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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______________ to ________________
COMMISSION FILE NUMBER 000-23467
A. Full title of the Plan:
PENWEST PHARMACEUTICALS CO.
SAVINGS PLAN
B. Name of issuer of the securities held pursuant to the Plan and the address
of its principal executive office:
PENWEST PHARMACEUTICALS CO.
2981 ROUTE 22
PATTERSON, NEW YORK 12563-9970
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Penwest Pharmaceuticals Co.
Savings Plan
Audited Financial Statements and Supplemental Schedule
Year ended December 31, 1999 and for the period
from September 1, 1998 (date of inception) to
December 31, 1998
INDEX
Report of Independent Auditors............................................. 1
Audited Financial Statements
Statements of Net Assets Available for Benefits............................ 2
Statements of Changes in Net Assets Available for Benefits................. 3
Notes to Financial Statements.............................................. 4
Supplemental Schedule
Schedule of Assets Held for Investment Purposes at End of Year............. 9
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Report of Independent Auditors
Audit Committee
Penwest Pharmaceuticals Co. Savings Plan
We have audited the accompanying statements of net assets available for benefits
of the Penwest Pharmaceuticals Co. Savings Plan as of December 31, 1999 and
1998, and the related statements of changes in net assets available for benefits
for the year ended December 31, 1999 and the period from September 1, 1998 (date
of inception) to December 31, 1998. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 1999 and 1998, and the changes in its net assets available for
benefits for the year ended December 31, 1999 and the period from September 1,
1998 (date of inception) to December 31, 1998, in conformity with accounting
principles generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
held for investment purposes at end of year as of December 31, 1999 is presented
for purposes of additional analysis and is not a required part of the financial
statements but is supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. The supplemental schedule is the
responsibility of the Plan's management. The supplemental schedule has been
subjected to the auditing procedures applied in our audits of the financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the financial statements taken as a whole.
/s/ Ernst & Young LLP
June 22, 2000
1
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Penwest Pharmaceuticals Co. Savings Plan
Statements of Net Assets Available for Benefits
DECEMBER 31,
1999 1998
-------------------------------------
ASSETS
Investments $6,602,805 $3,978,729
Receivables:
Employer's contribution 55,393 59,548
Accrued income 1,024 444
-------------------------------------
Total receivables 56,417 59,992
-------------------------------------
Total assets 6,659,222 4,038,721
LIABILITIES
Fees payable 66,798 12,347
Other payables 23,043 8,504
-------------------------------------
Total liabilities 89,841 20,851
-------------------------------------
Net assets available for benefits $6,569,381 $4,017,870
=====================================
See accompanying notes.
2
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Penwest Pharmaceuticals Co. Savings Plan
Statements of Changes in Net Assets Available for Benefits
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 1, 1998
YEAR ENDED (DATE OF INCEPTION) TO
DECEMBER 31, 1999 DECEMBER 31, 1998
-----------------------------------------
<S> <C> <C>
ADDITIONS
Investment income:
Net appreciation in fair value of investments $2,076,256 $ 303,857
Interest and dividends 29,079 6,960
-----------------------------------------
2,105,335 310,817
Contributions:
Participants 561,032 128,207
Employer 213,593 74,930
-----------------------------------------
774,625 203,137
Total additions 2,879,960 513,954
DEDUCTIONS
Benefits paid directly to participants 263,730 75,656
Administrative expenses 64,719 12,347
-----------------------------------------
Total deductions 328,449 88,003
Net increase prior to transfers 2,551,511 425,951
Transfers from Penford Corporation Savings
and Stock ownership Plan -- 3,591,919
-----------------------------------------
Net increase 2,551,511 4,017,870
Net assets available for benefits:
Beginning of year 4,017,870 --
-----------------------------------------
End of year $6,569,381 $4,017,870
==========================================
</TABLE>
See accompanying notes.
3
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Penwest Pharmaceuticals Co. Savings Plan
Notes to Financial Statements
1. DESCRIPTION OF THE PLAN
The following description of the Penwest Pharmaceuticals Co. (the "Company" or
the "Employer") Savings Plan (the "Penwest Plan" or the "Plan") provides only
general information. Participants should refer to the Summary Plan Description
for a more complete description of the Plan's provisions. Copies are available
from the Plan's Administrative Committee.
