<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) or Rule 14a-12
PENWEST, LTD.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
PENWEST, LTD.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(j)(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:(1)
---------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------------
/ / 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.:
Definitive Proxy Statement and Form of Proxy
---------------------------------------------------------------------------
3) Filing Party:
Registrant
---------------------------------------------------------------------------
4) Date Filed:
December 12, 1995
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- -----------
(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
<PAGE>
PENWEST, LTD.
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JANUARY 23, 1996
------------------------
To the Shareholders:
The annual meeting of shareholders of PENWEST, LTD. will be held at the
Seattle Art Museum, 100 University Street, Seattle, Washington, on January 23,
1996, at 10:30 a.m., for the following purposes:
1. To elect three directors;
2. To approve the PENWEST, LTD. Stock Option Plan for Non-Employee
Directors;
3. To approve an amendment to the PENWEST, LTD. 1994 Stock Option Plan;
4. To ratify the selection of Ernst & Young LLP as independent auditors
for the current fiscal year; and
5. To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on November 28, 1995
are entitled to notice of, and to vote at, the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
[SIGNATURE]
JENNIFER L. GOOD
SECRETARY
December 12, 1995
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>
[LOGO]
BELLEVUE, WASHINGTON
December 12, 1995
Dear Shareholders:
You are cordially invited to attend the annual meeting of shareholders of
PENWEST, LTD. to be held on Tuesday, January 23, 1996, at 10:30 a.m. at the
Seattle Art Museum, 100 University Street, Seattle, Washington.
Information concerning the business to be conducted at the meeting is
contained in the accompanying Notice of Annual Meeting of Shareholders and Proxy
Statement. The principal business of the meeting will be (1) to elect three
directors, (2) to approve the PENWEST, LTD. Stock Option Plan for Non-Employee
Directors, (3) to approve an amendment to the PENWEST, LTD. 1994 Stock Option
Plan, and (4) to ratify the selection of independent auditors for the Company.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR: (1) MANAGEMENT'S NOMINEES
FOR DIRECTORS, (2) APPROVAL OF THE PENWEST, LTD. STOCK OPTION PLAN FOR
NON-EMPLOYEE DIRECTORS, (3) APPROVAL OF THE AMENDMENT TO THE PENWEST, LTD. 1994
STOCK OPTION PLAN, AND (4) RATIFICATION OF THE SELECTION OF INDEPENDENT
AUDITORS.
Please read the enclosed proxy material carefully. We encourage you to
attend the meeting, but whether or not you plan to attend, please sign, date and
return promptly the enclosed proxy in the enclosed envelope.
Very truly yours,
[SIGNATURE]
TOD R. HAMACHEK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
PENWEST, LTD.
777 - 108TH AVENUE N.E., SUITE 2390
BELLEVUE, WASHINGTON 98004-5193
------------------------
PROXY STATEMENT
---------------------
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of PENWEST, LTD. ("PENWEST" or the "Company")
to be voted at the annual meeting of the shareholders of the Company to be held
at 10:30 a.m. on January 23, 1996. Shareholders who execute proxies may revoke
them at any time prior to their exercise by delivering a written revocation to
the Secretary of the Company, submission of a proxy with a later date or voting
in person at the meeting. These proxy materials, together with the Company's
annual report to shareholders, are being mailed to shareholders on or about
December 12, 1995.
Shareholders of record at the close of business on November 28, 1995 will be
entitled to vote at the meeting on the basis of one vote for each share held. On
November 28, 1995, there were outstanding 6,774,496 shares of common stock of
the Company (net of 1,832,752 treasury shares).
1. ELECTION OF DIRECTORS
The Board of Directors, which consists of nine members as authorized by the
Company's Bylaws, is divided into three classes. Directors in each class are
elected for a three-year term. This year, Messrs. Engebrecht, Parzybok and
Street, all of whom are current directors, have been nominated to be reelected
for a term that expires at the annual meeting of shareholders to be held in
1999. The Board of Directors recommends a vote for their reelection, and unless
a shareholder indicates otherwise, each signed proxy will be voted for the
election of these nominees.
Management expects that each of the nominees will be available for election,
but if any of them is not a candidate at the time the election occurs, it is
intended that the proxies will be voted for the election of another nominee to
be designated to fill any such vacancy by the Board of Directors.
The directors shall be elected by a plurality of the votes represented in
person or by proxy at the meeting. Shares held by persons who abstain from
voting on the election and broker "non-votes" will not be counted in the
election.
NOMINEES FOR REELECTION
RICHARD E. ENGEBRECHT, 68, has served as a director of the Company since
1983. Mr. Engebrecht was Chairman of Momentum Corporation, a distributor of
graphic arts, photographic, upholstery and bedding supplies ("Momentum"), from
1990 to September 1994 and was its Chief Executive Officer from 1990 until his
retirement in 1992. He was President and Chief Executive Officer of VWR
Scientific Products Co., a distributor of laboratory equipment and supplies
("VWR"), from 1986 to 1990. He is also a director of PrimeSource Corporation,
Univar Corporation and VWR.
WILLIAM G. PARZYBOK, JR., 53, has served as a director of the Company since
August 1993. Mr. Parzybok has served as Chairman of the Board and Chief
Executive Officer of Fluke Corporation, a manufacturer of electronic test and
measurement instruments, since 1991. He was Vice President and General Manager
of Engineering Applications Group of Hewlett-Packard Company from 1988 to 1991.
1
<PAGE>
WILLIAM K. STREET, 65, has served as a director of the Company since 1983.
Mr. Street is President of The Ostrom Company, growers and distributors of
mushrooms. In 1989 Mr. Street filed for reorganization under Chapter 11 of the
U.S. Bankruptcy Code to address a liability resulting from his personal
guarantee of a United States government loan made to The Ostrom Company. The
reorganization under Chapter 11 was dismissed by the court on August 7, 1992. He
is also a director of Univar Corporation.
CONTINUING DIRECTORS -- TERM EXPIRES 1997
HARRY MULLIKIN, 68, has served as a director of the Company since 1990. Mr.
Mullikin has served as Chairman Emeritus of Westin Hotels and Resorts since 1989
and was its Chairman of the Board from 1981 to 1989 and Chief Executive Officer
from 1977 to 1989. He is also a director of Seafirst Corporation and its
subsidiary, Seattle-First National Bank.
N. STEWART ROGERS, 65, has served as Chairman of the Board of Directors of
the Company since 1990 and as a director since 1983. Mr. Rogers was Senior Vice
President of Univar Corporation, a distributor of industrial and agricultural
chemicals ("Univar"), from 1989 to 1992. He is also a director of Fluke
Corporation, Univar, U.S. Bancorp and VWR. Mr. Rogers is the brother-in-law of
Mr. Wiborg, a director of the Company, and the father-in-law of Jeffrey T. Cook,
the Vice President, Finance and Chief Financial Officer of the Company.
