<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended August 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to _______________________
Commission File Number 0-11488
PENWEST, LTD.
(Exact name of registrant as specified in its charter)
Washington 91-1221360
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777-108th Avenue N.E., Suite 2390
Bellevue, Washington 98004-5193
(Address of principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(206) 462-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange of which registered
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $1.00 par value
Common Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
<PAGE> 2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(continued)
The aggregate market value of the Registrant's Common Stock held by
non-affiliates as of October 24, 1995 was approximately $171 million. The number
of shares of the Registrant's Common Stock (the Registrant's only outstanding
class of stock) outstanding (net of treasury stock) as of October 24, 1995 was
6,769,896.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement relating to the 1996 Annual Meeting
of Shareholders is incorporated by reference into Part III of this Form 10-K.
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PART I
ITEM 1: BUSINESS
A) GENERAL:
PENWEST, LTD. (PENWEST) was incorporated in September 1983 and commenced
operations on March 1, 1984.
PENWEST consists of the following business units:
- Penford Products Co. (specialty carbohydrate chemicals for
papermaking) - The history of Penford Products Co. can be
traced to 1894. Penford Products Co. operates as a
wholly-owned subsidiary of PENWEST.
- Penwest Pharmaceutical Group (pharmaceutical excipients and
controlled release technology) - In March 1991, PENWEST
purchased the net assets of Edward Mendell Co., Inc. (Mendell)
which manufactures and distributes pharmaceutical excipients.
Mendell was founded in 1946 and is a wholly-owned subsidiary
of PENWEST. The Company established TIMERx Technologies to
focus on the development of controlled release technology.
TIMERx Technologies is a division of PENWEST.
- Penwest Foods Co. (specialty food ingredient products) - In
September 1991, Penwest Foods Co. was organized to manufacture
and market specialty carbohydrate-based food ingredients and
agricultural nutrients formerly sold by Penford Products Co.
Penwest Foods Co. is a division of PENWEST.
- Pacific Cogeneration, Inc. - This entity was incorporated in
1981 and was a wholly-owned subsidiary of PENWEST. The Company
sold the assets of Pacific Cogeneration to third parties
during the second quarter of fiscal 1995.
B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS:
PENWEST's single business segment is developing, manufacturing and marketing
carbohydrate-based specialty chemicals. The Company operates in three market
lines: carbohydrate-based specialty chemicals used in paper manufacturing,
pharmaceutical excipients and controlled release technology, and food ingredient
products. The Company's cogeneration business was not of sufficient size to
constitute a separate reportable industry segment.
C) DESCRIPTION OF BUSINESS:
BUSINESS UNITS:
1. SPECIALTY CHEMICALS: PENFORD PRODUCTS CO. (PENFORD), the core business of
PENWEST, develops, manufactures and markets carbohydrate-based specialty
chemical starches for papermaking. These starches are principally ethylated
(chemically modified with ethylene oxide) and cationic (carrying a positive
electrical charge) starches. Ethylated starches are used in coatings and as
binders, providing strength and printability to fine white, magazine and catalog
paper. Cationic starches are used at the "wet-end" of the paper machine,
providing strong internal bonding of paper fibers. In addition, starch
copolymers, a patented combination of synthetic and natural carbohydrate
chemistry, are used in coating and binder applications in various segments of
the paper industry. Penford's products, in general, are designed to improve
strength, quality and runnability of coated and uncoated paper.
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Specialty chemicals, principally corn-based ethylated and cationic starches and
starch copolymers, are produced at the Company's Cedar Rapids, Iowa facility.
Potato-based cationic starches are produced at the Company's Idaho Falls, Idaho
facility.
Penford also sells specialty starch products to the domestic textile industry
for warp sizing, which is a fiber bonding process for yarn and finished fabric,
and for fabric sizing, which provides body and stiffness to textiles.
Specialty chemical brand names of Penford for the paper industry include, among
others, Penford(R) Gums, PENSIZE and the Apollo(R) series.
Penford's specialty chemicals for the paper industry are manufactured by a
process known as corn wet milling, which is the process by which the various
parts of corn are separated, refined and modified.
The corn, after it is removed from the cob and cleaned, is placed in warm
steepwater treated with sulfur dioxide, which causes the corn to swell and
soften. The softened kernels pass through a mill which separates the corn's germ
from its endosperm. Water is added, producing a thick slurry.
The germ is then separated from the slurry. After the germ has been washed and
dried, the crude corn oil contained in the germ is removed and refined, yielding
a fine quality salad and cooking oil, or a raw material for corn oil margarines.
Germ meal is used in animal feed. The remaining mixture of hull and endosperm is
then processed. Hull particles are screened out for animal feed, while the finer
particles of gluten and starch pass through. The corn oil, germ meal and hull
particles are all sold as by-products.
The water slurry of starch and gluten is separated. The starch, which is more
than 99 percent pure, is washed a third time to remove small quantities of
solubles. Modified starches are created by adding chemical reagents and
catalysts to the pure starch slurry. The modified starch is then filtered and
dried and is ready for shipping.
2. PHARMACEUTICALS GROUP: MENDELL manufactures and supplies pharmaceutical
excipients. Pharmaceutical excipients are the non-active ingredients in tablet
and capsule prescription pharmaceuticals, over-the-counter drugs and vitamins.
The products include binders, lubricants, fillers and disintegrants. The
products provide bulk for concentrated medicines, ease of manufacture, product
integrity and disintegration which aids release of the active drug in the body.
Mendell's primary product, Emcocel(R), is made from wood pulp, a cellulosic
carbohydrate.
Mendell operates facilities at Patterson, New York, Nastola, Finland, and Cedar
Rapids, Iowa.
Pharmaceutical excipients' brand names include, among others, EMCOCEL(R),
EXPLOTAB(R), EMCOMPRESS(R) and EMDEX(R).
TIMERx TECHNOLOGIES is engaged in the development of controlled release
technology for pharmaceuticals. Its principal product is currently included in
several drug formulation development projects with licensees. These projects are
in different phases of development. All development work is subject to FDA
approval. There is no assurance that such trials will be successful or that such
approval, if and when applied for, will be obtained. TIMERx Technologies
operates at facilities in Patterson, New York.
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3. SPECIALTY FOOD INGREDIENT PRODUCTS: PENWEST FOODS CO. develops, manufactures
and markets specialty food ingredients to the food and confectionery industries.
These ingredients include food grade potato starch products as well as dextrose
based products such as specialty maltodextrins and specialty dried corn syrup
solids.
Penwest Foods Co., headquartered in Englewood, Colorado, maintains manufacturing
facilities at Cedar Rapids, Iowa for the dextrose and agricultural nutrient
based products and at Richland, Washington for the food grade potato starches.
Penwest Foods Co.'s product brand names include, among others, CanTab(R),
CarriDex(TM), and PenPlus. Sales were less than 10% of the Company's
consolidated total sales for the fiscal year ended August 31, 1995.
4. COGENERATION: PACIFIC COGENERATION, INC. owned and operated a cogeneration
facility adjacent to Canada Malting Co.'s malting plant at Vancouver,
Washington. This cogeneration facility consisted of a natural gas fired turbine,
an electric generator and boilers. The heat output of this cogeneration facility
was sold to the malting plant and the electrical energy was sold to a local
public utility district. The Company sold the assets of Pacific Cogeneration,
Inc. to third parties during the second quarter of fiscal 1995. The Company
recognized a pre-tax gain of $899,000 on the sale of these assets. Sales were
less than 2% of the Company's consolidated total sales for the fiscal year ended
August 31, 1995.
RAW MATERIALS
Corn: The Penford corn wet milling plant is located at Cedar Rapids, Iowa, in
the middle of the U.S. corn belt. Accordingly, the plant has truck and
rail-delivered corn available throughout the year from a large number of corn
dealers and farmers at prices related to the principal U.S. grain markets. The
cost of the corn to be purchased is generally hedged by entering into futures
contracts.
Cellulose Wood Pulp: Mendell's facilities at Nastola, Finland and Cedar Rapids,
Iowa use high-grade dissolving wood pulp (cellulose) as their primary raw
material to manufacture microcrystalline cellulose (EMCOCEL). Mendell's
suppliers of cellulose are located in North America.
Chemicals: The principal chemical used in modifying starch is ethylene oxide, a
petrochemical derivative. Ethylene oxide is a commodity chemical, subject to
price fluctuations due to market conditions.
Corn, cellulose and ethylene oxide are not generally subject to availability
constraints.
About one-half of total manufacturing costs are the costs of corn, cellulose,
and chemicals. The remaining portion consists primarily of utility and labor
costs.
PATENTS, TRADEMARKS AND TRADENAMES
PENWEST owns several patents, trademarks and tradenames, none of which is
considered material to current operations.
RESEARCH AND DEVELOPMENT
Company sponsored research and development costs of $6,773,000, $6,346,000 and
$5,662,000 in fiscal 1995, 1994 and 1993, respectively, were charged to expense
as incurred.
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ENVIRONMENTAL MATTERS
The Company has adopted a Policy on Environmental Matters and has implemented a
comprehensive corporate-wide environmental management program. The program is
managed by the Director of Environmental Health and Safety and is intended to
carry out the policy's goal of conducting the Company's business in a safe and
fiscally responsible manner that protects and preserves the health and safety of
Company employees, the communities surrounding the Company's plants and the
environment. The Company continues to monitor environmental legislation and
regulations which may affect its operations. No material capital expenditures
were incurred for environmental control in fiscal 1995, 1994 or 1993.
WORKING CAPITAL
Working capital requirements of PENWEST are financed through cash resources,
operating cash flow and an unsecured revolving line of credit of $15 million
with four participating banks. There were no borrowings outstanding under the
revolving line of credit during fiscal year 1995. The Company did have overnight
borrowings during the year under additional uncommitted lines of credit, but
there were no related outstanding balances at fiscal year end.
PRINCIPAL CUSTOMERS
PENWEST sells to approximately ninety major customers. No single customer
accounted for more than 10% of total sales.
COMPETITION
PENWEST competes with approximately eight other companies that manufacture corn
wet milling products, none of which is dominant in the ethylated starch
business. Although Penford is one of the smaller corn wet millers, it is one of
the major producers of specialty ethylated starches. Quality, service and price
are the major competitive factors for Penford.
PENWEST competes with approximately five other companies that manufacture
pharmaceutical excipients, three of whom have larger market shares. Mendell is
one of the major producers of microcrystalline cellulose. Quality, service and
price are the major competitive factors for Mendell.
PENWEST competes with approximately four other companies which manufacture
specialty food ingredients, all of whom have larger market shares. Application
expertise, quality, service, and price are the major competitive factors for
Penwest Foods Co.
PENWEST competes with numerous other companies in developing controlled release
drug delivery systems for the pharmaceutical industry, a few of whom have larger
market shares. Development expertise and proprietary technology are the major
competitive factors for TIMERx Technologies.
EMPLOYEES
At October 24, 1995, PENWEST and its subsidiaries had 514 employees. PENWEST's
specialty chemical and food ingredient operations, pharmaceuticals group and
executive office employed 400, 101 and 13 people, respectively. Approximately
40% of the employees are represented by unions. Management believes its employee
relations are good.
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METHODS OF DISTRIBUTION
Penford, Penwest Foods Co. and Mendell use a direct sales force to market their
products in North America.
Mendell uses a combination of direct sales and distributors in Europe.
Penford customers may purchase products through fixed-price contracts for
periods covering three months to one year or on a spot basis. Sales are
approximately equally divided between the two methods. Products are shipped in
either a bulk or bagged format.
D) FOREIGN OPERATIONS AND EXPORT SALES:
Mendell has a facility in Nastola, Finland. This operation is not significant to
the Company taken as a whole. Sales from this facility were less than 5% of the
Company's total sales in fiscal 1995. Export sales have accounted for less than
10% of the Company's total sales during each of the last three fiscal years.
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ITEM 2: PROPERTIES (MAJOR)
Registrant's executive offices, which are leased, are located at Suite 2390,
777-108th Avenue N.E., Bellevue, Washington 98004- 5193. Other facilities are as
follows:
<TABLE>
<CAPTION>
Bldg. Area Land Area Owned/ Function of
(Sq. Ft.) (Acres) Leased Facility
--------- ------- ------ --------
SPECIALTY CHEMICALS AND FOOD INGREDIENTS
<S> <C> <C> <C> <C>
Cedar Rapids, Iowa 707,000 29 Owned Manufacture
of corn starch
products
Englewood, Colorado 45,000 3 Leased -- Expires Offices and
April 2000, with research
renewal option laboratories
Idaho Falls, Idaho 31,000 6 Owned Manufacture of
potato starch
products
Richland, Washington 16,000 2 Leased -- Expires Manufacture of
November 2014, potato starch
with renewal option products
</TABLE>
The corn wet milling operation in Cedar Rapids, Iowa has operating capacity,
measured in bushels ground, of 65,000 bushels per day. The grind operates
continuously except for periodic maintenance.
<TABLE>
PHARMACEUTICAL EXCIPIENTS
<S> <C> <C> <C> <C>
Patterson, New York 40,000 15 Owned Warehouse and
offices
Nastola, Finland 15,000 2 Leased -- Manufacture of
2 years notice pharmaceutical
required. excipients
Cedar Rapids, Iowa 35,000 1 Owned Manufacture of pharmaceutical
excipients
</TABLE>
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All of the major properties are owned. Production facilities are well maintained
and in good condition. The capacities of the plants are suitable and generally
sufficient to meet current production requirements. PENWEST is continually
undertaking a process of expanding and improving its property, plant and
equipment.
ITEM 3: LEGAL PROCEEDINGS
There are no material legal actions pending either for or against PENWEST and
its subsidiaries.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of shareholders during the fourth quarter of
fiscal 1995.
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EXECUTIVE OFFICERS OF THE REGISTRANT (1) (2) (3) (4)
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C> <C>
Tod R. Hamachek 49 President and
Chief Executive Officer
of Registrant 1985 - current
President and Chief Operating
Officer of Registrant 1983 - 1985
Franklin E. Olsen, Jr. 62 Vice President-Employee
Relations of Registrant 1984 - 1995
Jeffrey T. Cook 39 Vice President-Finance and
Chief Financial Officer of
Registrant 1991 - current
Treasurer of Registrant 1988-1991
Robert G. Widmaier, Ph.D. 47 Vice President-Technical
Director and Chief Innovation
Officer of Registrant 1990 - current
Vice President-Technical
Director of Registrant 1988 -1990
H. Thomas Reed 60 Vice President of Registrant
and President and General
Manager, Penford Products
Co., a wholly-owned
subsidiary of Registrant 1985 - current
John V. Talley, Jr. 39 Vice President of Registrant
and President and General
Manager, Edward Mendell
Co., Inc., a wholly-owned
subsidiary of Registrant 1993 - current
Vice President of Marketing,
Sanofi Winthrop Pharma-
ceuticals 1992 - 1993
Vice President - Marketing,
Hospital Products Division
Sanofi Winthrop Pharma-
ceuticals 1989 - 1992
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Gregory C. Horn 47 Vice President of Registrant
and President and General
Manager, Penwest Foods Co. 1995 - current
Vice President of Marketing,
Penford Products Co. 1993 - 1994
Vice President and General
Manager, Sarah Lee
Corporation 1992 - 1993
Vice President and General
Manager, Churchill
Industries 1990 - 1993
</TABLE>
(1) As of October 25, 1995
(2) With the exception of Mr. Talley and Mr. Horn, all executive officers
of the Registrant have held an executive position with the Registrant,
or a subsidiary of the Registrant, for a period exceeding five years.
(3) Officers are appointed annually by the Board of Directors of the
Company to serve for a period of one year and serve at the discretion
of the Board. No arrangement or understanding exists between any
officer and any other person pursuant to which he was selected as an
officer.
(4) Mr. Olsen retired as an executive officer of the Company effective
August 31, 1995.
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PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
PENWEST common stock, $1.00 par value, trades on the Nasdaq Stock Market under
the symbol "PENW". On October 25, 1995, there were 1,415 stockholders of record.
The high and low closing bid prices of the Company's common shares during the
last two fiscal years are set forth below. The quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
reflect actual transactions.
<TABLE>
<CAPTION>
MARKET PRICE
HIGH LOW
---- ---
<S> <C> <C>
1994/95
Quarter Ended November 30 $25.50 $21.00
Quarter Ended February 28 $23.00 $17.50
Quarter Ended May 31 $23.25 $20.50
Quarter Ended August 31 $26.25 $21.25
1993/94
Quarter Ended November 30 $22.50 $19.75
Quarter Ended February 28 $23.50 $19.50
Quarter Ended May 31 $23.25 $17.75
Quarter Ended August 31 $25.75 $18.25
</TABLE>
During each quarter in fiscal years 1995 and 1994, a $0.05 per share cash
dividend was declared and paid. The Company anticipates that it will continue to
pay such quarterly dividends in the foreseeable future.
