION 7.2 Negative Covenants. The Borrowers agree with the Agent and
each Lender that, until all Loan Commitments have terminated and all Obligations
have been paid and performed in full, the Borrowers will perform the obligations
set forth in this Section 7.2.
SECTION 7.2.1 Business Activities. The Borrowers will not, and will not
permit any of their Subsidiaries to, engage in any business activity, except in
the business of manufacturing modified starches primarily for the paper and food
ingredients industries, and such activities as may be incidental or related
thereto, and, while Penwest is a Subsidiary of Penford Corporation, in the
pharmaceuticals business.
SECTION 7.2.2 Indebtedness. The Borrowers will not, and will not permit
any of their Subsidiaries to, create, incur, assume or suffer to exist or
otherwise become or be liable in respect of any Indebtedness, other than,
without duplication, the following:
(a) Indebtedness in respect of the Loans and other Obligations;
27 - CREDIT AGREEMENT
<PAGE> 32
(b) Indebtedness existing as of the Effective Date which is
identified in Item ("Ongoing Indebtedness") of the Disclosure Schedule;
(c) unsecured Indebtedness incurred in the ordinary course of
business (including open accounts extended by suppliers on normal trade
terms in connection with purchases of goods and services and up to an
aggregate of $3,000,000 of letters of credit reimbursement liability,
but excluding other Indebtedness incurred through the borrowing of money
or Contingent Liabilities) including, without limitation, accrued
expenses, taxes payable, accrued environmental liabilities, deferred
employment benefits and deferred income taxes, to the extent incurred in
the ordinary course of business;
(d) Indebtedness of Subsidiaries of the Borrowers and guaranties
by such Subsidiaries of Indebtedness of joint ventures in which such
Subsidiaries are a joint venturer so long as the Borrowers have no
liability or Contingent Liability for any such Indebtedness or
guarantee; and
(e) Indebtedness of Subsidiaries of the Borrowers to the
Borrowers or other Subsidiaries of the Borrowers;
provided, however, that no Indebtedness otherwise permitted by clauses (c), (d),
or (e) shall be permitted if, after giving effect to the incurrence thereof, any
Default shall have occurred and be continuing.
SECTION 7.2.3 Liens. No Borrower will, or will permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of
its property, revenues or assets, whether now owned or hereafter acquired,
except:
(a) Liens securing payment of the Obligations, granted pursuant
to any Loan Document;
(b) Liens securing payment of Indebtedness of the type permitted
and described in clause (b) of Section 7.2.2;
(c) Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty
or being diligently contested in good faith by appropriate proceedings
and for which adequate reserves in accordance with GAAP shall have been
set aside on its books;
(d) Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not
overdue or being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books;
(e) Liens incurred in the ordinary course of business in
connection with worker's compensation, unemployment insurance or other
forms of governmental insurance or benefits, or to secure performance of
tenders, statutory obligations, leases and contracts (other than for
borrowed money) entered into in the ordinary course of business or to
secure obligations on surety or appeal bonds;
(f) judgment Liens in existence less than 30 days after the entry
thereof or with respect to which execution has been stayed or the
payment of which is covered in full (subject to a customary deductible)
by insurance maintained with responsible insurance companies; and
28 - CREDIT AGREEMENT
<PAGE> 33
(g) Liens on property used or to be used by a Borrower in the
ordinary course of business, securing payment of all or part of the
purchase price thereof, provided that such Liens are limited to the
property so purchased and additions and improvements thereto and
proceeds thereof.
SECTION 7.2.4 Financial Condition. The Borrowers will not permit to
occur any of the events set forth below:
(a) Consolidated Tangible Net Worth at any time to be less than
(i) $40,000,000 plus (ii) 50% of Net Income (without giving effect to
any losses) for each Fiscal Quarter beginning on or after May 31, 1998
plus (iii) 75% of the Net Equity Proceeds from any equity offering by
the Borrowers or any of their Subsidiaries after May 31, 1998.
(b) The Indebtedness to Consolidated Capitalization Ratio to
exceed, as of the end of any Fiscal Quarter, the following levels:
(i) While the Penwest Guarantee is in effect:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
to August 31, 1999 0.65 to 1.00
from August 31, 1999
to August 31, 2000 0.62 to 1.00
from August 31, 2000
to August 31, 2001 0.52 to 1.00
on and after
August 31, 2001 0.50 to 1.00
</TABLE>
(ii) After the Penwest Guarantee is released:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
to November 30, 1998 0.62 to 1.00
from November 30, 1998
to August 31, 1999 0.60 to 1.00
from August 31, 1999
to August 31, 2000 0.57 to 1.00
from August 31, 2000
to August 31, 2001 0.52 to 1.00
on and after
August 31, 2001 0.50 to 1.00
</TABLE>
29 - CREDIT AGREEMENT
<PAGE> 34
(c) Its Leverage Ratio to exceed the following levels:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
to August 31, 1999 3.75 to 1.00
from August 31, 1999
to August 31, 2000 3.25 to 1.00
on and after
August 31, 2000 2.75 to 1.00
</TABLE>
(d) Its Interest/Rental Expense Coverage Ratio to fall below 3.0
to 1.0.
SECTION 7.2.5 Investments. The Borrowers will not, and will not permit
any of their Subsidiaries to, make, incur, assume or suffer to exist any
Investment in any other Person, except:
(a) Investments identified in Item 7.2.5(a) ("Ongoing
Investments") of the Disclosure Schedule;
(b) Cash Equivalent Investments;
(c) without duplication, Investments permitted as Indebtedness
pursuant to Section 7.2.2;
(d) Investments by a Borrower in any of its Subsidiaries, or by
any such Subsidiary in any of its Subsidiaries or any other Subsidiary,
by way of contributions to capital or loans or advances; and
(e) other Investments in an aggregate amount at any time not to
exceed $5,000,000 minus any losses on such Investments;
provided, however, that
(f) any Investment which when made complies with the requirements
of the definition of the term "Cash Equivalent Investment" may continue
to be held notwithstanding that such Investment if made thereafter would
not comply with such requirements; and
(g) no Investment otherwise permitted by clause (d) or (e) shall
be permitted to be made if, immediately before or after giving effect
thereto, any Default shall have occurred and be continuing.
SECTION 7.2.6 Restricted Payments, etc. On and at all times after the
Effective Date, no Borrower will declare, pay or make any dividend or
distribution (in cash, property or obligations) on any shares of any class of
capital stock (now or hereafter outstanding) of such Borrower or on any
warrants, options or other rights with respect to any shares or any class of
capital stock (now or hereafter outstanding) of such Borrower (other than
dividends or distributions payable in its common stock or warrants to purchase
its common stock or splitups or reclassifications of its stock into additional
or other shares of its common stock) or apply, or permit any of its Subsidiaries
to apply, any of its funds, property or assets to the purchase, redemption,
sinking fund or other retirement of, or agree or permit
30 - CREDIT AGREEMENT
<PAGE> 35
any of its Subsidiaries to purchase or redeem, any shares of any class of
capital stock (now or hereafter outstanding) of such Borrower, or warrants,
options or other rights with respect to any shares of any class of capital stock
(now or hereafter outstanding) of such Borrower, if either before or after
giving effect to any of such actions, there shall exist a Default or an Event of
Default, it being understood that Penford Corporation intends to, and may,
distribute all of Penford Corporation's shares of the common stock of Penwest to
the holders of Penford Corporation's common stock.
SECTION 7.2.7 Consolidation, Merger, etc. No Borrower will, or will
permit any of its Subsidiaries to, liquidate or dissolve, consolidate with, or
merge into or with, any other corporation, or purchase or otherwise acquire all
or substantially all of the assets of any Person (or of any division thereof)
except
(a) any Subsidiary may liquidate or dissolve voluntarily into,
and may merge with and into, a Borrower or any other Subsidiary so long
as, after giving effect thereto, the subject Borrower is a surviving
corporation, and the assets or stock of any Subsidiary may be purchased
or otherwise acquired by a Borrower or any other Subsidiary; and
(b) so long as no Default has occurred and is continuing or would
occur after giving effect thereto, a Borrower or any of its Subsidiaries
may purchase all or substantially all of the assets of any Person, or
acquire such Person by merger; provided, however, that after giving
effect to any such merger such Borrower or its Subsidiary party thereto
is the surviving corporation, or, in the case of a triangular merger,
such Borrower survives the merger.
SECTION 7.2.8 Asset Dispositions, etc. No Borrower will, or will permit
any of its Subsidiaries to, sell, lease, contribute or otherwise convey, or
grant options, warrants or other rights with respect to, any or all of its
assets (including accounts receivable and capital stock of Subsidiaries) to any
Person, unless (a) such sale, transfer, lease, contribution or conveyance is a
Permitted Disposition or is permitted under Section 7.2.7, or (b) such sale is a
Restricted Disposition and the net proceeds from such sale together with the net
proceeds of all other Restricted Dispositions since the Effective Date does not
exceed $5,000,000 in the aggregate.
SECTION 7.2.9 Transactions with Affiliates. No Borrower will, or will
permit any of its Subsidiaries to, enter into, or cause, suffer or permit to
exist any arrangement or contract with any of its other Affiliates unless such
arrangement or contract is fair and equitable to such Borrower or such
Subsidiary and is an arrangement or contract of the kind which would be entered
into by a prudent Person in the position of such Borrower or such Subsidiary
with a Person which is not one of its Affiliates; provided, however, that this
Section 7.2.9 shall not restrict arrangements entered into with Penwest in
connection with the distribution of Penford Corporation's shares of Penwest's
common stock to the holders of Penford Corporation's common stock.
SECTION 7.2.10 Restrictive Agreements, etc. No Borrower will, or will
permit any of its Subsidiaries to, enter into any agreement (excluding this
Agreement and any other Loan Document) prohibiting the ability of a Borrower or
any other Obligor to amend or otherwise modify this Agreement, or any other Loan
Document.
31 - CREDIT AGREEMENT
<PAGE> 36
ARTICLE 8
EVENTS OF DEFAULT
SECTION 8.1 Listing of Events of Default. Each of the following events
or occurrences described in this Section 8.1 shall constitute an "Event of
Default" (unless waived pursuant to the provisions of Section 10.1).
SECTION 8.1.1 Non-Payment of Obligations. The Borrowers shall default in
the payment or mandatory prepayment when due of any principal of or interest on
any Loan, or the Borrowers shall default (and such default shall continue
unremedied for a period of five days after notice from the Agent) in the payment
when due of any commitment fee or of any other Obligation.
SECTION 8.1.2 Breach of Warranty. Any representation or warranty of a
Borrower or any other Obligor made or deemed to be made hereunder or in any
other Loan Document executed by it or any other writing or certificate furnished
by or on behalf of a Borrower or any other Obligor to the Agent or any Lender
for the purposes of or in connection with this Agreement or any such other Loan
Document (including any certificates delivered pursuant to Article 5) is or
shall be incorrect when made in any material respect and a cure is not effected
within ten Business Days or more after notice thereof shall have been given to
the Borrowers by the Agent or any Lender; provided, however, that in the event
that such cure cannot reasonably be effected within ten Business Days after
notice to remedy same, the failure to cure within the ten Business Day cure
period shall not constitute an Event of Default if:
(i) substantial progress is made to effect a cure within the
ten Business Day cure period;
(ii) cure is completed as soon as practicable after the ten
Business Day cure period; and
(iii) the passage of the ten Business Day cure period will not
jeopardize the ability of the Lenders to collect all sums
due or to become due to the Lenders.
SECTION 8.1.3 Non-Performance of Certain Covenants and Obligations. A
Borrower shall default in the due performance and observance of any of its
obligations under Section 7.2 and such default (other than a breach of a
covenant to pay) continues for ten Business Days or more after notice thereof
shall have been given to the Borrowers by the Agent or any Lender; provided,
however, that in the event that such breach cannot reasonably be cured within
ten Business Days after notice to remedy same, the failure to cure such breach
within the ten Business Day cure period shall not constitute an Event of Default
if:
(i) substantial progress is made to cure such breach within
the ten Business Day cure period;
(ii) cure is completed as soon as practicable after the ten
Business Day cure period; and
(iii) the passage of the ten Business Day cure period will not
jeopardize the ability of the Lenders to collect all sums
due or to become due to the Lenders.
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SECTION 8.1.4 Non-Performance of Other Covenants and Obligations. Any
Obligor shall default in the due performance and observance of any other
agreement contained herein or in any other Loan Document executed by it, and
such default shall continue unremedied for a period of 30 days after notice to
remedy same shall have been given to the Borrowers by the Agent or any Lender;
provided, however, that in the event that such breach cannot reasonably be cured
within thirty days after notice to remedy same, the failure to cure such breach
within the thirty day cure period shall not constitute an Event of Default if:
(i) substantial progress is made to cure such breach within
the thirty day period;
(ii) cure is completed as soon as practicable after the
thirty day cure period; and
(iii) the passage of the thirty day cure period will not
jeopardize the ability of the Lenders to collect all
sums due or to become due to the Lenders.
SECTION 8.1.5 Default on Other Indebtedness. A default shall occur in
the payment when due (subject to any applicable grace period), whether by
acceleration or otherwise, of any Indebtedness (other than Indebtedness
described in Section 8.1.1) of either Borrower or any of the Borrowers'
Subsidiaries having a principal amount, individually or in the aggregate, in
excess of $2,000,000, or a default shall occur in the performance or observance
of any obligation or condition with respect to such Indebtedness if the effect
of such default is to accelerate the maturity of any such Indebtedness prior to
its expressed maturity.
SECTION 8.1.6 Loss, Destruction or Condemnation of Property. Property of
a Borrower shall suffer uninsured loss, damage, destruction or theft, or shall
be condemned, seized or appropriated, and such event shall cause a Material
Adverse Effect.
SECTION 8.1.7 Judgments. Any judgment or order for the payment of money
in excess of $2,000,000 shall be rendered against a Borrower or any of its
Subsidiaries and either
(a) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order; or
(b) there shall be any period of 30 consecutive days during which
a stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect.
SECTION 8.1.8 Pension Plans. Any of the following events shall occur
with respect to any Pension Plan:
(a) the institution of any steps by a Borrower, any member of its
Controlled Group or any other Person to terminate a Pension Plan if, as
a result of such termination, such Borrower or any such member could be
required to make a contribution to such Pension Plan, or could
reasonably expect to incur a liability or obligation to such Pension
Plan, in excess of $2,000,000; or
(b) a contribution failure occurs with respect to any Pension
Plan sufficient to give rise to a Lien under Section 302(f) of ERISA.
SECTION 8.1.9 Control of the Borrowers. Any Change in Control shall
occur.
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SECTION 8.1.10 Bankruptcy, Insolvency, etc. A Borrower or any of its
Subsidiaries shall
(a) become insolvent or generally fail to pay, or admit in
writing its inability or unwillingness to pay, debts as they become due;
(b) apply for, consent to, or acquiesce in, the appointment of a
trustee, receiver, sequestrator or other custodian for such Borrower,
any of its Subsidiaries or any property of any thereof, or make a
general assignment for the benefit of creditors;
(c) in the absence of such application, consent or acquiescence,
permit or suffer to exist the appointment of a trustee, receiver,
sequestrator or other custodian for such Borrower, any of its
Subsidiaries or for a substantial part of the property of any thereof,
and such trustee, receiver, sequestrator or other custodian shall not be
discharged within 60 days, provided that such Borrower and each
Subsidiary hereby expressly authorizes the Agent and each Lender to
appear in any court conducting any relevant proceeding during such
60-day period to preserve, protect and defend their rights under the
Loan Documents;
(d) permit or suffer to exist the commencement of any bankruptcy,
reorganization, debt arrangement or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution, winding up or
liquidation proceeding, in respect of such Borrower or any of its
Subsidiaries, and, if any such case or proceeding is not commenced by
such Borrower or such Subsidiary, such case or proceeding shall be
consented to or acquiesced in by such Borrower or such Subsidiary or
shall result in the entry of an order for relief or shall remain for 60
days undismissed, provided that such Borrower and each Subsidiary hereby
expressly authorizes the Agent and each Lender to appear in any court
conducting any such case or proceeding during such 60-day period to
preserve, protect and defend their rights under the Loan Documents; or
(e) take any corporate action authorizing, or in furtherance of,
any of the foregoing.
SECTION 8.1.11 Impairment of Enforceability, etc. Any Loan Document
shall (except in accordance with its terms), in whole or in part, terminate,
cease to be effective or cease to be the legally valid, binding and enforceable
obligation of any Obligor party thereto; or a Borrower, any other Obligor or any
other party shall, directly or indirectly, contest in any manner such
effectiveness, validity, binding nature or enforceability.
SECTION 8.1.12 Environmental Matters. Any claims shall be made under any
Environmental Laws that, singly or in the aggregate, have a Material Adverse
Effect, net of any reserves.