PAUL H. HATFIELD, 59, has served as a director of the Company since October
1994. Mr. Hatfield served as a Vice President of the Ralston-Purina Company
("Ralston") and as President and Chief Executive Officer of Ralston's
wholly-owned subsidiary, Protein Technologies, Inc., from 1988 to December 1994.
He is also a director of Petrolite Corporation.
CONTINUING DIRECTORS -- TERM EXPIRES 1998
TOD R. HAMACHEK, 49, has served as President and Chief Executive Officer of
the Company since 1985 and as a director since 1983. Mr. Hamachek is also a
director of DEKALB Genetics Corporation and Northwest Natural Gas Company.
SALLY G. NARODICK, 50, has served as a director of the Company since August
1993. Ms. Narodick has served as Chairman and Chief Executive Officer of Edmark
Corp., an educational software company, since 1989. She is also a director of
Pacific Northwest Bank and Washington Energy Company.
JAMES H. WIBORG, 71, has served as a director of the Company since 1983. Mr.
Wiborg has served as Chairman of the Board of Univar since 1983. He was Vice
Chairman of the Board and Chief Strategist of Momentum from 1990 to September
1994. He was Chief Strategist of Univar and VWR from 1986 to 1990. He is also a
director of PACCAR, Inc., PrimeSource Corporation and VWR. Mr. Wiborg is the
brother-in-law of N. Stewart Rogers, the Chairman of the Board of Directors of
the Company.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of November 28, 1995,
regarding the beneficial ownership of the Company's common stock by any person
known to the Company to be the beneficial owner of more than five percent of
such outstanding common stock, by the directors including the Company's Chief
Executive Officer, by the four other highest paid executive officers, and by the
directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
OF PERCENT
NAME COMMON STOCK (1) OF CLASS
- ------------------------------------------------------------------------ ---------------------- ------------
<S> <C> <C>
Jeffrey T. Cook......................................................... 148,387(2) 2.2%
Richard E. Engebrecht................................................... 64,944 1.0
Tod R. Hamachek......................................................... 281,522 4.2
Paul H. Hatfield........................................................ 7,541 *
Harry Mullikin.......................................................... 10,960 *
Sally G. Narodick....................................................... 1,460 *
Franklin E. Olsen, Jr................................................... 113,332 1.7
William G. Parzybok, Jr................................................. 1,460 *
H. Thomas Reed.......................................................... 168,438 2.5
N. Stewart Rogers....................................................... 130,209(3) 1.9
William K. Street....................................................... 31,588(4) *
James H. Wiborg......................................................... 366,442(5) 5.4
Robert G. Widmaier...................................................... 17,310 *
All directors and executive officers as a group (18 persons)............ 1,593,435 23.5
</TABLE>
- ------------------------
* Represents less than 1%.
(1) Unless otherwise indicated, beneficial ownership represents sole voting and
investment power. Includes shares that may be acquired within 60 days
through the exercise of stock options, as follows: Mr. Hamachek, 200,992;
Mr. Olsen, 69,917; Mr. Reed, 112,500; and all directors and executive
officers as a group, 393,257.
(2) Includes 67,500 shares held in irrevocable trusts for which Mr. Cook shares
voting and investment power.
(3) Includes 11,538 shares held in irrevocable trusts for which Mr. Rogers has
sole voting and investment power.
(4) Includes 28,128 shares owned by Mr. Street's spouse as to which Mr. Street
disclaims beneficial ownership.
(5) Includes 10,800 shares owned by the University of Puget Sound and 31,382
shares held in certain Laird Norton trusts over which Mr. Wiborg shares
voting and investment power.
3
<PAGE>
COMMITTEES OF THE BOARD AND DIRECTOR FEES
The Board of Directors has the following standing committees:
AUDIT AND ENVIRONMENTAL, HEALTH AND SAFETY COMMITTEE -- This committee
consists of Messrs. Engebrecht (Chairperson), Hatfield and Street and Ms.
Narodick. The 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
auditor's report, reviews the independent auditor's recommendations
relating to accounting, internal controls and other matters, reviews
internal controls and accounting procedures with management, approves
policies relating to environmental, health and safety matters, and
resolves conflict of interest issues.
COMPENSATION AND BENEFITS COMMITTEE -- This committee consists of Messrs.
Mullikin (Chairperson), Hatfield, Parzybok and Wiborg. The committee
reviews current remuneration of the directors and the executive officers
of the Company and makes recommendations to the Board regarding
appropriate periodic adjustments of such amounts. The committee also
makes recommendations regarding the Company's benefit plans, the bonus
plan and the grants of stock options to officers and employees under the
Company's stock option plan.
EXECUTIVE COMMITTEE -- This committee consists of Messrs. Wiborg
(Chairperson), Engebrecht, Hamachek and Rogers. The committee is
authorized to exercise all powers and authority of the Board with certain
exceptions.
NOMINATING COMMITTEE -- This committee consists of Messrs. Hatfield
(Chairperson) and Parzybok and Ms. Narodick. The committee proposes
nominees for election by the shareholders at each annual meeting and
candidates to fill any vacancies. The Company's Restated Articles of
Incorporation allow a majority of disinterested directors (generally,
directors who are not affiliated with any shareholder owning 5% or more
of the Company's outstanding voting stock) or persons beneficially owning
1% or more of the outstanding shares of voting stock when cumulative
voting is in effect as a result of a shareholder owning 40% or more of
the Company's outstanding voting stock to nominate candidates for
election as a director and to have information relating to such nominees
included in the Company's proxy statement. The procedures to be followed
in the case of any such nomination are set forth in the Bylaws of the
Company. The committee also makes recommendations for other committee
appointments.
PENSION COMMITTEE -- This committee consists of Ms. Narodick
(Chairperson) and Messrs. Mullikin, Rogers and Street. The committee
makes recommendations to the Board regarding the Company's retirement
plans, directs the investment, directly or indirectly through trustees or
investment managers, of the assets of such plans and reviews investment
manager performance.
The Audit and Environmental, Health and Safety Committee met three times,
the Compensation and Benefits Committee (formerly the Compensation Committee)
met five times, the Executive Committee did not meet, the Nominating Committee
met one time, the Pension Committee (formerly the Pension and Benefits
Committee) met one time, and the Board of Directors met five times during the
fiscal year ended August 31, 1995. All directors attended 75% or more of the
aggregate number of Board meetings and meetings of committees on which they
served.