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ITEM 6: SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended August 31
---------------------------------------------------------------------------------------
(Thousands of dollars except per share data) 1995 1994 1993 1992(1) 1991(2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales $174,200 $158,787 $135,517 $125,952 $110,910
Gross margin percentage 27.5% 25.9% 26.4% 26.8% 29.0%
Income from operations 14,973 10,894 9,110 10,466 12,515
Net income 7,217 6,120 6,315 7,505 8,813
Earnings per share $1.03 $0.86 $0.88 $1.01 $1.17
Dividend declared per share $0.20 $0.20 $0.20 $0.15 --
Average shares outstanding 7,018,970 7,110,953 7,175,855 7,461,439 7,558,910
Balance Sheet Data:
Property, plant and equipment (net) 111,440 99,973 96,250 73,742 61,223
Long-term debt 58,628 42,897 46,998 30,877 31,550
Shareholders' equity 71,982 67,165 62,490 61,447 60,081
Capital expenditures 23,019 13,259 31,266 19,450 14,006
Total assets 186,760 164,357 157,966 130,641 120,488
</TABLE>
(1) During fiscal year 1992, the Company adopted FASB Statement No. 106
"Employer's Accounting for Post-Retirement Benefits Other Than Pensions."
This change increased the annual pre-tax post-retirement benefit expense by
$800,000 and decreased equity by $5,900,000 (net of tax). Also, during
fiscal year 1992, the Company adopted FASB Statement No. 109 "Accounting
for Income Taxes." This change resulted in a reduction of deferred taxes
and an increase in equity of $1,560,000.
(2) During fiscal year 1991, the Company purchased the net assets of Edward
Mendell Co., Inc. for $8,090,000. Results of operations for six months have
been included in the consolidated financial data.
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comparison of Fiscal 1995 to 1994 Results of Operations
Sales increased $15.4 million, or 9.7 percent, during fiscal 1995. The increase
reflects higher demand for hydroxyethylated (HES) corn starches from paper
industry customers as new customers converted to Penford Gums. During the year,
Penford converted the single largest customer in its history. As a result,
Penford is near production capacity. The improvement in the paper industry has
also benefited Penford.
Also contributing to the increase were higher sales of industrial potato
starches to the paper industry. The Company's Idaho Falls potato starch plant
capacity was essentially sold out by year-end. Sales of microcrystalline
cellulose (MCC) to pharmaceutical industry customers were up sharply as
PENWEST's Cedar Rapids MCC plant's gained new customers and its operating
results reached break-even. Specialty food-grade potato starches sold by Penwest
Foods Co. (PFC) gained 107 percent, reflecting new product activity and the
addition of major new customers. However, PFC was not profitable in 1995.
Gross margins were 27.5% in 1995 compared with 25.9% in 1994. Higher gross
margins reflected renegotiated sales contracts with key customers, a shift at
Penford to higher margin products, the achievement of break-even at Mendell's
Cedar Rapids MCC plant and reduced losses at Penwest Foods. Operating margins
grew from 6.9% to 8.6%, a gain of 24.6%. The 1995 margins were depressed by
power interruptions and higher corn costs at Penford Product Co.'s Cedar Rapids
plant. High heat and humidity in Iowa placed exceptional demand on the local
electrical utility, which interrupted service to some of its industrial
customers, including Penford. The plant experienced ten blackouts during the
fourth quarter. This resulted in fewer units being produced and therefore a
higher per unit cost. Since Penford does not maintain much inventory, most of
the impact was recorded during the fourth quarter.
In December 1994 the Company sold the assets of its cogeneration facility,
recording a pre-tax gain of $899,000 (8 cents per share after tax) in the second
quarter. The gain effectively offset earnings the facility would have provided
in fiscal 1995. The turbine from the facility was sold to IES Utilities, Inc.
and in the fourth quarter of fiscal 1996, the Company expects to begin receiving
a portion of its thermal needs in Cedar Rapids from that turbine under a thermal
supply agreement with IES Utilities, Inc. This agreement should generate a
savings that will approximate the earnings from the Company's cogeneration
facility prior to the sale.
Operating expenses increased $2.7 million, or 9.0%. Operating expenses in 1994
were reduced by $900,000 as the result of the curtailment of postretirement
health benefits previously accrued. Research and development expenses increased
$427,000, or 6.7%, as a result of greater development spending at Penwest
Pharmaceuticals Group. The Company expects to continue R & D investments at
approximately 3.5 to 4% of sales.
Net interest expense increased $2.0 million reflecting a greater debt level,
higher interest rates and a lower investment portfolio.
The effective tax rate was 35.0% in fiscal 1995, compared with 24.3% in the
prior year when PENWEST recorded a federal tax benefit relating to research and
development expenditures.
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Comparison of Fiscal 1994 to 1993 Results of Operations
Sales increased $23.3 million, or 17.2%, during fiscal 1994. The gain was
generated from additional volumes due to the specialty ethylated starch capacity
expansion in late fiscal 1993 at Penford's Cedar Rapids plant, as well as
greater utilization of existing oxidized starch capacity. Penford also had
increased sales of its potato starch and corn cationic products. Mendell sales
of microcrystalline cellulose (MCC) increased due to additional capacity that
was brought on line in August 1993. Sales at Penwest Foods Co. (PFC) increased
significantly during the year; however, PFC continued to record operating
losses.
Gross margins were 25.9% for fiscal 1994 compared to 26.4% for fiscal 1993. The
gross margins in fiscal 1994 were affected by a change in the volume mix with an
increase in the sales of oxidized starches, which yield lower margins. Margins
at Penford in the prior year were negatively affected by approximately $425,000
of expenses related to flooding in the Midwest. Margins at Mendell declined
during the year primarily due to increased expenses at the new MCC plant in
Cedar Rapids.
Operating expenses increased $3,537,000, or 13.3%, due to increased research and
development, an increase in operating expenses at PFC, and higher expenses
associated with a stock appreciation rights program. This increase at PFC was
due to its growth and a continued investment in its business.
Research and development expenses increased $684,000, or 12.1% in fiscal 1994
due to an increase at both Mendell and TIMERx Technologies.
Net interest expense increased $1.3 million in fiscal 1994 due to lower
capitalized interest in the current year, higher interest rates, and a lower
investment portfolio.
The effective tax rate was 24.3% in fiscal 1994 compared to 17.3% in fiscal
1993. The effective rate in 1994 is lower than the statutory rate primarily due
to a federal tax benefit recorded during the first quarter related to research
and development tax credits. The effective tax rate for 1993 was less than the
statutory rate due to certain tax refunds and credits received by the Company.
PENWEST's core business was strong in fiscal 1994. The specialty paper chemical
products continued to grow at double-digit rates. Although there was some
improvement in the Company's largest customer base, the paper industry, many of
the large paper companies were still in the early stages of recovery which made
the environment difficult to increase sales and prices. The starch copolymer
family of products continued to make progress during fiscal 1994 and operated at
break-even.
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Liquidity and Capital Resources
PENWEST has strong liquidity and capital resources. The Company had $5.3 million
in cash and cash equivalents at year-end and working capital of $29.2 million.
The Company has a $15 million revolving credit agreement. There were no
borrowings under this agreement during the fiscal year. The Company also has
several uncommitted lines with various banks that are used for overnight
borrowings. These lines were used throughout the year, however, there were no
outstanding balances at year-end.
Operating cash flow was $16.3 million, $12.2 million, and $17.8 million in
fiscal 1995, 1994, and 1993, respectively. The improvement in fiscal 1995 was
primarily due to an improvement in operating income and by changes in working
capital components.
Capital expenditures amounted to $23.0 million in fiscal 1995 compared to $13.3
million in fiscal 1994 and were $31.3 million in fiscal 1993. Expenditures have
been funded from operations, cash, a private placement of debt, and borrowings
under uncommitted lines. The significant capital expenditures during fiscal 1995
were for the completion of expansion of the Penwest Foods facility in Richland,
Washington, the completion of new laboratory facilities for Penwest
Pharmaceuticals Group, and capacity expansion at Penford Products. The remainder
of the expenditures was for various improvements to manufacturing facilities.
Capital expenditures in fiscal 1996 should be lower than fiscal 1995. The only
significant planned project is a $6 million capacity expansion project at
Penford Products. The Company expects to fund these capital expenditures from
operations and cash.
The Company commenced paying a quarterly cash dividend of $0.05 per share with
the quarter ended February 28, 1992, and has paid such dividend each quarter
thereafter. The Board of Directors reviews the dividend policy on a periodic
basis.
In April 1994, the Board of Directors authorized a stock repurchase program for
the purchase of up to 500,000 shares of the outstanding common stock of the
Company. The Company repurchased 66,000 shares of its stock during fiscal 1995
for $1,310,000.
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ITEM 8: PENWEST, LTD. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31
(Thousands of dollars) 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 5,334
Trade accounts receivable 23,943 $ 20,748
Inventories 14,209 16,734
Prepaid expenses and other 5,447 4,593
--------- ---------
Total current assets 48,933 42,075
Property, plant and equipment:
Land 3,359 3,089
Plant and equipment 175,533 162,570
Construction in progress 3,371 6,611
Less accumulated depreciation (70,823) (72,297)
--------- ---------
Net property, plant and equipment 111,440 99,973
Deferred income taxes 9,927 9,545
Other assets 16,460 12,764
--------- ---------
$ 186,760 $ 164,357
========= =========
Liabilities and shareholders' equity
Current liabilities:
Bank overdraft, net $ 635
Accounts payable $ 8,749 8,131
Accrued liabilities 6,728 7,847
Current portion of long-term debt 4,270 4,100
--------- ---------
Total current liabilities 19,747 20,713
Long-term debt 58,628 42,897
Other post retirement benefits 10,155 10,102
Deferred income taxes and other 26,248 23,480
Shareholders' equity:
Common stock, par value $1.00 per share,
authorized 29,000,000 shares, issued 8,591,027
shares in 1995 and 8,577,427 in 1994, including
treasury shares 8,591 8,577
Additional paid-in capital 12,550 12,489
Retained earnings 84,949 79,128
Treasury stock, at cost, 1,832,752 shares in 1995
and 1,766,752 shares in 1994 (30,637) (29,327)
Note receivable from PENWEST Savings
and Stock Ownership Plan (2,978) (3,340)
Cumulative translation adjustment (493) (362)
--------- ---------
Total shareholders' equity 71,982 67,165
--------- ---------
$ 186,760 $ 164,357
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 17
<PAGE> 18
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended August 31
(Thousands of dollars except per share data) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 174,200 $ 158,787 $ 135,517
Cost of sales 126,341 117,734 99,785
----------- ----------- -----------
Gross margin 47,859 41,053 35,732
Operating expenses 32,886 30,159 26,622
----------- ----------- -----------
Income from operations 14,973 10,894 9,110
Other income 899
Investment income 418 636 1,016
Interest expense (5,183) (3,444) (2,489)
----------- ----------- -----------
Income before income taxes 11,107 8,086 7,637
Income taxes 3,890 1,966 1,322
----------- ----------- -----------
Net income $ 7,217 $ 6,120 $ 6,315
=========== =========== ===========
Weighted average common shares and
equivalents outstanding 7,018,970 7,110,953 7,175,855
=========== =========== ===========
Earnings per share $ 1.03 $ 0.86 $ 0.88
=========== =========== ===========
Dividends declared per share $ 0.20 $ 0.20 $ 0.20
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 18
<PAGE> 19
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended August 31
(Thousands of dollars) 1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 7,217 $ 6,120 $ 6,315
Adjustments to reconcile net income
to net cash from operating activities
Depreciation and amortization 10,375 10,343 9,414
Deferred income taxes 1,504 2,676 2,891
Gain on sale of assets (899)
Change in operating assets and liabilities
Receivables (3,195) (4,743) (2,941)
Inventories 2,525 (6,520) (367)
Accounts payable and other (1,181) 4,349 2,523
-------- -------- --------
Net cash from operating activities 16,346 12,225 17,835
Investing activities:
Additions to property, plant and equipment (23,019) (13,259) (31,266)
Proceeds from sale of assets 2,500
Other (530) 1,594 (815)
-------- -------- --------
Net cash used by investing activities (21,049) (11,665) (32,081)
Financing activities:
Proceeds from unsecured line of credit 41,305 30,605
Payments on unsecured line of credit (41,305) (30,605)
Proceeds from long-term debt 20,000 20,000
Payments on long-term debt (4,100) (3,880) (673)
Purchase of treasury stock (1,310) (1,277) (5,085)
Purchase of life insurance for officers'
benefit plans (2,501) (1,343) (1,343)
Payment of dividends (1,360) (1,371) (1,394)
Other (57) 1,199 489
-------- -------- --------
Net cash from (used by) financing
activities 10,672 (6,672) 11,994
-------- -------- --------
Net increase (decrease) in cash 5,969 (6,112) (2,252)
Cash, (bank overdrafts) and cash
equivalents at beginning of year (635) 5,477 7,729
-------- -------- --------
Cash (bank overdrafts) and cash
equivalents at end of year $ 5,334 $ (635) $ 5,477
======== ======== ========
Supplemental disclosure of cash flow
information
Cash paid during the year for:
Interest $ 4,976 $ 3,478 $ 2,341
Income taxes $ 2,052 $ 2,909 $ 3,005
</TABLE>
The accompanying notes are an integral part of these statements.
Page 19
<PAGE> 20
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Note Receiv-
able from
PENWEST Total
Additional Savings & Cumulative Share-
Common Paid-In Retained Treasury Stock Own- Translation holders'
(Thousands of dollars) Stock Capital Earnings Stock ership Plan Adjustment Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, September 1, 1992 $ 8,540 $ 12,332 $ 68,994 $(22,965) $ (5,319) $ (135) $ 61,447
Net income 6,315 6,315
Exercise of stock options 23 71 94
Purchase of treasury stock (5,085) (5,085)
Savings and Stock Ownership
Plan activity 1,014 1,014
Pension plan minimum
liability 450 450
Translation loss (361) (361)
Dividends declared (1,384) (1,384)
-------- -------- -------- -------- -------- -------- --------
Balances, August 31, 1993 8,563 12,403 74,375 (28,050) (4,305) (496) 62,490
Net income 6,120 6,120
Exercise of stock options 14 86 100
Purchase of treasury stock (1,277) (1,277)
Savings and Stock Ownership
Plan activity 965 965
Translation gain 134 134
Dividends declared (1,367) (1,367)
-------- -------- -------- -------- -------- -------- --------
Balances, August 31, 1994 8,577 12,489 79,128 (29,327) (3,340) (362) 67,165
Net income 7,217 7,217
Exercise of stock options 14 61 75
Purchase of treasury stock (1,310) (1,310)
Savings and Stock Ownership
Plan activity 362 362
Translation loss (131) (131)
Dividends declared (1,396) (1,396)
-------- -------- -------- -------- -------- -------- --------
Balances, August 31, 1995 $ 8,591 $ 12,550 $ 84,949 $(30,637) $ (2,978) $ (493) $ 71,982
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 20
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
PENWEST's business is developing, manufacturing and marketing chemically
modified carbohydrate-based specialty chemicals. No single customer accounts for
more than 10% of sales.
The consolidated financial statements include PENWEST and its wholly-owned
subsidiaries. Material intercompany balances and transactions have been
eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of less than
three months when purchased to be cash equivalents.
Cash equivalents consist of money market funds, short-term deposits, and
commercial paper. Amounts reported in the balance sheet represent cost which
approximates market value.
PENWEST's cash management system includes a cash overdraft feature for uncleared
checks in the disbursing accounts. Cash in the accompanying balance sheets
represents the net amounts available to the disbursing accounts. Uncleared
checks in excess of $1,581,000 are netted against cash at August 31, 1995.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Expenditures for maintenance
and repairs are expensed as incurred. The Company uses the straight-line method
to compute depreciation assuming average useful lives of three to forty years
for financial reporting purposes. For income tax purposes, the Company generally
uses accelerated depreciation methods.
Interest is capitalized on major construction projects while in progress.
Interest of $209,000, $51,000 and $985,000 was capitalized in 1995, 1994, and
1993, respectively.
Foreign Currencies
Monetary assets and liabilities of the Company's foreign operations are
translated into U.S. dollars at year-end exchange rates and revenue and expenses
are translated at average exchange rates. Non-monetary assets and liabilities
are converted at historical rates. In each instance, the functional currency is
the U.S. dollar. Realized gains and losses from foreign currency transactions
are reflected in the income statement.
Income Taxes
Deferred income taxes are provided on temporary differences between financial
and income tax reporting methods.
Revenue Recognition
Sales revenue is recorded upon shipment of product.
