<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
================================================================================
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
PENWEST PHARMACEUTICALS CO.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and
state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
================================================================================
<PAGE> 2
[LOGO] PENWEST PHARMACEUTICALS CO.
PATTERSON, NEW YORK
May 3, 1999
Dear Shareholders:
You are cordially invited to attend the annual meeting of shareholders of
Penwest Pharmaceuticals Co. to be held on Wednesday, June 2, 1999 at 10:30 a.m.
at the Ethan Allen Inn, 21 Lake Avenue Extension, Danbury, Connecticut.
In addition to the items set forth in the accompanying Notice of Annual
Meeting of Shareholders and Proxy Statement, we will report on current
activities of the Company and will provide an opportunity to discuss matters of
interest to you as a shareholder.
We sincerely hope you will be able to attend our Annual Meeting. However,
whether or not you plan to attend, please sign, date and promptly return the
enclosed proxy to ensure that your shares are represented.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in Penwest.
Very truly yours,
/s/ Tod R. Hamachek
TOD R. HAMACHEK
Chairman of the Board and
Chief Executive Officer
<PAGE> 3
PENWEST PHARMACEUTICALS CO.
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 2, 1999
------------------------
To the Shareholders:
Notice is hereby given that the Annual Meeting of Shareholders of Penwest
Pharmaceuticals Co., a Washington corporation (the "Company"), will be held at
the Ethan Allen Inn, 21 Lake Avenue Extension, Danbury, Connecticut, on
Wednesday, June 2, 1999, at 10:30 a.m., for the following purposes:
1. To elect two Class II directors for the ensuing three years;
2. To ratify the selection of Ernst & Young LLP as independent auditors
for the current fiscal year; and
3. To transact such other business as may properly come before the meeting
or at any adjournment thereof.
The Board of Directors has no knowledge of any other business to be
transacted at the meeting.
A copy of the Company's Annual Report to Shareholders for the year ended
December 31, 1998, which contains financial statements and other information of
interest to shareholders, accompanies this notice and the enclosed proxy
statement.
Only shareholders of record at the close of business on April 16, 1999 are
entitled to notice of, and to vote at, the meeting and at any adjournments
thereof.
By Order of the Board of Directors
/s/ Jennifer L. Good
----------------------------------
JENNIFER L. GOOD
Corporate Secretary
May 3, 1999
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN
PROMPTLY THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES. PROMPTLY SIGNING, DATING AND RETURNING THE PROXY
WILL SAVE THE COMPANY THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION.
<PAGE> 4
PENWEST PHARMACEUTICALS CO.
2981 ROUTE 22
PATTERSON, NEW YORK 12563
------------------------
PROXY STATEMENT
------------------------
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of Penwest Pharmaceuticals Co.,
a Washington corporation ("Penwest" or the "Company"), to be voted at the 1999
Annual Meeting of Shareholders of the Company to be held at 10:30 a.m. on June
2, 1999 at the Ethan Allen Inn, 21 Lake Avenue Extension, Danbury, Connecticut,
and at any adjournment thereof.
All proxies will be voted in accordance with the instructions of the
shareholder. If no choice is specified, the proxies will be voted in favor of
the matters set forth in the accompanying Notice. Any proxy may be revoked by a
shareholder at any time before its exercise by delivery of a written revocation
or a subsequently dated proxy to the Secretary of the Company or by voting in
person at the meeting. Attendance at the meeting will not itself be deemed to
revoke a proxy unless the shareholder gives affirmative notice at the meeting
that the shareholder intends to revoke the proxy and vote in person.
THE NOTICE OF THE MEETING, THIS PROXY STATEMENT, THE ENCLOSED PROXY AND THE
COMPANY'S ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1998 ARE
BEING MAILED TO SHAREHOLDERS ON OR ABOUT MAY 3, 1999. THE COMPANY, WILL, UPON
WRITTEN REQUEST OF ANY SHAREHOLDER, FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), WITHOUT EXHIBITS. PLEASE ADDRESS
ALL SUCH REQUESTS TO THE COMPANY, ATTENTION OF JENNIFER L. GOOD, CHIEF FINANCIAL
OFFICER, 2981 ROUTE 22, PATTERSON, NEW YORK, 12563. EXHIBITS TO SUCH FORM 10-K
WILL BE PROVIDED UPON WRITTEN REQUEST AND PAYMENT OF AN APPROPRIATE PROCESSING
FEE.
VOTING SECURITIES AND VOTES REQUIRED
On April 16, 1999, the record date for determination of shareholders
entitled to notice of and to vote at the meeting, there were outstanding and
entitled to vote an aggregate of 11,103,264 shares of Common Stock of the
Company, $.001 par value per share (the "Common Stock").
The holders of a majority of the shares of Common Stock issued and
outstanding and entitled to vote at the meeting shall constitute a quorum for
the transaction of business at the meeting. Shares of Common Stock present in
person or represented by proxy (including shares which abstain or do not vote
with respect to one or more of the matters presented for shareholder approval)
will be counted for purposes of determining whether a quorum is present at the
meeting.
The affirmative vote of the holders of a plurality of the votes cast by the
shareholders entitled to vote at the meeting is required for the election of
directors. The votes cast by the shares entitled to vote favoring the action
must exceed the votes cast by the shares entitled to vote opposing the action
for the ratification of the selection of the Company's independent auditors.
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes in favor of such matter, and will also not
be counted as votes cast or shares voting on such matter. Accordingly,
abstentions and "broker non-votes" will have no effect on the voting on a matter
that requires the affirmative vote of a certain percentage of the votes cast or
shares voting on a matter.