4
<PAGE>
Non-employee directors were compensated during the last fiscal year as
follows:
<TABLE>
<S> <C>
Annual retainer for Chairman of the Board of Directors.................... $ 30,000
Annual retainer as a director............................................. 9,000
Annual retainer as Chairman of the Executive Committee.................... 4,000
Annual retainer as Chairman of all other standing committees.............. 2,000
Fee for each meeting of the of Board of Directors attended................ 1,000
Fee for each meeting of the Board of Directors attended when held out of
state of director's residence............................................ 2,000
Fee for Chairman of each standing committee for each meeting attended..... 1,000
Fee for member of Executive Committee for each meeting attended........... 1,000
Fee for member of other standing committees for each meeting attended..... 1,000
Reimbursement for all reasonable expenses incurred in attending Board or
committee meetings
</TABLE>
Under a deferred compensation plan, non-employee directors may elect to defer
with interest all or part of such compensation.
In addition, non-employee directors receive restricted stock under a
restricted stock plan. The plan provides that every three years, commencing on
September 1, 1993, each non-employee director will be awarded $18,000 worth of
common stock of the Company, based on the last reported sale price of the stock
on the preceding trading day. A person who becomes a non-employee director after
a September 1 on which an award was made will be awarded the number of shares
determined by dividing the amount equal to $18,000 minus the product of $600
times the number of months since such September 1 by the last reported sale
price of the stock on the trading day next preceding the award date. A
non-employee director may sell or otherwise transfer one-third of the shares
covered by an award on each anniversary of the date of the award. If a
non-employee director ceases to be a director before the restrictions against
transfer have lapsed with respect to any shares, then, except in certain
circumstances, the director must forfeit such shares.
5
<PAGE>
EXECUTIVE COMPENSATION
Compensation paid by the Company during fiscal years 1995, 1994 and 1993 for
the Chief Executive Officer and the other four most highly compensated executive
officers is set out in the following table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
FISCAL SALARY BONUS COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($)(3)
- --------------------------------------------------- --------- --------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Tod R. Hamachek
President and Chief Executive Officer............. 1995 315,000 314,967 2,915 49,989
1994 306,250 275,266 932 28,435
1993 294,000 243,939 932 51,394
H. Thomas Reed
Vice President.................................... 1995 208,000 158,906 2,237 33,219
1994 202,271 112,774 608 19,603
1993 194,250 134,812 608 33,383
Franklin E. Olsen, Jr.
Vice President, Employee Relations and Secretary
(4)............................................... 1995 148,000 91,067 1,999 25,537
1994 142,200 87,375 0 15,488
1993 135,500 69,186 620 28,086
Jeffrey T. Cook
Vice President, Finance and Chief Financial
Officer........................................... 1995 142,000 87,375 0 9,477
1994 133,250 76,362 0 9,899
1993 121,000 61,783 0 10,852
Robert G. Widmaier
Vice President, Technical Director and Chief
Innovation Officer................................ 1995 131,000 80,607 176 10,895
1994 122,250 70,447 15 9,222
1993 110,000 56,166 15 12,199
</TABLE>
- ------------------------
(1) Reflects bonuses earned during the fiscal year, but paid in the next fiscal
year.
(2) These amounts represent the portion of interest earned on deferred
compensation above 120% of the applicable federal rate.
(3) These amounts represent the Company's matching and profit sharing
contributions under the PENWEST Savings and Stock Ownership Plan and
premiums paid on behalf of the named executive officers for supplemental
life and disability insurance plans.
(4) Mr. Olsen retired as an executive officer of the Company as of August 31,
1995.
6
<PAGE>
The Company has a stock option plan pursuant to which options to purchase
common stock are granted to officers and key employees of the Company. The
following tables show stock option grants and exercises in fiscal year 1995 to
or by the named executive officers of the Company, and year-end values of
unexercised options and stock appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Individual Grants Realizable Value
----------------------------------------------- at Assumed Annual
NUMBER OF % OF TOTAL Rates
SECURITIES OPTIONS of Stock Price
UNDERLYING GRANTED TO Appreciation
OPTIONS EMPLOYEES EXERCISE for Option Term(1)
GRANTED IN FISCAL PRICE Expiration ------------------
NAME (#)(2) YEAR ($/Sh) Date 5% ($) 10% ($)
- ------------------------------ ---------- ---------- -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Tod R. Hamachek............... 0 0 -- -- 0 0
H. Thomas Reed................ 0 0 -- -- 0 0
Franklin E. Olsen, Jr......... 0 0 -- -- 0 0
Jeffrey T. Cook............... 35,000 12.9 21.00(3) 5/5/2005 462,350 1,171,450
Robert G. Widmaier............ 32,000 11.8 21.00(3) 5/5/2005 422,720 1,071,040
</TABLE>
- ------------------------
(1) Potential realizable value is based on the assumption that the stock price
of the Company's common stock appreciates at the annual rate shown
(compounded annually) from the date of grant until the end of the ten year
option term. These numbers are calculated based on the requirements
promulgated by the Securities and Exchange Commission and do not reflect the
Company's estimate of future stock price performance.
(2) The options were granted pursuant to the PENWEST, LTD. 1994 Stock Option
Plan. This plan is administered by the Compensation and Benefits Committee
of the Board of Directors, which determines to whom the options are granted,
the number of shares subject to each option, the vesting schedule and the
exercise price. These options vest in equal annual installments over four
years commencing on the sixth anniversary of the date of grant and expire
after ten years.
(3) The options were granted on April 25, 1995, at an exercise price equal to
fair market value of a share of PENWEST common stock on the date of grant.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
ACQUIRED VALUE AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(2)
ON EXERCISE REALIZED -------------------------- --------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- ----------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Tod R. Hamachek.................. 0 0 200,992 56,250 3,447,263 1,106,438
H. Thomas Reed................... 11,000 198,840 112,500 37,500 1,875,375 625,125
Franklin E. Olsen, Jr............ 0 0 69,917 0 1,195,267 0
Jeffrey T. Cook.................. 0 0 3,750 66,250 8,438 221,563
Robert G. Widmaier............... 0 0 4,500 66,500 10,126 211,875
</TABLE>
- ------------------------
(1) Values are calculated by subtracting the exercise price from the fair market
value of the stock as of the exercise date.
7
<PAGE>
(2) Values are calculated by subtracting the exercise price from the fair market
value of the stock as of fiscal year-end.
RETIREMENT BENEFITS
<TABLE>
<CAPTION>
YEARS OF SERVICE
COVERED --------------------------------------------------
COMPENSATION (1) 20 25 30 35
- ---------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
$200,000 $ 57,407 $ 71,759 $ 86,111 $ 100,463
300,000 87,407 109,259 131,111 152,963
400,000 117,407 146,759 176,111 205,463
500,000 147,407 184,259 221,111 257,963
600,000 177,407 221,759 266,111 310,463
700,000 207,407 259,259 311,111 362,963
800,000 237,407 296,759 356,111 415,463
900,000 267,407 334,259 401,111 467,963
</TABLE>
- ------------------------
(1) Represents the highest average annual earnings during five consecutive
calendar years of service.
The Company has a defined benefit retirement plan (the "Retirement Plan").