SECTION 8.2 Action if Bankruptcy. If any Event of Default described in
clauses (a) through (d) of Section 8.1.10 shall occur, the Loan Commitments (if
not theretofore terminated) shall automatically terminate and the outstanding
principal amount of all outstanding Loans and all other Obligations shall
automatically be and become immediately due and payable, without notice or
demand.
SECTION 8.3 Action if Other Event of Default. If any Event of Default
(other than any Event of Default described in clauses (a) through (d) of
Section 8.1.10 ) shall occur for any reason, whether voluntary or involuntary,
and be continuing, the Agent, upon the direction of the Required Lenders, shall
by notice to the Borrowers declare all or any portion of the outstanding
principal amount of the Loans and other Obligations to be due and payable and/or
the Loan Commitments (if not theretofore terminated) to be terminated, whereupon
the full unpaid amount of such Loans and other Obligations which shall be
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<PAGE> 39
so declared due and payable shall be and become immediately due and payable,
without further notice, demand or presentment, and/or, as the case may be, the
Loan Commitments shall terminate.
ARTICLE 9
THE AGENT
SECTION 9.1 Actions. Each Lender hereby appoints Scotiabank as its Agent
under and for purposes of this Agreement, the Notes and each other Loan
Document. Each Lender authorizes the Agent to act on behalf of such Lender under
this Agreement, the Notes and each other Loan Document and, in the absence of
other written instructions from the Required Lenders received from time to time
by the Agent (with respect to which the Agent agrees that it will comply, except
as otherwise provided in this Section or as otherwise advised by counsel), to
exercise such powers hereunder and thereunder as are specifically delegated to
or required of the Agent by the terms hereof and thereof, together with such
powers as may be reasonably incidental thereto. Notwithstanding any provision to
the contrary contained elsewhere in this Agreement or in any other Loan
Document, the Agent shall not have any duties or responsibilities, except those
expressly set forth herein, nor shall the Agent have or be deemed to have any
fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent. Each
Lender hereby indemnifies (which indemnity shall survive any termination of this
Agreement) the Agent, pro rata according to such Lender's Percentage, from and
against any and all liabilities, obligations, losses, damages, claims, costs or
expenses of any kind or nature whatsoever which may at any time be imposed on,
incurred by, or asserted against, such Agent in any way relating to or arising
out of this Agreement, the Notes and any other Loan Document, including
reasonable attorneys' fees, and as to which such Agent is not reimbursed by the
Borrowers; provided, however, that no Lender shall be liable for the payment of
any portion of such liabilities, obligations, losses, damages, claims, costs or
expenses which are determined by a court of competent jurisdiction in a final
proceeding to have resulted solely from the Agent's gross negligence or wilful
misconduct. The Agent shall not be required to take any action hereunder, under
the Notes or under any other Loan Document, or to prosecute or defend any suit
in respect of this Agreement, the Notes or any other Loan Document, unless it is
indemnified hereunder to its satisfaction. If any indemnity in favor of the
Agent shall be or become, in the Agent's determination, inadequate, the Agent
may call for additional indemnification from the Lenders and cease to do the
acts indemnified against hereunder until such additional indemnity is given.
SECTION 9.2 Funding Reliance, etc. Unless the Agent shall have been
notified by telephone, confirmed in writing, by any Lender by 5:00 p.m.,
Portland time, on the day prior to a Borrowing that such Lender will not make
available the amount which would constitute its Percentage of such Borrowing on
the date specified therefor, the Agent may assume that such Lender has made such
amount available to the Agent and, in reliance upon such assumption, make
available to the requesting Borrower a corresponding amount. If and to the
extent that such Lender shall not have made such amount available to the Agent,
such Lender shall repay the Agent forthwith on demand such corresponding amount,
together with interest thereon, for each day from the date the Agent made such
amount available to the requesting Borrower to the date such amount is repaid to
the Agent, at the interest rate applicable at the time to Loans comprising such
Borrowing. If a Lender shall fail to repay the Agent all amounts owing under the
preceding sentence, the Borrowers shall forthwith on demand repay all such
amounts together with interest thereon through the date such amount is repaid to
the Agent.
SECTION 9.3 Exculpation. Neither the Agent nor any of its respective
directors, officers, employees or agents shall be liable to any Lender for any
action taken or omitted to be taken by it under
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<PAGE> 40
this Agreement or any other Loan Document, or in connection herewith or
therewith, except for its own wilful misconduct or gross negligence; nor shall
the Agent be responsible for any recitals or warranties herein or therein, nor
for the effectiveness, enforceability, validity or due execution of this
Agreement or any other Loan Document, nor for the creation, perfection or
priority of any Liens purported to be created by any of the Loan Documents, or
the validity, genuineness, enforceability, existence, value or sufficiency of
any collateral security, nor to make any inquiry respecting the performance by
the Borrowers of their obligations hereunder or under any other Loan Document.
Any such inquiry which may be made by the Agent shall not obligate it to make
any further inquiry or to take any action. The Agent shall be entitled to rely
upon advice of counsel concerning legal matters and upon any notice, consent,
certificate, statement or writing which the Agent believes to be genuine and to
have been presented by a proper Person.
SECTION 9.4 Successor. If the Agent shall be guilty of gross negligence
or willful misconduct, the Required Lenders may, upon 10 days' prior written
notice to the Borrowers and the Agent, remove the Agent. The Agent may resign as
such at any time upon at least 30 days' prior written notice to the Borrowers
and all Lenders. If the Agent at any time shall resign or be removed, the
Required Lenders may appoint another Lender as a successor Agent which shall
thereupon become the Agent hereunder. If no successor Agent shall have been so
appointed by the Required Lenders, and shall have accepted such appointment,
within 30 days after the retiring Agent's giving written notice of resignation
or within 10 days after the Required Lenders shall have delivered a removal
notice, then the retiring or removed Agent may, on behalf of the Lenders,
appoint a successor Agent, which shall be one of the Lenders or a commercial
banking institution organized under the laws of the U.S. (or any State thereof)
or a U.S. branch or agency of a commercial banking institution, and having a
combined capital and surplus of at least $500,000,000. Upon the acceptance of
any appointment as the Agent hereunder by a successor Agent, such successor
Agent shall be entitled to receive from the retiring Agent such documents of
transfer and assignment as such successor Agent may reasonably request, and
shall thereupon succeed to and become vested with all rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations under this Agreement. After any retiring Agent's
resignation hereunder as the Agent, the provisions of
(a) this Article 9 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was the Agent under this
Agreement; and
(b) Section 10.3 and Section 10.4 shall continue to inure to its
benefit.
SECTION 9.5 Loans by Scotiabank. Scotiabank shall have the same rights
and powers with respect to (x) the Loans made by Scotiabank or any of its
Affiliates, and (y) the Notes held by Scotiabank or any of its Affiliates as any
other Lender and may exercise the same as if it were not the Agent. Scotiabank
and its Affiliates may accept deposits from, lend money to, and generally engage
in any kind of business with a Borrower or any Subsidiary or Affiliate of a
Borrower as if Scotiabank were not the Agent hereunder.
SECTION 9.6 Credit Decisions. Each Lender acknowledges that it has,
independently of the Agent and each other Lender, and based on such Lender's
review of the financial information of the Borrowers, this Agreement, the other
Loan Documents (the terms and provisions of which being satisfactory to such
Lender) and such other documents, information and investigations as such Lender
has deemed appropriate, made its own credit decision to extend its Loan
Commitment. Each Lender also acknowledges that it will, independently of the
Agent and each other Lender, and based on such other documents, information and
investigations as it shall deem appropriate at any time, continue to make its
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<PAGE> 41
own credit decisions as to exercising or not exercising from time to time any
rights and privileges available to it under this Agreement or any other Loan
Document.
SECTION 9.7 Copies, etc. The Agent shall give prompt notice to each
Lender of each notice or request required or permitted to be given to the Agent
by a Borrower pursuant to the terms of this Agreement (unless concurrently
delivered to the Lenders by such Borrower). The Agent will distribute to each
Lender each document or instrument received for its account and copies of all
other communications received by the Agent from a Borrower for distribution to
the Lenders by the Agent in accordance with the terms of this Agreement.
ARTICLE 10
MISCELLANEOUS PROVISIONS
SECTION 10.1 Waivers, Amendments, etc. The provisions of this Agreement
and of each other Loan Document may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and consented to
by the Borrowers and the Required Lenders; provided, however, that no such
amendment, modification or waiver which would:
(a) modify any requirement hereunder that any particular action
be taken by all the Lenders or by the Required Lenders shall be
effective unless consented to by each Lender;
(b) modify this Section 10.1, change the definition of "Required
Lenders", increase the Loan Commitment Amount or the Percentage of any
Lender, reduce any fees described in Article or extend the date for any
such fees, or extend any Loan Commitment Termination Date shall be made
without the consent of each Lender and each holder of a Note; or
(c) extend the due date for, or reduce the amount of, any
scheduled repayment or prepayment of principal of or interest on any
Loan (or reduce the principal amount of or rate of interest on any Loan)
shall be made without the consent of the holder of that Note evidencing
such Loan.
No failure or delay on the part of the Agent, any Lender or the holder of any
Note in exercising any power or right under this Agreement or any other Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power or right preclude any other or further exercise
thereof or the exercise of any other power or right. No notice to or demand on a
Borrower in any case shall entitle a Borrower to any notice or demand in similar
or other circumstances. No waiver or approval by the Agent, any Lender or the
holder of any Note under this Agreement or any other Loan Document shall, except
as may be otherwise stated in such waiver or approval, be applicable to
subsequent transactions. No waiver or approval hereunder shall require any
similar or dissimilar waiver or approval thereafter to be granted hereunder.
SECTION 10.2 Notices. Except with respect to Borrowing Requests and
Continuation/Conversion Notices, all notices and other communications provided
to any party hereto under this Agreement or any other Loan Document shall be in
writing or by facsimile and addressed, delivered or transmitted to such party at
its address or facsimile number set forth below its signature hereto or set
forth in the Lender Assignment Agreement or at such other address or facsimile
number as may from time to time be designated by such party in a notice to the
other parties. Borrowing Requests and Continuation/Conversion Notices shall be
delivered or transmitted to: The Bank of Nova Scotia, Atlanta Agency, Suite
2700, 600 Peachtree Street, N.E., Atlanta, Georgia 30308, Attention: Ms. Hilma
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<PAGE> 42
Gabbidon, facsimile number (404) 888-8998 (telephone number (404) 877-1558), or
at such other address or facsimile number as the Agent may from time to time
designate in a notice to the other parties. Any notice, if mailed and properly
addressed with postage prepaid or if properly addressed and sent by pre-paid
courier service, shall be deemed given when received; any notice, if transmitted
by facsimile, shall be deemed given when confirmation of transmission is
received by the sending party.
SECTION 10.3 Payment of Costs and Expenses. The Borrowers agree to pay
on demand all expenses of the Agent (including the fees and out-of-pocket
expenses of counsel to the Agent and of local counsel, if any, who may be
retained by counsel to the Agent) and the expenses of each Lender (including the
fees and out-of-pocket expenses of counsel to such Lender, including the
allocated cost of such Lender's in-house counsel) in connection with
(a) the negotiation, preparation, execution and delivery of this
Agreement and of each other Loan Document, including schedules and
exhibits, and any amendments, waivers, consents, supplements or other
modifications to this Agreement or any other Loan Document as may from
time to time hereafter be required, whether or not the transactions
contemplated hereby are consummated, and
(b) the preparation and review of the form of any document or
instrument relevant to this Agreement or any other Loan Document.
The Borrowers further agree to pay, and to save the Agent and the Lenders
harmless from all liability for, any stamp or other taxes which may be payable
in connection with the execution or delivery of this Agreement, the Borrowings
hereunder, or the issuance of the Notes or any other Loan Documents. The
Borrowers also agree to reimburse the Agent and each Lender upon demand for all
reasonable out-of-pocket expenses (including attorneys' fees and legal expense
(including all allocated costs of any Lender's in-house counsel)) incurred by
the Agent or such Lender in connection with (x) the negotiation of any
restructuring or "work-out", whether or not consummated, of any Obligations and
(y) the enforcement of any Obligations.
SECTION 10.4 Indemnification. In consideration of the execution and
delivery of this Agreement by each Lender and the extension of the Loan
Commitments, the Borrowers hereby jointly and severally indemnify, exonerate and
hold the Agent and each Lender and each of their respective officers, directors,
employees, agents and Affiliates (collectively, the "Indemnified Parties") free
and harmless from and against any and all actions, causes of action, suits,
losses, costs, liabilities and damages, and expenses incurred in connection
therewith (irrespective of whether any such Indemnified Party is a party to the
action for which indemnification hereunder is sought), including reasonable
attorneys' fees and disbursements (collectively, the "Indemnified Liabilities"),
incurred by the Indemnified Parties or any of them as a result of, or arising
out of, or relating to
(a) any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of any Loan;
(b) the entering into and performance of this Agreement in
accordance with its terms and any other Loan Document in accordance with
its terms, by any of the Indemnified Parties (including any action
brought by or on behalf of a Borrower as the result of any determination
by the Required Lenders pursuant to Article 5 not to fund any
Borrowing);
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<PAGE> 43
(c) any investigation, litigation or proceeding related to any
environmental cleanup, audit, compliance or other matter relating to the
protection of the environment or the Release by a Borrower or any of its
Subsidiaries of any Hazardous Material; or
(d) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or releases from, any real
property owned or operated by a Borrower or any Subsidiary thereof of
any Hazardous Material (including any losses, liabilities, damages,
injuries, costs, expenses or claims asserted or arising under any
Environmental Law), regardless of whether caused by, or within the
control of, such Borrower or such Subsidiary,
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's gross
negligence or wilful misconduct. If and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Borrowers hereby agree,
jointly and severally, to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
SECTION 10.5 Survival. The obligations of the Borrowers under Sections
4.3, 4.4, 4.5, 4.6, 10.3 and 10.4, and the obligations of the Lenders under
Section , shall in each case survive any termination of this Agreement, the
payment in full of all Obligations and the termination of all Loan Commitments.
The representations and warranties made by each Obligor in this Agreement and in
each other Loan Document shall survive the execution and delivery of this
Agreement and each such other Loan Document.
SECTION 10.6 Severability. Any provision of this Agreement or any other
Loan Document which is prohibited or unenforceable in any jurisdiction shall, as
to such provision and such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Agreement or such Loan Document or affecting the validity or enforceability
of such provision in any other jurisdiction.
SECTION 10.7 Headings. The various headings of this Agreement and of
each other Loan Document are inserted for convenience only and shall not affect
the meaning or interpretation of this Agreement or such other Loan Document or
any provisions hereof or thereof.
SECTION 10.8 Execution in Counterparts, Effectiveness, etc. This
Agreement may be executed by the parties hereto in several counterparts, each of
which shall be executed by the Borrowers and the Agent and be deemed to be an
original and all of which shall constitute together but one and the same
agreement. This Agreement shall become effective when counterparts hereof
executed on behalf of the Borrowers and each Lender (or notice thereof
satisfactory to the Agent) shall have been received by the Agent, notice thereof
shall have been given by the Agent to the Borrowers and each Lender, and the
conditions set forth in Section have been satisfied.
SECTION 10.9 Governing Law; Entire Agreement. THIS AGREEMENT, THE NOTES
AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER
AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF OREGON. This Agreement, the
Notes and the other Loan Documents constitute the entire understanding among the
parties hereto with respect to the subject matter hereof and supersede any prior
agreements, written or oral, with respect thereto. ORAL AGREEMENTS OR ORAL
COMMITMENTS TO LOAN MONEY, TO EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING
REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER OREGON LAW.
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SECTION 10.10 Successors and Assigns. Except as herein provided, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns; provided, however, that:
(a) no Borrower may assign or transfer its rights or obligations
hereunder without the prior written consent of the Agent and all
Lenders; and
(b) the rights of sale, assignment and transfer of the Lenders
are subject to Section 10.11.
SECTION 10.11 Sale and Transfer of Loans and Notes; Participations in
Loans and Notes. Each Lender may assign, or sell participations in, its Loans
and Loan Commitments to one or more other Persons in accordance with this
Section .
