<PAGE> 1
UNITED STATES
Securities and Exchange Commission
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 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 No. 0-11488
PENWEST, LTD.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Washington 91-1221360
- - --------------------------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
777-108th Avenue N.E., Suite 2390, Bellevue, WA 98004-5193
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number (206) 462-6000
Indicate by a 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 the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of March 31, 1995.
<TABLE>
<CAPTION>
Class Outstanding
----- -----------
<S> <C>
Common stock, par value $1.00 6,751,675
</TABLE>
Page 1 of 69 pages.
Exhibit Index appears
on page 11.
<PAGE> 2
PENWEST, LTD. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets 3
February 28, 1995 and August 31, 1994
Condensed Consolidated Statements of Income 4
Three Months Ended February 28, 1995
and February 28, 1994
Condensed Consolidated Statements of Income 4
Six months ended February 28, 1995 and
February 28, 1994
Condensed Consolidated Statements of Cash Flow 5
Six Months Ended February 28, 1995 and
February 28, 1994
Notes to Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of 7-8
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security-Holders 9
Item 6 - Exhibits and Reports on Form 8-K 9
SIGNATURES 10
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
PENWEST, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
February 28, August 31,
1995 1994
------------ ---------
(Unaudited)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 17,126
Receivables 21,673 $ 20,748
Inventories:
Raw materials 4,131 6,074
Work in progress 530 622
Finished goods 7,831 10,038
-------- --------
12,492 16,734
Other current assets 3,736 4,593
-------- --------
Total current assets 55,027 42,075
Property, plant and equipment, net 107,972 99,973
Deferred income taxes 9,566 9,545
Other non-current assets 15,904 12,764
-------- --------
Total assets $188,469 $164,357
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Bank overdraft, net $ 635
Accounts payable $ 10,208 8,131
Current portion of long-term debt 4,185 4,100
Accrued liabilities 8,858 7,847
-------- --------
Total current liabilities 23,251 20,713
Long-term debt 60,848 42,897
Other postretirement benefit 9,894 10,102
Deferred income taxes and other 24,433 23,480
Shareholders' equity:
Common stock 8,583 8,577
Additional paid-in capital 12,505 12,489
Retained earnings 82,354 79,128
Treasury stock (30,637) (29,327)
Note receivable from PENWEST Savings and
Stock Ownership Plan (2,630) (3,340)
Cumulative translation adjustment (132) (362)
-------- --------
Total shareholders' equity 70,043 67,165
-------- --------
Total liabilities and
shareholders' equity $188,469 $164,357
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
PENWEST, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended February 28 Ended February 28
----------------- -----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $42,429 $35,837 $85,199 $73,654
Cost of sales 30,517 27,113 62,044 54,944
------- ------- ------- -------
Gross margin 11,912 8,724 23,155 18,710
Operating expenses 8,408 7,046 15,936 14,434
------- ------- ------- -------
Income from operations 3,504 1,678 7,219 4,276
Investment income 160 195 161 423
Interest expense (1,223) (816) (2,266) (1,673)
Other 899 899
------- ------- ------- -------
Income before taxes 3,340 1,057 6,013 3,026
Income taxes 1,187 194 2,103 402
------- ------- ------- -------
Net income $ 2,153 $ 863 $ 3,910 $ 2,624
======= ======= ======= =======
Weighted average common shares and
equivalents outstanding 7,025,975 7,100,000 7,084,538 7,103,914
Earnings per common share $0.31 $0.12 $0.55 $0.37
===== ===== ===== =====
Dividends declared per common share $0.05 $0.05 $0.10 $0.10
===== ===== ===== =====
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
PENWEST, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended February 28
-----------------
1995 1994
---- ----
<S> <C> <C>
Operating Activities:
Net income $ 3,910 $ 2,624
Adjustments to reconcile net income to net cash
from operations:
Depreciation and amortization 5,051 4,988
Deferred income taxes 375 1,597
Gain on the sale of assets (899)
Foreign currency translation 230 76
Change in operating assets and liabilities:
Receivables (925) (3,515)
Inventories 4,243 1,036
Accounts payable and other 3,316 936
-------- -------
Net cash flow from operating activities 15,301 4,588
Investing Activities:
Additions to plant and equipment (13,983) (5,300)
Proceeds from sale of assets 2,500
Other (329) 462
-------- -------
Net cash used by investing activities (11,812) (4,838)
Financing Activities:
Payments on long-term debt (6,855) (1,915)
Proceeds of long-term debt 24,890
Purchase of treasury stock (1,310) (509)
Exercise of stock options 22 49
Purchase of life insurance for officer's benefit plan (2,501) (1,343)
Payment of dividends (683) (686)
Other 709 641
-------- -------
Net cash from (used by) financing activities 14,272 (3,763)
-------- -------
Net increase (decrease) in cash and cash equivalents 17,761 (4,013)
Cash and equivalents (bank overdraft) at beginning of period (635) 5,477
-------- -------
Cash and equivalents at end of period $ 17,126 $ 1,464
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
PENWEST, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation for
the interim periods presented have been included. Operating results
for the three and six month periods ended February 28, 1995 are not
necessarily indicative of the results that may be expected for the
year ending August 31, 1995. For further information, refer to the
consolidated financial statements and footnotes thereto included in
PENWEST's annual report on Form 10-K for the fiscal year ended August
31, 1994.