The table above shows the estimated annual benefits payable on retirement under
the Retirement Plan to persons in the specified compensation and years of
service classifications. The retirement benefits shown are based upon retirement
at age 65 and the payments of a single-life annuity to the employee using
current average Social Security wage base amounts and are not subject to any
deduction for Social Security or other offset amounts. With certain exceptions,
the Internal Revenue Code restricts to an aggregate amount of $120,000 (subject
to cost of living adjustments) the annual pension that may be paid by an
employer from a plan which is qualified under the Code. The Code also limits the
covered compensation which may be used to determine benefits to $150,000
beginning in 1994. The Board of Directors has established supplemental benefits
for certain highly compensated employees to whom this limit applies, or will
apply in the future, so that these employees will obtain the benefit of the
formula that would have applied in the absence of the limitation. Executive
officers entitled to receive supplemental benefits as of August 31, 1995 were
Messrs. Hamachek, Olsen, Reed, Cook and Widmaier.
Compensation of executive officers covered by the Retirement Plan includes
salaries and bonuses as shown in the Salary and Bonus columns of the Summary
Compensation Table. Compensation of all other employees covered by the
Retirement Plan includes salaries, commissions and bonuses. All regular,
full-time employees not members of a collective bargaining unit (except for
bargaining units participating in all PENWEST benefits) are eligible to
participate in the Retirement Plan.
As of August 31, 1995, the approximate years of credited service (rounded to
the nearest year) under the Retirement Plan of the named executive officers
were: Mr. Hamachek, 12; Mr. Reed, 10; Mr. Olsen, 21; Mr. Cook, 14; and Dr.
Widmaier, 13.
8
<PAGE>
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, specifically, return on
operating capital and/or return on net assets.
- Encouraging meaningful levels of PENWEST stock ownership for key
personnel.
- Directing and monitoring retirement programs for all PENWEST employees.
Following review and approval by the Committee, issues pertaining to
executive compensation are submitted to the full Board of Directors for approval
or ratification.
Since its spin-off from Univar in 1984, PENWEST has maintained 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, the Management
Incentive Compensation Program (MICP) based on return on operating capital
exceeding PENWEST's cost of capital, and stock-based incentive programs. PENWEST
also contributes to savings and retirement 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), geographic factors, similar
market-related companies, and growth profiles of other companies. These
competitive standards are reviewed every eighteen months 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.
MANAGEMENT INCENTIVE COMPENSATION PROGRAM (MICP)
This program is an annual cash payout dependent on achieving long-term
return on operating capital targets, as well as certain qualitative
measurements. PENWEST's Board of Directors believes strongly that long-term
returns on capital translate most directly into increasing the long-term value
of PENWEST stock. Return on operating capital targets are set by a formula which
requires above-market returns on operating capital based on risk adjusted market
rates of return. There is a high entry point for payout under the MICP. For
example, no payouts are made under the MICP unless 85% of return on capital
targets is made. Individual MICP awards are determined by salary grade and are
subject to an adjustment based on judgments of individual performance. The
highest individual target payout is 65% of an individual's base salary, and the
lowest individual target payout is 20%. Payouts can exceed targets when
operating capital targets are exceeded.
STOCK BASED INCENTIVE PROGRAMS
The Board of Directors strongly encourages all executive officers of PENWEST
to build a significant ownership position, over time, in PENWEST common stock.
PENWEST has used stock-based incentive programs since its spin-off in 1984 to
support this ownership objective. All stock options to
9
<PAGE>
executive officers have been granted at market price. Options under the
stock-based incentive programs consist of performance shares requiring
achievement of return on capital targets, incentive stock options, and five-year
and ten-year long-term non-qualified stock options. All executive officers of
PENWEST have a significant position in PENWEST stock relative to their net
worth.
The amount of stock option shares granted under any given program is
calculated based on a potential long-term total return to shareholders versus
the potential long-term return to the option holder for performance in
increasing the value of PENWEST stock. Factors such as dilution of existing
shareholders and existing open market stock buyback programs are taken into
account.
SUPPLEMENTAL BENEFIT PLANS
Supplemental Benefit Plans for executive officers and other key personnel
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 Management Incentive Compensation
Program (MICP). Mr. Hamachek participates in the same MICP applicable to the
other named executive officers. The Committee's objective is to correlate Mr.
Hamachek's MICP remuneration with the performance of PENWEST. Mr. Hamachek's
entire performance related pay for fiscal years 1995, 1994 and 1993 was paid
under the MICP and was based on the fact that PENWEST's return on operating
capital exceeded its risk adjusted cost of capital in each of those years.
Historically, Mr. Hamachek's base salary has been reviewed every eighteen
months. Effective February 1, 1994, the Board approved an increase in Mr.
Hamachek's annual base salary of $21,000 (4.8%), applicable to the following 18
month period. The Board considered this increase to be appropriate to maintain
market competitiveness of his base salary.
Harry Mullikin, Chairperson
Paul H. Hatfield
William G. Parzybok, Jr.
James H. Wiborg
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PERFORMANCE GRAPH
The following graph compares the Company's cumulative total shareholder
return on its common stock for a five year period (August 31, 1990 to August 31,
1995) with the cumulative total return of the Nasdaq Market Index and all
companies traded on Nasdaq with a market capitalization of $100 - $200 million,
excluding financial institutions. The graph assumes that $100 was invested on
August 31, 1990 in the Company's common stock and in the stated indices. The
comparison assumes that all dividends are reinvested.
Management does not believe there is either a published index, or a group of
companies whose overall business is sufficiently similar to the business of
PENWEST, to allow a meaningful benchmark against which the Company can be
compared. The Company operates in three distinct market lines making overall
comparisons to one of these markets misleading to the Company as a whole. For
these reasons, the Company has elected to use companies traded on Nasdaq with a
similar market capitalization as a peer group.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG PENWEST, LTD.,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PENWEST, LTD. PEER GROUP INDEX NASDAQ MARKET INDEX
<S> <C> <C> <C>
1990 100.00 100.00 100.00
1991 110.00 112.20 113.67
1992 106.50 118.38 115.60
1993 84.60 136.24 150.49
1994 110.44 150.05 164.43
1995 117.19 156.93 195.65
</TABLE>
2. APPROVAL OF PENWEST, LTD. STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
BACKGROUND
On August 14, 1995, the Board of Directors adopted the PENWEST, LTD. Stock
Option Plan for Non-Employee Directors (the "Directors' Plan"), subject to the
approval of the shareholders. A copy of the Directors' Plan is attached as
Exhibit A.
DESCRIPTION OF THE DIRECTORS' PLAN
The purpose of the Directors' Plan is to promote the interests of PENWEST
and its shareholders by encouraging non-employee directors to have a direct and
personal stake in the performance of the Company's common stock.