1
<PAGE> 5
SPIN-OFF
On August 31, 1998 Penwest became an independent public company when
Penwest's former parent corporation, Penford Corporation ("Penford"),
distributed to the shareholders of record of Penford common stock on August 10,
1998 all of the shares of the Company's Common Stock ("the Distribution"). In
connection with the Distribution, the Company's Common Stock was listed and was
available for trading on the Nasdaq National Market on August 10, 1998.
1. ELECTION OF DIRECTORS
The Company has a classified Board of Directors consisting of three Class I
Directors, two Class II Directors and three Class III Directors. At each annual
meeting of shareholders, directors are elected for a full term of three years to
succeed those whose terms are expiring. Two Class II Directors will be elected
at the meeting for a three-year term expiring at the 2002 Annual Meeting. The
term for the Class I Directors will expire at the 2001 Annual Meeting, and the
term for the Class III Directors will expire at the 2000 Annual Meeting.
The persons named in the enclosed proxy will vote to elect, as Class II
Directors, Jere Goyan and Anne VanLent, the director nominees named below,
unless the proxy is marked otherwise. Dr. Goyan and Ms. VanLent are currently
directors of the Company.
Each Class II Director will be elected to hold office until the annual
meeting of shareholders to be held in 2002 and until his or her successor is
elected and qualified. Each of the nominees has indicated his or her willingness
to serve, if elected; however, if any nominee should be unable to serve, the
person acting under the proxy may vote the proxy for a substitute nominee
designated by the Board of Directors. The Board of Directors has no reason to
believe that either of the nominees will be unable to serve if elected.
Set forth below are the name and age of each member of the Board of
Directors, including those who are nominees for election as Class II Directors,
whose term of office will continue beyond the date of the meeting, and the
position and offices held by such member, his or her principal occupation and
business experience during the past five years, the names of other publicly held
companies which he or she serves as a director and the year of the commencement
of his or her term as a director of the Company.
Nominees for Election (Class II Directors)
DR. JERE E. GOYAN, 68, has served as a director for the Company since
October 1997. Dr. Goyan also chairs Penwest's Scientific Advisory Board and
serves on the Audit Committee. Dr. Goyan served as President and Chief Operating
Officer of Alteon, Inc., ("Alteon"), a pharmaceutical company, from April 1993
through December 1998. Prior to that he was Senior Vice President for Research
and Development from January 1993 through April 1993 and served as a member of
the Scientific Advisory Board of Alteon from its founding in May 1987. Dr. Goyan
is Professor Emeritus of Pharmacy and Pharmaceutical Chemistry and Dean Emeritus
of the School of Pharmacy, University of California ("UCSF"). He has been on the
faculty of the School of Pharmacy at UCSF since 1963. He took a leave of absence
from 1979 to 1981 to serve as Commissioner of Food and Drugs of the United
States (FDA). Dr. Goyan is a director of ATRIX Laboratories, Inc., Emisphere
Technologies, Inc., and SciClone Pharmaceuticals, Inc., each a biopharmaceutical
firm, and Boehringer Ingelheim Pharmaceuticals, Inc., a pharmaceutical company.
ANNE M. VANLENT, 51, has served as a director of the Company since December
1998. Ms. VanLent has served as a Vice President, Ventures at the Sarnoff
Corporation, an electronics company, since August, 1997. Prior to that, she
served as President of AMV Associates, an emerging growth healthcare consulting
firm from March 1994 through August 1997, and served as Senior Vice President
and Chief Financial Officer of The
2
<PAGE> 6
Liposome Company, Inc., a biotechnology company, from 1980 through 1986. She
currently serves on the board of several private emerging growth companies.
CLASS III DIRECTORS (TERM EXPIRES 2000)
TOD R. HAMACHEK, 53, has served as Chairman of the Board and Chief
Executive Officer of the Company since October 1997. Prior to that, he served as
President and Chief Executive Officer of Penford from 1985 through August 1998
and as a director of Penford from 1983 through August 1998. He is also a
director of Northwest Natural Gas Company, a natural gas distribution company.
Mr. Hamachek holds an M.B.A. from the Harvard Business School and a B.A. from
Williams College. Mr. Hamachek serves on the Executive Committee of the Board.
ROBERT HENNESSEY, 56, has served as a director of the Company since October
1997. Mr. Hennessey has served as Chairman, President and Chief Executive
Officer of Genome Therapeutics Corporation, a biotechnology company, since March
1993. Prior to that, Mr. Hennessey served as President of Hennessey &
Associates, Inc., a strategic consulting firm to biotechnology and healthcare
companies from 1990 to 1993. Prior to that, Mr. Hennessey was Senior Vice
President of Corporate Development for Sterling Drug, Inc. and also served in
various executive assignments at Merck & Co., Inc., SmithKline Beecham PLC and
Abbott Laboratories, each pharmaceutical company. Mr. Hennessey is also a
director of Virus Research Institute, Inc., a biotechnology company and
Repligen, Inc., a biotechnology company. Mr. Hennessey holds an M.A. in
Political Science and an A.B. in Liberal Arts from the University of
Connecticut. Mr. Hennessey serves as Chairman of Penwest's Compensation and
Benefits Committee and also serves on the Executive Committee.
DR. JOHN N. STANIFORTH, 45, has served as a director of the Company since
December 1998. Dr. Staniforth has served as a Professor of Pharmaceutics
Technology at the University of Bath since September 1980. Dr. Staniforth serves
as scientific advisor to a variety of international pharmaceutical companies and
has extensive teaching and research experience, chiefly at the University of
Bath, Department of Pharmacy and Pharmacology in Bath, England, at Rutgers and
Cornell Universities in the United States and at Monash University in Australia.