SECTION 10.11.1 Assignments. Any Lender,
(a) with the written consents of the Borrowers and the Agent
(which consents shall not be unreasonably delayed or withheld and which
consent, in the case of a Borrower, shall be deemed to have been given
in the absence of a written notice delivered by such Borrower to the
Agent, on or before the fifth Business Day after receipt by such
Borrower of such Lender's request for consent, stating, in reasonable
detail, the reasons why such Borrower proposes to withhold such consent)
may at any time assign and delegate to one or more commercial banks or
other financial institutions, and
(b) with notice to the Borrowers and the Agent, but without the
consent of the Borrowers or the Agent, may assign and delegate to any of
its Affiliates or to any other Lender
(each Person described in either of the foregoing clauses as being the Person to
whom such assignment and delegation is to be made, being hereinafter referred to
as an "Assignee Lender"), all or any fraction of such Lender's total Loans and
Loan Commitment (which assignment and delegation shall be of a constant, and not
a varying, percentage of all the assigning Lender's Loans and Loan Commitment)
in a minimum aggregate amount of $5,000,000; provided, however, that after
giving effect to such assignment, the assignor Lender's remaining aggregate Loan
Commitment shall be at least $10,000,000; and provided, further, that, the
Borrowers, each other Obligor and the Agent shall be entitled to continue to
deal solely and directly with such Lender in connection with the interests so
assigned and delegated to an Assignee Lender until
(c) written notice of such assignment and delegation, together
with payment instructions, addresses and related information with
respect to such Assignee Lender, shall have been given to the Borrowers
and the Agent by such Lender and such Assignee Lender,
(d) such Assignee Lender shall have executed and delivered to the
Borrowers and the Agent a Lender Assignment Agreement, accepted by the
Agent, and
(e) the processing fees described below shall have been paid.
From and after the date that the Agent accepts such Lender Assignment
Agreement, (x) the Assignee Lender thereunder shall be deemed automatically to
have become a party hereto and to the extent that rights and obligations
hereunder have been assigned and delegated to such Assignee Lender in connection
with such Lender Assignment Agreement, shall have the rights and obligations of
a Lender
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hereunder and under the other Loan Documents, and (y) the assignor Lender, to
the extent that rights and obligations hereunder have been assigned and
delegated by it in connection with such Lender Assignment Agreement, shall be
released from its obligations hereunder and under the other Loan Documents.
Within five Business Days after its receipt of notice that the Agent has
received an executed Lender Assignment Agreement, the Borrowers shall execute
and deliver to the Agent (for delivery to the relevant Assignee Lender) a new
Note evidencing such Assignee Lender's assigned Loans and Loan Commitment and,
if the assignor Lender has retained Loans and a Loan Commitment hereunder, a
replacement Note in the principal amount of the Loans and Loan Commitment
retained by the assignor Lender hereunder (such Note to be in exchange for, but
not in payment of, the Note then held by such assignor Lender). Each such Note
shall be dated the date of the predecessor Note. The assignor Lender shall mark
the predecessor Note "exchanged" and deliver it to the Borrowers. Accrued
interest on that part of the predecessor Note evidenced by the new Note, and
accrued fees, shall be paid as provided in the Lender Assignment Agreement.
Accrued interest on that part of the predecessor Note evidenced by the
replacement Note shall be paid to the assignor Lender. Accrued interest and
accrued fees shall be paid at the same time or times provided in the predecessor
Note and in this Agreement. Such assignor Lender or such Assignee Lender must
also pay a processing fee to the Agent upon delivery of any Lender Assignment
Agreement in the amount of $3,500. Any attempted assignment and delegation not
made in accordance with this Section 10.11.1 shall be null and void. In addition
to the foregoing, and notwithstanding any other provision hereof, any Lender may
at any time assign any or all of its rights hereunder or its Note to any Federal
Reserve Bank.
In no event shall the Borrowers be required to pay any amount under this
Agreement that is greater than the amount which they would have been required to
pay had no assignment and delegation occurred.
SECTION 10.11.2 Participations. Any Lender may at any time sell to one
or more commercial banks or other Persons (each of such commercial banks and
other Persons being herein called a "Participant") participating interests in
any of the Loans, its Loan Commitment, or other interests of such Lender
hereunder; provided, however, that
(a) no participation contemplated in this Section 10.11 shall
relieve such Lender from its Loan Commitment or its other obligations
hereunder or under any other Loan Document,
(b) such Lender shall remain solely responsible for the
performance of its Loan Commitment and such other obligations,
(c) the Borrowers and each other Obligor and the Agent shall
continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement and each of
the other Loan Documents,
(d) no Participant, unless such Participant is an Affiliate of
such Lender, or is itself a Lender, shall be entitled to require such
Lender to take or refrain from taking any action hereunder or under any
other Loan Document, except that such Lender may agree with any
Participant that such Lender will not, without such Participant's
consent, take any actions of the type described in clause (b) or (c) of
Section 10.1, and
(e) the Borrowers shall not be required to pay any amount under
this Agreement that is greater than the amount which they would have
been required to pay had no participating interest been sold.
41 - CREDIT AGREEMENT
<PAGE> 46
The Borrowers acknowledge and agree that each Participant, for purposes of
Sections 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 1.03 and 10.4, shall be considered a
Lender.
SECTION 10.12 Confidentiality. The Lenders shall hold all non-public
information (which has been identified as such by a Borrower) obtained pursuant
to the requirements of this Agreement in accordance with their customary
procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices and in any event may make
disclosure to any of their employees, examiners, Affiliates, outside auditors,
counsel and other professional advisors in connection with this Agreement or as
reasonably required by any bona fide transferee, participant or assignee or as
required or requested by any governmental agency or representative thereof or
pursuant to legal process; provided, however, that
(a) unless prohibited by applicable law or court order, each
Lender shall notify the Borrowers of any request by any governmental
agency or representative thereof (other than any such request in
connection with an examination of the financial condition of such Lender
by such governmental agency) for disclosure of any such non-public
information prior to disclosure of such information;
(b) prior to any such disclosure pursuant to this Section 10.12,
each Lender shall require any such bona fide transferee, participant and
assignee receiving a disclosure of non-public information to agree in
writing
(i) to be bound by this Section 10.12;
(ii) to require such Person to require any other Person to
whom such Person discloses such non-public information to be
similarly bound by this Section 10.12; and
(c) except as may be required by an order of a court of competent
jurisdiction and to the extent set forth therein, no Lender shall be
obligated or required to return any materials furnished by a Borrower or
any Subsidiary.
SECTION 10.13 Other Transactions. Nothing contained herein shall
preclude any Agent or any other Lender from engaging in any transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with a Borrower or any of its Affiliates in which such Borrower or such
Affiliate is not restricted hereby from engaging with any other Person.
SECTION 10.14 Forum Selection and Consent to Jurisdiction. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE
LENDERS OR THE BORROWERS SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE
COURTS OF THE STATE OF OREGON OR IN THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF OREGON; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST
ANY PROPERTY MAY BE BROUGHT, AT THE AGENT'S OPTION, IN THE COURTS OF ANY
JURISDICTION WHERE SUCH PROPERTY MAY BE FOUND. THE BORROWERS HEREBY EXPRESSLY
AND IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF OREGON
AND OF THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON FOR THE
PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREE TO BE
BOUND BY ANY FINAL JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH
42 - CREDIT AGREEMENT
<PAGE> 47
LITIGATION. THE BORROWERS FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS
BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT
THE STATE OF OREGON. THE BORROWERS HEREBY EXPRESSLY AND IRREVOCABLY WAIVE, TO
THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH EITHER BORROWER MAY
HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT
IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT A BORROWER HAS OR
HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF FROM ANY
LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS
PROPERTY, EACH BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF
ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 10.15 Waiver of Jury Trial. THE AGENT, THE LENDERS AND THE
BORROWERS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS OR THE BORROWERS. EACH
BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT
CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN
DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT AND EACH
SUCH OTHER LOAN DOCUMENT.
43 - CREDIT AGREEMENT
<PAGE> 48
SECTION 10.16 Statutory Disclosure. UNDER OREGON LAW, MOST AGREEMENTS,
PROMISES AND COMMITMENTS MADE BY US AFTER OCTOBER 3, 1989, CONCERNING LOANS AND
OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES
OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS
CONSIDERATION AND BE SIGNED BY US TO BE ENFORCEABLE. THE TERM "US" MEANS THE
LENDERS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
PENFORD CORPORATION PENFORD PRODUCTS CO.
By: /s/ VICTOR BREED By: /s/ VICTOR BREED
------------------------------- ---------------------------------
Title: CORPORATE DIRECTOR OF FINANCE Title: VICE PRESIDENT
Address: 777 108th Avenue N.E. Address: 777 108th Avenue N.E.
Suite 2390 Suite 2390
Bellevue, Washington 98004 Bellevue, Washington 98004
Facsimile No.: (425) 462-2819 Facsimile No.: (425) 462-2819
Attention: Mr. Victor Breed Attention: Mr. Victor Breed
Vice President, Finance/CFO Vice President
THE BANK OF NOVA SCOTIA, as Agent
By: /s/ PATRIK G. NORRIS
---------------------------------
Title: OFFICER
Address: 888 S.W. Fifth Avenue,
Suite 750
Portland, Oregon 97204
Facsimile No.: (503) 222-5502
Attention: Mr. Patrik G. Norris,
Officer
44 - CREDIT AGREEMENT
<PAGE> 49
PERCENTAGE LENDERS
46 2/3% THE BANK OF NOVA SCOTIA
By: /s/ PATRIK G. NORRIS
---------------------------------
Title: OFFICER
Domestic
Office: 888 S.W. Fifth Avenue,
Suite 750
Portland, Oregon 97204
Facsimile No.: (503) 222-5502
Attention: Mr. Patrik G. Norris,
Officer
LIBOR
Office: 888 S.W. Fifth Avenue,
Suite 750
Portland, Oregon 97204
Facsimile No.: (503) 222-5502
Attention: Mr. Patrik G. Norris,
Officer
45 - CREDIT AGREEMENT
<PAGE> 50
PERCENTAGE LENDERS
26 2/3% KEYBANK NATIONAL ASSOCIATION
By: /s/ KATHLEEN JOHANSON
---------------------------------
Title: V.P.
Domestic
Office: Large Corporate Group
700 Fifth Avenue, 48th
Floor
Seattle, Washington
98104
Facsimile No.: (206) 684-6035
Attention: Ms. Kathleen Johanson
Vice President
LIBOR
Office: Large Corporate Group
700 Fifth Avenue, 48th
Floor
Seattle, Washington
98104
Facsimile No.: (206) 684-6035
Attention: Ms. Kathleen Johanson
` Vice President
46 - CREDIT AGREEMENT
<PAGE> 51
PERCENTAGE LENDERS
26 2/3% U.S. BANK NATIONAL ASSOCIATION
By: /s/ PETER BENTLEY
---------------------------------
Title: SENIOR VICE PRESIDENT
Domestic
Office: Northwest Corporate Banking
1420 Fifth Avenue, 11th
Floor
WWH276
Seattle, Washington 98101
Facsimile No.: (206) 587-5259
Attention: Mr. Peter Bentley
Senior Vice President
LIBOR
Office: Northwest Corporate Banking
1420 Fifth Avenue, 11th
Floor
WWH276
Seattle, Washington 98101
Facsimile No.: (206) 587-5259
Attention: Mr. Peter Bentley
Senior Vice President
47 - CREDIT AGREEMENT
<PAGE> 52
SCHEDULE 1
DISCLOSURE SCHEDULE
<TABLE>
<S> <C>
ITEM 6.6 Material Adverse Change
None
Item 6.7 Litigation
Description of Proceeding Action or Claim Sought
On January 23, 1998, the Idaho DEQ issued the Company Notice of Violation of the
a Notice of Violation alleging a number of violations of Idaho Environmental
the air quality provisions of the Idaho Environmental Protection and Health Act
Protection and Health Act and the regulations promulgated
thereunder. On June 18, 1998, the Idaho DEQ proposed an
administrative Consent Order to resolve the Notice of
Violation which includes the imposition of a civil penalty
of $50,400.
On December 22, 1997, a group of residents filed a Notice Notice of Violation pursuant
of Intent to Bring Suit with the Idaho DEQ and the U.S. to the Idaho Environmental
Environmental Protection Agency pursuant to the Clean Protection and Health Act
Air Act, the Comprehensive Environmental Response,
Compensation Liability Act, and the Emergency Planning
and Community Right-to-Know Act.
In late May 1998, Penford Corporation received a letter FTC non-public investigation
from the Federal Trade Commission (the "FTC")
informing the Company that the FTC is conducting a non-
public investigation to determine whether manufacturers
of microcrystalline cellulose ("MCC") may be engaging in
or may have engaged in unfair methods of competition or
unfair acts and practices in violations of certain antitrust
statutes. The FTC letter requested that the Company and
its affiliates cooperate in that investigation by providing
the FTC with copies of a wide range of documents and
information.
The Company received a demand letter from Jeff Carson, Demand Letter arising out of
a former employee of the Company's Colorado operations, employment dispute.
alleging, among other things, breach of an implied
employment contract and defamation. The Company is
</TABLE>
<PAGE> 53
currently negotiating settlement of the dispute and has
purposed settlement in the amount of approximately
$15,000.
ITEM 6.8 Existing Subsidiaries
<TABLE>
<CAPTION>
State of
Name Incorporation Ownership Description of Business
<S> <C> <C> <C>
Penwest Pharmaceuticals Washington 100% Researcher, developer and
Co. manufacturer of
pharmaceutical products.
Penwest Export Co. Virgin Islands 100% Markets and sells Penford
Corporation products to
overseas customers
primarily in the United
Kingdom and Asia.
</TABLE>
ITEM 6.11 Employee Benefit Plans
Borrower has certain financial obligations, as explained more fully below, with
respect to post-retirement benefits under the welfare plans described below.
1. Retiree Life Insurance Benefits. Approximately 12 retirees are entitled to
life insurance benefits. Borrower pays the premiums on the policies insuring
all of these individuals' lives. The approximate amount of premiums is
$4.700 per month.
2. Retiree Benefits Under Penwest Group Insurance Plan. Generally, retirees
are covered under the Penwest Group Insurance Plan, a self-funded plan (with
a stop-loss provision through Blue Shield). The majority of the "premium
cost" for this self-insured plan for union retirees is the obligation of the
Borrower. Non-union employees are also covered under the plan; however, the
"premium cost" for non-union retirees is paid by the retiree. A similar
arrangement applies with regard to the Prescription Drug Plan.
3. Medicare Supplemental Plan. The Borrower permits retirees access to this
fully insured plan. The employee pays all premium costs associated with
coverage.
<PAGE> 54
ITEM 7.2.2(b)Ongoing Indebtedness.
<TABLE>
<CAPTION>
Outstanding Principal
Creditor Debt Amount
-------- ---- ---------------------
<S> <S> <S>
Principal Mutual Life Insurance Note Agreement dated $20,000,000
Co., among others October 1, 1994
United of Omaha Life Insurance Note Agreement dated $14,285,600
Company, among others November 1, 1992
Seafirst Overnight Borrowings $ 5,000,000
(at June 29, 1998)
Bank of Nova Scotia Overnight Borrowings $ 3,687,000
(at June 29, 1998)
Bank of Nova Scotia Penford Corporation's $18,000,000
Guaranty of obligations of (maximum contingent liability)
Penwest Pharmaceuticals Co.
Bank of Nova Scotia Penford Corporation's $18,000,000
Guaranty of obligations of (maximum contingent liability)
Penwest Pharmaceuticals Co.
</TABLE>
ITEM 7.2.5(a)Ongoing Investments.
<TABLE>
<CAPTION>
Investment Amount
---------- ------
<S> <C>
Note Receivable from Tod R. Hamachek, $1,215,000
due August 31, 1998
Penwest Pharmaceuticals Co. 100% outstanding stock
Penwest Export Co. 100% outstanding stock
</TABLE>
<PAGE> 55
EXHIBIT A
REVOLVING NOTE
$_________________ ________________, 19___
FOR VALUE RECEIVED, the undersigned, PENFORD CORPORATION, a Washington
corporation, and PENFORD PRODUCTS CO., a Delaware corporation ("the
"Borrowers"), jointly and severally promise to pay to the order of
_________________ (the "Lender") on July 2, 2003, the principal sum of
____________________ DOLLARS ($________) or, if less, the aggregate unpaid
principal amount of all Loans shown on the schedule attached hereto (and any
continuation thereof), or in the records of the Lender, made by the Lender
pursuant to that certain Credit Agreement, dated as of July 2, 1998, (together
with all amendments and other modifications, if any, from time to time
thereafter made thereto, the "Credit Agreement"), among the Borrowers, THE BANK
OF NOVA SCOTIA, as Agent, and the various financial institutions (including the
Lender) as are, or may from time to time become, parties thereto.
The Borrowers also promise, jointly and severally, to pay interest on
the unpaid principal amount hereof from time to time outstanding from the date
hereof until maturity (whether by acceleration or otherwise) and, after
maturity, until paid, at the rates per annum and on the dates specified in the
Credit Agreement.
Payments of both principal and interest are to be made in lawful money
of the United States of America in same day or immediately available funds to
the account designated by the Agent pursuant to the Credit Agreement.
This Note is one of the Notes referred to in, and evidences Indebtedness
incurred under, the Credit Agreement, to which reference is made for a statement
of the terms and conditions on which the Borrowers are permitted and required to
make prepayments and repayments of principal of the Indebtedness evidenced by
this Note and on which such Indebtedness may be declared to be immediately due
and payable. Unless otherwise defined, terms used herein have the meanings
provided in the Credit Agreement.