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The Directors' Plan provides that on September 1, 1995, and on each
September 1 thereafter during the term of the plan, each non-employee director
will automatically be granted a stock option to purchase the number of shares of
the Company's common stock equal to $10,000 divided by 25% of the fair market
value of a share of such common stock on such September 1. The exercise price
for these annual stock options is 75% of the fair market value of PENWEST common
stock on the date of grant. Accordingly, on September 1, 1995, each non-employee
director other than a director who was scheduled to retire in October 1995
(eight persons) was granted an option to purchase 1,600 shares of common stock
based on a fair market value of $25.00 for such a share on that date, subject to
shareholder approval. As of such date, the value (determined by subtracting the
exercise price from the fair market value of the stock) of this option to each
such director was $10,000. If a non-employee director will not serve during the
full fiscal year due to retirement, then the director will receive a pro rata
award based upon the number of months of service during that year. Accordingly,
on September 1, 1995, the non-employee director who was scheduled to retire in
October 1995 was granted an option to purchase 267 shares, subject to
shareholder approval. As of such date, the value of this option to such director
was $1,669.
The Directors' Plan also provides that each non-employee director may elect
to receive during any fiscal year, commencing September 1, 1995, a stock option
in lieu of director cash compensation during that year. Grants of these options,
if so elected, occur on September 1, December 1, March 1 and June 1 during the
fiscal year. The number of shares subject to each option is equal to the amount
of compensation (retainer, meeting and committee fees) payable to the
non-employee director as of those quarterly dates divided by 25% of the fair
market value of a share of PENWEST common stock on the grant date. The deferral
election must be made not later than ten days prior to the first day of the
fiscal year and is irrevocable. The exercise price for these deferred
compensation options is 75% of the fair market value of PENWEST common stock on
the date of grant. For fiscal year 1996, eight non-employee directors elected to
receive stock options in lieu of director cash compensation and on September 1,
1995 were granted options to purchase an aggregate of 4,560 shares of common
stock and on December 1, 1995 were granted options to purchase an aggregate of
9,115 shares, subject to shareholder approval.
Unless an option granted under the Directors' Plan is terminated or its
exercisability is accelerated in accordance with the plan upon the occurrence of
certain events (including a change of control), the option is exercisable six
months after its grant date. All options terminate 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.
The aggregate number of shares subject to options under the Directors' Plan
is 500,000.
The options are not transferable except by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order.
On November 28, 1995, the closing price of the Company's common stock was
$26.00.
FEDERAL INCOME TAX CONSEQUENCES
A non-employee director will not recognize taxable income upon the grant of
an option under the Directors' Plan. Upon exercise of the option, the
non-employee director will recognize ordinary income and the Company will be
entitled to a tax deduction in an amount equal to the amount by which the fair
market value of the stock on the date of exercise exceeds the option exercise
price. Because the options have an exercise price that is less than the fair
market value of the Company's
12
<PAGE>
common stock on the grant date, a charge to the Company's earnings will be made
in the accounting period of the grant of the option in an amount equal to the
difference between the fair market value of the Company's common stock on the
grant date and the option exercise price.
Any ordinary income recognized by the non-employee director upon exercise of
an option will increase such director's tax basis in the shares received. Upon a
subsequent sale of such shares, the non-employee director will recognize capital
gain or loss to the extent of the difference between the selling price of such
shares and the director's tax basis in such shares.
Approval of the Directors' Plan will require the affirmative vote of the
holders of a majority of the shares of common stock of the Company represented
in person or by proxy at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE PENWEST, LTD.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS.
3. APPROVAL OF AMENDMENT TO PENWEST, LTD. 1994 STOCK OPTION PLAN
BACKGROUND
On October 26, 1994, the Board of Directors adopted the PENWEST, LTD. 1994
Stock Option Plan (the 1994 "Plan"), subject to the approval of the
shareholders. On January 24, 1995, the shareholders approved the 1994 Plan. The
1994 Plan replaced the PENWEST, LTD. 1984 Stock Option Plan, which expired in
February 1994.
AMENDMENT
Subject to shareholder approval, the Board of Directors has approved an
amendment to the 1994 Plan that would extend the expiration date of an option
granted under the plan from three months after voluntary or involuntary
termination of the optionee's employment (other than as a result of certain
misconduct) to twelve months.
DESCRIPTION OF THE 1994 PLAN
Under the 1994 Plan, options to purchase up to 500,000 shares of common
stock of the Company may be granted to key employees of the Company and its
subsidiaries. Employees may receive either incentive stock options or
non-qualified stock options. The maximum number of shares for which grants of
options may be made to any employee is 100,000.
The Compensation and Benefits Committee of the Board of Directors
administers the 1994 Plan. The Compensation and Benefits Committee determines
which employees will be granted options, the number of shares subject to each
option, the type of options granted, the option exercise price and any other
terms consistent with the terms of the 1994 Plan. As of August 31, 1995,
approximately 25 employees were eligible to receive options granted under the
1994 Plan. The 1994 Plan may be amended by the Board of Directors, however, no
outstanding options may be modified nor may other material changes be effected,
such as increasing the number of shares as to which options may be granted,
without shareholder approval.
The option exercise price must be not less than the fair market value of the
common stock on the date of grant. In the case of any holder of 10% or more of
the voting power of the Company, the exercise price of an incentive stock option
must be at least 110% of the fair market value of the common stock on the date
of grant.
The Compensation and Benefits Committee establishes the time or times at
which options may be exercised. The aggregate fair market value of shares with
respect to which incentive stock options are exercisable by an optionee during
any year shall not exceed $100,000 (measured at the time of the option grant).
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Options expire at the earliest of (i) the date specified in the option; (ii)
three months after termination of employment (although the proposed amendment,
if approved by the shareholders, would extend this period to twelve months);
(iii) the date of termination of employment for certain misconduct; (iv) twelve
months after death or disability; or (v) the date the Compensation and Benefits
Committee may specify in the event of a merger, consolidation, reorganization,
tender offer, takeover bid, sale of assets or dissolution.
The Compensation and Benefits Committee may accelerate the vesting of
options if a merger, consolidation, reorganization, tender offer, takeover bid,
sale of assets or dissolution occurs. Options will automatically vest upon an
optionee's death, disability or retirement in certain instances.
No incentive stock option may be granted after October 26, 2004, or have a
term of more than ten years.
No optionee, as such, will have any rights as a stockholder of PENWEST
except with respect to shares of common stock received on the exercise of an
option. The options are not transferable or assignable except by will or the
laws of descent and distribution.
On November 28, 1995, the closing market price of the Company's common stock
was $26.00.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the current federal income
tax consequences to participants in the 1994 Plan. The summary does not discuss
all aspects of federal income taxation that may be relevant to a participant in
the light of such participant's personal investment circumstances, nor does it
describe state or other tax consequences.