Page 21
<PAGE> 22
Earnings Per Share
Earnings per common share were computed by dividing net income by the weighted
average number of common shares and dilutive common share equivalents
outstanding during the fiscal year. Outstanding stock options and stock
appreciation rights are considered to be common share equivalents.
Research and Development
Research and development costs of $6,773,000, $6,346,000 and $5,662,000 in 1995,
1994, and 1993, respectively, were charged to expense as incurred.
Reclassifications
Certain prior year amounts have been reclassified to conform with current year
presentation.
NOTE B
INVENTORIES
Inventories are stated at the lower of cost or market. Cost, which includes
material, labor and manufacturing overhead costs, is determined by the first-in,
first-out (FIFO) method.
The Company generally follows a policy of hedging corn purchases, related to
fixed price sales contracts and certain anticipated corn purchases to minimize
price risk due to market fluctuations and risk of crop failure. The instruments
used are principally readily marketable exchange traded futures contracts which
are designated as hedges. The changes in market value of such contracts have a
high correlation to the price changes of the hedged commodity. Also, the
underlying commodity can be delivered against such contracts. To obtain a proper
matching of revenue and expense, gains or losses arising from open and closed
hedging transactions are included in inventory as a cost of the commodities and
reflected in the income statements when the product is sold.
Components of inventory are as follows:
<TABLE>
<CAPTION>
August 31 (Thousands of dollars) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials, supplies and other $ 3,828 $ 6,074
Work in progress 483 622
Finished goods 9,898 10,038
------- -------
Total inventories $14,209 $16,734
======= =======
</TABLE>
Page 22
<PAGE> 23
NOTE C
DEBT
<TABLE>
<CAPTION>
August 31 (Thousands of dollars) 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unsecured term agreement, quarterly principal payments,
final maturity in 2000, 6.50% interest rate at year-end $16,000 $19,000
Private placement, 7.93% interest rate, semiannual interest-only
payments with principal payments beginning in 1996, final
maturity in 2005 20,000 20,000
Private placement, 7.97% interest rate, semiannual interest-only
payments with two equal principal payments, one in 1998 and
one in 2006 20,000
Unsecured note, 9.4% interest rate, due in quarterly installments
through 2000 3,780 4,450
Note payable, 8.49% interest rate, quarterly
principal and interest payments through October 1997 3,118 3,547
------- -------
62,898 46,997
Less current portion 4,270 4,100
------- -------
Net long-term debt $58,628 $42,897
======= =======
</TABLE>
Maturities of long-term debt for the fiscal years ending August 31, 1996 through
2000 are as follows (thousands of dollars):
<TABLE>
<S> <C> <C>
1996 $4,270
1997 7,127
1998 8,955
1999 16,697
2000 6,277
</TABLE>
The Company has an unsecured term loan agreement of $16 million with four banks
which expires on November 30, 2000. Borrowing rates available to the Company
under the term agreement are at prime rate or less depending on the selection of
borrowing options.
The Company has an unsecured revolving line of credit of $15 million with four
banks which expires on April 15, 1997. Borrowing rates available to the Company
under the revolver are at prime rate or less depending on the selection of
borrowing options. Borrowings under the revolver can be converted, at the option
of PENWEST, to term notes due on the expiration date of the revolving line of
credit. At year-end, there were no outstanding borrowings under this agreement.
The unsecured term agreement, the private placements, and the unsecured
revolving line of credit include, among other terms, various limitations on
long-term indebtedness, minimum net worth and working capital ratios, and
restrictions on PENWEST's ability to purchase or redeem its own stock.
The Company has uncommitted lines of credit aggregating $15 million, which
provide for financing at various floating rates.
Page 23
<PAGE> 24
The Company enters into interest rate swap agreements to modify the interest
characteristics of its outstanding debt. These agreements involve the exchange
of interest payment streams without an exchange of the underlying principal
amount. Net amounts paid or received are reflected as adjustments to interest
expense. The fair values of the swap agreements are not recognized in the
financial statements. In the event of default by a counterparty, the risk in
these transactions is the cost of replacing the interest rate contract at
current market rates. The Company continually monitors the credit ratings of its
counterparties. Management believes the risk of incurring losses is remote, and
that if incurred, such losses would be immaterial. At August 31, 1995,
approximately $25 million of the Company's outstanding debt was subject to
interest rate swap agreements. Of this amount, $15 million involves floating
rate to fixed rate swaps which effectively fix rates at approximately 9% and $10
million involves fixed rate to floating rate swaps, with the floating rate
approximating 6% at August 31, 1995.
The Company has hedged the interest rate risk on $8.9 million of its long-term
debt using Treasury note futures. The cost of the hedge has been deferred and
will be recognized as a component of interest expense over the life of the debt.
The hedge will result in an effective interest rate on the hedged portion of
long-term debt of approximately 9.5%.
NOTE D
LEASES
Certain of the Company's property, plant, and equipment is leased under
operating leases ranging from one to fifteen years with renewal options.
Rental expense under operating leases was $3,202,000, $2,787,000 and $2,066,000
for fiscal years ended August 31, 1995, 1994, and 1993, respectively.
Future lease payments as of August 31, 1995 for noncancellable operating leases
having initial lease terms of more than one year are as follows (thousands of
dollars):
<TABLE>
<CAPTION>
Years ending August 31 Operating Leases
- ---------------------- ----------------
<S> <C> <C>
1996 $4,098
1997 2,814
1998 2,312
1999 1,951
2000 608
Thereafter 1,898
-------
Total minimum lease payments $13,681
=======
</TABLE>
Page 24
<PAGE> 25
NOTE E
STOCK OPTIONS
Under stock option plans, options have been granted to certain officers and key
employees to purchase PENWEST common stock. Changes in stock options for the
three years ended August 31 are as follows:
<TABLE>
<CAPTION>
1995 Option
1995 1994 1993 Price Range
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of year 615,859 590,809 596,762 $ 3.313 - $27.50
Granted 271,000 59,000 27,000 20.750 - 22.75
Exercised (13,600) (13,950) (23,003) 3.313 - 22.6
Cancelled (25,800) (20,000) (9,950) 19.13
------- ------- ------
Outstanding at end of year 847,459 615,859 590,809 3.313 - 27.50
======= ======= ======= ===== =====
Exercisable at end of year 401,159 299,109 184,259 3.313 - 27.50
======= ======= ======= ===== =====
</TABLE>
At August 31, 1995, 62,232 stock appreciation rights (SARs) were outstanding to
certain officers. The SARs were granted in December 1986 at the market price of
PENWEST stock and are fully vested as of August 31, 1995. As a result of
appreciation (depreciation) of PENWEST stock and vesting of the SARs,
compensation expense was charged (credited) for $78,000, $342,000 and ($303,000)
in 1995, 1994, and 1993 respectively.
Page 25
<PAGE> 26
NOTE F
INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
Year Ended August 31
(Thousands of dollars) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 2,102 $ (904) $(1,731)
Foreign 4 138 213
State 232 56 (51)
------- ------- -------
2,338 (710) (1,569)
Deferred
Federal 1,459 2,253 2,808
State 93 423 83
------- ------- -------
1,552 2,676 2,891
------- ------- -------
Total provision $ 3,890 $ 1,966 $ 1,322
======= ======= =======
</TABLE>
A reconciliation of the statutory federal tax to the actual provision is as
follows:
<TABLE>
<CAPTION>
Year Ended August 31
(Thousands of dollars) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 34% 34% 34%
Statutory tax $ 3,776 $ 2,749 $ 2,597
State taxes, net of federal benefit 215 164 77
Tax credits, including research and
development credits (313) (1,095) (1,503)
Tax advantaged investment income (47)
Other 259 148 151
------- ------- -------
Total provision $ 3,890 $ 1,966 $ 1,322
======= ======= =======
</TABLE>
The significant components of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
August 31
(Thousands of dollars) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Alternative minimum tax credit $ 2,725 $ 3,269
Research and development credit 622 300
Postretirement benefits 3,691 3,671
Provisions for accrued expenses 2,366 1,963
Other 523 342
------------------------
Total deferred tax assets 9,927 9,545
Deferred tax liabilities:
Depreciation 17,650 16,826
Other 2,143 926
------------------------
Total deferred tax liabilities 19,793 17,752
------------------------
Net deferred tax liabilities $ 9,866 $ 8,207
========================
</TABLE>
Page 26
<PAGE> 27
NOTE G
PENSION AND OTHER EMPLOYEE BENEFITS
PENWEST maintains two noncontributory defined benefit pension plans that cover
substantially all employees.
Benefits under the plan for hourly employees are primarily related to years of
service. Benefits for salaried employees are primarily related to years of
credited service and final average five-year earnings. Employees generally
become eligible to participate in the plans after attaining age 21 and benefits
normally become vested after five years of credited service.
The Company's funding policy is to contribute amounts to the plans sufficient to
meet or exceed the minimum requirements of the Employee Retirement Income
Security Act of 1974.
Assumptions used in the measurement of the projected benefit obligation in 1995
and 1994 included a discount rate of 7.5% and 8.0%, respectively, and a rate of
increase in compensation levels of 6.0% for the salaried employees. The change
in the discount rate had the impact of increasing the projected benefit
obligation by approximately $1.4 million. The expected long-term rate of return
on plan assets is assumed to be 8.0%.
Net periodic pension expense consisted of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended August 31
1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned during the year $ 603 $ 591 $ 545
Interest cost on projected benefit obligation 1,363 1,256 1,245
Actual return on plan assets (2,599) (842) (2,449)
Net amortization and deferral 1,480 (253) 1,676
------- ------- -------
Net pension expense $ 847 $ 752 $ 1,017
======= ======= =======
</TABLE>
The following table sets forth the funded status of both pension plans as of
August 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
August 31
1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of projected obligation,
based on service to date and current salary levels:
Vested $ 17,081 $ 15,521
Nonvested 430 387
-------- --------
Accumulated benefit obligation 17,511 15,908
Effect of projected salary increases 2,052 1,663
-------- --------
Projected benefit obligation 19,563 17,571
Plan assets at fair market value 18,910 15,977
-------- --------
Projected benefit obligation greater than plan assets (653) (1,594)
Unrecognized actuarial net loss 254 1,264
Balance of unrecognized net obligation at
transition being amortized over 15 years 1,137 577
Unrecognized prior service cost 534 472
Adjustment to record minimum liability (1,987)
-------- --------
Net pension asset (liability) $ 1,272 $ (1,268)
======== ========
</TABLE>
Page 27
<PAGE> 28
Assets of the pension plans are invested in units of common trust funds managed
by Frank Russell Trust Company. The common trust funds own stocks, bonds and
real estate.
Penwest Savings And Stock Ownership Plan
The Company has a savings investment plan. The savings component, available to
all employees, matches 75% of the employee's contribution up to 6% of the
employee's pay, in the form of PENWEST common stock. The plan held 113,271
unallocated shares of PENWEST common stock as of August 31, 1995, including
shares earned but not yet allocated. During 1995, approximately 52,630 shares of
stock were earned by plan participants. The savings component expense of the
plan was $520,000, $599,900 and $519,000 for fiscal years 1995, 1994, and 1993,
respectively. Compensation expense is recorded by the Company as the market
value of shares released.
The plan also includes an annual profit-sharing component that is awarded by the
Board of Directors based on achievement of predetermined corporate goals. This
feature of the plan is available to all employees who meet the eligibility
requirements of the plan. The profit sharing expense, which reflects the cost
basis of stock released by the plan to participants was $402,000, $285,000 and
$420,000 for the fiscal years 1995, 1994 and 1993, respectively.
The plan acquired the PENWEST common stock by issuing a note to the Company. The
note is reflected as a reduction of shareholders' equity and is amortized
ratably as stock is released to participants in the plan. The shares held by the
plan are considered outstanding for puposes of calculating earnings per share.
Supplemental Executive Retirement Plan
The Company established a Supplemental Executive Retirement Plan (SERP), a
nonqualified plan, which covers certain employees. For 1995, 1994, and 1993, the
net pension expense accrued for the SERP was $856,000, $347,000 and $283,000
respectively.
Health Care And Life Insurance Benefits
The Company offers health care and life insurance benefits to most active
employees. Costs incurred to provide these benefits are charged to expense when
paid. Health care and life insurance expense was $2,501,000, $2,649,000 and
$2,297,000 in 1995, 1994, and 1993, respectively.
NOTE H
OTHER POSTRETIREMENT BENEFITS
PENWEST maintains two postretirement benefit plans that cover substantially all
salaried and hourly retirees.
Benefits under the plan for hourly employees include medical coverage,
prescription drug coverage, and, to a certain grandfathered group, life
insurance. Hourly participants contribute to the cost of the benefits based on a
pension credit formula.
Benefits under the plan for salaried employees includes medical coverage and
vision coverage. Salaried participants contribute, for the most part, 100% of
the premiums.
Page 28
<PAGE> 29
Postretirement benefit expense was $359,000, $834,000 and $1,088,000 for the
years ended August 31, 1995, 1994, and 1993, respectively. Presently the Company
funds the current benefits on a cash basis and therefore there are no plan
assets.
The following table sets forth the plan's funded status (in thousands of
dollars):
Accumulated postretirement benefit obligation:
<TABLE>
<CAPTION>
Year Ended
August 31, 1995 August 31, 1994
--------------- ---------------
<S> <C> <C>
Retirees $ 4,119 $ 5,020
Fully eligible active plan participants 311 297
Other active plan participants 2,190 2,365
------- -------
Accumulated post-retirement benefit obligation 6,620 7,682
Unrecognized actuarial net gain 3,535 2,420
------- -------
Accrued postretirement benefit obligation $10,155 $10,102
======= =======
</TABLE>
Net periodic postretirement benefit costs include the following components:
<TABLE>
<CAPTION>
Year Ended August 31
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost -- benefits earned during the period $ 186 $ 295 $ 288
Interest cost on accumulated postretirement benefit
obligations 402 604 800
Net amortization and deferral (229) (65)
------- ------- -------
$ 359 $ 834 $ 1,088
======= ======= =======
</TABLE>
Future benefit costs were estimated assuming medical costs would increase at a
10% annual rate for fiscal 1996, then beginning in fiscal 1997, decreasing by
one half of a percent ratably over the next nine years to a rate of 5.5%. A 1%
increase in this annual trend rate would have increased the accumulated
postretirement benefit obligation at August 31, 1995 by $954,000, with an
increase of $105,000 in the annual 1995 postretirement benefit expense. The
weighted average discount rate used to estimate the accumulated postretirement
obligation was 7.5% in 1995 and 8.0% in 1994. The change in discount rate had
the impact of increasing the accumulated post-retirement benefit obligation by
$1.1 million.
During the second quarter of fiscal 1994, the Company curtailed postretirement
health benefits for salaried employees that had been previously accrued. The
Company formerly paid a portion of the health insurance premiums for salaried
retirees but no longer does so for eligible salaried employees retiring after
May 15, 1994. As a result, in the second quarter of 1994, there was a $900,000
reduction of operating expenses recorded.
Page 29
<PAGE> 30
NOTE I
SHAREHOLDERS' EQUITY
UNISSUED PREFERRED STOCK
There are 1,000,000 shares of $1.00 par value preferred stock authorized for
issue; however, none are outstanding.
Common Stock Purchase Rights
On June 16, 1988, PENWEST distributed a dividend of one right (Right) for each
outstanding share of PENWEST common stock. In addition, previously outstanding
Rights were redeemed for $0.025 each. When exercisable, each Right will entitle
its holder to buy one share of PENWEST's common stock at $44.00 per share. The
Rights will become exercisable if a purchaser acquires 20% of PENWEST's common
stock or makes an offer to acquire common stock. In the event that a purchaser
acquires 20% of the common stock of PENWEST, each Right shall entitle the
holder, other than the acquirer, to purchase one share of common stock of
PENWEST for one half of the market price of the common stock. In the event that
PENWEST is acquired in a merger or transfers 50% or more of its assets or
earnings to any one entity, each Right entitles the holder to purchase common
stock of the surviving or purchasing company having a market value of twice the
exercise price of the Right. The Rights may be redeemed by PENWEST at a price of
$.01 per Right, and they expire in June 1998.
NOTE J
PACIFIC COGENERATION, INC.
In December of 1994 the Company sold the assets of its subsidiary Pacific
Cogeneration, Inc. to third parties. The Company recognized a gain on the sale
of $899,000 which is reflected as other income in 1995.