All parties hereto, whether as makers, endorsers, or otherwise,
severally waive presentment for payment, demand, protest and notice of dishonor.
THIS NOTE HAS BEEN DELIVERED IN THE STATE OF OREGON AND SHALL BE
DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS
OF THE STATE OF OREGON.
PENFORD CORPORATION
By:______________________________
Title:___________________________
PENFORD PRODUCTS CO.
By:______________________________
Title:___________________________
<PAGE> 56
LOANS AND PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
Amount of Loan Amount of Principal Unpaid Principal
Made Repaid Balance
-------------- ------------------- ----------------
Interest
Period
Base LIBO (If Ap- Base LIBO Base LIBO Notation
Date Rate Rate plicable) Rate Rate Rate Rate Total Made By
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 57
EXHIBIT B
BORROWING REQUEST
The Bank of Nova Scotia
Atlanta Agency
600 Peachtree Street, N.E., Suite 2700
Atlanta, Georgia 30308
Attention: Ms. Hilma Gabbidon
PENFORD CORPORATION/PENFORD PRODUCTS CO.
Gentlemen and Ladies:
This Borrowing Request is delivered to you pursuant to Section 2.3 of
the Credit Agreement, dated as of July 2, 1998, (together with all amendments,
if any, from time to time made thereto, the "Credit Agreement", among Penford
Corporation, a Washington corporation, Penford Products Co., a Delaware
corporation, (the "Borrowers"), certain financial institutions and The Bank of
Nova Scotia, as agent (the "Agent"). Unless otherwise defined herein or the
context otherwise requires, terms used herein have the meanings provided in the
Credit Agreement.
The undersigned Borrower (for purposes of this Borrowing Request, the
"Borrower") hereby requests that a Loan be made in the aggregate principal
amount of $__________________ on ______________________, _____, as a [LIBO Rate
Loan having an Interest Period of ______________________ months] [Base Rate
Loan].
The Borrower here acknowledges that, pursuant to Section 5.2.2 of the
Credit Agreement, each of the delivery of this Borrowing Request and the
acceptance by the Borrower of the proceeds of the Loans requested hereby
constitute a representation and warranty by the Borrower that, on the date of
such Loans, and before and after giving effect thereto and to the application of
the proceeds therefrom, all statements set forth in Section 5.2.1 are true and
correct in all material respects.
The Borrower agrees that if prior to the time of the Borrowing requested
hereby any matter certified to herein by it will not be true and correct at such
time as if then made, it will immediately so notify the Agent. Except to the
extent, if any, that prior to the time of the Borrowing requested hereby the
Agent shall receive written notice to the contrary from the Borrower, each
matter certified to herein shall be deemed once again to be certified as true
and correct at the time of such Borrowing as if then made.
Please wire transfer the proceeds of the Borrowing to the following
account of Borrower:_________________________________________________.
The Borrower has caused this Borrowing Request to be executed and
delivered, and the certification and warranties contained herein to be made, by
its duly Authorized Officer this ____ day of _______________________, ______.
[PENFORD CORPORATION][PENFORD PRODUCTS CO.]
By:________________________________
Title:_____________________________
<PAGE> 58
EXHIBIT C
CONTINUATION/CONVERSION NOTICE
The Bank of Nova Scotia
Atlanta Agency
600 Peachtree Street, N.E., Suite 2700
Atlanta, Georgia 30308
Attention: Ms. Hilma Gabbidon
[PENFORD CORPORATION][PENFORD PRODUCTS CO.]
Gentlemen and Ladies:
This Continuation/Conversion Notice is delivered to you pursuant to
Section 2.4 of the Credit Agreement, dated as of July 2, 1998, (together with
all amendments, if any, from time to time made thereto, the "Credit Agreement"),
among Penford Corporation, a Washington corporation, Penford Products Co., a
Delaware corporation, (the "Borrowers"), certain financial institutions and The
Bank of Nova Scotia, as agent, (the "Agent"). Unless otherwise defined herein or
the context otherwise requires, terms used herein have the meanings provided in
the Credit Agreement.
The undersigned Borrower (for purposes of this Borrowing Request, the
"Borrower") hereby requests that on __________________, _____,
(i) $_____________ of the presently outstanding principal amount
of the Loans originally made on ______________, _____ [and $__________
of the presently outstanding principal amount of the Loans originally
made on ___________________, _____],
(ii) and all presently being maintained as (1)[Base Rate Loans]
[LIBO Rate Loans],
(iii) be [converted into] [continued as],
(iv) (2)[LIBO Rate Loans having an Interest Period of _____
months] [Base Rate Loans].
The Borrower hereby:
(a) certifies and warrants that no Event of Default has occurred
and is continuing; and
- --------
(1) Select appropriate interest rate option.
(2) Insert appropriate interest rate option.
<PAGE> 59
(b) agrees that if prior to the time of such continuation or
conversion any matter certified to herein by it will not be true and
correct at such time as if then made, it will immediately so notify the
Agent.
Except to the extent, if any, that prior to the time of the continuation or
conversion requested hereby the Agent shall receive written notice to the
contrary from the Borrower, each matter certified to herein shall be deemed to
be certified at the date of such continuation or conversion as if then made.
The Borrower has caused this Continuation/Conversion Notice to be
executed and delivered, and the certification and warranties contained herein to
be made, by its Authorized Officer this ____ day of
____________________, _____.
[PENFORD CORPORATION][PENFORD PRODUCTS CO.]
By:________________________________
Title:_____________________________
<PAGE> 60
EXHIBIT D
FORM OF COMPLIANCE CERTIFICATE
[Name]
[Title]
Portland Branch
The Bank of Nova Scotia
888 S.W. Fifth Avenue, Suite 750
Portland, OR 79204
[Name]
[Title]
[Name of Lender]
[Address of Lender]
In accordance with Section 7.1.1(c) of the Credit Agreement dated as of [Date],
and as amended from time to time, entered into between Penford Corporation,
Penford Products Co., certain commercial lending institutions, as the Lenders,
and The Bank of Nova Scotia, as Agent for the Lenders, I hereby certify that as
of [Date], Penford Corporation, Penford Products Co. and their subsidiaries, if
any, were in compliance with Section 7.2.4 of the Credit Agreement. Further, I
have no knowledge of any Event of Default under Article 8 of the Credit
Agreement, or of any event which, with notice or lapse of time, would constitute
an Event of Default under the terms of the Credit Agreement.
The detailed calculations of the financial covenants under Section 7.2.4 of the
Credit Agreement, attached hereto as Schedule 1, are true and accurate as of the
date of this Compliance Certificate.
Dated: [Date]
PENFORD CORPORATION
By:________________________________
Title:_____________________________
<PAGE> 61
SCHEDULE 1
U.S. $75,000,000 Credit Agreement
Dated [Date]
Section 7.2.4 Financial Condition
Financial Covenant Calculation
as of [Date]
1. Section 7.2.4(a)
A. Consolidated Tangible Net Worth shall not be less than:
<TABLE>
<S> <C>
(a) Base $40,000,000
Plus:
(b) 50% of Net Income since ___________,
1998 (with no
provision for losses). ____________
Plus:
(c) 75% of the Net Equity Proceeds
from any equity offering by the
Borrower or any of its Subsidiaries
since ____________, 1998. ____________
Required Tangible Net Worth (a + b + c) ____________
B. Actual Tangible Net Worth:
(d) Consolidated net worth ____________
Less:
(e) Aggregate intangible assets ____________
Consolidated Tangible Net Worth (d - e) ____________
</TABLE>
2. Section 7.2.4(b)
A. Indebtedness, as defined in the Credit Agreement, to
Consolidated Capitalization ("CC") not to exceed:
(a) While the Penwest Guarantee is in effect:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
to August 31, 1999 0.65 to 1.00
from August 31, 1999
to August 31, 2000 0.62 to 1.00
</TABLE>
- 1 -
<PAGE> 62
<TABLE>
<S> <C>
from August 31, 2000
to August 31, 2001 0.52 to 1.00
</TABLE>
on and after
August 31, 2001 0.50 to 1.00
(b) After the Penwest Guarantee is released:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
to November 30, 1998 0.62 to 1.00
from November 30, 1998
to August 31, 1999 0.60 to 1.00
from August 31, 1999
to August 31, 2000 0.57 to 1.00
from August 31, 2000
to August 31, 2001 0.52 to 1.00
on and after
August 31, 2001 0.50 to 1.00
</TABLE>
B. Indebtedness:
<TABLE>
<S> <C>
(c) Total Liabilities (including
all obligations for borrowed
money and all capital lease obligations) ____________
Plus:
(d) All Contingent Liabilities
(including letters of credit
and liabilities associated with guarantees) ____________
Total Indebtedness (c + d) ____________
C. Consolidated Net Worth ____________
D. Indebtedness to CC (B / (B + C)) ____________
</TABLE>
3. Section 7.2.4(c)
A. Leverage Ratio is not to exceed:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
to August 31, 1999 3.75 to 1.00
</TABLE>
- 2 -
<PAGE> 63
<TABLE>
<S> <C>
from August 31, 1999
to August 31, 2000 3.25 to 1.00
on and after
August 31, 2000 2.75 to 1.00
</TABLE>
<TABLE>
<S> <C>
B. Indebtedness ____________
C. EBITDA ____________
D. Leverage Ratio (B/C) ____________
3. Section 7.2.4(d)
A. Interest/Rental Expense Coverage Ratio is not to
fall below 3.0 to 1.0.
B. EBITDA ____________
C. Personal Property Rental Expense ____________
D. Interest expense ____________
E. Interest/Rental Expense
Coverage Ratio (B + C/C + D) ____________
</TABLE>
Dated [Date]
PENFORD CORPORATION
By:________________________________
Title:_____________________________
- 3 -
<PAGE> 64
EXHIBIT E
LENDER ASSIGNMENT AGREEMENT
To: Penford Corporation and Penford Products Co.
To: The Bank of Nova Scotia,
as the Agent
PENFORD CORPORATION/PENFORD PRODUCTS CO.
Gentlemen and Ladies:
We refer to clause (d) of Section 10.11.1 of the Credit Agreement, dated
as of July 2, 1998, (together with all amendments and other modifications, if
any, from time to time thereafter made thereto, the "Credit Agreement"), among
Penford Corporation, a Washington corporation, Penford Products Co., a Delaware
corporation, (the "Borrowers"), the various financial institutions (the
"Lenders") as are, or shall from time to time become, parties thereto, and The
Bank of Nova Scotia, as agent (the "Agent") for the Lenders. Unless otherwise
defined herein or the context otherwise requires, terms used herein have the
meanings provided in the Credit Agreement.
This Agreement is delivered to you pursuant to clause (d) of Section
10.11.1 of the Credit Agreement and also constitutes notice to each of you,
pursuant to clause (c) of Section 10.11.1 of the Credit Agreement, of the
assignment and delegation to _________________ (the "Assignee") of ______% of
the Loans and Loan Commitment of ___________________ (the "Assignor")
outstanding under the Credit Agreement on the date hereof. After giving effect
to the foregoing assignment and delegation, the Assignor's and the Assignee's
Percentages for the purposes of the Credit Agreement are set forth opposite such
Person's name on the signature pages hereof.
[Add paragraph dealing with accrued interest and fees with respect to
the Loans assigned.]
The Assignee hereby acknowledges and confirms that it has received a
copy of the Credit Agreement and the exhibits related thereto, together with
copies of the documents which were required to be delivered under the Credit
Agreement as a condition to the making of the Loans hereunder. The Assignee
further confirms and agrees that in becoming a Lender and in making its Loan
Commitment and Loans under the Credit Agreement, such actions have and will be
made without recourse to, or representation or warranty by the Agent.
Except as otherwise provided in the Credit Agreement, effective as of
the date of acceptance hereof by the Agent
(a) the Assignee
(i) shall be deemed automatically to have become a party
to the Credit Agreement, have all the rights and obligations of a
"Lender" under the Credit Agreement and the other Loan Documents
as if it were an original signatory thereto to the extent
specified in the second paragraph hereof;
- 1 -
<PAGE> 65
(ii) agrees to be bound by the terms and conditions set
forth in the Credit Agreement and the other Loan Documents as if
it were an original signatory thereto; and
(b) the Assignor shall be released from its obligations under the
Credit Agreement and the other Loan Documents to the extent specified in
the second paragraph hereof.
The Assignor and the Assignee hereby agree that the [Assignor]
[Assignee] will pay to the Agent the processing fee referred to in Section
10.11.1 of the Credit Agreement upon the delivery hereof.
The Assignee hereby advises each of you of the following administrative
details with respect to the assigned Loans and Commitments and requests the
Agent to acknowledge receipt of this document:
(A) Address for Notices:
Institution Name:
Attention:
Domestic Office:
Telephone:
Facsimile:
Telex (Answerback):
LIBOR Office:
Telephone:
Facsimile:
Telex (Answerback):
(B) Payment Instructions:
The Assignee agrees to furnish the tax form required by Section 4.6 (if
so required) of the Credit Agreement no later than the date of acceptance hereof
by the Agent.
- 2 -
<PAGE> 66
This Agreement may be executed by the Assignor and Assignee in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute one and the same
agreement.
DATED: [Date]
Adjusted Percentage [THE ASSIGNOR]
Loan Commitment
and
Loans: _____%
By:_________________________________
- 3 -
<PAGE> 67
EXHIBIT F
OPINION OF BORROWER'S COUNSEL
[INSERT FORM]
<PAGE> 1
EXHIBIT 10.22
SPECIFIC GUARANTEE
GUARANTEE, made by PENFORD CORPORATION, a Washington corporation,
(the "Guarantor") in favor of THE BANK OF NOVA SCOTIA (the "Bank")
in respect of the indebtedness and liability of PENWEST
PHARMACEUTICALS CO., a Washington corporation, (the "Borrower") to
the Bank under a letter loan agreement dated as of July 2, 1998.
PRELIMINARY STATEMENT. The Borrower and the Bank have entered into letter
loan agreement dated as of July 2, 1998 (such agreement, as it may hereafter be
amended, supplemented, replaced or otherwise modified from time to time, being
the "Loan Agreement") under which the Borrower may utilize the revolving term
credit facility thereunder (the "Credit") upon the terms and conditions set
forth therein. It is a condition precedent to the Bank incurring any obligation
under the Loan Agreement that the Guarantor shall execute and deliver this
Guarantee.
NOW THEREFORE, in consideration of the premises and in order to induce the
Bank to permit the Borrower to utilize the Credit on the terms and conditions of
the Loan Agreement, the Guarantor hereby agrees as follows:
1. Guarantee. The Guarantor hereby irrevocably guarantees the punctual
payment to the Bank when due whether at stated maturity, by demand, acceleration
or otherwise of all indebtedness and liability which the Borrower has incurred
or may incur or be under to the Bank in connection with the Loan Agreement and
any documents and instruments delivered thereunder or collateral thereto (the
Loan Agreement and such documents and instruments being, collectively, the "Loan
Documents") and whether for principal, interest, fees, expenses or otherwise
(collectively, the "Obligations"); provided that, the aggregate liability of the
Guarantor and any other guarantor of the Obligations in respect of the aggregate
outstanding indebtedness and liability of the Borrower to the Bank, inclusive of
all principal, interest, fees, costs (including, without limitation, costs
incurred in connection with the enforcement of this Guarantee), expenses and
other amounts forming part of the Obligations and any other amount owing under
this Guarantee, is limited to U.S.$18,000,000 (the "Maximum Liability"), which
Maximum Liability shall be reduced by any reduction in the Borrower's Commitment
Amount (as defined in the Loan Agreement).
Upon default of the Borrower under the Loan Agreement and the expiration
of any period to cure such default without cure having occurred, all debts and
liabilities present and future of the Borrower to the Guarantor are hereby
assigned to the Bank and postponed to the Obligations and any monies received by
the Guarantor in respect thereof shall be received in trust for and shall be
paid over to the Bank to assure the prior repayment to the Bank of the
Obligations and credited against the liability of the Guarantor under this
Guarantee. No right of the Guarantor
1 - SPECIFIC GUARANTEE (Penford Corp.)
<PAGE> 2
by way of subrogation shall be asserted against the Borrower until the
Obligations have been paid in full.