INCENTIVE STOCK OPTION ("ISO"). There is no taxable income to an optionee
when an ISO is granted or when that option is exercised. Gain realized by an
optionee upon sale of stock issued on exercise of an ISO is taxable at capital
gains rates, and no tax deduction is available to the Company, unless the
optionee disposes of the shares within two years after the date of grant of the
option or within one year of the date the shares were transferred to the
optionee. If the shares are disposed of before the expiration of these one-year
or two-year periods, the difference between the option exercise price and the
fair market value of the shares on the date of the option's exercise will be
taxed at ordinary income rates; the balance of the gain, if any, will be taxed
as capital gain. The Company will be entitled to a tax deduction equal to the
ordinary income, if any, realized by the optionee.
NON-QUALIFIED STOCK OPTION ("NSO"). The recipient of NSOs granted under the
1994 Plan will not recognize taxable income upon the grant of the option, nor
will the Company be entitled to any tax deduction. Generally, upon exercise of a
NSO, the optionee will recognize ordinary income and the Company will be
entitled to a tax deduction in an amount equal to the amount by which the fair
market value of the stock at the date of exercise exceeds the option exercise
price. The Company will be required to withhold taxes on ordinary income
recognized by an optionee upon the exercise of a NSO. Any ordinary income
recognized by an optionee upon exercise of a NSO will increase the optionee's
tax basis in the shares received. Upon a subsequent sale of such shares, the
optionee will recognize capital gain or loss to the extent of the difference
between the selling price of such shares and the optionee's tax basis in such
shares.
Approval of the amendment to the 1994 Plan will require the affirmative vote
of the holders of a majority of the shares of common stock of the Company
represented in person or by proxy at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT TO
THE PENWEST, LTD. 1994 STOCK OPTION PLAN.
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4. 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 fiscal 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE SELECTION
OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR FISCAL YEAR 1996.
CHANGE-OF-CONTROL ARRANGEMENTS
The Company has change-of-control agreements with the following executive
officers: Messrs. Hamachek, Cook and Reed, Dr. Widmaier, Robert G. Schmelzer,
John V. Talley, Gregory C. Horn and Frank C. Rydzewski. Each agreement provides
that the executive will receive compensation for 30 months if his employment is
terminated by the Company for any reason other than gross misconduct, death,
disability or reaching age 65, or if he terminates his employment following (i)
the assignment to him of responsibilities or title materially less than his
responsibilities and title prior to a change of control, (ii) the reduction in
the aggregate of his salary and bonus or (iii) a material breach by the Company
of the agreement, provided such termination occurs within 24 months after
certain defined events which might lead to a change in control of the Company.
The compensation will be paid at a rate equal to the executive's then current
salary and target bonus. The compensation is subject to a minimum annual rate of
not less than the executive's average compensation for the preceding three
calendar years and is subject to reduction if the aggregate present value of all
payments would equal or exceed three times the executive's "annualized
includable compensation," as defined in Section 280G of the Internal Revenue
Code, for the executive's most recent five taxable years. The executive also
will continue to have "employee" status for the 30-month period and will retain
most employee benefits during this period. The amount to be paid is reduced by
amounts received by the executive from other employers during the 30-month
period.
The estimated aggregate amounts presently payable in the event of a change
in control (assuming each executive receives payments for the maximum 30-month
period) would be: Mr. Hamachek, $1,574,918; Mr. Cook, $573,438; Mr. Reed,
$917,265; Dr. Widmaier, $529,018; Mr. Schmelzer, $385,000; Mr. Talley, $580,583;
Mr. Horn, $429,465; and Mr. Rydzewski, $556,828. This does not include the value
of employee benefits that might be payable to the executive during the 30-month
period. The value of these benefits cannot be calculated at this time.
Continuation of these benefits would include participation in the Company's
health and welfare plans and policies, continued vesting of stock options, and
continuation of years of service for pension and other retirement plan benefit
computation purposes.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the next annual
meeting of shareholders must be received by the Secretary of the Company at its
executive offices no later than August 14, 1996, to be included in the Company's
proxy statement and form of proxy relating to that meeting.
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<PAGE>
SOLICITATION OF PROXIES
The proxy 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. Employees of Corporate Communications, Inc., which is retained on an
annual basis as the Company's investor relations consultant, also may solicit
proxies as a part of its services under the annual retainer arrangement.
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.
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.
DECEMBER 12, 1995
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR 1995,
CONTAINING INFORMATION ON OPERATIONS, FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, IS AVAILABLE UPON REQUEST. PLEASE WRITE TO: JENNIFER L. GOOD,
CORPORATE CONTROLLER, PENWEST, LTD., POST OFFICE BOX 1688, BELLEVUE, WASHINGTON
98009-1688.
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EXHIBIT A
PENWEST, LTD.
STOCK OPTION PLAN
FOR
NON-EMPLOYEE DIRECTORS
1. PURPOSE.
The purpose of the PENWEST, LTD. Stock Option Plan for Non-Employee
Directors (the "Plan") is to promote the interests of PENWEST, LTD. (the
"Corporation") and its shareholders by encouraging Non-Employee Directors of the
Corporation to have a direct and personal stake in the performance of the
Corporation's Common Stock.
2. DEFINITIONS.
Unless the context clearly indicates otherwise, the following terms have the
meanings set forth below.
"Annual Option" means a stock option granted under Section 7.
"Board of Directors" or "Board" means the Board of Directors of the
Corporation.
"Business Day" means any day except Saturday, Sunday or a legal holiday in
the State of Washington.
"Change in Control" means (i) the first purchase of shares pursuant to a
tender offer or exchange offer (other than a tender offer or exchange offer
by the Corporation) for all or part of the Common Stock or any securities
convertible into Common Stock, (ii) the receipt by the Corporation of a
Schedule 13D or other advice indicating that a person is the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act) of 20% or more of
the Common Stock, (iii) the date of approval by the shareholders of the
Corporation of an agreement providing for any consolidation or merger of the
Corporation in which the Corporation will not be the continuing or surviving
corporation or pursuant to which shares of Common Stock would be converted
into cash, securities or other property, other than a merger of the
Corporation in which the holders of Common Stock immediately prior to the
merger would have the same proportion of ownership of common stock of the
surviving corporation immediately after the merger, (iv) the date of
approval by the shareholders of the Corporation of any sale, lease, exchange
or other transfer (in one transaction or a series of related transactions)
of all or substantially all the assets of the Corporation, (v) the adoption
of any plan or proposal for the liquidation (but not a partial liquidation)
or dissolution of the Corporation or (vi) the date upon which the
individuals who constitute the Board of Directors as of September 1, 1995
(the "Incumbent Board") cease to constitute at least a majority of the
Board, provided that any person becoming a director subsequent to such date
whose election, or nomination for election by the Corporation's
shareholders, was approved by at least two-thirds of the directors
comprising the Incumbent Board shall be considered as though such person
were a member of the Incumbent Board.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation Committee of the Board of Directors.