NOTE K
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Fiscal 1995 First Second Third Fourth
(Thousands of dollars except earnings per share data) Quarter Quarter Quarter Quarter Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ 42,771 $ 42,429 $ 43,618 $ 45,382 $174,200
Gross margin 11,244 11,912 12,465 12,238 47,859
Income from operations 3,716 3,504 4,225 3,528 14,973
Net income 1,757 2,153 2,000 1,307 7,217
Earnings per common share $ 0.25 $ 0.31 $ 0.29 $ 0.19 $ 1.03
Dividends declared $ 0.05 $ 0.05 $ 0.05 $ 0.05 $ 0.20
<CAPTION>
Fiscal 1994 First Second Third Fourth
(Thousands of dollars except earnings per share data) Quarter Quarter Quarter Quarter Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ 37,817 $ 35,837 $ 41,347 $ 43,786 $158,787
Gross margin 9,987 8,724 11,050 11,292 41,053
Income from operations 2,599 1,678 3,267 3,350 10,894
Net income 1,761 863 1,774 1,722 6,120
Earnings per common share $ 0.25 $ 0.12 $ 0.25 $ 0.24 $ 0.86
Dividends declared $ 0.05 $ 0.05 $ 0.05 $ 0.05 $ 0.20
</TABLE>
Page 30
<PAGE> 31
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders
PENWEST, LTD.
We have audited the accompanying consolidated balance sheets of PENWEST, LTD.
as of August 31, 1995 and 1994, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in the
period ended August 31, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
PENWEST, LTD. at August 31, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
August 31, 1995, in conformity with generally accepted accounting principles.
Seattle, Washington
October 12, 1995
Page 31
<PAGE> 32
REPORT OF MANAGEMENT
The management of PENWEST, LTD. has prepared and is responsible for the
integrity and fairness of the financial statements and other financial
information presented in this annual report. The statements have been prepared
in accordance with generally accepted accounting principles and, to the extent
appropriate, include amounts based on management's judgment and/or estimates. In
order to fulfill its responsibilities for these financial statements and
information, management maintains accounting systems and related internal
controls. These controls are designed to provide reasonable assurance that
transactions are properly authorized and recorded, that assets are safeguarded,
and that financial records are reliably maintained.
Ernst & Young LLP, independent auditors, is retained to audit the Company's
consolidated financial statements. Their accompanying report is based on an
audit conducted in accordance with generally accepted auditing standards,
including a review of internal accounting controls and tests of accounting
procedures and records to the extent necessary to support their audit.
The Audit Committee of the Board of Directors, which is composed solely of
outside directors, meets periodically with management and with the independent
auditors to review the quality of financial reporting, the operation and
development of the internal control systems, and the results of independent
audits.
The independent auditors regularly meet with the Audit Committee without the
presence of any other parties.
Tod R. Hamachek
President and
Chief Executive Officer
Jeffrey T. Cook
Vice President, Finance and
Chief Financial Officer
Jennifer L. Good
Corporate Controller and
Corporate Secretary
Page 32
<PAGE> 33
ITEM 9: CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information set forth under "Election of Directors" in the Company's
definitive Proxy Statement for the 1996 Annual Meeting of Shareholders is
incorporated herein by reference.
Information regarding executive officers of the Company is set forth in Part I
above and incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
The information set forth under "Executive Compensation" in the Company's
definitive Proxy Statement for the 1996 Annual Meeting of Shareholders is
incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under "Security Ownership of Certain Beneficial Owners
and Management" in the Company's definitive Proxy Statement for the 1996 Annual
Meeting of Shareholders is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to certain relationships and related transactions
of the Company set forth under "Change-in-Control Arrangements" in the
Company's definitive Proxy Statement for the 1996 Annual Meeting of
Shareholders is incorporated herein by reference.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The consolidated balance sheets as of August 31, 1995 and 1994
and the related statements of income, cash flows and
shareholders' equity for each of the three years in the period
ended August 31, 1995 and the report of independent auditors
are included in Part II, Item 8.
Page 33
<PAGE> 34
(a) (2) Financial Statement Schedules
(a) Quarterly financial information is included in Part II, Item
8.
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable, and therefore have been omitted.
(a) (3) Exhibits
See list of Exhibits on page 36. This list includes a subset
containing each management contract, compensatory plan, or arrangement required
to be filed as an exhibit to this report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
Page 34
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PENWEST, LTD.
Date November 29, 1995 Tod R. Hamachek
---------------------------------------------
Tod R. Hamachek, President and
Chief Executive Officer
Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date November 29, 1995 Tod R. Hamachek
---------------------------------------------
Tod R. Hamachek, President and
Chief Executive Officer (Principal Executive
Officer)
Date November 29, 1995 Jeffrey T. Cook
---------------------------------------------
Jeffrey T. Cook, Chief Financial Officer
(Principal Financial Officer)
Date November 29, 1995 Jennifer L. Good
---------------------------------------------
Jennifer L. Good, Corporate Controller
(Principal Accounting Officer)
Directors
Richard E. Engebrecht
Tod R. Hamachek By Tod R. Hamachek
Paul H. Hatfield ------------------------------------------
C. Calvert Knudsen
Harry L. Mullikin Attorney-in-Fact
Sally G. Narodick Power of Attorney Dated
William G. Parzybok, Jr. October 24, 1995
N. Stewart Rogers Date October 24, 1995
William K. Street
James H. Wiborg
Page 35
<PAGE> 36
INDEX TO EXHIBITS
Exhibits identified in parentheses below, on file with the Securities and
Exchange Commission, are incorporated by reference.
Exhibit No. Item
(3.1) Restated Articles of Incorporation of Registrant
(3.2) Bylaws of Registrant as amended and restated as of
June 27, 1995
(4.1) PENWEST, LTD. Common Stock Purchase Rights, dated
June 3, 1988 (filed on Form 8-A dated June 3, 1988)
(10.1) Unsecured Term Agreement among PENWEST, LTD.
and Penford Products Co. as Borrowers, and Seattle-
First National Bank, Continental Bank N.A., U.S.
Bank of Washington, National Association, and The
Bank of Nova Scotia as Lenders, dated as of November
9, 1990 (filed as an Exhibit to Registrant's Form 10-Q
for the quarter ended February 28, 1993)
(10.2) Senior Note Agreement among PENWEST, LTD. as Borrower
and Mutual of Omaha and Affiliates as lenders, dated
November 1, 1992 (filed as an Exhibit to Registrant's
Form 10-Q for the quarter ended February 28, 1993)
(10.3) Term Loan Agreement among Penford Products Co.,
and PENWEST, LTD. as Borrowers, and First Interstate
Bank of Washington, N.A. as Lender, dated September
27, 1990 (Registrant agrees to furnish a copy of this
instrument to the Commission on request)
(10.4) Loan Agreement among PENWEST, LTD. as Borrower and
Seattle-First National Bank as Lender, dated December
1, 1989 (Registrant agrees to furnish a copy of this
instrument to the Commission on request)
Page 36
<PAGE> 37
(10.5) PENWEST, LTD. Supplemental Executive
Retirement Plan, dated March 19, 1990 (filed as
an Exhibit to Registrant's Form 10-K for the fiscal
year ended August 31, 1991)
(10.6) PENWEST, LTD. Supplemental Survivor Benefit
Plan, dated January 15, 1991 (filed as an Exhibit
to Registrant's Form 10-K for the fiscal year ended
August 31, 1991)
(10.7) PENWEST, LTD. Deferred Compensation Plan,
dated January 15, 1991 (filed as an Exhibit to
Registrant's Form 10-K for the fiscal year ended
August 31, 1991)
(10.8) Change of Control Agreements with Messrs.
Hamachek, Reed, Cook, Widmaier, Schmelzer, Talley,
Horn and Rydzewski (a representative copy of these
agreements is filed herewith)
(10.9) PENWEST, LTD. 1993 Non-Employee Director Restricted
Stock Plan (filed as an Exhibit to Registrant's Form
10-Q for the quarter ended November 30, 1993)
(10.10) Note Agreement dated as of October 1, 1994 among
PENWEST, Ltd., Principal Mutual Life Insurance
Company and TMG Life Insurance Company (filed as
an Exhibit to Registrant's Form 10-Q for the quarter
ended February 28, 1995)
(10.11) PENWEST, Ltd. 1994 Stock Option Plan (filed as an
Exhibit to the Registration Statement dated April 25,
1995 on Form S-8, Commission File No. 33-58799)
<TABLE>
<CAPTION>
<S> <C>
11 Statement Regarding Computation of Per Share Earnings
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
24 Power of Attorney
27 Financial Data Schedule
</TABLE>
Page 37
<PAGE> 38
SUBSET OF THE INDEX TO EXHIBITS
Executive Compensation Plans and Arrangements.
This subset of the index to exhibits includes a subset containing each
management contract, compensatory plan, or arrangement required to be filed as
an exhibit to this Report.
Exhibit No. Item
- ----------- ----
(10.5) PENWEST, LTD. Supplemental Executive Retirement Plan,
dated March 19, 1990 (filed as an Exhibit to
Registrant's Form 10-K for the fiscal year ended
August 31, 1991, Commission File No. 0-11488)
(10.6) PENWEST, LTD. Supplemental Survivor Benefit Plan,
dated January 15, 1991 (filed as an Exhibit to
Registrant's Form 10-K for the fiscal year ended
August 31, 1991, Commission File No. 0-11488)
(10.7) PENWEST, LTD. Deferred Compensation Plan, dated
January 15, 1991 (filed as an Exhibit to Registrant's
Form 10-K for the fiscal year ended August 31, 1991,
Commission File No. 0-11488)
(10.8) Change of Control Agreements with Messrs.
Hamachek, Reed, Cook, Widmaier, Schmelzer, Talley,
Horn and Rydzewski (a representative copy of these
agreements is filed herewith)
(10.9) PENWEST, LTD. 1993 Non-Employee Director Restricted
Stock Plan. (Filed as an Exhibit to Registrant's Form
10-Q for the quarter ended November 30, 1993,
Commission File Number 0-11488.)
(10.11) PENWEST, LTD. 1994 Stock Option Plan (filed as an
Exhibit to the Registration Statement dated April 25,
1995 on Form S-8, Commission File No. 33-58799)
Page 38
<PAGE> 1
Exhibit 3.1
RESTATED ARTICLES OF INCORPORATION
OF
PENWEST, LTD.
Pursuant to RCW 23B.10.070 these Restated Articles of Incorporation are
submitted for filing:
1. The name of the corporation is PENWEST, LTD.
2. The Restated Articles are as follows:
ARTICLE I
NAME
The name of the corporation (the "Corporation") is PENWEST, LTD.
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of the registered office of the Corporation is 520 Pike Street,
26th Floor, Seattle, Washington 98101, and the name of the registered agent at
such address is C T CORPORATION SYSTEM.
ARTICLE III
PURPOSE
The purpose of the Corporation is to create the maximum continuing rate of
value growth through long-term profit on invested capital and the growth of that
capital.
To accomplish this purpose, the Board of Directors, management and
employees of the Corporation will strive to:
- Properly select business opportunities versus risk;
- Develop and maintain strategic direction for all business
segments;
- Develop and maintain superior management and organizational
structures;
- Encourage employee involvement in the business process;
- Provide all employees the opportunity of a value growth
environment of good employment, training, advancement and
recognition of their achievements;
- Create market understanding of the intrinsic values so created:
- Conduct its business legally and ethically within the free
enterprise system as a responsible corporate citizen.
In carrying out this purpose, the Corporation is authorized to engage in
any lawful act or activity for which corporations may be organized under the
Washington Business Corporation Act.
1
<PAGE> 2
ARTICLE IV
SHARES
1. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 30,000,000 shares to be divided
into two classes consisting of 29,000,000 shares of common stock of the par
value of $1.00 per share (hereinafter designated "Common Stock") and 1,000,000
shares of preferred stock of the par value of $1.00 per share (hereinafter
designated "Preferred Stock"). The Common Stock shall have one (1) vote for each
share. The Preferred Stock shall have such full or limited or absence of voting
powers and designations, preferences, limitations and relative rights as shall
be stated and expressed in the resolution or resolutions of the Board of
Directors of the Corporation providing for the issue of such shares of Preferred
Stock subject to the following limitations: (a) no share of Preferred Stock
shall have voting powers in excess of one (1) vote per share; provided, however,
if the Preferred Stock is convertible into Common Stock as of a record date on
which a matter is submitted to a vote of the holders of Common Stock, then such
shares of Preferred Stock may, in the resolution providing for the issue of such
shares and subject to any restrictions or conditions set forth in the
resolution, be granted the right to vote the number of shares of Common Stock
which would be issued upon such conversion as of the record date; and (b) no
shares of Preferred Stock shall be given a preference over the Common Stock in
the event of any liquidation, dissolution, winding up, merger or consolidation
of an amount greater than the per share fair market value of the consideration
received upon the issuance of the shares of Preferred Stock as reasonably
determined in good faith by the Board of Directors of the Corporation plus
accrued but unpaid dividends.
The Preferred Stock may be issued in one or more series of stock and each
such series, subject to the limitations set forth above, may have such
designations, preferences, limitations and relative rights as shall be stated
and expressed in a resolution or resolutions providing for the issue of such
Preferred Stock adopted by the Board of Directors pursuant to the authority
hereby granted.
The Preferred Stock may have voting powers, designations, preferences,
limitations and relative rights that negate or supersede the provisions of
Article VIII hereof (so long as the resolution or resolutions adopting the same
are approved by the unanimous vote of the Board of Directors).
2. The shares of stock of the Corporation may be issued by the
Corporation from time to time for such consideration, not less than the par
value thereof except as otherwise provided by law, as from time to time may be
fixed by the Board of Directors of the Corporation; and all issued shares of the
capital stock of the Corporation shall be deemed fully paid and non-assessable
and the holders of such shares shall not be liable thereunder to the Corporation
or to its creditors.
3. No shareholder of the Corporation shall have any preemptive right to
acquire additional shares of stock or securities convertible into shares of
stock of the Corporation.
ARTICLE V
DURATION
The existence of the Corporation is to be perpetual.
2
<PAGE> 3
ARTICLE VI
PAYMENT FOR CORPORATE DEBTS
The private property of the shareholders shall not be subject to the
payment of corporate debts to any extent whatsoever.
ARTICLE VII
CERTAIN DEFINITIONS
For purposes of these Articles, the following defined terms shall have the
meanings set forth below. All references in these Articles to statutes, rules or
regulations shall include a reference to said statutes, rules or regulations as
currently in effect or hereafter amended.
(a) The terms "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the Securities Exchange Act of
1934.
(b) The term "Beneficial Owner" and correlative terms shall have the
meanings ascribed to them in Rule 13d-3 and related interpretive releases
promulgated and issued under the Securities Exchange Act of 1934. Without
limitation, any shares of Voting Stock of the Corporation which any Related
Person has the right to vote or to acquire pursuant to any agreement, or upon
exercise of conversion rights, warrants or options, or otherwise, shall be
deemed "Beneficially Owned" by such Related Person.
A person shall be a Beneficial Owner of any Voting Stock:
(1) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
(2) which such person or any of its Affiliates or Associates has (a)
the right to acquire (whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (b) the right to vote pursuant to any
agreement, arrangement or understanding; or
(3) which are beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or Associates has
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Voting Stock.
(c) The term "Board of Directors" or the "Board" means the group of
individuals elected by the shareholders as directors of the Corporation or
appointed by the directors to fill a vacancy on the Board.
(d) The term "Continuing Director" shall mean, with respect to any
proposed Major Transaction, a director who was a member of the Board of
Directors of the Corporation immediately prior to the time that any Related
Person involved in the proposed Major Transaction acquired 20% or more of the
outstanding shares of Voting Stock of the Corporation.
(e) The term "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with any Interested Shareholder and/or Substantial
Shareholder and was a member of the Board prior to the time that any Interested
Shareholder or Substantial Shareholder became an Interested Shareholder or
Substantial Shareholder, and any successor of a Disinterested Director who is
unaffiliated with any Interested Shareholder or Substantial
3
<PAGE> 4
Shareholder and is recommended to succeed a Disinterested Director by a majority
of Disinterested Directors then on the Board.
(f) The term "Fair Market Value" means (i) in the case of stock, the
Market Price, and (ii) in the case of property other than cash or stock, the
fair market value of such property on the date in question as determined by the
Board in good faith.
(g) The term "Interested Shareholder" shall mean any person (other than
the Corporation or any Subsidiary) who or which:
(1) is the Beneficial Owner, directly or indirectly, of 5% or more of
the voting power of the outstanding Voting Stock; or
(2) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the Beneficial
Owner, directly or indirectly, of five percent (5%) or more of the voting power
of the then outstanding Voting Stock; or
(3) is an assignee of or has otherwise succeeded to any shares of
Voting Stock which were, at any time within the two-year period immediately
prior to the date in question, beneficially owned by any Interested Shareholder,
if such assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering within the
meaning of the Securities Act of 1933.