His research into powder mixing technology has been widely published and Dr.
Staniforth is the recipient of numerous scientific awards including the
Churchill Fellowship, the Pfizer Medal for Pharmaceutical Research and the
Special Upjohn Award for research in the field of microwave and radio-frequency
drying. Dr. Staniforth has served as a consultant to Penwest since its inception
and is the co-inventor of two of the Company's technologies: TIMERx and ProSolv.
Dr. Staniforth serves on Penwest's Scientific Advisory Board.
CLASS I DIRECTORS (TERM EXPIRES 2001)
PAUL E. FREIMAN, 64, has served as a director of the Company since October
1997. Mr. Freiman has served as the Chief Executive Officer and President of
Neurobiological Technologies Inc., a biotechnology company, since May 1997 and
as Chairman of the Board of Digital Gene Technologies, a biotechnology company,
since February 1995. Mr. Freiman served as Chairman and Chief Executive Officer
of Syntex Corporation, a pharmaceutical company from 1990 to 1995. Mr. Freiman
served on the Penford board until January 1999, and is a director of several
private companies. He is a graduate of Fordham University with a B.S. in
Pharmacy. Mr. Freiman serves as the Board's lead director and is also a member
of the Compensation Committee and the Executive Committee.
ROLF H.HENEL, 61, has served as a director of the Company since October
1997. Mr. Henel has served as Executive Director of Performance Effectiveness
Corp., a consulting firm to the pharmaceutical industry since June 1995 and as a
partner of Naimark & Associates P.C., a consulting firm for the healthcare
industry, since September 1994. From 1978 to 1993 Mr. Henel served in a variety
of positions at American Cyanamid Co., a
3
<PAGE> 7
pharmaceutical company, most recently as President of Cyanamid
International -- Lederle Division, as well as Vice Chairman of Lederle's Medical
Research Planning Committee. He is a director and chairman of the Audit
Committee of SciClone Pharmaceuticals, a biopharmaceutical company. Mr. Henel
holds an M.B.A. from New York University and a B.A. from Yale University. Mr.
Henel is a member of Penwest's Audit Committee.
N. STEWART ROGERS, 69, has served as a director of the Company since
October 1997. Mr. Rogers has been the Chairman of the Board of Penford
Corporation since 1990 and has served as a director of Penford since 1983. He
served as Senior Vice President of Univar Corporation, a distributor of
industrial chemical products, until retiring in 1991. Mr. Rogers is a director
of VWR Scientific Products, a laboratory supply company, and Royal Pakhoed, N.V.
(the Netherlands), a chemical logistics and distribution company. He is a
graduate of Stanford University with a B.A. in Economics. Mr. Rogers serves as
Chairman of Penwest's Audit Committee, and is a member of the Compensation
Committee.
4
<PAGE> 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of March 31, 1999, regarding
the beneficial ownership of the Company's Common Stock (i) by any person known
to the Company to be the beneficial owner of more than five percent of such
outstanding Common Stock, (ii) by each director, (iii) by each executive officer
named in the Summary Compensation Table and (iv) by the directors and executive
officers as a group.
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL
OWNERSHIP OF
NAME (AND ADDRESS FOR BENEFICIAL OWNERS OVER 5%) COMMON STOCK (1) PERCENT OF CLASS
------------------------------------------------ -------------------- ----------------
<S> <C> <C>
5% Shareholders:
David L. Babson & Co., Inc.................................. 744,000(2) 6.70%
One Memorial Drive
Cambridge, MA 02142
Tod R. Hamachek............................................. 576,218(3) 5.16
2981 Route 22
Patterson, NY 12563
Other Directors:
Paul E. Freiman............................................. 20,252(4) *
Jere E. Goyan............................................... 14,000(4) *
Rolf H. Henel............................................... 12,750(4) *
Robert J. Hennessey......................................... 15,958(4) *
N. Stewart Rogers........................................... 250,586(5) 2.24
Anne VanLent................................................ 9,833(4) *
John Staniforth............................................. 10,969(4) *
Other Named Executive Officers:
John V. Talley, Jr.......................................... 82,531(6) *
Anand R. Baichwal........................................... 41,009(7) *
Stephen J. Berte, Jr........................................ 11,480(8) *
Jennifer L. Good............................................ 37,734(9) *
Paul K. Wotton.............................................. 21,934(10) *
All directors and executive officers as a group (13
persons).................................................. 1,105,254(11) 9.70
</TABLE>
- ---------------
* Represents less than 1%.
(1) The number of shares beneficially owned by each person or entity known by
the Company to own beneficially more than 5% of the outstanding voting
stock, director and executive officer is determined under rules promulgated
by the SEC, and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership
includes any shares as to which an individual or group has sole or shared
voting power or investment power and also any shares which an individual or
group has the right to acquire within 60 days after March 31, 1999 through
the exercise of any stock option, warrant or other right. The inclusion
herein of such shares, however, does not constitute an admission that the
named shareholder is a direct or indirect beneficial owner of such shares.
Unless otherwise indicated, each person or group named in the table has
sole voting and investment power (or shares such power with his or her
spouse) with respect to all shares or common stock listed as owned by such
person or entity.
(2) Share ownership based on Schedule 13G filed with the SEC on February 11,
1999.
(3) Includes 74,391 shares subject to outstanding stock options held by Mr.
Hamachek, which are exercisable within the 60-day period following March
31, 1999.