"Common Stock" means the common stock of PENWEST, LTD.
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"Compensation" means for any Plan Year all retainer, meeting and committee
fees payable to a Non-Employee Director for service on the Board of
Directors and any board of directors of the Corporation's Subsidiaries (a
"Subsidiary Board").
"Deferral Election" means an election by a Non-Employee Director under
Section 8 to receive Deferred Compensation Options in lieu of all of such
Director's Compensation.
"Deferred Compensation Option" means a stock option granted in connection
with a Deferral Election under Section 8.
"Disability," as applied to a Grantee, has the meaning set forth in Section
22(e)(3) of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" of a share of Common Stock on any particular date means
(i) if the Common Stock is traded on the NASDAQ National Market System, the
last sales price of a share of Common Stock on such system as reported for
that date by NASDAQ, and if no such sales are reported for such date, the
last sales price as reported by NASDAQ for the next preceding date on which
the sale of a share of Common Stock took place, or (ii) if the Common Stock
is traded on a national exchange, the closing price of a share of Common
Stock on such exchange as reported for that date by the principal
consolidated transaction reporting system for such exchange, and if no such
sales are reported for such date, the closing price as reported by such
system for the next preceding date on which the sale of a share of Common
Stock took place.
"Grant Date," as used with respect to an Option, means the date on which
such Option is granted pursuant to the Plan.
"Grantee" means the Non-Employee Director to whom an Option is granted
pursuant to the Plan.
"Non-Employee Director" means a member of the Board of Directors who is not
an employee of the Corporation or any Subsidiary.
"Option" means an Annual Option or a Deferred Compensation Option granted
pursuant to the Plan to purchase shares of Common Stock which shall be a
non-qualified stock option not intended to qualify as an incentive stock
option under Section 422 of the Code. Reference to "Options" shall include
Annual Options and Deferred Compensation Options.
"Payment Date" means September 1, December 1, March 1, and June 1 in a Plan
Year.
"Plan" means the PENWEST, LTD. Stock Option Plan for Non-Employee Directors
as set forth herein and as amended from time to time.
"Plan Year" means each fiscal year beginning on September 1 and ending on
August 31, commencing with the fiscal year beginning on September 1, 1995.
"Retirement," as applied to a Non-Employee Director, means when such
Director ceases to serve as a member of the Board because of failure to meet
the eligibility requirements set forth in the Corporation's bylaws.
"Subsidiary" means a "subsidiary corporation" of the Corporation as defined
in Section 425(f) of the Code.
3. ADMINISTRATION.
The Plan shall be administered by the Committee. The Committee shall have
full authority to make such rules and regulations as it deems necessary to
administer the Plan and to interpret and
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administer the provisions of the Plan. Any determination, decision or action of
the Committee in connection with the construction, interpretation,
administration or application of the Plan shall be final and binding on all
parties.
4. ELIGIBILITY.
The persons eligible to receive Options under the Plan are the Non-Employee
Directors.
5. EFFECTIVE DATE OF THE PLAN AND TERM OF OPTION PERIOD.
The Plan shall become effective upon its adoption by the Board of Directors,
provided, that if the Plan is not approved by the Corporation's shareholders
within 12 months of its adoption by the Board, then the Plan and all awards
under the Plan shall be void from inception. The term during which awards may be
granted under the Plan shall expire on the tenth anniversary of the adoption of
the Plan by the Board of Directors. The period during which an Option granted
under the Plan may be exercised shall expire on the earlier of the tenth
anniversary of the Grant Date of such Option or the third anniversary of the
date the Grantee ceases to be a member of the Board.
6. SHARES SUBJECT TO THE PLAN.
The shares of Common Stock that may be delivered upon the exercise of
Options under the Plan shall be shares of the Corporation's authorized Common
Stock and may be unissued shares or treasury shares. Subject to adjustment as
provided in Section 14, the aggregate number of shares subject to Option grants
under the Plan is 500,000 shares of Common Stock. If any shares are subject to
an Option which expires or terminates during the term of the Plan prior to the
issuance of such shares, such shares shall be available for issuance under the
Plan.
7. ANNUAL OPTIONS.
(a) GRANT OF ANNUAL OPTIONS. Commencing on September 1, 1995 and on each
September 1 thereafter during the term of the Plan, each Non-Employee Director
of the Corporation shall automatically be granted a stock option to purchase the
number of shares of Common Stock (rounded to the nearest share) determined by
dividing (i) $10,000 by (ii) 25% of the Fair Market Value of a share of Common
Stock on such September 1, upon the terms and conditions specified in the Plan.
If a Non-Employee Director will not serve during the full Plan Year due to
Retirement, then such Director shall receive a pro rata award of such shares for
such year based on the number of full months of service of such Director during
such year.
(b) TERMS OF ANNUAL OPTIONS. Each Annual Option shall have the following
terms and conditions:
(i) PRICE. The exercise price per share of each Annual Option shall equal
75% of the Fair Market Value of a share of Common Stock on the Grant
Date;
(ii) TERM. The term of each Annual Option shall expire on the earlier of the
tenth anniversary of its Grant Date or the third anniversary of the
date the Grantee ceases to be a member of the Board;
(iii) TIME OF EXERCISE. Unless an Annual Option is terminated or the time of
its exercisability is accelerated in accordance with the Plan, each
Annual Option shall be exercisable in full following six months from
its Grant Date;
(iv) ACCELERATION OF EXERCISABILITY. Notwithstanding the schedule provided in
subparagraph (iii), an Annual Option shall become fully exercisable upon
the Grantee's death or withdrawal from the Board of Directors by reason
of Disability or Retirement or upon a Change in Control; and
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(v) OPTION AGREEMENT. Each Annual Option shall be evidenced by an option
agreement duly executed on behalf of the Corporation.
8. DEFERRED COMPENSATION OPTIONS.
(a) GRANT OF DEFERRED COMPENSATION OPTIONS. On each Payment Date in a Plan
Year, each Non-Employee Director who has made a Deferral Election pursuant to
paragraph (c) for such Plan Year automatically shall be granted a Deferred
Compensation Option to purchase the number of shares of Common Stock (rounded to
the nearest share) determined by dividing (i) the amount of Compensation payable
to such Non-Employee Director as of such Payment Date divided by (ii) 25% of the
Fair Market Value of a share of Common Stock on such Payment Date.