(h) The term "Major Transaction" shall mean (1) any merger or
consolidation of the Corporation or a Subsidiary with or into a Related Person,
(2) any sale, lease, exchange, transfer or other disposition, including without
limitation a mortgage or other security device, of all or any Substantial Part
of the assets of the Corporation (including without limitation any securities of
a Subsidiary) or of a Subsidiary, to a Related Person, (3) any merger or
consolidation of a Related Person with or into the Corporation or a Subsidiary,
(4) any sale, lease, exchange, transfer or other disposition of all or any
Substantial Part of the assets of a Related Person to the Corporation or a
Subsidiary, (5) the issuance of any securities of the Corporation or a
Subsidiary to a Related Person, (6) the acquisition by the Corporation or a
Subsidiary of any securities of a Related Person, (7) any reclassification of
Voting Stock of the Corporation, or any recapitalization involving Voting Stock
of the Corporation, proposed by a Related Person within five years after such
Related Person became a Related Person, (8) any loan or other extension of
credit by the Corporation or a Subsidiary to a Related Person or any guarantees
by the Corporation or a Subsidiary of any loan or other extension of credit by
any person to a Related Person, and (9) any agreement, contract or other
arrangement providing for any of the transactions described in this definition
of Major Transaction.
(i) The term "Market Price" means: the last closing sale price immediately
preceding the time in question of a share of the stock in question on the
Composite Tape for New York Stock Exchange-Listed Stocks, or if such stock is
not quoted on the Composite Tape, on the New York Stock Exchange, or if such
stock is not listed on such Exchange, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934 on which such
stock is listed, or if such stock is not listed on any such exchange, the last
closing bid quotation with respect to a share of such stock immediately
preceding the time in question on the National Association of Securities
Dealers, Inc. Automated Quotations System or any system then in use (or any
other system of reporting or ascertaining quotations then available), or if such
stock is not so quoted, the fair market value at the time in question of a share
of such stock as determined by the Board in good faith.
4
<PAGE> 5
(j) The term "other consideration to be received" shall, for the purposes
of subparagraph 1(d)(1) of Article VIII, include without limitation Voting Stock
of the Corporation retained by its existing public shareholders in the event of
a Major Transaction which is a merger or consolidation in which the Corporation
is the surviving corporation.
(k) The term "Outside Director" shall mean, with respect to any proposed
Major Transaction, a director who is not (1) an officer or employee of the
Corporation or of any Subsidiary or any relative of an officer or employee, (2)
a Related Person or an officer, director or employee, Associate or Affiliate of
a Related Person, or a relative of any of the foregoing, or (3) a person having
a direct or indirect material business relationship with the Corporation or any
Subsidiary.
(l) The term "Related Person" shall mean any individual, corporation,
partnership or other person or entity and each member of any "person" as such
term is defined in Section 13(d)(3) of the Securities Exchange Act of 1934
which, together with its Affiliates and Associates, or other members of such
"person" and any other person or entity with which it or its Affiliates or
Associates has any agreement, arrangement, or understanding, directly or
indirectly, for the purpose of acquiring, holding, voting or disposing of Voting
Stock of the Corporation, is the Beneficial Owner of 20% or more in the
aggregate of the outstanding shares of Voting Stock of the Corporation, and any
Affiliate, Associate or member of such "person," or any such other persons or
entities.
(m) The term "Subsidiary" means any corporation or other entity of which a
majority of any class of equity security is beneficially owned, directly or
indirectly, by the Corporation; provided, however, that for the purposes of the
definitions of Interested Shareholder and Substantial Shareholder set forth in
paragraphs (g) and (o) of this Article VII, the term "Subsidiary" shall mean
only a corporation of which a majority of the voting power of the capital stock
entitled to vote generally in the election of directors is owned, directly or
indirectly, by the Corporation.
(n) The term "Substantial Part" shall mean more than ten percent (10%) of
the total assets of the person or entity in question, as of the end of its most
recent fiscal year ending prior to the time the determination is being made.
(o) The term "Substantial Shareholder" shall mean any person (other than
the Corporation or any Subsidiary) who or which:
(1) is the Beneficial Owner, directly or indirectly, of 40% or more
of the voting power of the outstanding Voting Stock; or
(2) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the Beneficial
Owner, directly or indirectly, of 40% or more of the voting power of the then
outstanding Voting Stock; or
(3) is an assignee of or has otherwise succeeded to any shares of
Voting Stock which were at any time within the two-year period immediately prior
to the date in question beneficially owned by any Substantial Shareholder, if
such assignment or succession shall have occurred in the course of a transaction
or series of transactions not involving a public offering within the meaning of
the Securities Act of 1933.
(p) The term "Voting Stock" shall mean all Common Stock and any other
shares entitled to vote for the election of Directors of the Corporation.
5
<PAGE> 6
(q) For the purposes of determining whether a person is an Interested
Shareholder or a Substantial Shareholder pursuant to paragraphs (g) and (o) of
this Article VII, the number of shares of Voting Stock deemed to be outstanding
shall include shares deemed owned through application of paragraph (b) of this
Article VII, but shall not include any other shares of Voting Stock which may be
issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
ARTICLE VIII
HIGHER THAN MAJORITY VOTE OF SHAREHOLDERS REQUIRED
IN THE EVENT OF CERTAIN TRANSACTIONS
1. Subject to the provisions of any series of Preferred Stock which may
at the time be outstanding, any Major Transaction shall require the affirmative
vote of the holders of not less than 80% of the outstanding Voting Stock of the
Corporation, which shall include the affirmative vote of at least 50% of the
outstanding Voting Stock held by shareholders other than the Related Person
involved in such Major Transaction; provided, however, that such voting
requirement shall not be applicable if:
(a) The Major Transaction was approved by the Board either (i) prior
to the Related Person involved in the Major Transaction having become a Related
Person, or (ii) after such Related Person became such but only if the Related
Person has sought and obtained the unanimous approval by the Board of such
Related Person's acquisition of 20% or more of the outstanding shares of Voting
Stock prior to such acquisition being consummated; or
(b) The Major Transaction involves solely the Corporation and a
Subsidiary none of whose stock is Beneficially Owned by a Related Person (other
than Beneficial Ownership arising solely because of control of the Corporation);
provided that each shareholder of the Corporation receives the same type of
consideration in such transaction in proportion to his stock holdings; or
(c) Prior to becoming a Related Person, such Related Person made a
tender offer for Voting Stock which (i) conformed in all respects to federal
laws and regulations governing such a transaction whether or not the Corporation
or such stock was then regulated by or registered under said laws, (ii)
committed such Related Person to take all shares tendered if it took any shares,
and (iii) resulted in such Related Person acquiring at least 75% of the shares
of each class of Voting Stock held by persons other than such Related Person; or
(d) All the following conditions are satisfied:
(1) The cash or Fair Market Value of the property, securities or
other consideration to be received per share (as adjusted for stock splits,
stock dividends, reclassification of shares into a lesser number and similar
events) by holders of Common Stock of the Corporation in the Major Transaction
is not less than the higher of (i) the highest per share price (including
brokerage commissions, soliciting dealer's fees, dealer-management compensation,
and other expenses, including, but not limited to, costs of newspaper
advertisements, printing expenses and attorneys' fees, paid by such Related
Person in acquiring any of its holdings of the Corporation's Common Stock or
(ii) an amount which bears the same or a greater percentage relationship to the
Market Price of the Corporation's Common Stock immediately prior to the
announcement of such Major Transaction as the highest per share price determined
in (i) above bears to the Market Price of the Corporation's Common Stock
immediately prior to the commencement of acquisition of the Corporation's Common
Stock by such Related Person; and
6
<PAGE> 7
(2) After becoming a Related Person and prior to the
consummation of such Major Transaction, (i) such Related Person shall not have
acquired any shares of stock, directly or indirectly, from the Corporation or a
Subsidiary (except upon conversion of convertible securities acquired by it
prior to becoming a Related Person or upon compliance with the provisions of
this Article VIII or as a result of a pro rata stock dividend or stock split)
and (ii) such Related Person shall not have received the benefit, directly or
indirectly (except proportionately as a shareholder), of any loans, advances,
guarantees, pledges or other financial assistance or tax credits provided by the
Corporation or a Subsidiary, or made any major changes in the Corporation's
business or equity capital structure without the unanimous vote of the members
of the Board then in office; and
(3) A proxy statement responsive to the requirements of the
Securities Exchange Act of 1934, whether or not the Corporation is then subject
to such requirements, shall be mailed to all shareholders of the Corporation for
the purpose of soliciting shareholder approval of such Major Transaction and
shall contain at the front thereof, in a prominent place any recommendations as
to the advisability (or inadvisability) of the Major Transaction which the
Continuing Directors, or any Outside Directors, may choose to state.
2. The Board of Directors of the Corporation shall have the power and
duty to determine for the purposes of this Article VIII, on the basis of
information known to the Corporation, whether (a) any corporation, person or
other entity "Beneficially Owns," directly or indirectly, more than twenty
percent (20%) of the shares of the Voting Stock, (b) any corporation, person or
other entity is an Affiliate or Associate of another and (c) any proposed sale,
lease, exchange or other disposition of part of the assets of the Corporation or
any of its Affiliates involves a Substantial Part of the assets of the
Corporation or such Affiliate, provided that assets involved in any single
transaction or series of related transactions having an aggregate fair market
value of more than fifteen percent (15%) of the total consolidated assets of the
Corporation and its Affiliates shall always be deemed to constitute a
"Substantial Part" for purposes of this Article VIII. Any such determination
made in good faith shall be conclusive and binding for all purposes of this
Article VIII.
3. Nothing contained in this Article VIII shall be construed to relieve
any Related Person from any fiduciary obligation imposed by law.
ARTICLE IX
RESTRICTIONS ON SHARE REPURCHASES AND OTHER TRANSACTIONS
1. Any purchase by the Corporation of shares of Voting Stock from an
Interested Shareholder, other than pursuant to an offer to the holders of all of
the outstanding shares of the same class of Voting Stock as those so purchased,
at a per share price in excess of the Market Price at the time of such purchase
of the shares so purchased, shall require the affirmative vote of the holders of
that amount of the voting power of the Voting Stock equal to the sum of (i) the
voting power of the shares of Voting Stock of which the Interested Shareholder
is the Beneficial Owner and (ii) a majority of the voting power of the remaining
outstanding shares of Voting Stock, voting together as a single class.
2. In addition to any affirmative vote required by law or these Articles
of Incorporation:
(a) any merger or consolidation of the Corporation or any Subsidiary
with (1) any Interested Shareholder or (2) any other corporation (whether or not
itself an Interested Shareholder) which is, or after such merger or
consolidation would be, an Affiliate of an Interested Shareholder; or
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(b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Shareholder or any Affiliate of any Interested Shareholder of any
assets of the Corporation or any Subsidiary having an aggregate Fair Market
value of $2,000,000 or more; or
(c) the issuance or transfer by the Corporation or any Subsidiary (in
one transaction or a series of transactions) of any securities of the
Corporation or any Subsidiary having an aggregate Fair Market Value of
$2,000,000 or more to any Interested Shareholder or any Affiliate of any
Interested Shareholder in exchange for cash, securities or other property (or a
combination thereof); or
(d) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an Interested
Shareholder or any Affiliate of any Interested Shareholder; or
(e) any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or consolidation
of the Corporation with any Subsidiary or any other transaction (whether or not
with or into or otherwise involving an Interested Shareholder) which has the
effect, directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities of the
Corporation or any Subsidiary which is directly or indirectly owned by any
Interested Shareholder or any Affiliate of any Interested Shareholder;
shall require either (a) the approval of a majority of the Disinterested
Directors or (b) the affirmative vote of the holders of that amount of voting
power of the Voting Stock equal to the sum of (1) the voting power of the shares
of Voting Stock of which the Interested Shareholder is the Beneficial Owner and
(2) a majority of the voting power of the remaining outstanding shares of Voting
Stock, voting together as a single class; provided, however, that no such vote
shall be required for (i) the purchase by the Corporation of shares of Voting
Stock from an Interested Shareholder unless such vote is required by Section 1
of this Article IX, (ii) any transaction with an Interested Shareholder who is
also a Related Person as defined in Article VII and to which the provisions of
Article VIII apply and are complied with, or (iii) any transaction with an
Interested Shareholder who has Beneficially Owned all his shares of Voting Stock
for two years or more.
3. At any election of directors of the Corporation on or after the date
on which any Substantial Shareholder becomes a Substantial Shareholder, and
until such time as there is no longer any Substantial Shareholder, there shall
be cumulative voting for election of directors so that any holder of shares of
Voting Stock entitled to vote in such election shall be entitled to as many
votes as shall equal the number of directors to be elected multiplied by the
number of votes to which such shareholder's shares would be entitled except for
the provisions of this Section 3, and such shareholder may cast all of such
votes for a single director, or distribute such votes among as many candidates
as such shareholder sees fit. In any such election of directors, one or more
candidates for the Board may be nominated by a majority of the Disinterested
Directors and by any person who is the Beneficial Owner of 1% or more of the
outstanding shares of Voting Stock. With respect to any candidates nominated by
a majority of the Disinterested Directors or by any person who is the Beneficial
Owner of 1% or more of the outstanding shares of Voting Stock, there shall be
included in any proxy statement or other communication with respect to such
election to be sent to holders of shares of Voting Stock by the Corporation
during the period in which there is a Substantial Shareholder, at the expense of
the Corporation, descriptions and other statements of or with respect to such
candidates submitted by them or on their behalf, which shall receive equal
space, coverage and treatment as is received by candidates
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nominated by the Board or management of the Corporation provided that such
information is received on a timely basis and complies with applicable federal
and state securities laws.
4. It shall be the duty of any Interested Shareholder:
(a) to give or cause to be given written notice to the Corporation,
immediately upon becoming an Interested Shareholder, of such person's status as
an Interested Shareholder and of such other information as the Corporation may
reasonably require with respect to identifying all owners and amount of
ownership of the outstanding Voting Stock of which such Interested Shareholder
is a Beneficial Owner, and
(b) to notify the Corporation promptly in writing of any change in
the information provided in subparagraph (a) of this Section 4; provided,
however, that the failure of an Interested Shareholder to comply with the
provisions of this Section 4 shall not in any way be construed to prevent the
Corporation from enforcing the provisions of Sections 1 through 3 of this
Article IX.
5. A majority of the Disinterested Directors of the Corporation shall
have the power and duty to determine for the purposes of this Article IX, on the
basis of information known to them after reasonable inquiry, (a) whether a
person is an Interested Shareholder or a Substantial Shareholder, (b) the number
of shares of Voting Stock Beneficially Owned by any person, (c) whether a person
is an Affiliate or an Associate of another person and (d) whether a transaction
or a series of transactions constitutes one of the transactions specified in
Section 2 hereof. The good faith determination of a majority of the
Disinterested Directors shall be conclusive and binding for all purposes of this
Article IX.
ARTICLE X
ELECTION OF DIRECTORS
1. The number of directors of the Corporation shall be specified in the
Bylaws, and such number may from time to time be increased or decreased in such
manner as may be prescribed in the Bylaws, provided the number of directors of
the Corporation shall not be less than seven (7).
2. Directors shall be classified with respect to the time for which they
shall severally hold office by dividing them into three classes, as nearly equal
in number as possible. Those of the first class shall be elected for a term of
office to expire at the first annual meeting of shareholders after their
election, those of the second class shall be elected for a term of office to
expire at the second annual meeting of shareholders after their election, and
those of the third class shall be elected for a term of office to expire at the
third annual meeting of shareholders after their election. Thereafter, the class
of directors then being elected shall be elected to hold office for a term of
office to expire at the third succeeding annual meeting of shareholders after
their election. Each director shall hold office for the term for which elected
and until such director's successor shall have been elected and qualified.
3. At a meeting of shareholders called expressly for that purpose, any
director, any class of directors, or the entire Board of Directors may be
removed from office as a director at any time (a) for cause by the shareholders
entitled to elect such director if the number of votes cast to remove the
director exceeds the number of votes cast not to remove the director, and if
cumulative voting is then in effect, then a director may not be removed if the
number of votes sufficient to elect such director is voted against the
director's removal, or (b) without cause by the affirmative vote which satisfies
the requirements of Article XI applicable to an amendment, modification, or
repeal of certain of these Articles.
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4. Vacancies in the Board of Directors, including vacancies resulting
from an increase in the number of directors, shall be filled only by the
affirmative vote of a majority of the remaining directors then in office, though
less than a quorum, or by the sole remaining director. The term of a director
elected to fill a vacancy shall expire at the next annual meeting of
shareholders at which directors are elected. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
5. All corporate powers shall be exercised by the Board of Directors
except as otherwise provided by law or these Articles of Incorporation.
6. Except as otherwise provided in these Articles of Incorporation,
shareholders of the Corporation shall not have the right to cumulate votes in
the election of directors.