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<PAGE> 9
(4) Includes 12,752 shares subject to outstanding stock options held by Mr.
Freiman, 6,500 shares subject to outstanding stock options held by Dr.
Goyan, 5,250 shares subject to outstanding stock options held by Mr. Henel,
8,458 shares subject to outstanding stock options held by Mr. Hennessey,
583 shares subject to outstanding stock options held by Ms. VanLent and 583
shares subject to outstanding stock options held by Dr. Staniforth, which
are exercisable within the 60-day period following March 31, 1999.
(5) Includes 180,000 shares held in a Grantor Annuity Trust for which Mr.
Rogers has sole voting power, as well as 61,933 shares subject to
outstanding stock options held by Mr. Rogers, which are exercisable within
the 60-day period following March 31, 1999.
(6) Includes 15,363 shares subject to outstanding stock options held by Mr.
Talley, which are exercisable within the 60-day period following March 31,
1999.
(7) Includes 40,104 shares subject to outstanding stock options held by Dr.
Baichwal, which are exercisable within the 60-day period following March
31, 1999.
(8) Includes 9,146 shares subject to outstanding stock options held by Mr.
Berte, which are exercisable within the 60-day period following March 31,
1999.
(9) Includes 34,558 shares subject to outstanding stock options held by Ms.
Good, which are exercisable within the 60-day period following March 31,
1999.
(10) Includes 18,888 shares subject to outstanding stock options held by Dr.
Wotton, which are exercisable within the 60-day period following March 31,
1999.
(11) Includes an aggregate of 288,509 shares subject to outstanding stock
options which are exercisable within the 60-day period following March 31,
1999.
COMMITTEES OF THE BOARD
The Board of Directors has the following standing committees:
The Board has established a Compensation and Benefits Committee, an Audit
Committee and an Executive Committee. The Compensation and Benefits Committee
makes recommendations to the Board with respect to the compensation of directors
and executive officers and also supervises the Company's employee benefit plans.
The Compensation Committee consists of Messrs. Freiman, Hennessey and Rogers.
See "Compensation and Benefits Committee Report on Executive Compensation".
The Audit Committee recommends to the Board the selection of the
independent auditors, reviews the proposed scope of the independent audit,
reviews the annual financial statements and the independent auditors' report,
reviews the independent auditors' recommendations relating to accounting,
internal controls and other matters, and reviews internal controls and
accounting procedures with the management. The Audit Committee consists of
Messrs. Henel and Rogers and Dr. Goyan.
The Executive Committee exercises all powers and authority of the Board
with certain exceptions as provided under Washington law. The Executive
Committee consists of Messrs. Freiman, Hamachek and Hennessey.
The Audit Committee met one time; the Compensation and Benefits Committee
met three times; the Executive Committee did not meet during fiscal year 1998;
and the Board of Directors met six times during the fiscal year ended December
31, 1998. All directors attended 75% or more of the Board meetings and meetings
of committees on which they served.
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<PAGE> 10
DIRECTOR COMPENSATION
<TABLE>
<S> <C>
Non-employee directors were compensated during the last
fiscal year as follows:
Annual retainer for the lead director....................... $14,500
Annual retainer as a director............................... 7,500
Fee for each meeting of the Board of Directors attended..... 1,500
Reimbursement for all reasonable expenses incurred in
attending Board or committee meetings
</TABLE>
Each director may elect to receive the above fees in the form of stock
options under the Company's 1997 Equity Incentive Plan (the "1997 Plan"), which
options, if elected, will be granted as of the date such fees are earned to
purchase the number of shares of Common Stock determined by dividing the amount
of the fees earned by 25% of the fair market value of one share of Common Stock
on the grant date. The exercise price of such options will equal 75% of the fair
market value of one share of Common Stock on the grant date and will be
immediately exercisable. In 1998, the Company issued options to purchase 12,635
shares to directors in lieu of director fees.
Non-employee directors were each granted options under the 1997 Plan to
purchase 2,333 shares of Common Stock on September 1, 1998. These options vested
on December 31, 1998. Non-employee directors are also granted annual options
under the 1997 Plan to purchase 7,000 shares of Common Stock on January 1, of
each year, commencing in 1999. All such options will vest on the first
anniversary date of grant. However, the exercisability of these options will be
accelerated upon the occurrence of a change in control of the Company. The
exercise price of all such options granted will equal the fair market value of
one share of Common Stock on the grant date. On January 1, 1999 each
non-employee director was granted a stock option to purchase 7,000 shares of
Common Stock at an exercise price of $6.59 per share.
Upon the Distribution Date each of the Company's non-employee directors
received, and upon the date of the initial election of any non-employee
directors thereafter, such non-employee director will receive, the right to
receive up to 7,500 shares of Common Stock under the 1997 Plan on the earlier of
(i) the date four years from the date of grant or (ii) the date upon which such
director ceases to be a director by reason of death, permanent disability,
resignation or retirement. The right to receive these shares will vest in four
equal annual installments commencing upon the first anniversary date of grant.
EXECUTIVE COMPENSATION
Compensation paid by the Company or Penford during fiscal years 1998, 1997
and 1996 to the Chief Executive Officer of the Company, the former President and
Chief Operating Officer, and the Company's other four most highly compensated
executive officers is set out in the following table.