The Bank shall not be bound to exhaust all or any of its recourse against
the Borrower or any securities it may hold or to sell collateral in a
commercially reasonable manner before being entitled to payment from the
Guarantor under this Guarantee. Notwithstanding any other obligations of the
Guarantor hereunder, any amounts which may not be recoverable from the Guarantor
as guarantor under this Guarantee shall be recoverable from the Guarantor as
principal debtor in respect thereof and shall be paid to the Bank after demand
therefor as hereinafter provided. The Guarantor's obligations hereunder shall
not be limited, lessened or discharged by any act on the part of the Bank or
other matter or thing, including:
(a) any incapacity or disability or lack or limitation of status or
power of the Borrower or that the Borrower may not be a legal entity;
(b) the bankruptcy or insolvency of the Borrower;
(c) any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of the Obligations or the rights of the Bank
with respect thereto;
(d) any lack of validity or enforceability of any document,
agreement or instrument evidencing or giving rise to or securing the
Obligations or any of them (including without limitation any Loan
Document);
(e) any change in the name, constitution or capacity of the
Borrower, or the Borrower being merged with another corporation, or if a
partnership the Borrower's membership changes (in these latter two cases
this Guarantee shall apply to the liabilities of the resulting corporation
or partnership, and the term "Borrower" shall include such resulting
corporation or partnership); or
(g) any other circumstance that would constitute a defense generally
available to guarantors under the law of suretyship or otherwise at
equity, or a set-off or counterclaim available to, or a legal or equitable
discharge of, the Borrower in respect of the Obligations or the Guarantor
in respect of this Guarantee, all of which are hereby expressly waived by
the Guarantor;
save due performance by the Borrower or the Guarantor; provided, however, that
the Bank shall not amend, waive or modify the Obligations or the Loan Agreement
without the Guarantor's prior written consent, which consent shall not be
unreasonably withheld. Any account settled or stated by or between the Bank and
the Borrower shall be accepted by the Guarantor in the absence of manifest
error, as conclusive evidence that the balance or amount thereof thereby
appearing due by the Borrower to the Bank, is so due.
2 - SPECIFIC GUARANTEE (Penford Corp.)
<PAGE> 3
Subject to the limitations set forth herein, this Guarantee shall be a
continuing guarantee of all of the Obligations and shall apply to and secure any
ultimate balance due or remaining unpaid to the Bank; and this Guarantee shall
not be considered as wholly or partially satisfied by the payment or liquidation
at any time of any sum of money for the time being due or remaining unpaid to
the Bank. This Guarantee shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Obligations is rescinded
or must otherwise be returned by the Bank on the insolvency, bankruptcy or
reorganization of the Borrower or the Guarantor or otherwise, all as though such
payment had not been made.
2. Payment. The Guarantor shall make payment from time to time to the Bank
of the amount of the liability of the Guarantor hereunder forthwith upon demand
by the Bank in writing. Such demand shall be conclusively deemed to have been
effectively made when an envelope containing it addressed to the Guarantor at
the last address of the Guarantor known to the Bank is deposited, postage
prepaid and registered or certified, in the post office and the liability of the
Guarantor shall bear interest from the date of such demand at the rate or rates
applicable to the Obligations from time to time stated in the Loan Agreement.
3. Taxes. All payments by the Guarantor shall be made free and clear of
and without deduction for any and all present and future taxes, levies and
withholdings including stamp and documentary taxes, other than taxes imposed on
the net income or receipts of the Bank (collectively "Taxes"). If the Guarantor
is required by law to deduct any Taxes from or in respect of any amount paid or
payable hereunder, such amount shall be increased as necessary so that the Bank
receives an amount equal to the sum it would have received had no such deduction
been made and the Guarantor shall pay same to the relevant taxing authority and
give to the Bank acceptable evidence of such payment. The Guarantor will
indemnify the Bank for any Taxes paid by the Bank in respect of any amount paid
or payable by the Guarantor hereunder. The provisions of this Section as they
pertain to Taxes shall survive payment in full hereunder.
4. Judgment Currency. The obligation of the Guarantor hereunder to make
payments in any currency of payment and account shall not be discharged or
satisfied by any tender or recovery pursuant to any judgment expressed in or
converted into any other currency except to the extent to which such tender or
recovery shall result in the effective receipt by the Bank of the full amount of
such currency of payment and account so payable and accordingly the obligation
of the Guarantor shall be enforceable as an alternative or additional cause of
action for the purpose of recovery in the other currency of the amount (if any)
by which such effective receipt shall fall short of the full amount of such
currency of payment and account so payable and shall not be affected by any
judgment being obtained for any other sums due hereunder.
5. Guarantee by Subsidiaries. Guarantor agrees to cause any subsidiary of
the Guarantor hereafter formed which owns assets with a value equal to ten
percent (10%) or more of the value of the consolidated assets of the Guarantor
and its subsidiaries, to guarantee the Obligations to the same extent guaranteed
by Guarantor hereunder.
3 - SPECIFIC GUARANTEE (Penford Corp.)
<PAGE> 4
6. General. No amendment or waiver of any provision of this Guarantee nor
consent to any departure by the Guarantor therefrom shall be effective unless it
shall be in writing and signed by the Bank, and then only for the specific
purpose for which it is given. This Guarantee shall be binding upon the
Guarantor's successors in interest.
7. Governing Law & Jurisdiction. This Guarantee shall be governed and
construed in accordance with the law of the State of Oregon and for the purpose
of any legal actions or proceedings brought by the Bank in respect of the same,
the Guarantor hereby irrevocably submits to the non-exclusive jurisdiction of
any state or Federal court of such State and acknowledges their competence and
the convenience and propriety of the venue and agrees to be bound by any
judgment thereof and not to seek, and hereby waives, any review of such
judgments by the courts of any other jurisdiction. IN ANY ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT, THE GUARANTOR WAIVES ANY AND ALL RIGHTS TO TRIAL
THEREOF BY JURY.
8. Oregon Legal Notice. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND
COMMITMENTS MADE BY US AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT
EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED
SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND
BE SIGNED BY US TO BE ENFORCEABLE. THE TERM "US" MEANS THE BANK.
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be duly
executed and delivered by its duly authorized officers on the 2nd day of July,
1998.
PENFORD CORPORATION
By: /s/ VICTOR W. BREED
-------------------------------
Name: VICTOR W. BREED
-------------------------------
Title: CORPORATE DIRECTOR OF FINANCE
-------------------------------
4 - SPECIFIC GUARANTEE (Penford Corp.)
<PAGE> 1
EXHIBIT 10.23
SPECIFIC GUARANTEE
GUARANTEE, made by PENFORD PRODUCTS CO., a Delaware corporation,
(the "Guarantor") in favor of THE BANK OF NOVA SCOTIA (the "Bank")
in respect of the indebtedness and liability of PENWEST
PHARMACEUTICALS CO., a Washington corporation, (the "Borrower") to
the Bank under a letter loan agreement dated as of July 2, 1998.
PRELIMINARY STATEMENT. The Borrower and the Bank have entered into letter
loan agreement dated as of July 2, 1998 (such agreement, as it may hereafter be
amended, supplemented, replaced or otherwise modified from time to time, being
the "Loan Agreement") under which the Borrower may utilize the revolving term
credit facility thereunder (the "Credit") upon the terms and conditions set
forth therein. It is a condition precedent to the Bank incurring any obligation
under the Loan Agreement that the Guarantor shall execute and deliver this
Guarantee.
NOW THEREFORE, in consideration of the premises and in order to induce the
Bank to permit the Borrower to utilize the Credit on the terms and conditions of
the Loan Agreement, the Guarantor hereby agrees as follows:
1. Guarantee. The Guarantor hereby irrevocably guarantees the punctual
payment to the Bank when due whether at stated maturity, by demand, acceleration
or otherwise of all indebtedness and liability which the Borrower has incurred
or may incur or be under to the Bank in connection with the Loan Agreement and
any documents and instruments delivered thereunder or collateral thereto (the
Loan Agreement and such documents and instruments being, collectively, the "Loan
Documents") and whether for principal, interest, fees, expenses or otherwise
(collectively, the "Obligations"); provided that, (i) the aggregate liability of
the Guarantor and any other guarantor of the Obligations in respect of the
aggregate outstanding indebtedness and liability of the Borrower to the Bank,
inclusive of all principal, interest, fees, costs (including, without
limitation, costs incurred in connection with the enforcement of this
Guarantee), expenses and other amounts forming part of the Obligations and any
other amount owing under this Guarantee, is limited to U.S.$18,000,000 (the
"Maximum Liability"), which Maximum Liability shall be reduced by any reduction
in the Borrower's Commitment Amount (as defined in the Loan Agreement), and (ii)
the Guarantor shall have no liability hereunder with respect to the Obligations
prior to the first Availment (as that term is defined in the Loan Agreement)
under the Credit.
Upon default of the Borrower under the Loan Agreement and the expiration
of any period to cure such default without cure having occurred, all debts and
liabilities present and future of the Borrower to the Guarantor are hereby
assigned to the Bank and postponed to the Obligations and any monies received by
the Guarantor in respect thereof shall be received in trust for
1 - SPECIFIC GUARANTEE (Penford Products)
<PAGE> 2
and shall be paid over to the Bank to assure the prior repayment to the Bank of
the Obligations and credited against the liability of the Guarantor under this
Guarantee. No right of the Guarantor by way of subrogation shall be asserted
against the Borrower until the Obligations have been paid in full.
The Bank shall not be bound to exhaust all or any of its recourse against
the Borrower or any securities it may hold or to sell collateral in a
commercially reasonable manner before being entitled to payment from the
Guarantor under this Guarantee. Notwithstanding any other obligations of the
Guarantor hereunder, any amounts which may not be recoverable from the Guarantor
as guarantor under this Guarantee shall be recoverable from the Guarantor as
principal debtor in respect thereof and shall be paid to the Bank after demand
therefor as hereinafter provided. The Guarantor's obligations hereunder shall
not be limited, lessened or discharged by any act on the part of the Bank or
other matter or thing, including:
(a) any incapacity or disability or lack or limitation of status or
power of the Borrower or that the Borrower may not be a legal entity;
(b) the bankruptcy or insolvency of the Borrower;
(c) any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of the Obligations or the rights of the Bank
with respect thereto;
(d) any lack of validity or enforceability of any document,
agreement or instrument evidencing or giving rise to or securing the
Obligations or any of them (including without limitation any Loan
Document);
(e) any change in the name, constitution or capacity of the
Borrower, or the Borrower being merged with another corporation, or if a
partnership the Borrower's membership changes (in these latter two cases
this Guarantee shall apply to the liabilities of the resulting corporation
or partnership, and the term "Borrower" shall include such resulting
corporation or partnership); or
(g) any other circumstance that would constitute a defense generally
available to guarantors under the law of suretyship or otherwise at
equity, or a set-off or counterclaim available to, or a legal or equitable
discharge of, the Borrower in respect of the Obligations or the Guarantor
in respect of this Guarantee, all of which are hereby expressly waived by
the Guarantor;
save due performance by the Borrower or the Guarantor; provided, however, that
the Bank shall not amend, waive or modify the Obligations or the Loan Agreement
without the Guarantor's prior written consent, which consent shall not be
unreasonably withheld. Any account settled or stated by or between the Bank and
the Borrower shall be accepted by the Guarantor in the absence of manifest
error, as conclusive evidence that the balance or amount thereof thereby
appearing due by the Borrower to the Bank, is so due.
2 - SPECIFIC GUARANTEE (Penford Products)
<PAGE> 3
Subject to the limitations set forth herein, this Guarantee shall be a
continuing guarantee of all of the Obligations and shall apply to and secure any
ultimate balance due or remaining unpaid to the Bank; and this Guarantee shall
not be considered as wholly or partially satisfied by the payment or liquidation
at any time of any sum of money for the time being due or remaining unpaid to
the Bank. This Guarantee shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Obligations is rescinded
or must otherwise be returned by the Bank on the insolvency, bankruptcy or
reorganization of the Borrower or the Guarantor or otherwise, all as though such
payment had not been made.
2. Payment. The Guarantor shall make payment from time to time to the Bank
of the amount of the liability of the Guarantor hereunder forthwith upon demand
by the Bank in writing. Such demand shall be conclusively deemed to have been
effectively made when an envelope containing it addressed to the Guarantor at
the last address of the Guarantor known to the Bank is deposited, postage
prepaid and registered or certified, in the post office and the liability of the
Guarantor shall bear interest from the date of such demand at the rate or rates
applicable to the Obligations from time to time stated in the Loan Agreement.
3. Taxes. All payments by the Guarantor shall be made free and clear of
and without deduction for any and all present and future taxes, levies and
withholdings including stamp and documentary taxes, other than taxes imposed on
the net income or receipts of the Bank (collectively "Taxes"). If the Guarantor
is required by law to deduct any Taxes from or in respect of any amount paid or
payable hereunder, such amount shall be increased as necessary so that the Bank
receives an amount equal to the sum it would have received had no such deduction
been made and the Guarantor shall pay same to the relevant taxing authority and
give to the Bank acceptable evidence of such payment. The Guarantor will
indemnify the Bank for any Taxes paid by the Bank in respect of any amount paid
or payable by the Guarantor hereunder. The provisions of this Section as they
pertain to Taxes shall survive payment in full hereunder.
4. Judgment Currency. The obligation of the Guarantor hereunder to make
payments in any currency of payment and account shall not be discharged or
satisfied by any tender or recovery pursuant to any judgment expressed in or
converted into any other currency except to the extent to which such tender or
recovery shall result in the effective receipt by the Bank of the full amount of
such currency of payment and account so payable and accordingly the obligation
of the Guarantor shall be enforceable as an alternative or additional cause of
action for the purpose of recovery in the other currency of the amount (if any)
by which such effective receipt shall fall short of the full amount of such
currency of payment and account so payable and shall not be affected by any
judgment being obtained for any other sums due hereunder.
5. Guarantee by Subsidiaries. Guarantor agrees to cause any subsidiary of
the Guarantor hereafter formed which owns assets with a value equal to ten
percent (10%) or more of the value of the consolidated assets of the Guarantor's
parent, Penford Corporation, a Washington corporation, and Penford Corporation's
subsidiaries, to guarantee the Obligations to the same extent guaranteed by
Guarantor hereunder.
3 - SPECIFIC GUARANTEE (Penford Corp.)
<PAGE> 4
6. General. No amendment or waiver of any provision of this Guarantee nor
consent to any departure by the Guarantor therefrom shall be effective unless it
shall be in writing and signed by the Bank, and then only for the specific
purpose for which it is given. This Guarantee shall be binding upon the
Guarantor's successors in interest.
7. Governing Law & Jurisdiction. This Guarantee shall be governed and
construed in accordance with the law of the State of Oregon and for the purpose
of any legal actions or proceedings brought by the Bank in respect of the same,
the Guarantor hereby irrevocably submits to the non-exclusive jurisdiction of
any state or Federal court of such State and acknowledges their competence and
the convenience and propriety of the venue and agrees to be bound by any
judgment thereof and not to seek, and hereby waives, any review of such
judgments by the courts of any other jurisdiction. IN ANY ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT, THE GUARANTOR WAIVES ANY AND ALL RIGHTS TO TRIAL
THEREOF BY JURY.
8. Oregon Legal Notice. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND
COMMITMENTS MADE BY US AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT
EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED
SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND
BE SIGNED BY US TO BE ENFORCEABLE. THE TERM "US" MEANS THE BANK.
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be duly
executed and delivered by its duly authorized officers on the 2nd day of July,
1998.
PENFORD CORPORATION
By: /s/ VICTOR W. BREED
-------------------------------
Name: VICTOR W. BREED
-------------------------------
Title: VICE-PRESIDENT
-------------------------------
4 - SPECIFIC GUARANTEE (Penford Corp.)
<PAGE> 1
EXHIBIT 10.24
[SCOTIABANK LETTERHEAD]
July 2, 1998
Penwest Pharmaceuticals Co.,
a Washington corporation
2981 Route 22
Patterson, NY 12563-9970
Dear Sirs:
RE: Establishment of Revolving Term Credit Facility
in Favor of Penwest Pharmaceuticals Co.
The Bank of Nova Scotia (the "Bank") is pleased to advise that,
subject to your acceptance, the Bank will make available to Penwest
Pharmaceuticals Co., a Washington corporation (such corporation being the
"Borrower") the revolving term credit facility described in this agreement (the
"Credit Agreement") upon the following terms and conditions:
CREDIT A revolving term credit (the "Credit") in the amount of
FACILITIES US$15,000,000 (the "Commitment Amount") under which are
available U.S. dollar advances (each availment thereunder
being an "Availment").
BOOKING Portland Branch
POINT 888 S.W. Fifth Avenue, Suite 750
Portland, Oregon 97204-2098
(the "Branch")
PURPOSES To fund working capital and general corporate purposes,
including capital expenditures.
CREDIT Commencing on the date that Penford Corporation, a
AVAILMENTS Washington corporation ("Penford"), ceases to own any of
the common stock of the Borrower, the Borrower may obtain
U.S. dollar advances under the Credit by the Borrower
selecting in respect of each such advance one of the
interest options as follows:
<PAGE> 2
To: Penwest Pharmaceuticals Co. Page 2
(1) Base Rate Advances in a minimum amount of
US$100,000 and in whole multiples of US$10,000:
Alternate Base Rate.