(b) TERMS OF DEFERRED COMPENSATION OPTIONS. Each Deferred Compensation
Option shall have the following terms and conditions:
(i) PRICE. The exercise price per share of each Deferred Compensation Option
shall equal 75% of the Fair Market Value of a share of Common Stock on
the Grant Date;
(ii) TERM. The term of each Deferred Compensation Option shall expire on the
earlier of the tenth anniversary of its Grant Date or the third
anniversary of the date the Grantee ceases to be a member of the Board;
(iii) TIME OF EXERCISE. Unless a Deferred Compensation Option is terminated
or the time of its exercisability is accelerated in accordance with the
Plan, each Deferred Compensation Option shall be exercisable in full
following six months from its Grant Date;
(iv) ACCELERATION OF EXERCISABILITY. Notwithstanding the schedule provided in
subparagraph (iii), a Deferred Compensation Option shall become fully
exercisable upon the Grantee's death or withdrawal from the Board by
reason of Disability or Retirement or upon a Change in Control; and
(v) OPTION AGREEMENT. Each Deferred Compensation Option shall be evidenced
by an option agreement duly executed on behalf of the Corporation.
(c) DEFERRAL ELECTIONS. Each Non-Employee Director may elect to receive
Deferred Compensation Options in lieu of all of such Non-Employee Director's
Compensation during a Plan Year. Each Deferral Election shall be in the form of
a written notice and shall set forth the Non-Employee Director's election to
receive Deferred Compensation Options during the Plan Year. Each Deferral
Election shall specify the Plan Year covered by the Deferral Election, must be
made not later than 10 days prior to the first day of such Plan Year covered by
the Deferral Election and shall be irrevocable.
9. EXERCISE OF OPTIONS.
(a) Each Option granted shall be exercisable in whole or in part at any
time, or from time to time, during the Option term as specified in the Plan. The
election to exercise an Option shall be made in accordance with Federal laws and
regulations. Each Option may be exercised by delivery of a written notice to the
Corporation stating the number of shares to be exercised and accompanied by the
payment of the Option exercise price therefor in accordance with this Section.
The Grantee shall furnish the Corporation, prior to the delivery of any shares
upon the exercise of an Option, with such other documents and representations as
the Corporation may require, to assure compliance with laws and regulations.
(b) No shares shall be delivered pursuant to the exercise of any Option
until qualified for delivery under securities laws and regulations and until
payment of the Option price is received by the Corporation in cash, by check or
in shares of Common Stock as provided in Section 10.
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<PAGE>
10. STOCK AS FORM OF EXERCISE PAYMENT.
A Grantee who owns shares of Common Stock may elect to use previously
acquired shares, valued at the Fair Market Value on the last Business Day
preceding the date of delivery of such shares, to pay all or part of the
exercise price of an Option, provided, however, that such form of payment shall
not be permitted unless the shares delivered have been held by the Grantee for
at least six months.
11. WITHHOLDING TAXES FOR AWARDS.
Each Grantee exercising an Option as a condition to such exercise shall pay
to the Corporation the amount, if any, required to be withheld from
distributions resulting from such exercise under federal and state income tax
laws ("Withholding Taxes"). Such Withholding Taxes shall be payable as of the
date income from the award is includable in the Grantee's gross income for
Federal income tax purposes (the "Tax Date"). The Grantee may satisfy this
requirement by remitting to the Corporation in cash or by check the amount of
such Withholding Taxes or a number of previously owned shares of Common Stock
having an aggregate Fair Market Value as of the last Business Day preceding the
Tax Date equal to the amount of such Withholding Taxes.
12. TRANSFER OF AWARDS.
Options granted under the Plan may not be transferred except by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order, as defined in the Code.
13. CHANGES IN COMMON STOCK.
In the event of a merger, consolidation, reorganization, recapitalization,
stock dividend, stock split or other change in corporate structure or
capitalization affecting the Common Stock, such appropriate adjustment shall be
made in the number, kind, option price and other terms of shares subject to
Options granted under the Plan, including appropriate adjustment in the maximum
number of shares referred to in Section 6, as may be determined by the
Committee.
14. REGULATORY COMPLIANCE.
The Corporation will not be obligated to issue shares of Common Stock upon
the exercise of any Option granted under the Plan if counsel to the Corporation
determines that such issuance would violate any law or regulation of any
governmental authority.
15. NO RIGHTS AS SHAREHOLDERS.
No Grantee, and no beneficiary or other person claiming through a Grantee,
shall have any interest in any shares of Common Stock allocated for the purpose
of the Plan or subject to any award until such person shall have become a holder
of record of such shares.
16. BOARD MEMBERSHIP.
Nothing in the Plan or in any Option shall confer upon any Grantee any right
to continue as a director of the Corporation.
17. AMENDMENT AND DISCONTINUANCE.
Subject to the limitation that the provisions of the Plan shall not be
amended more than once every six months other than to comport with changes in
the Code, the Employee Retirement Income Security Act or the rules thereunder,
the Board of Directors may amend, suspend, or discontinue the Plan, but may not,
without the approval of a majority of the holders of the Common Stock, make any
amendment which would (a) materially increase the benefits accruing to Grantees
under the Plan, (b) materially increase the number of shares which may be issued
under the Plan, or (c) materially modify the requirements as to eligibility for
participation in the Plan.
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<PAGE>
18. COMPLIANCE WITH RULE 16b-3.
The Plan and all awards under the Plan are intended to satisfy the
conditions of Rule 16b-3 of the Securities and Exchange Commission, and all
provisions of the Plan shall be construed so as to effectuate that intent. If
any provision of the Plan is found not to comply with Rule 16b-3, then such
provision shall be deemed to be of no force and effect.
Adopted by the Board of Directors on August 18, 1995, subject to approval of
the Corporation's shareholders.
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<PAGE>
PROXY
PROXY
FOR ANNUAL MEETING OF THE SHAREHOLDERS OF
PENWEST, LTD.
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS.
The undersigned hereby appoints Tod R. Hamachek and Jennifer L. Good, and
each of them, with full power of substitution, as proxies to vote the shares
which the undersigned is entitled to vote at the Annual Meeting of Shareholders
to be held on January 23, 1996 and at any adjournment thereof.
(Continued and to be signed on the reverse side)
<PAGE>
I plan to attend
the meeting.
/ /
1. Election of Directors.
Richard E. Engebrecht, William G. Parzybok, Jr., William K. Street
Except vote withheld from following nominee(s) listed
in space at right:
-------------------------------------------------------------
FOR NOT FOR
/ / / /
2. Approval of PENWEST, LTD. Stock Option Plan for Non-Employee Directors.
FOR AGAINST ABSTAIN
/ / / / / /
3. Approval of an amendment to PENWEST, LTD. 1994 Stock Option Plan.
FOR AGAINST ABSTAIN
/ / / / / /
4. Ratification of selection of Ernst & Young LLP as independent auditors of
the Company.
FOR AGAINST ABSTAIN
/ / / / / /
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
This proxy, when properly signed, will be voted in the manner directed herein by
the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2, 3 AND 4.
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
- --------------------------------------------------------------------------------
Signature
Dated , 1995/1996
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PLEASE MARK INSIDE BLUE BOXES SO THAT DATA PROCESSING EQUIPMENT WILL RECORD YOUR
VOTES