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<PAGE> 11
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- -------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) OPTIONS(#) COMPENSATION(3)
--------------------------- ---- -------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Tod R. Hamachek(4)............... 1998 $332,000 $89,325 610,501(5) $24,926
Chairman and Chief 1997 340,000 453,934 -- 19,352
Executive Officer 1996 340,000 123,967 96,000(6) 19,702
John V. Talley, Jr.(7)........... 1998 223,000 56,895 398,172(5) 13,000
Former President and 1997 188,846 103,896 -- 10,611
Chief Operating Officer 1996 180,000 58,183 19,000(6) 8,403
Anand R. Baichwal, Ph.D.(8)...... 1998 150,000 33,251 181,749(5) 11,250
Senior Vice President 1997 114,269 39,827 -- 8,642
Research & Development 1996 96,000 19,000 6,000(6) 6,101
Stephen J. Berte, Jr............. 1998 135,000 31,773 97,641(5) 7,296
Vice President Marketing and 1997 122,076 31,481 -- 7,062
Sales 1996 119,000 17,927 10,000(6) 4,745
Jennifer L. Good................. 1998 135,000 43,226 166,602(5) 10,875
Vice President Finance and 1997 122,000 41,943 -- 7,475
Chief Financial Officer 1996 82,000 14,918 17,500(6) 6,110
Paul K. Wotton................... 1998 132,000 23,399 122,816(5) 8,945
Vice President 1997 111,000 30,880 -- 6,514
Business Development 1996 103,000 25,000 8,600(6) 5,900
</TABLE>
- ---------------
(1) In accordance with the rules of the Commission, this table and the stock
option grant table and the stock option exercise table which follow present
information concerning the Company's Chief Executive Officer, its four other
most highly compensated executive officers serving as officers as of
December 31, 1998 whose total annual salary and bonus exceeded $100,000
(determined by reference to total annual salary and bonus earned by such
officers) for the year ended December 31, 1998 and one individual who would
have been included in the table but for the fact that he was not serving as
executive officers of the Company as of December 31, 1998.
(2) Bonuses paid to the executive officers represent payments of amounts for
services rendered during Penford's fiscal years ended August 31, 1996, 1997
and 1998, respectively.
(3) Represents matching and profit sharing contributions under the Penwest
Savings and Stock Ownership Plan and the Penford Savings and Stock Ownership
Plan and premiums paid on behalf of the Chief Executive Officer for
supplemental life and disability insurance plans.
(4) Mr. Hamachek earned the compensation set forth above through September 1,
1998 for services rendered to Penford Corporation in his capacity as
President and Chief Executive Officer of Penford.
(5) Includes options to purchase Common Stock of Penwest granted under the
Company's 1998 Spin-off Stock Option Plan in respect of options to purchase
Penford common stock held by the executive officers.
(6) Represents options to purchase shares of Penford common stock granted to the
executive officer in 1996.
(7) Mr. Talley's employment was terminated as President and Chief Operating
Officer effective November 23, 1998.
(8) For a discussion of certain other amounts payable to Dr. Baichwal, see
"Certain Transactions."
8
<PAGE> 12
OPTION GRANT TABLE
The following sets forth, as the Named Executive Officers, information
concerning stock options granted in the year ended December 31, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
RATE OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (1)
----------------------------------------------------------------------- ----------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE MARKET
OPTION EMPLOYEES IN PRICE PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SHARE)(2) ($/SHARE)(2) DATE(3) 5% 10%
---- ---------- ------------ ------------ ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Tod R. Hamachek......... 148,781(4)(5) 8% $5.72 $8.00 10/24/2006 346,454 807,384
161,720(4)(5) 9% 5.41 8.00 12/13/2006 356,174 830,038
300,000(6) 17% 6.75 6.75 9/5/2008 1,116,440 2,749,844
John V. Talley, Jr...... 32,344(4)(7) 2% 7.03 8.00 12/14/2003 49,001 105,526
129,375(4)(5) 7% 6.49 8.00 4/26/2005 285,559 647,836
61,453(4)(6) 3% 5.72 8.00 10/24/2006 143,100 333,485
175,000(4)(6) 10% 6.75 6.75 9/5/2008 651,256 1,604,070
Anand R. Baichwal....... 32,343(4)(7) 2% 6.49 8.00 4/26/2005 71,388 161,955
3,234(4)(7) * 5.64 8.00 6/26/2006 7,425 17,304
16,172(4)(7) 1% 5.26 8.00 12/21/2006 34,630 80,702
130,000(6) 7% 6.75 6.75 9/5/2008 483,791 1,191,599
Stephen J. Berte, Jr.... 9,703(4)(7) 1% 5.64 8.00 6/26/2006 22,279 51,918
12,938(4)(7) 1% 5.26 8.00 12/21/2006 27,705 64,564
75,000(6) 4% 6.75 6.75 9/5/2008 279,110 687,461
Jennifer L. Good........ 12,938(4)(7) 1% 6.22 8.00 10/26/2003 17,343 37,348
19,406(4)(7) 1% 7.57 8.00 9/8/2005 49,961 113,345
24,258(4)(7) 1% 5.41 8.00 12/13/2006 53,426 124,506
110,000(6) 6% 6.75 6.75 9/5/2008 409,361 1,008,276
Paul K. Wotton.......... 12,937(4)(7) 1% 6.49 8.00 4/26/2005 28,555 64,781
1,941(4)(7) * 5.64 8.00 6/26/2006 4,457 10,386
12,938(4)(7) 1% 5.26 8.00 12/21/2006 27,705 64,564
95,000(6) 5% 6.75 6.75 9/5/2008 353,539 870,784
</TABLE>
- ---------------
* Represents less than 1%.