(2) LIBOR Advances in whole multiples of US$1,000,000:
LIBO Rates (Reserve Adjusted) for 1, 2, or 3 month
LIBOR Periods, plus 1.25% per annum.
A LIBOR Period for a LIBOR Advance may not extend beyond
the termination date of the Credit.
The Borrower may convert from a LIBOR Advance to a Base
Rate Advance (a "Base Rate Conversion") or from a Base
Rate Advance to a LIBOR Advance (a "LIBOR Conversion");
provided that a Base Rate Conversion may only be made on
the expiry of the applicable LIBOR Period.
LIBOR Advances, LIBOR Conversions and renewals of LIBOR
Periods are offered subject to the availability to the
Bank of appropriate LIBO Rate quotations.
FACILITY Upon the Borrower's execution of this Credit Agreement,
FEE the Borrower shall pay in respect of the Credit a
non-refundable facility fee of US$60,000.
COMMIT- The Borrower shall pay, on the last Business Day of each
MENT FEE calendar quarter and on the final maturity of the Credit,
a commitment fee of 0.325% per annum, computed on the
unused portion of the Commitment Amount as it may be
reduced from time to time, calculated daily in arrears on
the basis of a 360-day year for the actual number of days
elapsed from the date of the Borrower's execution of this
Credit Agreement. The Borrower shall be entitled to cancel
all or any of the unused portion of the Commitment Amount
at such time without penalty on not less than 30 days'
written notice to the Bank and upon payment of all accrued
commitment fees to such date of cancellation, whereupon
the Commitment Amount shall be permanently reduced
accordingly.
MATURITY & The Credit shall revolve and may be drawn down until
REDUCTION OF August 31, 2000 when all amounts then outstanding or
COMMITMENT accrued in respect of such Credit shall be due and
AMOUNT payable; provided, however, that prior to such maturity
date, the Commitment Amount shall be permanently reduced
by the net proceeds ("Securities Proceeds") to the
Borrower of any sale by the Borrower or any subsidiary of
the Borrower of securities (as the term "securities" is
defined in Section 2(1) of the Securities Act of 1933, as
<PAGE> 3
To: Penwest Pharmaceuticals Co. Page 3
amended), except the sale of securities to plan
participants pursuant to the Borrower's 401(k) plan or
equity incentive plans. Reduction of the Commitment Amount
to zero shall terminate the Credit, and all amounts then
outstanding or accrued in respect of the Credit shall be
due and payable. The Borrower shall give the Bank written
notice of the receipt of any Securities Proceeds on the
Business Day that the Borrower receives such Securities
Proceeds.
CALCULATION Determination of Rates. "Alternate Base Rate" means a
& PAYMENT variable interest rate per annum (as shall be in effect
from time to time) (rounded to the nearest 1/100 of 1%)
equal to the greater of: (a) the annual rate of interest
announced from time to time by the Bank in the United
States through the Branch as its "Base Rate"; and (b) the
Federal Funds Effective Rate plus 1/2 of 1% per annum. The
"Federal Funds Effective Rate" means, for any period, a
fluctuating interest rate per annum equal, for each day
during such period, to the weighted average of the rates
on overnight federal funds transactions with members of
the Federal Reserve System arranged by Federal Funds
brokers as published for such day (or, if such day is not
a Business Day, for the next preceding Business Day) by
the Federal Reserve Bank of New York or, for any day on
which such rate is not so published for such day by the
Federal Reserve Bank of New York, the average of the
quotations for such day for such transactions received by
the Bank from three Federal Funds brokers of recognized
standing selected by the Bank. If for any reason the Bank
shall have determined (which determination shall be
conclusive, absent manifest error) that it is unable to
ascertain the Federal Funds Effective Rate for any reason,
including without limitation, the inability or failure of
the Bank to obtain sufficient bids or publications in
accordance with the terms hereof, the rate announced by
the Bank through the Branch as its "Base Rate" shall be
the Alternate Base Rate until the circumstances giving
rise to such inability no longer exist.
The Alternate Base Rate is not necessarily intended to be
the lowest rate of interest determined by the Bank in
connection with extensions of credit. Changes in the rate
of interest on any Advances maintained as Base Rate
Advances will take effect simultaneously with each change
in the Alternate Base Rate. The Bank will give notice
promptly to the Borrower of changes in the Alternate Base
Rate.
The "LIBO Rate (Reserve Adjusted)" for each LIBOR Period
(being the applicable interest period chosen by the
Borrower for a LIBOR Advance) means a rate per annum
(rounded upwards, if necessary, to the nearest 1/16 of 1%)
determined pursuant to the following formula:
<PAGE> 4
To: Penwest Pharmaceuticals Co. Page 4
LIBO Rate = LIBO Rate
(Reserve Adjusted) -------------------------------
1.00 - LIBOR Reserve Percentage
The LIBO Rate (Reserve Adjusted) for any LIBOR Period
shall be determined by the Bank on the basis of the LIBOR
Reserve Percentage in effect and the applicable LIBO Rate
on the second Business Day prior to the commencement of
such LIBOR Period. The "LIBO Rate" for each LIBOR Period
means the rate of interest per annum at which the Bank is
offered deposits by prime banks in the London interbank
market, as at 11:00 a.m. (London, England time), on the
second Business Day prior to the commencement of such
LIBOR Period, in an amount of U.S. dollars similar to the
amount of the applicable LIBOR Advance for a deposit
period comparable to such LIBOR Period. "LIBOR Reserve
Percentage" means, relative to any LIBOR Period, the
reserve percentage (expressed as a decimal) equal to the
maximum aggregate reserve requirements (including all
basic, emergency, supplemental, marginal and other
reserves and taking into account any transitional
adjustments or other scheduled changes in reserve
requirements) specified by the Board of Governors of the
Federal Reserve System and then applicable to assets or
liabilities consisting of and including "Eurocurrency
Liabilities", as currently defined in Regulation D of the
Board of Governors of the Federal Reserve System, having a
term approximately equal or comparable to such LIBOR
Period.
Interest Calculation and Payment. Interest computed with
reference to the Alternate Base Rate shall accrue from day
to day for the actual number of days elapsed and shall be
calculated and payable monthly, not in advance, on the
last day of each calendar month, or on the next preceding
Business Day if the last day of the month is not a
Business Day. Interest computed with reference to a LIBO
Rate (Reserve Adjusted) shall accrue from day to day for
the actual number of days elapsed and shall be calculated
and payable at the end of the applicable LIBOR Period.
Interest computed with reference to the Alternate Base
Rate shall be calculated on the basis of a 365/366-day
year, but interest computed with reference to a LIBO Rate
(Reserve Adjusted) shall be calculated on the basis of a
year of 360 days.
LIBOR Periods. The Borrower shall designate the LIBOR
Period to apply to each LIBOR Advance in its notice of any
drawdown of such advance, any LIBOR Conversion, and any
renewal of an existing LIBOR Period, provided that, upon
failure of the Borrower to give notice of any such
designation, when applicable, as required under this
Credit Agreement, the Bank may either convert the affected
LIBOR Advance to a Base Rate
<PAGE> 5
To: Penwest Pharmaceuticals Co. Page 5
Advance or designate a substitute LIBOR Period which will
apply to such advance for the purpose of determining the
interest rate with respect to same.
Default of Payment. Amounts not paid when due in respect
of a Base Rate Advance shall bear interest at the rate
applicable thereto, plus 2% per annum. Amounts not paid
when due in respect of a LIBOR Advance may be deemed a
Base Rate Advance by the Bank and the Bank may so convert
such advance. Any other unpaid monetary obligation of the
Borrower arising under this Credit Agreement shall be
deemed to be an amount not paid when due in respect of a
Base Rate Advance, as applicable. Interest payable under
this paragraph shall accrue from day to day for the actual
number of days elapsed and shall be calculated and payable
upon demand. The rights of the Bank under this paragraph
shall continue to apply from the date of such default for
so long as such default shall continue, both before and
after demand and judgment.
REPAYMENTS The Borrower may make without penalty any repayment or
prepayment of a Base Rate Advance in a minimum amount of
US$100,000 and in a whole multiple of US$10,000. The
Borrower may make any repayment of a LIBOR Advance in a
minimum amount of US$1,000,000 and in a whole multiple of
US$1,000,000, but any repayment in respect of a LIBOR
Advance may be made only on the last day of the LIBOR
Period for such Advance. If at any time the sum of the
aggregate outstanding principal amount of all Availments
exceeds the Commitment Amount (as it may be reduced from
time to time), the Borrower shall immediately upon notice
from the Bank make a mandatory prepayment of the
Availments in an aggregate amount equal to such excess.
SECURITY As continuing security for the present and future
indebtedness and liability of the Borrower to the Bank
hereunder, the Borrower shall cause to be executed and
delivered in favor of the Bank irrevocable guarantees by
Penford and Penford subsidiary, Penford Products Co., a
Delaware corporation ("Penford Products"), in form and
substance satisfactory to the Bank (each a "Guarantee"),
of the Borrower's obligations under this Credit Agreement.
Each Guarantee shall include the guarantor's agreement to
cause to be executed and delivered in favor of the Bank an
irrevocable guarantee of the Borrower's obligations under
this Credit Agreement by any material subsidiary of the
guarantor hereafter formed, which guarantee shall also be
in form and substance satisfactory to the Bank. As used in
this Credit Agreement, a "material subsidiary" of Penford
or Penford Products shall mean a subsidiary which owns
assets
<PAGE> 6
To: Penwest Pharmaceuticals Co. Page 6
with a value equal to ten percent (10%) or more of the
value of the consolidated assets of Penford and its
subsidiaries.
REPRESEN- The Borrower represents and warrants that:
TATIONS AND
WARRANTIES (1) the Borrower is a corporation duly incorporated and
organized and validly subsisting under the laws of
the state of Washington and is duly qualified,
registered or licensed in all jurisdictions where
such qualification, registration or licensing is
required; the Borrower has all requisite capacity,
power and authority to own, hold under license or
lease its properties, to carry on its business as
now conducted and to otherwise enter into, and
carry out the transactions contemplated by, this
Credit Agreement.
(2) all necessary action has been taken to authorize
the execution, delivery and performance of this
Credit Agreement by the Borrower, and this Credit
Agreement is a legal, valid and binding obligation
of the Borrower, enforceable against the Borrower
by the Bank in accordance with its terms; it is not
contrary to any contractual restriction binding on
the Borrower; and the Borrower's execution and
delivery of the same neither requires a third party
consent nor would entitle any third party to
accelerate any debt owing to it.
(3) the execution, delivery and performance of this
Credit Agreement and the consummation of the
transactions contemplated herein do not and will
not conflict with, result in any breach or
violation of, or constitute a default under, the
terms, conditions or provisions of any law,
regulation, judgment, decree or order binding on or
applicable to the Borrower or by which the Borrower
benefits or to which any of its property is subject
or of any material agreement, lease, license,
permit or other instrument to which the Borrower is
a party or is otherwise bound or by which the
Borrower benefits or to which any of its property
is subject and do not require the consent or
approval of any other party or any governmental
body, agency or authority.
(4) except as set forth in a disclosure letter provided
to the Bank, there are no actions, suits,
inquiries, claims or proceedings (whether or not
purportedly on behalf of the Borrower) pending or
threatened against or affecting the Borrower before
any government, parliament, legislature, regulatory
authority, agency, commission, board or court or
before any private arbitrator, mediator or referee
<PAGE> 7
To: Penwest Pharmaceuticals Co. Page 7
which in any case or in the aggregate may result in
any material adverse change:
(i) in the condition, financial or otherwise,
of the Borrower or any of its assets; or
(ii) in the ability of the Borrower to perform
its obligations under this Credit
Agreement, or in the ability of the Bank
to enforce any of such obligations.
(5) the Borrower is not in violation of any mortgage,
franchise, license, judgment, decree, order,
statute, ordinance, rule or regulation relating in
any way to it, to the operation of its business or
to its property or assets and which would result in
a material adverse change in its condition,
financial or otherwise, and the Borrower has all
necessary licenses, permits and consents to operate
its businesses where they are currently being
operated.
(6) no event has occurred which constitutes or which,
with giving of notice, lapse of time or both, would
constitute a material default under or in respect
of any material agreement or instrument in respect
of indebtedness to which the Borrower is a party or
to which any of its property or assets may be
subject.
(7) the Borrower has not:
(i) admitted its inability to pay its debts
generally as they become due or failed to
pay its debts generally as they become
due;
(ii) filed an assignment or petition in
bankruptcy or a petition to take advantage
of any insolvency statute;
(iii) made an assignment for the benefit of its
creditors;
(iv) consented to the appointment of a receiver
of the whole or any substantial part of
its assets;
(v) filed a petition or answer seeking a
reorganization, arrangement, adjustment or
composition under applicable bankruptcy
laws or any other applicable state or
federal law or statute; or
<PAGE> 8
To: Penwest Pharmaceuticals Co. Page 8
(vi) been adjudged by a court having
jurisdiction a bankrupt or insolvent, nor
has a decree or order of a court having
jurisdiction been entered for the
appointment of a receiver, liquidator,
trustee or assignee in bankruptcy with
such decree or order having remained in
force and undischarged or unstayed for a
period of 60 days.
(8) any Employee Pension Benefits Plans, as defined in
the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), of the Borrower meet,
as of the date of this Credit Agreement, the
minimum funding standards of 29 U.S.C. Section 1082
(Section 302 of ERISA), and no Reportable Event or
Prohibited Transaction, as defined in ERISA, has
occurred with respect to any Employee Benefit Plan
of the Borrower, as defined in ERISA.
(9) The Borrower has conducted a comprehensive review
and assessment of the Borrower's computer
applications and made inquiry of the Borrower's key
suppliers, vendors and customers with respect to
the "year 2000 problem" (that is, the risk that
computer applications may not be able to properly
perform date-sensitive functions after December 31,
1999) and, based on that review and inquiry, the
Borrower does not believe the year 2000 problem
will result in a material adverse change in the
financial condition or business prospects of the
Borrower.
All of the representations and warranties of the Borrower
contained herein shall survive the execution and delivery
of this Credit Agreement notwithstanding any investigation
made at any time by or on behalf of the Bank.
CONDITIONS TO Initial Drawdown. The right of the Borrower to obtain the
UTILIZATION initial drawdown hereunder is subject to the conditions
precedent that the Bank has received, in form and
substance satisfactory to it:
(1) a duly certified resolution of the Board of
Directors of the Borrower authorizing the Borrower
to execute, deliver and perform its obligations
under this Credit Agreement and any other agreement
or instrument required by this Credit Agreement,
together with executed copies of such
documentation;
(2) a certificate of a senior officer of the Borrower
setting forth the specimen signature of the
individual authorized to sign this Credit
Agreement;
<PAGE> 9
To: Penwest Pharmaceuticals Co. Page 9
(3) a certificate of the Secretary of State of
Washington, dated within 30 days of the date of
this Credit Agreement, attesting to the continued
corporate existence of the Borrower in that state;
(4) a copy of the by-laws of the Borrower and all
amendments thereto, certified as a true copy by a
senior officer of the Borrower;
(5) a duly certified resolution of Penford authorizing
Penford to execute and deliver its Guarantee and to
perform its obligations under its Guarantee,
together with executed copies of such
documentation;
(6) a certificate of a senior officer of Penford
setting forth the specimen signature of the
individual authorized to sign its Guarantee;
(7) a duly certified resolution of Penford Products
authorizing Penford Products to execute and deliver
its Guarantee and to perform its obligations under
its Guarantee, together with executed copies of
such documentation;
(8) a certificate of a senior officer of Penford
Products setting forth the specimen signature of
the individual authorized to sign its Guarantee;
(9) such supporting and other certificates and
documentation as the Bank may reasonably request;
(10) favorable opinions of counsel, in form and
substance satisfactory to the Bank, concerning the
validity and enforceability of agreements and
instruments to be delivered to the Bank with
respect to the Credit and concerning any other
matter about which the Bank may reasonably request
an opinion of counsel;
and, in addition, that:
(11) Penford and Penford Products shall have duly
executed and delivered their respective Guarantees;
(12) no Event of Default shall have occurred and be
continuing, and the Bank shall have received a
certificate of the Borrower so certifying to the
Bank.
<PAGE> 10
To: Penwest Pharmaceuticals Co. Page 10
(13) no material adverse change in the financial
condition or business prospects of the Borrower
shall have occurred since the preparation of the
Borrower's December 31, 1997 financial statements.
(14) no material adverse change in the financial
condition or business prospects of Penford shall
have occurred since the preparation of Penford's
August 31, 1997 financial statements.