ARTICLE XI
RESTRICTIONS ON CERTAIN AMENDMENTS
The provisions set forth in this Article XI and in Articles III, VII, VIII,
IX, X and XVII herein may not be repealed or amended in any respect, unless such
action is approved by the affirmative vote of the holders of not less than 80%
of the outstanding shares of Voting Stock of the Corporation, subject to the
provisions of any series of Preferred Stock which may at the time be
outstanding, provided, however, that if there is a shareholder of the
Corporation which is a Related Person, such 80% vote must include the
affirmative vote of at least 50% of the outstanding Voting Stock held by
shareholders other than the Related Person.
ARTICLE XII
POWERS OF DIRECTORS
The directors shall have power to make and to alter or amend the Bylaws and
shall have all such other powers as they may be afforded by applicable law.
ARTICLE XIII
LIMITATION OF LIABILITY
To the fullest extent permitted by the Washington Business Corporation Act
as the same exists or may hereafter be amended, a director of the Corporation
shall not be liable to the Corporation or its shareholders for monetary damages
for conduct as a director. Any amendments to or repeal of this Article XIII
shall not adversely affect any right or protection of a director for or with
respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
ARTICLE XIV
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
1. The Corporation shall have the following powers:
(a) The Corporation may indemnify and hold harmless to the fullest
extent not prohibited by applicable law each person who was or is made a party
to or is threatened to be made a party to or is involved (including, without
limitation, as a witness) in any actual or threatened action, suit or other
proceeding, whether civil, criminal, derivative, administrative or
investigative, by reason of the fact that he or she is or was a director,
officer, employee or agent of the Corporation or, being or having been such a
director, officer, employee or agent, he or she is or was serving at the request
of the Corporation as a director, officer, employee, agent, trustee,
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or in any other capacity of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action or
omission in an official capacity or in any other capacity while serving as a
director, officer, employee, agent, trustee or in any other capacity, against
all expense, liability and loss (including, without limitation, attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts to be paid in
settlement) actually or reasonably incurred or suffered by such person in
connection therewith. Such indemnification may continue as to a person who has
ceased to be a director, officer, employee or agent of the Corporation and shall
inure to the benefit of his or her heirs and personal representatives.
(b) The Corporation may pay expenses incurred in defending any such
proceeding in advance of the final disposition of any such proceeding; provided,
however, that the payment of such expenses in advance of the final disposition
of a proceeding shall be made to or on behalf of a director, officer, employee
or agent only upon delivery to the Corporation of an undertaking, by or on
behalf of such director, officer, employee or agent, to repay all amounts so
advanced if it shall ultimately be determined that such director, officer,
employee or agent is not entitled to be indemnified under this Article XIV or
otherwise, which undertaking may be unsecured and may be accepted without
reference to financial ability to make repayment.
(c) The Corporation may enter into contracts with any person who is
or was a director, officer, employee or agent of the Corporation in furtherance
of the provisions of this Article XIV and may create a trust fund, grant a
security interest in property of the Corporation, or use other means (including,
without limitation, a letter of credit) to ensure the payment of such amounts as
may be necessary to effect indemnification as provided in this Article XIV.
(d) If the Washington Business Corporation Act (the "Act") is amended
in the future to expand or increase the power of the Corporation to indemnify,
to pay expenses in advance of final disposition, to enter into contracts, or to
expand or increase any similar or related power, then, without any further
requirement of action by the shareholders or directors of the Corporation, the
powers described in this Article XIV shall be expanded and increased to the
fullest extent permitted by the Act, as so amended.
(e) No indemnification shall be provided under this Article XIV to
any such person if the Corporation is prohibited by the nonexclusive provisions
of the Act or other applicable law as then in effect from paying such
indemnification. For example, no indemnification shall be provided to any
director in respect of any proceeding, whether or not involving action in his or
her official capacity, in which he or she shall have been finally adjudged to be
liable on the basis of intentional misconduct or knowing violation of law by the
director, or from conduct of the director in violation of Section 23B.08.310 of
the Act, or that the director personally received a benefit in money, property
or services to which the director was not legally entitled.
2. The Corporation shall indemnify and hold harmless any person who is or
was a director or officer of the Corporation, and pay expenses in advance of
final disposition of a proceeding, to the full extent to which the Corporation
is empowered.
3. The Corporation may, by action of its Board of Directors from time to
time, indemnify and hold harmless any person who is or was an employee or agent
of the Corporation, and pay expenses in advance of final disposition of a
proceeding, to the full extent to which the Corporation is empowered, or to a
lesser extent which the Board of Directors may determine.
4. The rights to indemnification and payment of expenses in advance of
final disposition of a proceeding conferred by or pursuant to this Article XIV
shall be contract rights.
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5 A director, officer, employee or agent ("claimant") shall be presumed
to be entitled to indemnification and/or payment of expenses under this Article
XIV upon submission of a written claim (and, in an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition, where the undertaking in subsection 1(b) above has been delivered
to the Corporation) and thereafter the Corporation shall have the burden of
proof to overcome the presumption that the claimant is so entitled.
If a claim under this Article XIV is not paid in full by the Corporation
within sixty (60) days after a written claim has been received by the
Corporation, except in the case of a claim for expenses incurred in defending a
proceeding in advance of its final disposition, in which case the applicable
period shall be twenty (20) days, the claimant may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim and, to
the extent successful in whole or in part, the claimant shall be entitled to be
paid also the expense of prosecuting such claim. Neither the failure of the
Corporation (including its board of directors, its shareholders or independent
legal counsel) to have made a determination prior to the commencement of such
action that indemnification of or reimbursement or advancement of expenses to
the claimant is proper in the circumstances nor an actual determination by the
Corporation (including its board of directors, its shareholders or independent
legal counsel) that the claimant is not entitled to indemnification or to the
reimbursement or advancement of expenses shall be a defense to the action or
create a presumption that the claimant is not so entitled.
6. The right to indemnification and payment of expenses in advance of
final disposition of a proceeding conferred in this Article XIV shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the articles of incorporation, bylaws,
agreement, vote of shareholders or disinterested directors or otherwise.
7. The Corporation may purchase and maintain insurance, at its expense,
to protect itself and any director, officer, employee, agent or trustee of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Act.
8. Any repeal or modification of this Article XIV shall not adversely
affect any right of any person existing at the time of such repeal or
modification.
9. If any provision of this Article XIV or any application thereof shall
be invalid, unenforceable or contrary to applicable law, the remainder of this
Article XIV, or the application of such provision to persons or circumstances
other than those as to which it is held invalid, unenforceable or contrary to
applicable law, shall not be affected thereby and shall continue in full force
and effect.
10. For purposes of this Article XIV, applicable law shall at all times be
construed as the applicable law in effect at the date indemnification may be
sought, or the law in effect at the date of the action, omission or other event
giving rise to the situation for which indemnification may be sought, whichever
is selected by the person seeking indemnification. As of the date hereof,
applicable law shall include Section 23B.08.500 through .600 of the Act.
ARTICLE XV
MERGERS, SHARE EXCHANGES, AND OTHER TRANSACTIONS
Except as otherwise expressly provided in these Articles, a merger, share
exchange, sale of substantially all of the Corporation's assets, or dissolution
must be approved by the affirmative vote of a majority of the Corporation's
outstanding shares entitled to vote, or if separate voting by
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voting groups is required, then by not less than a majority of all the votes
entitled to be cast by that voting group.
ARTICLE XVI
CORPORATION'S ACQUISITION OF ITS OWN SHARES
The Corporation may purchase, redeem, receive, take or otherwise acquire,
own and hold, sell, lend, exchange, transfer or otherwise dispose of, pledge,
use and otherwise deal with and in its own shares. As a specific modification of
Section 231B.06.310 of the Act, pursuant to the authority in Section
23B.02.020(5)(c) of the Act to include provisions related to the management of
the business and the regulation of the affairs of the Corporation, shares of the
Corporation's stock acquired by it pursuant to this Article XVI shall be
considered "Treasury Stock" and so held by the Corporation. The shares so
acquired by the Corporation shall not be considered as authorized and unissued
but rather as authorized, issued, and held by the Corporation. The shares so
acquired shall not be regarded as canceled or as a reduction to the authorized
capital of the Corporation unless specifically so designated by the Board of
Directors in an amendment to these Articles. The provisions of this Article XVI
do not alter or effect the status of the Corporation's acquisition of its shares
as a "distribution" by the Corporation as defined in Section 23B.01.400(6) of
the Act, nor alter or effect the limitations on distributions by the Corporation
as set forth in Section 23B.06.400 of the Act. Any shares so acquired by the
Corporation, unless otherwise specifically designated by the Board of Directors,
at the time of acquisition, shall be considered on subsequent disposition as
transferred rather than reissued. Nothing in this Article XVI limits or
restricts the right of the Corporation to resell or otherwise dispose of any of
its shares previously acquired for such consideration and according to such
procedures as established by the Board of Directors.
ARTICLE XVII
SPECIAL SHAREHOLDER MEETINGS
Special meetings of the shareholders of the Corporation for any purpose or
purposes may be called at any time by the Board of Directors, or by a committee
of the Board of Directors which has been duly designated by the Board of
Directors and whose powers and authority, as provided in a resolution of the
Board of Directors or in the bylaws of the Corporation, include the power to
call such meeting, but such special meetings may not be called by any other
person or persons.
ARTICLE XVIII
INCORPORATOR
The name and address of the incorporator are: Edmund 0. Belsheim, Jr., Two
Union Square, 601 Union Street, Seattle, Washington 98101.
Dated: November 10, 1995.
/s/ Jeffrey T. Cook
----------------------------
Jeffrey T. Cook
Vice President and
Chief Financial Officer
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Exhibit 3.2
AMENDED AND RESTATED
BYLAWS
OF
PENWEST, LTD.
(A Washington Corporation)
(Amended as of June 27, 1995)
ARTICLE I
CAPITAL STOCK
1.1 Stock Certificates.
Stock certificates of the Corporation shall be in such form as the Board of
Directors may from time to time prescribe. Every stock certificate shall be
signed by two officers designated by the Board of Directors and sealed with the
corporate seal. All certificates shall be countersigned by a transfer agent and
a registrar of the Corporation. Any and all signatures on any such certificate
and the corporate seal upon any such certificate may be facsimile. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he or she were such
officer, transfer agent, or registrar at the date of issue.
1.2 Transfer of Shares.
The shares of stock of the Corporation shall be transferable on its books,
or other appropriate records, kept for such purpose, by the holder thereof in
person or by his duly authorized attorney upon surrender and cancellation of
such holder's certificates, properly endorsed, accompanied by authority to
transfer. Upon surrender, as above provided, of a stock certificate, one or more
new stock certificates for such aggregate number of shares of stock as equals
the aggregate number of shares represented by the surrendered stock certificate
shall be issued to the parties entitled thereto.
1.3 Holders of Stock of Record.
The Corporation shall be entitled to treat the holder of record of any
share or shares of stock of the Corporation as the holder in fact thereof, and
shall not be bound to recognize any claim to, or interest in, such shares on the
part of any other person, whether or not the Corporation shall have express or
other notice thereof.
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1.4 Rules and Regulations Concerning the Issue, Transfer, and Registration
of Stock Certificates.
The Board of Directors of the Corporation shall have the power and
authority to make all such rules and regulations as the Board may deem proper or
expedient concerning the issue, transfer and registration of stock certificates
for shares of stock of the Corporation. The Board of Directors shall have the
power and authority to appoint from time to time one, or more than one, transfer
agent, and one, or more than one, registrar of transfers, and may require all
stock certificates for shares of stock of the Corporation to be properly
countersigned, and/or otherwise properly authenticated, by such transfer agent
or registrar.
1.5 Rules and Regulations Concerning Lost and Destroyed Certificate.
A new certificate or certificates of stock may be issued in place of any
certificate or certificates of stock theretofore issued by the Corporation and
alleged to have been lost or destroyed, upon delivery to the Secretary of the
Corporation or any authorized transfer agent of the Corporation of a written
claim in the form of an affidavit stating all pertinent facts relating to the
alleged loss or destruction of such certificate or certificates together with an
open penalty indemnity bond, approved as provided below, written by a surety
company approved by an executive officer of the Corporation and indemnifying
against any claim that may be made against the Corporation for or in respect of
the shares of stock represented by the certificate or certificates alleged to
have been lost or destroyed. The penalty of such bond shall be unlimited as to
time and amount and said bond must be approved by an executive officer of the
Corporation. The Board of Directors may, in the discretion of a majority of the
Board, however, direct the issuance of a certificate or certificates in place of
any certificate or certificates alleged to have been lost or destroyed upon such
lesser conditions or security.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1 Place of Meetings of Shareholders.
The Annual Meetings of shareholders of the Corporation shall be held at
such place as the Board of Directors may from time to time designate. The time
and place of the meeting shall be stated in the Notice to Shareholders.
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2.2 Annual Meetings of Shareholders -- Time -- Business.
The Annual Meeting of the shareholders of the Corporation for the election
of Directors and for the transaction of any such other business as properly may
be submitted to such Annual Meeting shall be held at the hour and on the date
designated by the Board of Directors or the Executive Committee of the Board of
Directors, such date to be within 180 days of the end of the fiscal year.
Any and all business pertaining to the affairs of the Corporation may be
transacted at any such Annual Meeting of its shareholders or at any adjournment
thereof, except only to the extent otherwise expressly proscribed by law.
2.3 Special Meetings of Shareholders.
Special meetings of the shareholders of the Corporation may be called at
any time by the Board of Directors.
2.4 Quorum at Shareholders' Meetings.
The holders of record of a majority of the issued and outstanding shares of
the stock of the Corporation present in person or represented by proxy at any
shareholders' meeting and entitled to vote thereat shall constitute a quorum for
the transaction of business at any such meeting, except as may otherwise be
provided by law; but if there be less than a quorum present at any such meeting,
the holders of a majority of the shares so present or represented at such
meeting may adjourn the meeting from time to time.
2.5 Notice of Annual or Special Meetings of Shareholders.
Written notice stating the place, day and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called shall be given by or at the direction of the Board of Directors, the
Chairman of the Board of Directors, the President, the Secretary or an Assistant
Secretary to each shareholder entitled to notice of or to vote at the meeting
not less than 10 nor more than 60 days before the meeting, except that notice of
a meeting to act on an amendment to the Articles of Incorporation, a plan of
merger or share exchange, the sale, lease, exchange, or other disposition of all
or substantially all of the Corporation's assets other than in the regular
course of business or the dissolution of the Corporation shall be given not less
than 20 nor more than 60 days before such meeting. Such notice may be
transmitted by mail, private carrier, personal delivery, telegraph, teletype or
communications equipment which transmits a facsimile of the
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notice to like equipment which receives and reproduces such notice. If these
forms of written notice are impractical in the view of the Board of Directors,
the Chairman of the Board of Directors, the President, the Secretary or an
Assistant Secretary, written notice may be transmitted by an advertisement in a
newspaper of general circulation in the area of the Corporation's principal
office. If such notice is mailed, it shall be deemed effective when deposited in
the official government mail, first-class postage prepaid, properly addressed to
the shareholder at such shareholder's address as it appears in the Corporation's
current record of shareholders. Notice given in any other manner shall be deemed
effective when dispatched to the shareholder's address, telephone number or
other number appearing on the records of the Corporation. Any notice given by
publication as herein provided shall be deemed effective five days after first
publication.
2.6 Voting List of Shareholders and Fixing of Record Date for Voting and
For Other Purposes.
At least 10 days before each meeting of shareholders, an alphabetical list
of the shareholders entitled to notice of such meeting shall be made, arranged
by voting group and by each class or series of shares therein, with the address
of and number of shares held by each shareholder. This record shall be kept at
the principal office of the Corporation for 10 days prior to such meeting, and
shall be kept open at such meeting, for the inspection of any shareholder or any
shareholder's agent.
For the purpose of determining shareholders entitled to (a) notice of or to
vote at any meeting of shareholders or any adjournment thereof, or (b) to
receive payment of any dividend, or in order to make a determination of
shareholders for any other purpose, the Board of Directors may fix a future date
as the record date for any such determination. Such record date shall be not
more than 70 days, and in case of a meeting of shareholders not less than 10
days, prior to the date on which the particular action requiring such
determination is to be taken. If no record date is fixed for the determination
of shareholders entitled to notice of or to vote at a meeting, the record date
shall be the day immediately preceding the date on which notice of the meeting
is first given to shareholders. Such a determination shall apply to any
adjournment of the meeting unless the Board of Directors fixes a new record
date, which it shall do if the meeting is adjourned to a date more than 120 days
after the date fixed for the original meeting. If no record date is set for the
determination of shareholders entitled to receive payment of any stock dividend
or distribution (other than one involving a purchase, redemption, or other
acquisition of the Corporation's shares) the record date shall be the date the
Board of Directors authorizes the stock dividend or distribution.
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2.7 Officers of Meetings of Shareholders.