(1) Amounts represent hypothetical gains that could be achieved for respective
options if exercised at the end of the option term. These gains are based on
assumed rates of stock price appreciation of 5% and 10%, compounded annually
from the date the respective options were granted to their expiration date.
The gains shown are net of the option exercise price, but do not include
deductions for taxes or other expenses associated with the exercise. Actual
gains, if any, on stock option exercises will depend on the future
performance of the Common Stock, the option holder's continued employment
through the option period and the date on which the options are exercised.
(2) The exercise price of options granted under the Company's 1997 Equity
Incentive Plan generally are equal to the fair market value of the Company's
Common Stock on the date of grant. Options granted under the Company's 1998
Spin-off Stock Option Plan were granted in respect of options to purchase
Penford common stock held by the executive officers as of the Distribution
Date and the terms of such Penwest options, including the exercise price,
correspond to the terms of the original Penford options. As a result, the
exercise price of such options is based on the fair market value of the
Penford common stock
9
<PAGE> 13
at the time the Penford options were originally granted and is not equal to
the fair market value of the Company's Common Stock on the date such Penwest
options were granted.
(3) The expiration date of an option is the tenth anniversary of the date on
which the option was originally granted (in the case of options granted
under the 1998 Spin-off Stock Option Plan, such date being the date the
original Penford stock options were granted).
(4) These options were granted under the Company's 1998 Spin-off Stock Option
Plan in respect of options to purchase Penford common stock held by the
executive officers as of the Distribution Date.
(5) These options are exercisable in five equal annual installments commencing
on the fifth anniversary of the date on which the options were originally
granted.
(6) These stock options vest in four equal annual installments commencing on the
first date on which the options were originally granted.
(7) These options are exercisable in five equal annual installments commencing
on the first anniversary of the date on which the options were originally
granted.
10
<PAGE> 14
STOCK OPTIONS HELD AS OF YEAR END
The following table sets forth certain information concerning each exercise
of a stock option to purchase Common Stock of Penwest during the year ended
December 31, 1998 by a Named Executive Officer, and the number and value of
unexercised stock options to purchase shares of Common Stock of Penwest held by
each of the Named Executive Officers as of December 31, 1998.
AGGREGATED OPTION EXERCISES IN 1998 AND
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED VALUE AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
ON EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Tod R. Hamachek........... -- -- 87,328 523,174 $50,294 $164,405
John V. Talley, Jr. ...... -- -- 63,070 335,102 16,285 16,285
Anand R. Baichwal......... -- -- 27,166 154,583 7,192 10,791
Stephen J. Berte, Jr. .... 3,000 $33,000(2) 9,056 88,585 7,491 11,237
Jennifer L. Good.......... -- -- 34,283 132,318 8,538 12,226
Paul K. Wotton............ 7,400 64,300(2) 13,713 109,103 5,597 8,396
</TABLE>
- ---------------
(1) Values are calculated by subtracting the exercise price from the fair market
value of the stock as December 31, 1998 ($6.25 per share).
(2) Options exercised during the year were Penford options that were exercised
prior to the Distribution.
CERTAIN TRANSACTIONS
Since January 1, 1998, the Company has not engaged in any transactions with
any director or officer of the Company or any security holder holding more than
5% of the Company's Common Stock (a "5% Stockholder") or any affiliate of a
director, officer or 5% stockholder except as described below:
Under a Recognition and Incentive Agreement (as amended, the "Baichwal
Agreement") with Anand Baichwal, the Company's Senior Vice President, Research
and Development, the Company is obligated to pay to Dr. Baichwal on an annual
basis in arrears (i) one-half of one percent of the Company's Net Sales (as
defined in the Baichwal Agreement) of TIMERx material (as defined in the
Baichwal Agreement) to third parties, (ii) one-half of one percent of royalties
received by the Company under licenses, collaborations or other exploitation
agreements with third parties with respect to the sale, license, use or
exploitation by such third parties of products based on or incorporating the
TIMERx Material, and (iii) one-half of one percent of payments made in lieu of
such Net Sales or royalties and received by the Company. Such payments cease in
the event that Dr. Baichwal's employment is terminated for cause. The Baichwal
Agreement also contains non-competition and non-solicitation provisions which
expire two years after the termination of his employment.
Under a Royalty Agreement with John N. Staniforth, a member of the
Company's Board of Directors, the Company is obligated to pay to Dr. Staniforth
on an annual basis in arrears (i) one-half of one percent of the Company's net
sales as defined in the agreement, and these payments continue through the life
of patents developed by Dr. Staniforth. Dr. Staniforth also has an annual
consulting agreement with the Company for which he is paid $80,000 per year, or
$1,250 per day, payable in quarterly payments. The agreement is renewed each
year, and is cancellable upon thirty days notice. Any invention that results
from this consulting agreement is legally owned by Penwest.
11
<PAGE> 15
In connection with the Distribution, the Company entered into a number of
arrangements with Penford that govern various interim and ongoing relationships.
These agreements included (i) a Separation and Distribution Agreement setting
forth the agreement of the parties with respect to the principal corporate
transactions which were required to effect the separation of Penford's
pharmaceutical business from its specialty carbohydrate-based chemical business
and the Distribution, including without limitation (a) Penford's agreement to
guarantee the Company's indebtedness under the Company's $15.0 million credit
facility and (b) the contribution by Penford to the capital of the Company of
all existing intercompany indebtedness of the Company which approximated $50.9
million; (ii) a Services Agreement pursuant to which Penford will continue on an
interim basis to provide specified services to the Company until June 30, 1999
or until Penwest does not need the services, of which costs will be charged to
the Company on an actual or allocated basis, plus a specified profit percentage;
(iii) a Tax Allocation Agreement relating to, among other things, the allocation
of tax liability between the Company and Penford in connection with the
Distribution (subject to the tax allocation agreement, all pre-distribution
liabilities are the responsibility of Penford and all post distribution
liabilities are those of the respective entities); (iv) an Excipient Supply
Agreement pursuant to which Penford will manufacture exclusively to the Company,
and the Company's requirements for two excipients marketed by the Company under
quantity and pricing terms that the Company believes approximate fair market
value; and (v) an Employee Benefits Agreement setting forth the parties'
agreements as to the continuation of certain Penford benefit arrangements for
the employees of the Company.
