Penford Corporation Third Amendment to Second Amended and Restated Credit Agreement

Exhibit 10.1

Penford Corporation

Third Amendment to Second Amended and Restated Credit Agreement

     This Third Amendment to Second Amended and Restated Credit Agreement (herein, the “Amendment” ) is dated July 9, 2009, by and among Penford Corporation, a Washington corporation (the “Borrower” ), the direct and indirect Subsidiaries of the Borrower from time to time party to the Credit Agreement, as Guarantors, the several financial institutions signing this Amendment as Lenders, and Bank of Montreal, a Canadian chartered bank, acting through its Chicago branch, as Administrative Agent.

Preliminary Statements

     A. The Borrower, the Guarantors, the Lenders and the Administrative Agent are parties to that certain Second Amended and Restated Credit Agreement dated as of October 5, 2006, as previously amended (the “Credit Agreement” ). All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement.

     B. The Borrower and the Lenders have agreed to make certain amendments to the Credit Agreement, in each case under the terms and conditions set forth in this Amendment.

      Now, Therefore, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

Section 1. Amendments to the Credit Agreement.

     Subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, the Credit Agreement shall be and hereby is amended as follows:

     1.1. Sections 1.8(a) and (b) of the Credit Agreement shall be amended to read as follows:

      Section 1.8. Maturity of Loans . (a) Scheduled Payments of Term Loans. The Borrower shall repay the entire outstanding principal amount of the Term Loans, together with accrued and unpaid interest thereon, on December 15, 2009.

     (b) Scheduled Payments of Capital Expansion Loans. The Borrower shall make principal payments on the Capital Expansion Loans on a pro rata basis in installments on each date set forth in Column A below, commencing September 30, 2009, with the amount of each such principal installment to equal the U.S. Dollar Equivalent set forth in Column B below shown opposite of the relevant due date as set forth in Column A below:

it being agreed that the final payment of both principal and interest not sooner paid on the Capital Expansion Loans shall be due and payable on November 30, 2010, the final maturity thereof. Each such principal payment shall be allocated to the Lenders holding the Capital Expansion Loans pro rata based upon their Capital Expansion Loan Percentages.

     1.2. Sections 1.9(b)(i), (ii), (iii) and (iv) of the Credit Agreement shall be amended to read as follows:

     (b) Mandatory . (i) (aa) If the Borrower or any Subsidiary shall at any time or from time to time make or agree to make a Disposition resulting in Net Cash Proceeds in excess of $500,000 (or the U.S. Dollar Equivalent thereof, if applicable) individually or on a cumulative basis in any fiscal year of the Borrower or if the Borrower shall suffer an Event of Loss, the Borrower shall promptly notify the Administrative Agent of such proposed Disposition or Event of Loss (including the amount of the estimated Net Cash Proceeds to be received by the Borrower or such Subsidiary in respect thereof).

     (bb) Promptly upon receipt by the Borrower or such Subsidiary of the Net Cash Proceeds of any Disposition, the Borrower shall prepay first, the Term Loans and the principal installment of the Capital Expansion Loans due on December 15, 2009, in each case until the Term Loans and such principal installment of the Capital Expansion Loans are paid in full, second to the remaining principal installments on the Capital Expansion Loans in the inverse order of maturity until paid in full, and then the Revolving Loans, Swing Loans and L/C Obligations (or all outstanding Loans and L/C Obligations if an Event of Default exists) in an aggregate amount equal to 100% of the amount of all such Net Cash Proceeds, subject to working capital adjustments acceptable to the Administrative Agent. The amount of each such prepayment shall be applied on a ratable basis among the relevant outstanding Obligations based on the principal amounts (in U.S. Dollar Equivalent) thereof.

     (cc) Promptly upon receipt by the Borrower or such Subsidiary of the Net Cash Proceeds of any Event of Loss, other than any Net Cash Proceeds

required to be used to prepay the indebtedness permitted by Section 8.7(g) hereof, the Borrower shall prepay first, the Term Loans, the principal installment of the Capital Expansion Loans due on December 15, 2009, and all other principal installments due on the Capital Expansion Loans in the inverse order of maturity, in each case until the Term Loans and the Capital Expansion Loans are paid in full, and then the Revolving Loans, Swing Loans and L/C Obligations (or all outstanding Loans and L/C Obligations if an Event of Default exists) in an aggregate amount equal to 100% of the amount of all such Net Cash Proceeds. The amount of each such prepayment shall be applied on a ratable basis among the relevant outstanding Obligations based on the principal amounts (in the U.S. Dollar Equivalent) thereof.

     (ii) If after the Closing Date the Borrower or any Subsidiary shall issue new equity securities (whether common or preferred stock or otherwise), other than equity securities issued in connection with the Borrower’s 2006 Long-Term Incentive Plan or the exercise of employee stock options, the Borrower shall promptly notify the Administrative Agent of the estimated Net Cash Proceeds of such issuance to be received by or for the account of the Borrower or such Subsidiary in respect thereof. Promptly upon receipt by the Borrower or such Subsidiary of Net Cash Proceeds of such issuance, the Borrower shall prepay first, the Term Loans and the principal installment of the Capital Expansion Loans due on December 15, 2009, until the Term Loans and such principal installment of the Capital Expansion Loans are paid in full, second to the remaining principal installments on the Capital Expansion Loans in the inverse order of maturity until paid in full, and then the Revolving Loans, Swing Loans and L/C Obligations (or all outstanding Loans and L/C Obligations if an Event of Default exists), in an aggregate amount equal to 100% of the amount of such Net Cash Proceeds. The amount of each such prepayment shall be applied on a ratable basis among the relevant outstanding Obligations based on the principal amounts (in U.S. Dollar Equivalent) thereof. The Borrower acknowledges that its performance hereunder shall not limit the rights and remedies of the Lenders for any breach of Section 8.11 (Maintenance of Subsidiaries) or Section 9.1(i) (Change of Control) hereof or any other terms of the Loan Documents.