Each Utilization. The right of the Borrower to obtain at
any time any drawdown of an Availment (including the
initial drawdown) or any conversion from one Availment to
another or any renewal of a LIBOR Period hereunder (each a
"Utilization") is subject to the further conditions
precedent that at the time of such Utilization:
(1) in the case where such Utilization is a drawdown,
no event or circumstance has occurred and is
continuing, or would result from the making of such
Utilization, which constitutes an Event of Default
or would constitute an Event of Default but for the
requirement that notice be given or time elapse, or
both, or, which when considered by itself or
together with other past or then existing events or
circumstances, constitutes or would constitute a
material adverse change in the business prospects
or financial condition of the Borrower; and
(2) the representations and warranties of the Borrower
contained in this Credit Agreement shall be true
and correct in all material respects at the date of
such Utilization as if such representations and
warranties were made on such date.
NOTICE The Borrower shall give to the Bank, through the Bank's
subsidiary, Scotiabanc, Inc., Suite 2700, 600 Peachtree
Street, N.E., Atlanta, Georgia 30308, three Business Days'
notice of each Utilization or repayment in respect of a
LIBOR Advance and same Business Day's notice of each
Utilization or repayment in respect of any other type of
Availment. To be deemed given on a Business Day, a notice
must be delivered to the Bank on or before 9:00 a.m.,
Portland, Oregon time, on the Business Day. As used in
this Credit Agreement, a "Business Day" means any day
other than a Saturday, or a Sunday, or a day that banks
are lawfully closed for business in Portland, Oregon,
Atlanta, Georgia, or New York, New York, or, if in respect
of a LIBOR Advance, any other day on which transactions
cannot be carried out by and between banks in the London
interbank market.
<PAGE> 11
To: Penwest Pharmaceuticals Co. Page 11
Any notice or communication shall be deemed to have been
given to a party hereunder when given in accordance with
the provisions of Exhibit A attached hereto. Each notice
or communication given by a party hereunder shall be
binding on it and shall not be revocable without the other
party's consent.
PAYMENTS All payments or disbursements made or required to be made
hereunder shall be in U.S. dollars in immediately
available funds as follows:
(1) in the case of disbursements to the Borrower, to
such account as the Borrower shall from time to
time designate in writing to the Bank;
(2) with respect to all amounts owed to the Bank, on
the due date, not later than 12:00 noon Portland,
Oregon time, by paying the Bank of Nova Scotia, New
York Agency, through the Fed Wire in Federal Funds
using ABA no. 026002532, for further credit to the
Loan Servicing Interbranch Account (Portland),
Account No.
6102-32;
or in such other manner as any party may from time to time
notify the other.
COVENANTS Except for the transactions described in that certain Form
10 filed with the United States Securities and Exchange
Commission on June 22, 1998, or as otherwise permitted by
the Bank, which permission shall not be unreasonably
withheld, the Borrower hereby covenants, until the
Borrower has fulfilled all of its obligations under this
Credit Agreement:
(1) not to permit a material change in the
organizational structure or operations of the
Borrower;
(2) to promptly notify the Bank of the occurrence of
any event or circumstance which constitutes an
Event of Default, or would constitute an Event of
Default but for the requirement that notice be
given or time elapse or both, and to provide to the
Bank a detailed statement of the steps, if any,
being taken to cure or remedy such default;
(3) to maintain the Borrower's existence as a
corporation under the laws of the state of
Washington and to have the Borrower qualified
<PAGE> 12
To: Penwest Pharmaceuticals Co. Page 12
and remain duly qualified to carry on business and
own property in each jurisdiction in which such
qualification is necessary in view of the
Borrower's business and operations;
(4) to conduct the Borrower's business in the ordinary
course and in such a manner so as to comply in all
material respects with all applicable laws and
regulations and so as to preserve and protect, to
the extent consistent with the conduct of the
Borrower's business in the ordinary course, the
Borrower's property and assets and the earnings,
income and profits therefrom; to perform all
obligations incidental to any trust imposed upon
the Borrower by statute and to ensure that any
breaches of the said obligations and the
consequences of any such breach shall be promptly
remedied;
(5) to pay or cause to be paid all taxes, rates,
government fees and dues levied, assessed or
imposed upon the Borrower and upon its property or
assets or any part thereof, as and when the same
become due and payable, save and except when and so
long as the validity or amount of any such taxes,
rates, fees, dues, levies, assessments or imposts
is being contested in good faith by proper legal
proceedings, and shall deliver to the Bank, when
requested, the receipts and vouchers establishing
such payment;
(6) to keep proper books of account and records
covering all of the Borrower's business and affairs
on a current basis and to permit a representative
of the Bank to inspect the Borrower's books of
account, records and documents and to make copies
therefrom during reasonable business hours and upon
reasonable notice;
(7) if the Borrower changes its name, to promptly
notify the Bank in writing of the details of such
change;
(8) to promptly notify the Bank of any action, suit,
inquiry, claim or proceeding (collectively, a
"Proceeding"), whether or not purportedly on behalf
of the Borrower, commenced or threatened against or
affecting the Borrower before any government,
parliament, legislature, regulatory authority,
agency, commission, board or court or before any
private arbitrator, mediator or referee, if such
Proceeding would cause the aggregate potential
liability of the Borrower with respect to all
Proceedings pending against the Borrower to exceed
US$500,000, or if such Proceeding or the aggregate
of such Proceeding and all other Proceedings
<PAGE> 13
To: Penwest Pharmaceuticals Co. Page 13
pending against the Borrower might result in any
material adverse change:
(i) in the condition, financial or otherwise,
of the Borrower; or
(ii) in the ability of the Borrower to perform
its obligations under this Credit
Agreement, or in the ability of the Bank
to enforce any of such obligations;
(9) not to create, incur, assume or suffer to exist any
security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien
(statutory or otherwise), charge against or
interest in property to secure payment of a debt or
performance of an obligation or other priority or
preferential arrangement of any kind or nature
whatsoever (collectively, "Liens") upon any of its
property, revenues or assets, whether now owned or
hereafter acquired, except:
(i) Liens for taxes, assessments or other
governmental charges or levies not at the
time delinquent or thereafter payable
without penalty or being diligently
contested in good faith by appropriate
proceedings and for which adequate
reserves in accordance with GAAP shall
have been set aside on its books;
(ii) Liens of carriers, warehousemen,
mechanics, materialmen and landlords
incurred in the ordinary course of
business for sums not overdue or being
diligently contested in good faith by
appropriate proceedings and for which
adequate reserves in accordance with GAAP
shall have been set aside on its books;
(iii) Liens incurred in the ordinary course of
business in connection with worker's
compensation, unemployment insurance or
other forms of governmental insurance or
benefits, or to secure performance of
tenders, statutory obligations, leases and
contracts (other than for borrowed money)
entered into in the ordinary course of
business or to secure obligations on
surety or appeal bonds;
(iv) judgment Liens in existence less than 30
days after the entry thereof or with
respect to which execution has been
<PAGE> 14
To: Penwest Pharmaceuticals Co. Page 14
stayed or the payment of which is covered
in full (subject to a customary
deductible) by insurance maintained with
responsible insurance companies; and
(v) Liens on property used or to be used by
the Borrower in the ordinary course of
business, securing payment of all or part
of the purchase price thereof, provided
that such Liens are limited to the
property so purchased and additions and
improvements thereto and proceeds thereof;
(10) not to create, incur, assume or suffer to exist or
otherwise become or be liable in respect of any
indebtedness, other than, without duplication, the
following:
(i) indebtedness in respect of the Credit; and
(ii) unsecured indebtedness incurred in the
ordinary course of business (including
open accounts extended by suppliers on
normal trade terms in connection with
purchases of goods and services and up to
an aggregate of US$2,000,000 of letters of
credit reimbursement liability, but
excluding other indebtedness incurred
through the borrowing of money or
contingent liabilities) including, without
limitation, accrued expenses, taxes
payable, accrued environmental
liabilities, deferred employment benefits
and deferred income taxes, to the extent
incurred in the ordinary course of
business;
provided, however, that no indebtedness otherwise
permitted by clauses (i) or (ii) shall be permitted
if, after giving effect to the incurrence thereof,
any Default shall have occurred and be continuing;
(11) not to purchase or develop any real property
without the prior written consent of the Bank;
(12) not to declare, pay or make any dividend or
distribution (in cash, property or obligations) on
any shares of any class of capital stock (now or
hereafter outstanding) of the Borrower or on any
warrants, options or other rights with respect to
any shares or any class of capital stock (now or
hereafter outstanding) of the Borrower (other than
dividends or distributions payable in its common
stock or warrants to purchase its common stock or
<PAGE> 15
To: Penwest Pharmaceuticals Co. Page 15
splitups or reclassifications of its stock into
additional or other shares of its common stock) or,
except as permitted in clause (20) below, to
repurchase any common stock or other equity
securities of the Borrower or its subsidiaries;
(13) not to make or assume any loan or make any advance
of money to any officer, director or employee of
the Borrower other than advances to employees for
expenses made in the ordinary course of business;
(14) not to liquidate or dissolve, consolidate with, or
merge into or with, any other corporation, or
purchase or otherwise acquire all or substantially
all of the assets of any Person (or of any division
thereof) except
(i) any subsidiary of the Borrower may
liquidate or dissolve voluntarily into,
and may merge with and into, the Borrower
or any other subsidiary of the Borrower so
long as, after giving effect thereto, the
Borrower is a surviving corporation, and
the assets or stock of any subsidiary of
the Borrower may be purchased or otherwise
acquired by the Borrower or any other
subsidiary of the Borrower; and
(ii) so long as no Event of Default has
occurred and is continuing or would occur
after giving effect thereto, the Borrower
or any of its subsidiaries may purchase
all or substantially all of the assets of
any Person, or acquire such Person by
merger; provided, however, that after
giving effect to any such merger the
Borrower or its subsidiary party thereto
is the surviving corporation.
As used in this Credit Agreement, "Person" means any
natural person, corporation, partnership, limited
liability company, firm, association, or trust;
(15) not to sell, lease, contribute or otherwise convey,
or grant options, warrants or other rights with
respect to, any or all of its assets (including
accounts receivable and capital stock of
subsidiaries) to any Person, unless such sale,
transfer, lease, contribution or conveyance or
grant is made in the ordinary course of its
business. For purposes of this covenant, the
license of the intellectual property or other
technology of the Borrower as part of
<PAGE> 16
To: Penwest Pharmaceuticals Co. Page 16
collaborations or otherwise shall be deemed made in
the ordinary course of business;
(16) not to enter into, or cause, suffer or permit to
exist any arrangement or contract with any of its
other Affiliates unless such arrangement or
contract is fair and equitable to the Borrower and
is an arrangement or contract of the kind which
would be entered into by a prudent Person in the
position of the Borrower with a Person which is not
one of its Affiliates. As used in this Credit
Agreement, "Affiliate" means any other Person
which, directly or indirectly, controls, is
controlled by or is under common control with the
Borrower, other than Penford or its subsidiaries. A
Person shall be deemed to be "controlled by" any
other Person if such other Person possesses,
directly or indirectly, power (i) to vote 15% or
more of the securities (on a fully diluted basis)
having ordinary voting power for the election of
directors or managing general partners; or (ii) to
direct or cause the direction of the management and
policies of such Person whether by contract or
otherwise;
(17) not to take part in any dissolution or
reorganization or in any similar proceeding or
arrangement;
(18) not to use any part of the proceeds of the Credit
to purchase or carry "margin stock" as defined in
Regulation U of the Board of Governors of the
Federal Reserve System;
(19) not to purchase or redeem any of the capital stock
of the Borrower, except for the purchase of common
stock of the Borrower to be held in the Borrower's
401(k) plan where the purchase price of such stock
does not exceed US$200,000 in the aggregate in any
calendar year;
(20) not to make, incur, assume or suffer to exist any
investment in any other Person, except:
(i) Cash Equivalent Investments;
(ii) in the ordinary course of business,
investments made in connection with the
establishment or maintenance by the
Borrower of research and development
collaborations;
<PAGE> 17
To: Penwest Pharmaceuticals Co. Page 17
(iii) without duplication, investments permitted
as indebtedness pursuant to clause (10) of
this section;
(iv) in the ordinary course of business,
investments by the Borrower in any of its
subsidiaries, or by any such subsidiary in
any of its subsidiaries or any other
subsidiary, by way of contributions to
capital or loans or advances; and
(v) other investments in an aggregate amount
at any time not to exceed US$2,000,000
minus any losses on such investments;
provided, however, that no investment otherwise
permitted by clause (ii), (iii), or (iv) shall be
permitted to be made if, immediately before or
after giving effect thereto, any Event of Default
shall have occurred and be continuing. As used in
this Credit Agreement, "Cash Equivalent Investment"
means , at any
time:
(i) any obligation, maturing not more than one
year after such time, issued or guaranteed
by the United States government;
(ii) municipal notes or note funds rated at the
time of purchase, SP-1/A-1 or SP-2/A-2 by
Standard & Poor's Ratings Group or VMIG1
or VMIG2 by Moody's Investors Service,
Inc.; municipal bonds or bond funds rated
at the time of purchase, AAA or AA by
Standard & Poor's Ratings Group or Aaa or
Aa by Moody's Investors Service, Inc.; or
money market funds rated at the time of
purchase, A-1 by Standard & Poor's Ratings
Group or P-1 by Moody's Investors Service,
Inc.;
(iii) commercial paper, maturing not more than
nine months from the date of issue, which
is issued by (x) a corporation (other than
an Affiliate of any Obligor) organized
under the laws of any state of the United
States or of the District of Columbia and
rated at least A-2 by Standard & Poor's
Ratings Group or at least P-2 by Moody's
Investors Service, Inc., or (y) the Bank;
or
<PAGE> 18
To: Penwest Pharmaceuticals Co. Page 18
(iv) any certificate of deposit or bankers
acceptance, maturing not more than one
year after such time, which is issued by
either (i) a commercial banking
institution that is a member of the
Federal Reserve System and has a combined
capital and surplus and undivided profits
of not less than US$500,000,000, or (ii)
the Bank.
EVENTS OF Upon the occurrence and continuation of any Event of
DEFAULT Default, the Bank may terminate the Credit and/or
demand payment of all indebtedness and liability
outstanding and accrued thereunder to the date of demand
and proceed to take such steps as it deems fit including
proceedings to realize under any security it holds in that
respect.
An Event of Default shall occur if:
(1) the Borrower fails to pay any amount of principal,
interest, fees or other amounts within three
Business Days of when due under this Credit
Agreement; or
(2) the Borrower breaches any of its covenants
hereunder and such breach of covenant (other than a
covenant to pay) continues for ten Business Days or
more after notice to remedy same; provided,
however, that in the event that such breach cannot
reasonably be cured within ten Business Days after
notice to remedy same, the failure to cure such
breach within the ten Business Day cure period
shall not constitute an Event of Default if:
(i) substantial progress is made to cure such
breach within the ten Business Day cure
period;
(ii) cure is completed as soon as possible
after the ten Business Day cure period;
and
(iii) the passage of the ten Business Day cure
period will not jeopardize the ability of
the Bank to collect all sums due or to
become due to the Bank; or
(3) the Borrower makes any representation or warranty
hereunder which is incorrect in any material
respect when made and a cure is not effected within
ten Business Days or more after notice to remedy
same; provided, however, that in the event that
such cure cannot reasonably be effected within ten
Business Days after notice
<PAGE> 19
To: Penwest Pharmaceuticals Co. Page 19
to remedy same, the failure to cure within the ten
Business Day cure period shall not constitute an
Event of Default if:
(i) substantial progress is made to effect a
cure within the ten Business Day cure
period;
(ii) cure is completed as soon as possible
after the ten Business Day cure period;
and
(ii) the passage of the ten Business Day cure
period will not jeopardize the ability of
the Bank to collect all sums due or to
become due to the Bank; or
(4) the Borrower admits in writing its inability to pay
its debts generally; fails to pay a material amount
of any of its indebtedness when due and such
failure continues after any applicable grace period
specified in any agreement or instrument relating
to such indebtedness (provided, however, that the
failure to pay indebtedness in connection with the
Borrower's purchase of goods or services in the
ordinary course of business shall, if the Borrower
disputes such indebtedness in good faith, not be an
Event of Default hereunder for a period of 45 days
after the expiration of the applicable grace period
specified in any agreement or instrument relating
to such indebtedness); permits any material default
under any agreement or instrument relating to its
indebtedness, or any other event, to occur and to
continue after any applicable grace period
specified in such agreement or instrument and the
effect of such default or event is to accelerate
the maturity of a material amount of such
indebtedness; is the subject of (i) a voluntary
bankruptcy proceeding, or (ii) an involuntary
bankruptcy proceeding which is not dismissed within
60 days; or, becomes subject to any proceeding
seeking liquidation, rearrangement, relief of
creditors or the appointment of a receiver or
trustee over, or any judgment or order which has or
might have a material and adverse effect on, any
substantial part of its property; or
(5) any course of action is undertaken by the Borrower
which is intended to result in, or would result (in
the reasonable opinion of the Bank) in the transfer
of all or substantially all of the assets of the
Borrower; or
<PAGE> 20
To: Penwest Pharmaceuticals Co. Page 20
(6) any person (as the term "person" is defined in the
Securities Exchange Act of 1934, as amended (the
"Exchange Act")), or two or more persons acting in
concert, acquires beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Exchange Act) of
one-third (1/3) or more of the outstanding shares
of voting stock of the Borrower; or
(7) the Borrower is dissolved; or
(8) Penford or Penford Products at any time breaches
any agreement, covenant or warranty under its
Guarantee and such breach is not cured within the
time specified for cure under the Guarantee or
waived by the Bank, or the Guarantee fails to
remain in full force and effect; or
(9) an event of default occurs and is continuing under
any credit agreement with Penford under which the
Bank is either the sole lender or a participating
lender, provided, however, that in no event shall a
default caused solely by a change in control of
Penford be deemed an Event of Default under this
Credit Agreement; or
(10) a material Reportable Event or Prohibited
Transaction, as defined in ERISA, occurs and is
continuing or a material accumulated funding
deficiency is incurred within the meaning of ERISA,
or a material liability to the Pension Benefit
Guaranty Corporation occurs and is continuing
which, in the opinion of independent Certified
Public Accountants of recognized standing selected
by the Borrower, will have a material adverse
financial effect on the financial condition of the
Borrower.