COMPENSATION AND BENEFITS COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee of Penwest's Board of Directors
(the "Committee") is comprised of non-employee, outside directors. The Committee
is broadly charged by the Board of Directors with the following
responsibilities:
- Establishing compensation and incentive programs that are directly tied
to the long-term financial performance of Penwest, including a balanced
combination of targets requiring the achievement of short-term operating
goals and longer-term strategic objectives.
- Encouraging meaningful levels of Penwest stock ownership for key
personnel.
- Directing and monitoring the Company's benefit plans for all Penwest
employees.
Penwest maintains the philosophy that compensation of its executive
officers should be directly and materially linked to the long-term results
shareholders receive.
The executive compensation program consists of base salary, an incentive
compensation program based on predetermined cash flow goals as well as certain
qualitative objectives and stock-based incentive programs.
BASE SALARY
The Committee uses outside consultants to identify competitive salary
grades and ranges. The Committee directs the outside firm to consider similar
sized companies (based on market capitalization and revenue size), geographic
factors, similar market-related companies and growth profiles of other
companies. These competitive standards are reviewed periodically and are
targeted towards the 50th percentile of the companies surveyed. In addition, an
executive officer's performance and potential, as well as changes in duties and
responsibilities, are factors that may be considered in adjusting base salaries.
12
<PAGE> 16
INCENTIVE COMPENSATION
This program is an annual cash payout dependent on achieving predetermined
cash flow goals as well as certain qualitative objectives. Penwest's Committee
believes strongly that a balanced combination of targets requiring the
achievement of short term operating goals and longer-term strategic objectives
translates directly into increasing the long-term value of Penwest stock.
Individual incentive compensation target awards are determined by salary grade
and are subject to an adjustment based on individual performance. The highest
individual target payout is 40% of an individual's base salary, and the lowest
individual target payout is 20%. Payouts can exceed targets when quantitative
and qualitative targets are exceeded.
STOCK BASED INCENTIVE PROGRAMS
The Committee strongly encourages all executive officers of Penwest to
build a significant ownership position, over time, in Penwest Common Stock. All
stock options to executive officers have been granted at market price. Options
under the stock-based incentive programs offered by Penwest consist of five-year
term incentive stock options, and four-year non-qualified stock options, and are
granted at levels deemed competitive in the marketplace.
SUPPLEMENTAL BENEFIT PLANS
Supplemental Benefit Plans for the Chief Executive Officer include a
supplemental retirement plan, deferred compensation plan, and survivor benefit
life and disability plan. These plans are designed to be competitive with other
plans for comparably sized companies and to attract and retain highly qualified
management.
CEO COMPENSATION
As discussed above, Penwest's executive cash compensation program includes
a base salary and a company performance based incentive compensation program.
Mr. Hamachek participates in the same incentive compensation program applicable
to other named executive officers. The Committee's objective is to correlate Mr.
Hamachek's remuneration with the Company's performance. Mr. Hamachek's incentive
compensation through August 31, 1998 was paid under the Penford incentive
compensation program, where he served as President and Chief Executive Officer.
These amounts were approved by the Penford Compensation and Benefits Committee,
and the pay was linked to targeted achievement for the fiscal period. Base
salary is reviewed annually in an effort to maintain market competitiveness.
Upon Mr. Hamachek's transfer to Penwest as Chairman and Chief Executive Officer,
his salary was reduced from $340,000 to $315,000 to reflect the salary levels
within the industry.
In addition, Mr. Hamachek is the single largest individual shareholder in
the Company, and to the extent his performance translates into an increase in
the value of the Company's stock, all shareholders, including Mr. Hamachek share
the benefits.
Robert J. Hennessey, Chair
Paul E. Freiman
N. Stewart Rogers
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Company's Compensation and Benefits Committee
are Messrs. Hennessey, Freiman and Rogers. No executive officer of the Company
has served as a director or member of the compensation committee (or other
committee serving an equivalent function) of any other entity, one of whose
executive officers served as a director of or member of the Compensation and
Benefits Committee of the Company.
13
<PAGE> 17
PERFORMANCE GRAPH
The following graph compares the Company's cumulative total shareholder
return on its Common Stock from August 10, 1998, the record date for the
Distribution of all the shares of the Company's Common Stock, through December
31,1998, the time during which Penwest's stock traded as a public company with
the cumulative total return of the Nasdaq Market Index, U.S. companies (the
"Nasdaq U.S.") and the Nasdaq Pharmaceutical Index (the
"Nasdaq-Pharmaceutical"). The graph assumes that $100 was invested on August 10,
1998 in the Company's Common Stock and in the stated indices. The comparison
assumes that all dividends are reinvested.