     (iii) If after the Closing Date the Borrower or any Subsidiary shall issue any Indebtedness for Borrowed Money, other than Indebtedness for Borrowed Money permitted by Sections 8.7(a) through (f), (h) and (i) hereof, the Borrower shall promptly notify the Administrative Agent of the estimated Net Cash Proceeds of such issuance to be received by or for the account of the Borrower or such Subsidiary in respect thereof. Promptly upon receipt by the Borrower or such Subsidiary of Net Cash Proceeds of such issuance, the Borrower shall prepay first, the Term Loans and the principal installment of the Capital Expansion Loans due on December 15, 2009, until the Term Loans and such principal installment of the Capital Expansion Loans are paid in full, second to the remaining principal installments on the Capital Expansion Loans until paid in full, and then the Revolving Loans, Swing Loans and L/C Obligations (or all outstanding Loans and L/C Obligations if an Event of Default exists), in an aggregate amount equal to 100% of the amount of such Net Cash Proceeds, provided that any prepayment made with Net

Cash Proceeds of any Indebtedness for Borrowed Money permitted by Section 8.7(g) shall be applied to the remaining amortization payments on the Capital Expansion Loans in the reverse order of maturity. The amount of each such prepayment shall be applied on a ratable basis among the relevant outstanding Obligations based on the principal amounts (in U.S. Dollar Equivalent) thereof. The Borrower acknowledges that its performance hereunder shall not limit the rights and remedies of the Lenders for any breach of Section 8.7 hereof or any other terms of the Loan Documents.

     (iv) Within 90 days after the close of each fiscal year of the Borrower, beginning with the fiscal year ending August 31, 2009, the Borrower shall prepay first, the Capital Expansion Loans until the Capital Expansion Loans are paid in full and then the Revolving Loans, Swing Loans and L/C Obligations (or all outstanding Loans and L/C Obligations if an Event of Default exists), by an amount equal to 75% of Excess Cash Flow of the Borrower and its Subsidiaries for fiscal year. The amount of each such prepayment shall be applied on a ratable basis among the relevant outstanding Obligations based on the principal amounts (in U.S. Dollar Equivalent) thereof. Each prepayment of the Capital Expansion Loans made pursuant to this subsection (iv) shall be applied to the principal installments of the Capital Expansion Loans in the inverse order of maturity.

     1.3. Section 1.9(e) of the Credit Agreement shall be amended to read as follows:

     (e) Intentionally omitted.

     1.4. The definitions of the following terms appearing in Section 5.1 of the Credit Agreement shall be amended to read as follows:

      “EBITDA” means, with reference to any period, Net Income for such period plus the sum of all amounts deducted in arriving at such Net Income amount in respect of (a) Interest Expense for such period, (b) federal, state, and local income taxes for such period, (c) depreciation of fixed assets and amortization of intangible assets for such period, plus ( minus ) any non-cash losses (gains) but only to the extent such losses (gains) have not become a cash loss (or gain), plus non-cash stock compensation charges incurred in such period, minus (d) the aggregate amount of all insurance proceeds, including business interruption insurance proceeds, received by the Borrower and its Subsidiaries during such fiscal quarter as a result of the flooding of the Borrower’s facilities in Cedar Rapids, that commenced during the month of June 2008 (the “June 2008 Flood” ) to the extent included in Net Income, plus (e) the aggregate amount of all severance charges incurred by the Borrower in such fiscal quarters, provided the aggregate amount of such charges that are added to EBITDA pursuant to this clause (e) shall not exceed $2,500,000 during the term of this Agreement, plus (f) the amount of all non-cash charges incurred as a result of the accounting treatment of interest rate hedging arrangements, minus (g) the amount of all non-cash gains resulting from the accounting treatment of interest rate hedging arrangements.

      “Fixed Charges” means, with reference to any period, the sum of (a) all scheduled payments of principal (excluding the scheduled principal installments on the Capital Expansion Loans and the Term Loans due on December 15, 2009) paid in cash during such period with respect to Indebtedness for Borrowed Money of the Borrower and its Subsidiaries plus (b) Interest Expense paid in cash for such period plus (c) all Restricted Payments made by the Borrower during such period in cash, plus (d) federal, state, and local income taxes paid or payable by the Borrower and its Subsidiaries in cash during such period, minus (d) all federal, state, and local income tax refunds received by the Borrower and its Subsidiaries in cash during such period.

      “L/C Sublimit” means $1,500,000 as reduced pursuant to the terms hereof; provided, however that the L/C Sublimit may not be used for Letters of Credit issued for the benefit of Subsidiaries organized under the laws of the Commonwealth of Australia.

      “Revolving Credit Termination Date” means November 30, 2010, or such earlier date on which the Revolving Credit Commitments are terminated in whole pursuant to Section 1.13, 9.2 or 9.3 hereof.

      “Swing Line Sublimit” means $1,000,000, as reduced pursuant to the terms hereof.

     1.5. The table appearing in the definition of the term “Applicable Margin” appearing in Section 5.1 of the Credit Agreement shall be replaced with the following table:

Until the date on which the Administrative Agent is in receipt of the Borrower’s financial statements for the fiscal quarter ending August 31, 2009, the Applicable Margin shall be the rates per annum shown opposit