GENERAL
On August 31, 1998 the Company's former parent, Penford Corporation ("Penford"),
distributed to its shareholders all of the shares of the Company's common stock.
Upon the completion of this transaction, effective September 1, 1998, the
Company and Penford entered into an Employee Benefits Agreement. Among other
provisions, the agreement established a separate defined contribution plan for
employees of the Company. During the period from September 1, 1998 to December
31, 1998, the Penford Corporation Savings and Stock Ownership Plan (the "Penford
Plan") transferred approximately $3.6 million to the Frank Russell Trust
Company, the trustee, of the newly established Penwest Plan. Employees of the
Company were able to participate in the Penwest Plan to the extent they were
eligible to participate in the Penford Plan and received credit for all
eligibility, vesting, and benefit accrual service, for all service credited for
such purposes under the Penford Plan. Penford paid all costs related to the
separation of the Penford Plan and the Company paid all costs related to the
formation of the Penwest Plan.
The Plan is a defined contribution plan covering all U.S. employees of the
Company who have completed three months of service, including part-time
employees. Effective January 1, 1999, the Plan was amended to provide that an
employee is eligible to participate in the Plan after attaining age 18 and
completing three months of service, as defined. The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"), as
amended.
CONTRIBUTIONS
Participants may contribute from 1% up to 12% of pre-tax compensation as defined
in the Plan agreement. The Company may make quarterly employer matching
contributions as defined in the Plan agreement of 75% of the first 6% of base
compensation that a participant contributes to the Plan. Additional amounts may
be contributed at the discretion of the Company's Board of Directors to each
participant who is employed on the last day of the Plan year.
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Penwest Pharmaceuticals Co. Savings Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
PARTICIPANT ACCOUNTS
Individual accounts are maintained for all Plan participants. These accounts
reflect participants' contributions and related Company matching and
discretionary contributions, if any, to the Plan and allocations of earnings or
losses on the Plan's investments. Allocations are based on participant account
balances. As of the end of each Plan year, forfeitures of nonvested amounts are
first used to restore any forfeitures for returning employees who previously
worked for the Company within a five year period, and any remaining amounts are
used to reduce subsequent employer contributions.
VESTING
Participants are immediately vested in their contributions, as well as any
earnings thereon. Vesting in the Employer contribution portion of their
accounts, as well as any earnings thereon is based on years of credited service
and vest in accordance with the following schedule:
CREDITED SERVICE % VESTED
------------------ --------
Less than one year 0%
One year 25%
Two years 50%
Three years 75%
Four years or more 100%
In the event of disability, attainment of age 65, or death of a participant, the
related Employer contributions become fully vested.
INVESTMENT OPTIONS
Upon enrollment in the Plan, a participant may direct employer and participant
contributions among any of the five current investment options. The Penford
Corporation stock fund includes account balances transferred from the Penford
Plan and is not an investment option for current or future contributions to the
Plan.
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Penwest Pharmaceuticals Co. Savings Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
PAYMENT OF BENEFITS
Upon termination, permanent disability, or death, 100% of the value of the
participant's vested account may be paid to the participant or the participant's
beneficiary in either a lump sum payment or in installment payments.
PARTICIPANT LOANS
Participants may, in the event of financial hardship as defined in the Plan,
borrow from their fund accounts a minimum of $1,000 up to a maximum of $50,000
or 50% of their vested account balance, whichever is less. Loans bear interest
at a rate determined by the Plan's Administrative Committee. Interest rates on
outstanding loans as of December 31, 1999 range from 8.75% to 9.75%. Loan terms
range from 1 to 5 years but may be increased if the loan is used for the
purchase of a primary residence. The loans are secured by the balance in the
participant's account.
EXPENSES
The Plan pays record keeping and investment management expenses. The Company
pays all other expenses of the Plan.
PLAN TERMINATION
Although the Company has not expressed any intent to do so, it has the right
under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of Plan termination,
participants will become 100% vested in their accounts.