<TABLE>
<CAPTION>
PENWEST PHARMACEUTICALS NASDAQ-PHARMACEUTICAL
CO. NASDAQ U.S. INDEX INDEX
----------------------- ----------------- ---------------------
<S> <C> <C> <C>
August 10, 1998 100.00 100.00 100.00
December 31, 1998 74.05 118.01 124.57
</TABLE>
2. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors requests that the shareholders ratify its selection
of Ernst & Young LLP, Certified Public Accountants, as independent auditors for
the Company for the current year. If the shareholders do not ratify the
selection of Ernst & Young LLP, another firm of certified public accountants
will be selected as independent auditors by the Board.
Representatives of Ernst & Young LLP will be present at the meeting, will
have the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
SHAREHOLDER PROPOSALS
Under Rule 14a-8(3) of the Securities and Exchange Commission, shareholder
proposals intended for inclusion in next year's proxy statement must be directed
to the Corporate Secretary at Penwest Pharmaceuticals Co., 2981 Route 22,
Patterson, New York 12563, and must be received by January 4, 2000.
14
<PAGE> 18
If a shareholder of the Company wishes to present a proposal before the
2000 Annual Meeting but has not complied with the requirements for inclusion of
such proposal in the Company's proxy materials pursuant to Rule 14a-8 under the
Exchange Act, such shareholder must give written notice of such proposal to the
Secretary of the Company at the principal offices of the Company not less than
60 days nor more than 90 days prior to the 2000 Annual Meeting. Notwithstanding
the foregoing, if the Company provides less than 70 days notice or prior public
disclosure of the date of the meeting to the shareholders, notice by the
shareholders must be received by the Secretary no later than the close of
business on the tenth day following the date on which the notice of the meeting
was mailed or such public disclosure was made, whichever occurs first. The
advance notice provisions of the Company's by-laws supercede the notice
requirements contained in recent amendments to Rule 14a-8 under the Exchange
Act.
SOLICITATION OF PROXIES
The proxy card accompanying this proxy statement is solicited by the Board
of Directors. Proxies may be solicited by officers, directors and other
employees of the Company, none of whom will receive any additional compensation
for their services. Solicitations of proxies may be made personally, or by mail,
telephone, telegraph, facsimile or messenger. The Company will pay persons
holding shares of Common Stock in their names or in the names of nominees, but
not owning such shares beneficially, such as brokerage houses, banks and other
fiduciaries, for the expense of forwarding soliciting materials to their
principals. All costs of soliciting proxies will be paid by the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The federal securities laws require the Company's directors and executive
officers, and persons who own more than ten percent of the Company's Common
Stock to file with the Securities and Exchange commission initial reports of
ownership and reports of changes in ownership of any securities of the Company.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended December 31, 1998, all of the
Company's directors, executive officers and greater-than-ten percent beneficial
owners made all required filings on a timely basis.
OTHER MATTERS
The Company is not aware of any other business to be acted upon at the
meeting. If other business requiring a vote of the shareholders should come
before the meeting, the holders of the proxies will vote in accordance with
their best judgment.
May 3, 1999
15
<PAGE> 19
PROXY
FOR THE ANNUAL MEETING OF THE SHAREHOLDERS OF
PENWEST PHARMACEUTICALS CO.
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF THE COMPANY
The undersigned, revoking all prior proxies, hereby appoint(s) Tod R.
Hamachek and Jennifer L. Good, and each of them, as proxies of the undersigned
(with full power of substitution in them and each of them) to attend and
represent the undersigned at the Annual Meeting of Shareholders of Penwest
Pharmaceuticals, Co. (the "Company) to be held at the Ethan Allen Inn, 21 Lake
Avenue Extension, Danbury, Connecticut on Wednesday, June 2, 1999 at 10:30 a.m.,
and any adjourned sessions thereof, and there to act and vote as indicated, upon
all matters referred to on the reverse side and described in the proxy statement
relating to the meeting, all shares of common stock of the Company which the
undersigned would be entitled to vote or act upon, with all powers the
undersigned would possess, if personally present at the meeting and at any
adjourned sessions thereof. Each of the following matters is being proposed by
the Board of Directors of the Company. All capitalized terms used in this proxy
and not defined herein shall have the meaning ascribed them in the proxy
statement relating to the meeting.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON OTHER
MATTERS AS PROPERLY MAY COME BEFORE THE MEETING, OR ANY ADJOURNMENT THEREOF.
(Continued and to be signed on the reverse side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 20
FOR BOTH WITHHELD FROM
NOMINEES BOTH NOMINEES
1. Election of Directors: [ ] [ ]
Jere E. Goyan, Anne M. VanLent
[ ]________________________________
To withhold authority to vote for any
individual Nominee, print that nominee's
name on the line provided.
ABSTAIN AGAINST
2. Ratification of selection of Ernst & Young LLP [ ] [ ]
as independent auditors for the Company for the
current year.
I plan to attend the meeting. [ ]
Attendance of the
undersigned at the
meeting or at any
adjourned session thereof
will not be deemed to
revoke this proxy unless
the undersigned shall
affirmatively indicate
thereof the intention of
the undersigned to vote
said shares in person. If
the undersigned hold(s)
any of the shares of the
Company in a fiduciary,
custodial or joint
capacity or capacities,
this proxy is signed by
the undersigned in every
such capacity as well as
individually.
IMPORTANT -- PLEASE SIGN
AND RETURN THIS PROXY
PROMPTLY. When shares are
held by joint tenants,
both should sign. When
signing as attorney,
executor, administrator,
trustee or guardian,
please give full title as
such. If a corporation,
please sign in full
corporate name by
President or other
authorized officer. If a
partnership, please sign
in partnership name by an
authorized person.
Signature(s)____________________________________________________________________
Dated_____________________
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