The President of the Corporation (or in his absence, the Chairman of the
Board of Directors of the Corporation) may call any meeting of shareholders to
order and shall be the Chairman thereof. If the Chairman of the Board of
Directors and the President are absent from any such meeting, then a Vice
President of the Corporation shall be the Chairman thereof and shall preside at
such meeting. The Secretary of the Corporation, if present at any meeting of its
shareholders, shall act as the Secretary of such meeting. If the Secretary is
absent from any such meeting, the Chairman of such meeting may appoint a
Secretary for the meeting.
2.8 Proper Business for Shareholders' Meetings.
At any annual or special meeting of the shareholders of the Corporation,
only business properly brought before the meeting may be transacted. To be
properly brought before an annual or special meeting, business or other
proposals must be (i) specified in the notice of the meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (ii) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (iii) otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before an annual meeting by a
shareholder, written notice thereof must have been received by the Secretary of
the Corporation from such shareholder not less than 120 days prior to the date
corresponding to the date on which the Corporation mailed its proxy statement in
connection with its previous year's annual meeting of shareholders. For business
to be properly brought before a special meeting by a shareholder, or in the
event the date of the annual meeting has been changed by more than 30 calendar
days from the date contemplated at the time of the previous year's proxy
statement, notice by the shareholder to be timely must be received by the
Secretary of the Corporation not later than the close of business on the 10th
day following the earlier of the day on which notice of the date of the
scheduled meeting was mailed or the day on which public disclosure of such date
was made.
Any such notice shall set forth as to each matter the shareholder proposes
to bring before the meeting (i) a brief description of the business desired to
be brought before the meeting, the reasons for conducting such business at the
meeting, and the language of the proposal, (ii) the name and address of the
shareholder proposing such business, (iii) a representation that the shareholder
is a holder of record of stock of the Corporation entitled to vote at such
meeting, and (iv) any material interest of the shareholder in such business. Any
such notice to the Corporation shall also comply with all applicable provisions
of Regulation 14A under the Securities Exchange Act of
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1934. No business shall be conducted at any meeting of shareholders except in
accordance with this Section, and the Chairman of any meeting of shareholders
and the Board of Directors may refuse to permit any business to be brought
before the meeting without compliance with the foregoing procedures.
ARTICLE III
DIRECTORS
3.1 Number of Directors.
The authorized number of directors of the Corporation shall be not less
than seven, nor more than fifteen. The Board of Directors, by resolution, shall
fix the number of directors to constitute the whole Board of Directors of the
Corporation, within the above limits, which number shall prevail until a
resolution is adopted by the Board of Directors prescribing a different number
of directors to be the authorized number of directors of the Corporation.
3.2 Qualifications of Directors.
No director of the Corporation need be a shareholder therein. Each director
of the Corporation shall be eligible to serve as a director until the regular
meeting of the Board of Directors immediately following his 72nd birthday.
3.3 Election of Directors -- Terms of Office.
The shareholders shall, at their annual meeting held each year, elect the
class of directors of the Corporation as set forth in the Articles of
Incorporation of the Corporation.
3.4 Nominations of Directors for Election.
Nominations for the election of directors may be made by the Board of
Directors or a committee appointed by the Board of Directors or, if the
shareholders are, at the time, entitled to cumulate their votes in the election
of directors in accordance with Article IX of the Articles of Incorporation of
the Corporation, by a majority of the "Disinterested Directors" or by any
shareholder who is the "Beneficial Owner" of one percent or more of the
outstanding shares of "voting stock" of the Corporation as said terms are
defined in the Articles of Incorporation in accordance with the following
procedures. However, any such one percent shareholder at the time may nominate
one or more persons for election as directors at a meeting only if written
notice of such shareholder's intent to make such nomination or nominations has
been given, either by personal delivery or by United States mail, postage
prepaid, to the Secretary of the Corporation in accordance with the following
procedures: For a nomination to be properly submitted before an
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annual meeting by a shareholder, written notice thereof must have been received
by the Secretary of the Corporation from such shareholder not less than 120 days
prior to the date corresponding to the date on which the Corporation mailed its
proxy statement in connection with its previous year's annual meeting of
shareholders. For a nomination to be properly submitted before a special meeting
by a shareholder, or in the event the date of the annual meeting has been
changed by more than 30 calendar days from the date contemplated at the time of
the previous year's proxy statement, notice by the shareholder to be timely must
be received by the Secretary of the Corporation not later than the close of
business on the 10th day following the earlier of the day on which notice of the
date of the scheduled meeting was mailed or the day on which public disclosure
of such date was made.
Each such notice to the Secretary shall set forth: (i) the name and address
of record of the shareholder who intends to make the nomination; (ii) a
representation that the shareholder is a holder of record of shares of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (iii) the name, age, business and residence addresses, and principal
occupation or employment of each nominee; (iv) a description of all arrangements
or understandings between the shareholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; (v) such other information
regarding each nominee proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission; and (vi) the consent of each nominee to
serve as a director of the Corporation if so elected. The Corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such proposed
nominee to serve as a director of the Corporation. The presiding officer of the
meeting may, if the facts warrant, determine that a nomination was not made in
accordance with the foregoing procedure, and if such officer should so
determine, such officer shall so declare to the meeting and the defective
nomination shall be disregarded.
3.5 Failure to Elect Directors at Annual Meeting of the Shareholders.
If the class of directors of the Corporation to be elected at the annual
meeting shall not be elected as herein provided at the annual meeting in any
year of the shareholders of the Corporation, or at any adjournment of such
annual meeting, then, in such event, the Corporation shall not for that reason
be dissolved, but its directors at the time shall be deemed lawful directors of
the Corporation for all purposes, and shall continue
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to hold office as directors until their successors, respectively, are duly
elected and qualified.
3.6 Authority of the Board of Directors.
The business of the Corporation shall be managed by its Board of Directors,
and such Board shall have and exercise full powers and authority in the
management, control, regulation, and conduct of the property, interests,
business transactions and affairs of the Corporation; provided, however, that
the Executive Committee of the Board of Directors of the Corporation may
exercise the power and authority of such Board pursuant but subject to (a) the
limitations in Section 23B.08.250 of the Washington Business Corporation Act and
(b) restrictions imposed by the Board of Directors pursuant to Article IV
hereof. If the position, Chairman of the Board, is not designated as an office
of the Corporation, then the Board may from time to time elect one of its
members to act as Chairman.
3.7 Action by the Board of Directors or Any of Its Committees Without a
Meeting.
Any action required or permitted to be taken at any meeting of the Board of
Directors or of the Executive Committee or of any other committee of said Board
may be taken without a meeting if a written consent describing the action taken
is signed by all members of the Board or of such committee, as the case may be,
and such written consent is filed with the minutes of said Board or of said
committee. Action taken by such written consent is effective when the last
director signs the consent, unless the consent specifies a later effective date.
3.8 Regular Meetings of the Board of Directors.
Meetings of the Board of Directors of the Corporation may be held at its
corporate offices, or at such other place or places as may be authorized by such
Board. Such Board shall also fix the time or times of such regular meetings. No
notice of any regularly scheduled meeting need be given. The Chairman of the
Board or the President may change the time and place of any regular meeting by
giving reasonable notice thereof, in writing or by telephone, not later than 24
hours before the time originally fixed for such meeting. The Chairman of the
Board shall act as Chairman of the meetings, but in his absence, the President
shall act as Chairman. The Secretary of the Corporation shall act as Secretary
of the meetings, but in his absence, the Chairman of the meeting shall appoint a
Secretary of the meeting.
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3.9 Special Meetings of the Board of Directors.
Meetings of the Board of Directors of the Corporation may be held from time
to time on written call thereof by the Chairman of the Board of Directors or the
President made at any time at his or her own instance and discretion or on call
thereof made by such number of its directors as equals a majority of its whole
Board of Directors at the time. Any special meeting of the Board of Directors
may be held at such time or at such place designated in said call. The time,
place and purpose of any special meeting of the Board of Directors to be held
pursuant to call and notice shall be stated both in the call and the notice
thereof, and no business other than that stated in such notice shall be
transacted, or acted upon, at such special meeting. Reasonable notice of a
special meeting shall be given in writing or by telephone by the person or
persons calling the meeting, not later than 72 hours prior to the time set for
the meeting; provided that the minimum notice period shall be 48 hours in the
event of a tender or exchange offer to purchase securities of the Corporation.
Any special meeting of the Board of Directors may be held at any time without
previous call, or previous notice thereof, if all directors of the Corporation
either attend such meeting, or consent in writing thereto, or if each director
not present at such meeting waives notice thereof. Any and all business and
matters pertaining to the affairs of the Corporation may be considered,
transacted and acted on at any special meeting so held without previous call or
previous notice.
3.10 Quorum of Directors.
A majority of the members of the Board of Directors as constituted for the
time being shall constitute a quorum for the transaction of business, but less
than a quorum may adjourn any meeting from time to time until a quorum is
present and without further notice being given.
3.11 Waiver of Notice of Meetings of the Board of Directors.
Any director of the Corporation may waive in writing at any time any such
notice of any meeting of the Board of Directors of the Corporation as may be
provided by the Washington Business Corporation Act or by these Bylaws to be
given; and a written waiver thereof signed by any director entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to such notice legally given to such director. Attendance at any
meeting of the Board of Directors of the Corporation by a director shall
constitute waiver of notice of such meeting, unless such director at the
beginning of the meeting, or promptly upon such director's arrival, objects to
holding the meeting or transacting business thereat and does not thereafter vote
for or assent to action taken at the meeting.
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3.12 Fees to the Directors for Attending Meetings of the Board of
Directors.
The directors of the Corporation shall be entitled, as directors, to
receive an annual fee for service as directors and an attendance fee for
meetings of the Board of Directors and for meetings of committees of the Board
of Directors. Said fees shall be payable in the amounts and under provisions
prescribed from time to time by resolution of the Board of Directors, and the
Corporation is hereby authorized to pay such fees to each of its directors;
provided, however, that no director of the Corporation shall be entitled to said
fee if at the time he is otherwise employed by the Corporation at a regular
monthly or annual salary as a full time employee.
3.13 Meeting by Telephone.
Members of the Board of Directors or any committee designated by the Bylaws
or appointed by the Board of Directors may participate in a meeting of such
Board or committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time, and participation by such means shall constitute
presence at a meeting.
3.14 Rights Agreement.
Notwithstanding anything to the contrary in these Bylaws, any action stated
in the Rights Agreement between the Corporation and First Interstate Bank of
California dated as of June 3, 1988, as such agreement may be amended from time
to time (the "Rights Agreement"), to be taken by the Board of Directors after a
Person has become an Acquiring Person shall require the presence of Continuing
Directors and the concurrence of a majority of the Continuing Directors.
Capitalized terms in this paragraph shall have the meanings indicated in the
Rights Agreement.
ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
4.1 Creation of Committees
The Board of Directors, by resolution adopted by the greater of a majority
of the directors then in office and the number of directors required to take
action in accordance with these Bylaws, may create one or more committees,
including an Executive Committee, and appoint members to such committee from its
own members. Each committee must have two or more members, who shall serve at
the pleasure of the Board of Directors.
4.2 Authority of Committees
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Each committee shall have and may exercise the authority of the Board of
Directors to the extent provided in the resolution of the Board creating the
committee and any subsequent resolutions pertaining thereto, except that no
committee shall have the authority to: (1) authorize or approve a distribution
except according to a general formula or method prescribed by the Board, (2)
approve or propose to shareholders actions or proposals required by the
Washington Business Corporation Act to be approved by shareholders, (3) fill
vacancies on the Board or on any committee, (4) adopt, amend or repeal Bylaws,
(5) amend the Articles of Incorporation, (6) approve a plan of merger not
requiring shareholder approval, or (7) authorize or approve the issuance or sale
or contract for sale of shares, or determine the designation and relative
rights, preferences and limitations of a class or series of shares, except that
the Board may authorize a committee or a senior executive officer of the
Corporation to do so within limits specifically prescribed by the Board.
ARTICLE V
OFFICERS AND THEIR POWERS AND DUTIES
5.1 Authorized Officers.
The officers of the Corporation shall consist of a President, one or more
Vice Presidents (who may be designated as Vice Presidents, Senior Vice
Presidents or Executive Vice Presidents), and Secretary. The Corporation may
have such additional officers (hereinafter in these Bylaws sometimes referred to
as "additional officers") as its Board of Directors may deem necessary for its
business and may appoint from time to time. The Board of Directors may designate
one of the officers as the chief financial officer of the Corporation.
The Board of Directors at any meeting of the Board may fill a vacancy in
any office.
The officers of the Corporation shall be elected at the first Board of
Director's meeting held after the annual election of directors and they shall
serve until the next annual election of officers, subject to the right of the
Board of Directors to remove any officer at any time.
The Board of Directors, by resolution duly adopted at any meeting thereof
duly held, may authorize and direct that any office of the Corporation, except
the offices of President and Secretary, may be left unfilled for any such period
of time as the Board may fix in such resolution.
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5.2 Qualifications of Officers.
No officer of the Corporation need be a shareholder therein. No officer of
the Corporation, except the President, need be a director.
5.3 Powers and Duties of Officers.
The respective officers of the Corporation, subject, always, to control by
its Board of Directors, shall have such power and authority and perform such
duties in the management and conduct of its property, business and affairs, as
from time to time may be prescribed with respect to such officers, respectively,
by and under any Section of these Bylaws, by resolution of the Board of
Directors or by the President.
The Board of Directors may by appointment designate either the Chairman, if
an officer of the Corporation, or the President as the Chief Executive Officer
of the Corporation and either of said officers as the Chief Operating Officer of
the Corporation.
5.4 Powers and Duties of the Chief Executive Officer and the Chief
Operating Officer.
The Chief Executive Officer of the Corporation shall have general charge
and supervision of the business of the Corporation and shall see that all orders
and resolutions of the Board of Directors and of the Executive Committee are
carried out. The Chief Executive Officer shall designate the duties of all
officers of the Corporation, which designations shall be subject to review by
the Board of Directors; provided, however, that the specific duties assigned to
the Chief Executive Officer, the Chief Operating Officer and the Secretary shall
not be changed except by amendment to these Bylaws and/or by resolution of the
Board of Directors, as appropriate.
The Chief Operating Officer of the Corporation shall have general
supervisory authority and responsibility for the day to day operations of the
Corporation.
In the event of the death of either of the Chief Executive Officer or the
Chief Operating Officer or the permanent disability preventing such officer from
performing his duties, all officers normally reporting to such deceased or
disabled officer shall report to the Executive Committee. The Chairman of the
Board shall call a meeting of the Board to be held within 20 days of the date of
such death or disability for the purpose of electing a new Chief Executive
Officer or Chief Operating Officer, as the case may be.
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Either the Chief Executive Officer or the Chief Operating Officer may sign
in the name of the Corporation all instruments required to be signed by the
Corporation in the ordinary course of its business. Each such officer shall
perform such other duties as may be assigned to such officer by the Board of
Directors or by these Bylaws.
5.5 Compensation to Officers.
The Board of Directors shall have authority (a) to fix the compensation,
whether in the form of salary or otherwise, of all officers and employees of the
Corporation, either specifically or by formula applicable to particular classes
of officers or employees, and (b) to authorize officers of the Corporation to
fix the compensation of subordinate employees. The Board of Directors shall have
authority to appoint a Compensation Committee and may delegate to such committee
authority to review the compensation of all employees of the Corporation, and
its subsidiaries. The Compensation Committee may also be authorized to make
recommendations to the Board with respect to compensation of the corporate
officers.
ARTICLE VI
MISCELLANEOUS
6.1 Corporate Seal.
The corporate seal of the Corporation shall be a seal consisting of two
concentric circles, in the outer of which circles shall appear and be inscribed
the following words: "PENWEST, LTD. WASHINGTON", and in the inner of which
circles shall appear and be inscribed the following words and figures:
"CORPORATE SEAL 1995"; and such seal, as impressed on the margin thereof, shall
be the corporate seal of the Corporation; provided, however, that at any time,
and from time to time, such seal may be altered or a new corporate seal for the
Corporation may be authorized and adopted, at the pleasure of its Board of
Directors, by resolution duly adopted by such Board at any meeting thereof duly
held.
6.2 Fiscal Year.
The fiscal year of the Corporation shall begin on September 1 and end on
August 31 of each year.
6.3 Amendments.
These Bylaws may be amended, altered or repealed, in whole or in part, or
new Bylaws may be made for the Corporation from time to time by the affirmative
vote of the majority of its whole Board of Directors at any meeting of such
Board duly held,
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subject to the right and power of the shareholders of the Corporation to change
or repeal such Bylaws.
6.4 Severability.
In the event that any provision of these Bylaws is determined by a court to
require the Corporation to do or to fail to do an act which is in violation of
applicable law, such provision shall be limited or modified in its application
to the minimum extent necessary to avoid a violation of law, and, as so limited
or modified, such provision and the balance of these Bylaws shall remain in full
force and effect.