2. SUMMARY OF ACCOUNTING POLICIES
RECENT ACCOUNTING DEVELOPMENTS
The Plan has adopted Statement of Position 99-3 "Accounting for and Reporting of
Certain Defined Contribution Plan Investments and Other Disclosure Matters" for
the presentation of its 1999 and 1998 financial statements. Accordingly, certain
amounts in the 1998 financial statements have been reclassified to conform with
the 1999 presentation.
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Penwest Pharmaceuticals Co. Savings Plan
Notes to Financial Statements (continued)
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INVESTMENT VALUATION
The Plan's investments are stated at fair value. Mutual funds are valued at
quoted market prices which represent the net asset values of shares held by the
Plan at year-end. Penwest Pharmaceuticals Co. and Penford Corporation Common
Stock are valued at the last reported sales price on the last business day of
the year. The participant loans are valued at their outstanding balances, which
approximate fair value.
Purchases and sales of investments are recorded on the trade dates. Interest
income is recorded on the accrual basis.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
3. INVESTMENTS
Individual investments that represent 5% or more of the Plan's net assets
available for benefits are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
-----------------------------
<S> <C> <C>
Frank Russell Trust Company Funds:
Global Aggressive Balanced Fund - 37,985 and 29,635
shares, respectively $ 925,241 $ 609,450
Tactical Asset Allocation Fund - 12,144 and 9,655
shares, respectively 340,360 264,168
Global Equity Fund - 14,690 and 11,601 shares,
respectively 539,138 332,603
Penwest Pharmaceuticals Co. common stock - 206,477 and
174,649 shares, respectively 3,148,775 1,091,557
Penford Corporation common stock - 77,727 and 96,883
shares, respectively 1,340,786 1,550,124
</TABLE>
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Penwest Pharmaceuticals Co. Savings Plan
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
During 1999 and 1998, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) appreciated
(depreciated) in value as follows:
PERIOD FROM
SEPTEMBER 1, 1998
YEAR ENDED (DATE OF INCEPTION) TO
DECEMBER 31, 1999 DECEMBER 31, 1998
-----------------------------------------------
Global Aggressive Balanced Fund $ 132,615 $ 95,020
Tactical Asset Allocation Fund 6,473 44,733
Global Equity Fund 110,885 65,943
Penwest Pharmaceuticals Co.
common stock 1,757,283 (293,714)
Penford Corporation common stock 69,000 391,875
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$2,076,256 $ 303,857
===============================================
4. INCOME TAX STATUS
The Plan applied for but has not yet received a determination letter from the
Internal Revenue Service stating that the Plan is qualified under Section 401(a)
of the Internal Revenue Code (the "Code"). However, the Plan administrator and
the Plan's legal counsel believe that the Plan is qualified, and therefore, the
related trust is exempt from taxation.
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Penwest Pharmaceuticals Co. Savings Plan
Schedule of Assets Held for Investment Purposes at End of Year
(EIN: 91-1513032, PN: 001)
December 31, 1999
<TABLE>
<CAPTION>
DESCRIPTION OF INVESTMENT
INCLUDING MATURITY RATE,
IDENTITY OF ISSUE, BORROWER, RATE OF INTEREST,
LESSOR, OR SIMILAR PARTY PAR OR MATURITY VALUE CURRENT VALUE
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
* Frank Russell Trust Company Short Term Investment Fund
274,478 shares $ 274,478
Global Aggressive Balanced Fund
37,985 shares 925,241
Tactical Asset Allocation Fund
12,144 shares 340,360
Global Equity Fund
14,690 shares 539,138
* Penwest Pharmaceuticals Co. Penwest Pharmaceuticals Co.
common stock 206,477 shares 3,148,775
* Penford Corporation Penford Corporation
common stock 77,727 shares 1,340,786
* Participant Loans Interest at 8.75% - 9.75%; maturity
through 2012 34,027
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$6,602,805
==========
</TABLE>
* Denotes party-in-interest to the Plan.
9
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SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act
of 1934, the trustees (or other persons who administer the employee benefit
plan) have duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
Penwest Pharmaceuticals Co.
Savings Plan
June 27, 2000 By: /s/ Tod R. Hamachek
-------------------------------------
Chairman of the Board and
Chief Executive Officer -
Penwest Pharmaceuticals Co.
Savings Plan Administrative Committee
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