GAAP Any accounting terms used and not specifically defined
herein shall be construed in accordance with Generally
Accepted Accounting Principles as established by the
Financial Accounting Standards Board ("GAAP"),
consistently applied, and except as may be otherwise
provided herein all financial data and statements
submitted pursuant to this Credit Agreement shall be
prepared in accordance with such principles.
INDEMNITY If the introduction or implementation of or any change in
PROVISIONS or in the interpretation of, or any change in its
application to the Borrower of, any law or any regulation
or guideline issued by any central bank or other
governmental authority (whether or not having the force of
law), including, without limitation, any reserve or
special deposit requirement
<PAGE> 21
To: Penwest Pharmaceuticals Co. Page 21
or any tax (other than tax on the Bank's general income)
or any capital requirement, has due to the Bank's
compliance the effect, directly or indirectly, of (i)
increasing the cost to the Bank of performing its
obligations hereunder; (ii) reducing any amount received
or receivable by the Bank or its effective return
hereunder; or (iii) causing the Bank to make any payment
or to forgo any return based on any amount received or
receivable by the Bank hereunder, then upon demand from
time to time the Borrower shall pay such amount as shall
compensate the Bank for any such cost, reduction, payment
or foregone return. The Borrower shall further indemnify
the Bank for all costs, losses and expenses incurred by
the Bank in connection with the early termination of any
LIBOR Period and agrees that the Bank shall have no
liability to the Borrower for any reason in respect of any
Availment other than on account of the Bank's negligence
or wilful misconduct. Any certificate of the Bank in
respect of the foregoing which presents the calculations
relied upon by the Bank in reasonable detail will be
conclusive and binding upon the Borrower, except for
manifest error, provided that the Bank shall determine the
amounts owing to it in good faith using any reasonable
averaging and attribution methods.
INDEMNITY FOR The Borrower hereby represents and warrants that the
ENVIRON- Borrower's businesses and assets and those of its
MENTAL subsidiaries are operated in material compliance with
HAZARDS applicable Environmental Laws and that no enforcement
action in respect thereof is threatened or pending, and
the Borrower covenants to and to cause its subsidiaries to
continue to so operate. If at any time the Bank has
reasonable grounds for believing that the Borrower or one
of its subsidiaries is not complying with applicable
Environmental Laws then the Bank may request that the
Borrower permit the Bank to conduct inspections, audits
and appraisals of all or any of the records, business and
assets of the Borrower and each of its subsidiaries, with
the Bank to be indemnified by the Borrower for reasonable
costs that it may incur with respect to such inspections,
audits and appraisals if any material violation of
applicable Environmental Laws is identified. The Borrower
shall not unreasonably withhold its consent to such
inspections, audits and appraisals, provided that
negotiations between the Borrower and the Bank have been
conducted which have resulted in the Bank and the Borrower
reaching agreement as to what constitute reasonable costs
for such inspections, audits or appraisals. If the Bank is
required to expend any funds in compliance with applicable
Environmental Laws, or court orders in respect thereof,
the Borrower shall indemnify the Bank in respect of such
expenditures as if an advance had been made to the
Borrower under this Credit Agreement for such purpose. For
purposes of this Credit Agreement, "Environmental Laws"
means the Comprehensive
<PAGE> 22
To: Penwest Pharmaceuticals Co. Page 22
Environmental Response, Compensation and Liability Act of
1980 (42 U.S.C. Section 9601 et seq., as amended), the
Resource, Conservation and Recovery Act (42 U.S.C. Section
6901 et seq., as amended), and similar federal, state,
local and other statutes, ordinances, laws, rules and
regulations in connection with environmental conditions,
health and safety.
REPORTING The Borrower covenants to provide to the Branch, to the
attention of Corporate Banking:
(1) audited annual financial statements of the Borrower
within 120 days of each of its fiscal year-ends;
(2) unaudited quarterly financial statements of the
Borrower within 60 days of the end of each of the
first three quarters of each of the Borrower's
fiscal years;
(3) audited, annual, consolidated financial statements
of Penford within 120 days of the end of each of
Penford's fiscal years
(4) within 60 days of the end of each of the first
three quarters of each of the Borrower's fiscal
years and within 120 days of each of the Borrower's
fiscal year-ends, a certificate of a senior officer
of the Borrower that the officer has no knowledge
of any Event of Default, or of any event which,
with notice or lapse of time, would constitute an
Event of Default; and
(5) such other information as the Bank may reasonably
request.
WITHHOLDING All payments due hereunder shall be made free from any
TAXES & LEVIES withholding tax or levy (such taxes and levies, other than
taxes on the general income of the Bank, being the
"Taxes"). The Borrower shall pay any Taxes in addition to
such payments or shall indemnify the Bank for amounts paid
by the Bank in respect of any Taxes and shall obtain and
deliver to the Bank receipts in respect thereof.
EXPENSES All reasonable fees and out-of-pocket expenses of the
Bank, including without limitation the Bank's reasonable
attorney fees, in respect of preparation and enforcement
of this Credit Agreement or any other agreement or
instrument relating to the Credit, inspection and
investigation costs, and other like administrative costs
incurred during the currency of this Credit Agreement will
be for the account of the Borrower. In the event
litigation is commenced by a party hereto to enforce or
interpret any provision of this Credit Agreement, the
prevailing party in such litigation
<PAGE> 23
To: Penwest Pharmaceuticals Co. Page 23
shall be entitled to receive, in addition to all other
sums and relief, its reasonable costs and attorney fees,
incurred both at and in preparation for trial and any
appeal or review, such amount to be set by the court(s)
before which the matter is heard. The Borrower also agrees
to pay any reasonable attorney fees incurred by the Bank
in connection with any bankruptcy or similar proceedings
wherein the Borrower is the debtor.
EVIDENCE OF The Borrower acknowledges that the actual recording of
INDEBTEDNESS interest, fees and other amounts due with respect to the
Credit under this Credit Agreement in an account of the
Borrower maintained by the Bank in respect thereof and
payments made under the Credit in accordance with this
Credit Agreement shall constitute, except for obvious
error, conclusive evidence of the Borrower's indebtedness
and liability from time to time under this Credit
Agreement in respect of the Credit; provided that the
failure of the Bank to record same in such account shall
not affect the obligation of the Borrower to pay or repay
such indebtedness and liability in accordance with this
Credit Agreement.
USURY The provisions of this Credit Agreement shall be subject
RESTRAINTS to any applicable law, regulation, order, rule or
direction ("Usury Restraint") which prohibits or restricts
the charging, receipt or retention of interest or other
amounts at the rates and amounts set forth herein (the
"Stated Rate") in excess (the "Excess") of the maximum
rates or amount (the "Maximum Rate") stipulated in the
Usury Restraint. The provisions of this Credit Agreement
shall not require the payment or permit the collection of
interest in excess of the Maximum Rate from time to time.
If the Bank complies (whether or not required to do so at
law) with such Usury Restraint, then, to the extent
permitted by law, a subsequent reduction in the Stated
Rate below the Maximum Rate shall be deemed not to reduce
the Stated Rate below the Maximum Rate until the total
amount of interest and other amounts earned and retained,
measured by a dollar amount, equals the amount of interest
and other amounts which would have been earned and
retained hereunder, inclusive of the Excess, measured by a
dollar amount, if the Stated Rate had not been held at the
Maximum Rate or any amount had not been refunded to the
Borrower.
SEVERABILITY The invalidity or unenforceability of any particular
provision of this Credit Agreement shall not affect any
other provision herein and the Agreement shall be
construed as if the invalid or unenforceable provision had
been omitted.
ASSIGNABILITY The Borrower may not assign this Credit Agreement. The
Bank, with the Guarantor's approval, which approval shall
not be unreasonably withheld,
<PAGE> 24
To: Penwest Pharmaceuticals Co. Page 24
may assign or grant participation in its rights and
obligations hereunder, with each such assignee or
participant to be entitled to rely on the section headed
INDEMNITY PROVISIONS as set out above, provided, however,
that no assignment or participation shall increase the
liability of the Borrower for Taxes, indemnity or any
other amount payable by the Borrower to the Bank hereunder
over that for which the Borrower would be obligated in the
absence of such assignment or participation. The Bank may
also pledge its rights (but not its obligation to make the
advances under the Credit) under this Credit Agreement
and/or its advances hereunder to a Federal Reserve Bank in
support of borrowings made by the Bank from such Federal
Reserve Bank.
GOVERNING LAW This Credit Agreement shall be construed in accordance
& JURISDICTION with the law of the state of Oregon and for the purpose of
any legal actions or proceedings brought by the Bank in
respect of the same, the Borrower hereby irrevocably
submits to the non-exclusive jurisdiction of any state or
federal court of such state and acknowledge its competence
and the convenience and propriety of the venue and agree
to be bound by any judgment thereof and not to seek, and
hereby waive, any review of such judgments by the courts
of any other jurisdiction. IN ANY ACTION OR PROCEEDING
RELATING TO THIS CREDIT AGREEMENT, THE BORROWER WAIVES ANY
AND ALL RIGHTS TO TRIAL THEREOF BY JURY.
<PAGE> 25
To: Penwest Pharmaceuticals Co. Page 25
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY US AFTER
OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR
PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY US TO BE
ENFORCEABLE. THE TERM "US" MEANS THE BANK.
Please indicate your acceptance of this Credit Agreement by signing
and returning the enclosed duplicate copy of this letter on or before July 2,
1998.
Yours truly,
THE BANK OF NOVA SCOTIA
by: /s/ PATRIK G. NORRIS
---------------------------
Patrik G. Norris, Officer
Accepted this 2nd day of
July, 1998
Penwest Pharmaceuticals Co.,
a Washington corporation
By: /s/ JENNIFER L. GOOD
------------------------------------
Name: Jennifer L. Good
------------------------------------
Title: V.P. Finance & Chief Finance Officer
------------------------------------
<PAGE> 26
EXHIBIT A TO CREDIT AGREEMENT
NOTICE
Any notice or communication given under the Credit Agreement to which this
Exhibit is attached shall be deemed to have been given
(1) in the case of notice or communication to the Borrower, (i) upon
facsimile transmission to facsimile no. 914-878-3498 (confirming
telephone no. 914-878-8381), Attention: Jennifer L. Good, or to such
other facsimile number of which the Bank notifies the Borrower
pursuant to this Exhibit; provided that transmission is confirmed by
the sender's facsimile machine, or (ii) upon delivery in writing to
the Borrower, Attention: Jennifer L. Good, at its address as noted
on page 1 of the Credit Agreement, or at such other address of which
the Borrower notifies the Bank pursuant to this Exhibit;
(2) in the case of notice or communication to the Bank with respect to
administrative or operational issues, (i) upon facsimile
transmission to the Scotiabanc, Inc., facsimile no. 404-888-8998
(confirming telephone no. 404-877-1563), Attention: Ms. Hilma
Gabbidon, or to such other facsimile number of which the Bank
notifies the Borrower pursuant to this Exhibit; provided that
transmission is confirmed by the sender's facsimile machine, or (ii)
upon delivery in writing to the Scotiabanc, Inc., Attention: Ms.
Hilma Gabbidon, at Suite 2700, 600 Peachtree Street, N.E., Atlanta,
Georgia 30308, or at such other address of which the Bank notifies
the Borrower pursuant to this Exhibit; and
(3) in the case of notice or communication to the Bank with respect to
credit issues, (i) upon facsimile transmission to the Branch,
facsimile no. 503-222-5502 (confirming telephone no. 503-222-3148),
Attention: Patrik G. Norris, or to such other facsimile number of
which the Bank notifies the Borrower pursuant to this Exhibit;
provided that transmission is confirmed by the sender's facsimile
machine, or (ii) upon delivery in writing to the Branch at its
address as noted on page 1 of the Credit Agreement or at such other
address of which the Bank notifies the Borrower pursuant to this
Exhibit.
Notice or communication to the Scotiabanc, Inc. hereunder to be effective on a
certain Business Day must, unless otherwise provided in the Credit Agreement, be
given prior to 11:00 a.m. Atlanta, Georgia time on that Business Day. Notice or
communication to the Branch hereunder to be effective on a certain Business Day
must, unless otherwise provided in the Credit Agreement, be given prior to
11:00 a.m. Portland, Oregon time on that Business Day.
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Year Ended August 31, 1998
Wholly owned subsidiaries of the registrant are:
Penford Products Co.
incorporated under the laws of the State of Delaware
Penford Export Corporation
All subsidiaries are included in the consolidated financial statements.
<PAGE> 1
Exhibit 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8, No. 33-58799) pertaining to the Penford Corporation 1994 Stock Option Plan
and to the incorporation by reference in the Registration Statement (Form S-8,
No. 33-88946) pertaining to the Penford Corporation Savings and Stock Ownership
Plan of our report dated October 9, 1998, with respect to the consolidated
financial statements of Penford Corporation included in the Annual Report (Form
10-K) for the year ended August 31, 1998.
Seattle, Washington
November 20, 1998 ERNST & YOUNG LLP
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Jeffrey T. Cook, Victor W. Breed, Susan M.
Iverson and each of them, severally as attorney-in-fact for him or her in any
and all capacities, to sign the Annual Report on Form 10-K of Penford
Corporation for the fiscal year ended August 31, 1998, and to file same and any
amendments, with exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorney-in-fact, or his substitute or substitutes, may do or cause to
be done virtue hereof.
<TABLE>
<CAPTION>
Signature Date
- --------- ----
<S> <C>
/s/ Jeffrey T. Cook October 14, 1998
- -------------------------------------- -----------------------------
Jeffrey T. Cook, Director
/s/ Richard E. Engebrecht October 14, 1998
- -------------------------------------- -----------------------------
Richard E. Engebrecht, Director
/s/ Paul E. Freiman October 14, 1998
- -------------------------------------- -----------------------------
Paul E. Freiman, Director
/s/ Paul H. Hatfield October 14, 1998
- -------------------------------------- -----------------------------
Paul H. Hatfield, Director
/s/ Sally G. Narodick October 14, 1998
- -------------------------------------- -----------------------------
Sally G. Narodick, Director
/s/ William G. Parzybok, Jr. October 14, 1998
- -------------------------------------- -----------------------------
William G. Parzybok, Jr., Director
/s/ N. Stewart Rogers October 14, 1998
- -------------------------------------- -----------------------------
N. Stewart Rogers, Director
/s/ William K. Street October 14, 1998
- -------------------------------------- -----------------------------
William K. Street, Director
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT AUGUST 31, 1998, THE CONSOLIDATED STATEMENTS OF
INCOME AT AUGUST 31, 1998 AND THE CONSOLIDATED STATEMENTS OF CASH FLOW
AT AUGUST 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<CASH> 0
<SECURITIES> 3,200
<RECEIVABLES> 20,957
<ALLOWANCES> 0
<INVENTORY> 16,152
<CURRENT-ASSETS> 45,733
<PP&E> 107,049
<DEPRECIATION> 0
<TOTAL-ASSETS> 183,208
<CURRENT-LIABILITIES> 29,563
<BONDS> 0
0
0
<COMMON> 9,130
<OTHER-SE> 42,481
<TOTAL-LIABILITY-AND-EQUITY> 183,208
<SALES> 163,045
<TOTAL-REVENUES> 163,045
<CGS> 117,405
<TOTAL-COSTS> 117,405
<OTHER-EXPENSES> 27,441
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,794
<INCOME-PRETAX> 12,469
<INCOME-TAX> 4,359
<INCOME-CONTINUING> 8,110
<DISCONTINUED> (8,742)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (632)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.08)
</TABLE>