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Exhibit 10.8
CHANGE OF CONTROL AGREEMENT
AGREEMENT between PENWEST, LTD., a Washington corporation (the
"Corporation"), and _______________ (the "Executive"), dated as of October 24,
1995.
RECITALS
A. The Executive is an executive officer of the Corporation and
an integral part of its management.
B. The Corporation wishes to assure both itself and the Executive
of continuity of management in the event of any actual or threatened change in
control of the Corporation.
C. This Agreement is not intended to alter the compensation and
benefits that the Executive could reasonably expect in the absence of the
occurrence of a Trigger Date, as defined in this Agreement; consequently, this
Agreement will be operative only upon the Executive's termination during the
term of this Agreement after the occurrence of a Trigger Date.
NOW, THEREFORE, it is hereby agreed as follows;
1. Term of Agreement. The effective date of this Agreement is
October 24, 1995. This Agreement shall remain in effect until terminated by
the Corporation or, if a Trigger Date occurs prior to such termination by the
Corporation, until the obligations of the Corporation pursuant to paragraphs 4
and 6 have been fulfilled. This Agreement shall terminate one year after the
date the Corporation gives the Executive written notice of the termination of
this Agreement; except that if a Trigger Date occurs prior to the termination
date, this Agreement shall remain in effect with respect to all rights accruing
as a result of the occurrence of the Trigger Date.
2. Operation of Agreement - Trigger Date. The provisions of this
Agreement shall become operative the day before each "Trigger Date" which
occurs during the term of this Agreement. Any of the following shall
constitute a Trigger Date: (a) any Person is or becomes the beneficial owner,
directly or indirectly, of securities of the Corporation representing more than
50% of the voting power of the outstanding Voting Stock, (b) the effective date
of a merger, consolidation, reorganization or dissolution in which the
Corporation is not the surviving entity or (c) during any period of two
consecutive years, individuals who constitute the Board of Directors of the
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Corporation at the beginning of any such period cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by the Corporation's shareholders, of each new director was
approved by a vote of at least two-thirds of the directors then still in office
who were directors of the Corporation at the beginning of such period. means
an individual, firm, corporation or other entity, together with all Affiliates
and Associates of such Person, but shall not include the Corporation, any
subsidiary of the Corporation or any employee benefit plan of the Corporation.
"Affiliate" and "Associate" shall have the respective meanings ascribed to such
terms in Rule 12b-2 of the Securities Exchange Act of 1934, as amended.
"Voting Stock" means the common stock of the Corporation and any other shares
entitled to vote for the election of directors of the Corporation.
3. Termination of Employment. If, during the term of this
Agreement, there is a termination of the Executive's employment after a Trigger
Date, then the Executive shall receive the compensation and benefits described
in paragraphs 4 and 6. The term "termination of the Executive's employment"
for purposes of this Agreement shall mean (1) termination by the Corporation of
the employment of the Executive for any reason other than cause, the
Executive's having reached age 65, death, or disability if the disability is
covered by the Corporation's long term disability plan, or (2) termination by
the Executive of his employment following (i) the assignment to the Executive
of responsibilities or title materially less than his responsibilities and
title immediately prior to the Trigger Date, (ii) the reduction in the
aggregate of the Executive's salary and bonus to which he was entitled
immediately prior to the Trigger Date that is not remedied within 30 days after
receipt by the Corporation of written notice from the Executive of such
reduction, or (iii) without limiting the generality of effect of the foregoing,
any material breach of this Agreement by the Corporation. The term "cause"
shall mean gross misconduct in connection with the Executive's position as an
officer of the Corporation which results in demonstrably material injury to the
Corporation. Bad judgment or negligence shall not constitute gross misconduct
nor shall any act or omission reasonably believed by the Executive to have been
in, or not opposed to, the interests of the Corporation.
4. Compensation. Subject to the provisions of paragraph 8, if
there is a termination of the Executive's employment on or before 24 months
after a Trigger Date, the Executive shall have the right to receive the
compensation described in this paragraph during the compensation period,
subject to reduction as provided in paragraph 5 if the Executive is employed by
one or more employers during such period. The term "compensation period" shall
mean the period between the Executive's termination date and 30 months after
such termination
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date. However, in no event shall the compensation period extend beyond the end
of the month in which the Executive reaches 65 years of age. During the
compensation period the Executive shall continue to receive his annual salary,
payable at the same time and in the same manner as it was paid immediately
prior to his termination. The term "annual salary" shall mean the annual
salary being paid the Executive immediately before his termination, determined
prior to any deductions actually taken from salary (1) for salary reductions or
deferrals under any plan of the Corporation, (2) for payment of employee
benefits under any plan of the Corporation which were charged to the Executive,
and (3) for the purchase of stock under any plan of the Corporation. In
addition, the Executive shall receive his target bonus (determined under the
bonus plan last in effect for the Executive as if the Executive had not been
terminated) for the fiscal year in which the Executive was terminated at the
time that such bonus was paid in the previous year. The same bonus shall be
paid on the same month and day in any succeeding year that occurs within the
compensation period. Notwithstanding any other provision in this paragraph, if
the Executive's annual salary and target bonus are less than the average of the
Executive's gross compensation for the three calendar years prior to the
Executive's termination date, then the Executive shall receive, in monthly
payments, such average annual gross compensation during the compensation period
instead of his salary and target bonus. The term "gross compensation" shall
mean compensation as reported on the Executive's Federal Income Tax Withholding
Statement (Form W-2) plus the following items to the extent they were not
reported on the Executive's Federal Income Tax Withholding Statement: (1) any
salary reductions or deferrals under any plan of the Corporation, (2) any
amounts paid for employee benefits under any plan of the Corporation which are
charged to the Executive, and (3) any amounts charged to the Executive for the
purchase of stock under any plan of the Corporation. Notwithstanding any other
provision of this Agreement, if the aggregate present value of the payments to
or for the benefit of the Executive under this paragraph and paragraph 6 equals
or exceeds three times the "base amount" (as defined in Internal Revenue Code
Section 280G), such that a deduction would not be allowed to the Corporation
under that Section for all or any part of such payments, or if the payments
made hereunder would cause the Executive to be liable for tax under Internal
Revenue Code Section 4999, then the payments under this paragraph and paragraph
6 shall be reduced so that the aggregate "present value" (as defined in
Internal Revenue Code Section 280G(d)(4)) of such payments shall total $100.00
less than three times the base amount. The purpose of such reduction is to
ensure that the payments to the Executive will not constitute a parachute
payment within the meaning of Internal Revenue Code Section 280G(b)(2) and that
the Executive will not be subject to tax under Internal Revenue Code Section
4999. The Executive shall have the right (but shall not be required) to
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receive the benefit of any amendments to Internal Revenue Code Section 280G
that increase the amount that may be received without loss of the deduction to
the Corporation.
5. Reduction by Reason of Other Employment. If the Executive is
employed by one employer or simultaneously by more than one employer during the
compensation period, the amount payable under paragraph 4 shall be reduced by
the total gross compensation received from such employer or employers. Gross
compensation shall have the same meaning as in paragraph 4.
No amount required to be paid to the Executive under paragraph 4 shall
be reduced prior to the time the Executive actually receives compensation from
such new employer or employers, except that if compensation from the new
employer is deferred, either voluntarily or involuntarily, the Corporation may
reduce its payments in an equitable manner.
The Executive shall use best efforts to give the Corporation access to
the Executive's new employer in order to confirm such gross compensation or to
confirm compliance by the Executive with paragraph 8.
6. Benefits. Subject to the provisions of paragraph 8, if there
is a termination of the Executive's employment on or before 24 months after a
Trigger Date, then the Executive shall continue to be treated during the
compensation period as an "employee" under all stock option, purchase or
acquisition plans in effect on his termination date; however, no new stock or
option awards shall be granted after the Executive's termination date. The
Executive, his dependents, beneficiaries and/or estate shall continue during
the compensation period to be entitled to all benefits under medical, dental,
life insurance and similar plans (except for any disability plan) that are in
effect on the Executive's termination date. If by reason of law or government
regulation or third-party contractual restriction the Executive, his
dependents, beneficiaries and/or estate cannot receive or participate in a
benefit, then the Corporation shall, to the extent necessary, pay or provide
for payment of such benefit to the Executive, his dependents, beneficiaries
and/or estate in the same amount and manner as they would have been provided by
the plan. Notwithstanding the foregoing, if the Executive is employed by
another employer, the Corporation shall not provide any medical, dental, life
insurance or similar benefit to the extent it is provided by the other
employer. The participation of the Executive in the PENWEST, LTD. Retirement
Plan, the PENWEST, LTD. 401(k) Plan or any other plan described in Internal
Revenue Code Section 401(a) shall terminate after his termination date in
accordance with the terms of such plans and the Corporation shall not be
obligated to provide equivalent benefits.
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7. Effect of Death. In the event of death of the Executive
during the compensation period, the compensation under paragraph 4 for the
month in which death occurs shall be paid to the Executive's estate and the
compensation period shall be deemed to have ended as of the close of business
on the last day of the month in which the death occurred. Coverage of the
Executive and any dependents under any plan described in paragraph 6 shall also
end on such date. Nothing in this paragraph shall affect payments due in
respect of the Executive's death.
8. Non-Competition and Confidentiality. The Executive agrees
that:
(a) the Corporation shall cease providing payments and
benefits under paragraphs 4 and 6 (other than benefits or payments already
earned or accrued) if, during the compensation period, the Executive shall be
employed by or otherwise engaged or be interested in any business that is
competitive with any business of the Corporation or of any of its subsidiaries
in which the Executive was engaged during his employment prior to a termination
and if such employment or activity is likely to cause, or causes, serious
damage to the Corporation or any of its subsidiaries; and
(b) during and after the compensation period, the
Executive will not divulge or appropriate to the Executive's own use or the use
of others any secret or confidential information or knowledge pertaining to the
business of the Corporation, or any of its subsidiaries, obtained during his
employment by the Corporation or any of its subsidiaries.
The Board of Directors has determined, in its best judgment, that the payments
to the Executive under paragraphs 4 and 6 are reasonable consideration for not
competing as provided in (a) and for maintaining the confidentiality of
information as provided in (b).
9. Arbitration of All Disputes. Any controversy or claim arising
out of or relating to this Agreement or the breach hereof shall be settled by
arbitration in the City of Seattle in accordance with the laws of the State of
Washington by three arbitrators, one of whom shall be appointed by the
Corporation, one of whom shall be appointed by the Executive and one of whom
shall be appointed by the first two arbitrators. The arbitration shall be
conducted in accordance with the rules of the American Arbitration Association,
except with respect to the selection of arbitrators which shall be as provided
in this paragraph. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. In the event that it shall
be necessary or desirable for the Executive to retain legal counsel or incur
other costs and expenses in
-5-
<PAGE> 6
connection with the enforcement of the Executive's rights under this Agreement,
the Corporation shall pay the Executive's reasonable attorneys' fees and costs
and expenses in connection with such enforcement (including the enforcement of
any arbitration award in court), regardless of the final outcome, unless the
arbitrators shall determine that under the circumstances recovery by the
Executive of any such fees, costs and expenses would be unjust.
10. Notices. Any notices, requests, demands and other
communications provided for by this Agreement shall be sufficient if in writing
and if sent by registered or certified mail to the Executive at the last
address he has filed in writing with the Corporation and to the Corporation at
its principal executive offices.
11. Non-Alienation. The Executive shall not pledge, hypothecate,
assign or create a lien upon any amounts provided under this Agreement; and no
benefits payable hereunder shall be assignable in anticipation of payment
either by voluntary or involuntary acts, or by operation of law.
12. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Washington.
13. Amendments. This Agreement may not be changed, waived or
discharged orally, but only by an instrument in writing, signed by the party
against which enforcement of such change, waiver or discharge is sought.
14. Successors. This Agreement shall extend to and be binding
upon the Corporation, its successors and assigns. For purposes of this
Agreement, unless the context otherwise requires, references to the Corporation
shall include its subsidiaries.
15. Severability. In the event that any provision of this
Agreement shall be determined to be invalid or unenforceable for any reason,
the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect.
-6-
<PAGE> 7
16. Headings. The headings of the paragraphs in this Agreement
are solely for convenience or reference and shall not control the meaning or
interpretation of any provision of this Agreement.
PENWEST, LTD.
By___________________________
_____________________________
[Executive]
-7-
<PAGE> 1
Exhibit 11
PENWEST, LTD. AND SUBSIDIARIES
COMPUTATION OF PER-SHARE EARNINGS
Year Ended August 31
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------------------------
PRIMARY:
- --------
<S> <C> <C> <C>
Net income $7,217,000 $6,120,000 $6,315,000
========== ========== ==========
Weighted average number of shares outstanding 6,745,566 6,828,400 6,932,860
Net effect of diluted stock options 273,404 282,553 242,995
---------- ---------- ----------
Weighted average common shares
and equivalents outstanding 7,018,970 7,110,953 7,175,855
========== ========== ==========
Earnings per share: $1.03 $0.86 $0.88
===== ===== =====
FULLY DILUTED:
Net income $7,217,000 $6,120,000 $6,315,000
========== ========== ==========
Weighted average number of shares outstanding 6,745,566 6,828,400 6,783,654
Net effect of diluted stock options 279,333 251,616 367,942
---------- ---------- ----------
Weighted average common shares
and equivalents outstanding 7,024,899 7,080,016 7,151,596
========== ========== ==========
Earnings per share: $1.03 $0.86 $0.88
===== ===== =====
</TABLE>
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Year Ended August 31, 1995
Wholly owned subsidiaries of the registrant are:
Penford Products Co.
incorporated under the laws of the State of Delaware
Edward Mendell Co., Inc.
incorporated under the laws of the State of Washington
Edward Mendell GmBH
incorporated under the laws of Germany
Edward Mendell Finland OY
incorporated under the laws of Finland
PENWEST Foreign Sales Corporation
All subsidiaries are included in the consolidated financial statements.
<PAGE> 1
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8) pertaining to the PENWEST, LTD. 1994 Stock Option Plan and to the
incorporation by reference in the Registration Statement (Form S-8) pertaining
to the PENWEST Savings and Stock Ownership Plan of our report dated October 12,
1995, with respect to the consolidated financial statements of PENWEST, LTD.
included in the Annual Report (Form 10-K) for the year ended August 31, 1995.
Seattle, Washington
November 28, 1995
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Tod R. Hamachek, Jeffrey T. Cook, and each of
them, severally as attorney-in-fact for him or her in any and all capacities,
to sign the Annual Report on Form 10-K of PENWEST, LTD. for the fiscal year
ended August 31, 1995, and to file same and any amendments, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
SIGNATURE DATE
- --------- ----
/s/ R.E. Engebrecht October 24, 1995
- -------------------------------------- ------------------------------
Richard E. Engebrecht, Director
/s/ Tod R. Hamachek October 24, 1995
- -------------------------------------- ------------------------------
Tod R. Hamachek, Director
/s/ C. Calvert Knudsen October 24, 1995
- -------------------------------------- ------------------------------
C. Calvert Knudsen, Director
/s/ Harry Mullikin October 24, 1995
- -------------------------------------- ------------------------------
Harry Mullikin, Director
/s/ Sally G. Narodick October 24, 1995
- -------------------------------------- ------------------------------
Sally G. Narodick, Director
/s/ William G. Parzybok, Jr. October 24, 1995
- -------------------------------------- ------------------------------
William G. Parzybok, Jr., Director
/s/ N. Stewart Rogers October 24, 1995
- ----------------------------------- ------------------------------
N. Stewart Rogers, Director
/s/ William K. Street October 24, 1995
- ----------------------------------- ------------------------------
William K. Street, Director
/s/ James H. Wiborg October 24, 1995
- ----------------------------------- ------------------------------
James H. Wiborg, Director
/s/ Paul H. Hatfield October 24, 1995
- ----------------------------------- ------------------------------
Paul H. Hatfield, Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) FORM 10K
FOR THE PERIOD ENDED AUGUST 31, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<CASH> 5,334
<SECURITIES> 0
<RECEIVABLES> 23,943
<ALLOWANCES> 0
<INVENTORY> 14,209
<CURRENT-ASSETS> 48,933
<PP&E> 111,440
<DEPRECIATION> 0
<TOTAL-ASSETS> 186,760
<CURRENT-LIABILITIES> 19,747
<BONDS> 0
<COMMON> 8,591
0
0
<OTHER-SE> 63,391
<TOTAL-LIABILITY-AND-EQUITY> 186,760
<SALES> 174,200
<TOTAL-REVENUES> 174,200
<CGS> 126,341
<TOTAL-COSTS> 126,341
<OTHER-EXPENSES> 32,886
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,765
<INCOME-PRETAX> 11,107
<INCOME-TAX> 3,890
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,271
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.03
</TABLE>