2. DEBT
On December 15, 1994 the Company received the proceeds from a $20
million private placement of debt. The debt has an average fixed
interest rate of 7.97%, with $10 million due on December 15, 1998, and
$10 million due on December 15, 2006. The interest rate on the $10
million due on December 15, 1998 was swapped to a LIBOR-based floating
rate. The new debt agreement includes certain restrictions related to
limitations on indebtedness, minimum net worth and working capital
ratios, which are similar to restrictions on previously existing debt.
3. SALE OF COGENERATION ASSETS
On December 31, 1994, the power and thermal contracts at the Company's
cogeneration facility in Vancouver, Washington expired. The Company
completed a sale of the turbine and the boilers constituting the
assets of the facility upon expiration of the contracts. A pretax
gain on was recorded in the second quarter of $899,000 and is shown as
other income.
4. INCOME TAXES
The effective tax rate for the second quarter of fiscal 1994 was 18%
compared to the statutory rate of 34%. The effective rate is lower
than the statutory rate due to tax refunds received by the Company.
5. CURTAILMENT OF POSTRETIREMENT HEALTH BENEFIT
During the second quarter of fiscal 1994, the Company curtailed
certain previously accrued postretirement health benefits for salaried
employees. The Company previously paid a portion of the health
insurance premiums for salaried retirees, but discontinued payment for
eligible salaried employees retiring after May 15, 1994. As a result,
there was a $900,000 reduction of operating expenses recorded.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity
PENWEST's cash and cash equivalents were 9% of total assets at quarter end.
Long-term debt consists of borrowings under private placements of debt ($40
million), an unsecured term loan agreement ($17.5 million), and two unsecured
notes ($4.2 million and $3.3 million.) In addition, $15 million of an
unsecured revolving line of credit was unused and available at February 28,
1995.
Cash flow from operations for the six months ended February 28, 1995 was $15.2
million compared to $5.2 million in the corresponding period a year ago. The
increase is primarily due to improved profitability, a decrease in inventory
levels and an increase in accounts payable.
Working capital increased to $31.8 million at February 28, 1995 from $21.9
million at August 31, 1994 primarily the result of the cash proceeds from the
$20 million private placement of debt in December 1994.
The Board of Directors declared a $0.05 per share dividend which was paid on
March 3, 1995, to shareholders of record as of February 17, 1995.
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 purchased 40,000 shares for $725,000 during the second
quarter.
Capital Resources
Additions to property, plant and equipment during the six months ended February
28, 1995 were $13.9 million. The additions were primarily for the completion
of the expansion of the Penwest Foods' facility in Richland, Washington, and
capacity conversion at Penford Products.
Results of Operations
Net income was $2.2 million, or $0.31 per share for the second quarter,
compared to net income of $863,000 or $0.12 per share for the corresponding
period a year ago. Earnings from operations for this year's quarter were $0.23
per share compared with $0.04 per share in the corresponding period a year ago.
The earnings per share for the current quarter included a non-recurring gain of
$593,000, or $0.08 per share (after tax), from the sale of the assets of
Pacific Cogeneration. In the year-earlier period, earnings included $585,000
(after tax), or $0.08 per share, from the curtailment of future postretirement
health benefits previously accrued for salaried employees.
Sales increased in the second quarter and the first six months of fiscal year
1995 to $42.4 million and $85.2 million, respectively, representing an 18.4%
and 15.7% increase respectively, from the corresponding periods a year ago.
The increase is due to increased volumes across all three of PENWEST's basic
businesses. Penford Products increased volumes from a year ago primarily due
to the improving economic conditions in the paper industry. Penwest
Pharmaceuticals Group continued to grow volumes out of its microcrystalline
cellulose plant in Cedar Rapids. Overall sales of excipients were a record
during the quarter ended February 28, 1995. Penwest Foods also grew volumes
over a year ago. The gross margin for the three month period increased to 28%
compared to 24.3% last
7
<PAGE> 8
year. The improvement in overall gross margins is primarily the result of
improving margins at Penwest Foods due to increasing potato starch volumes and
an improved product mix at Penford.
Operating expenses in the second quarter rose $1.4 million, or 19.3%. The
curtailment of postretirement health benefits in the previous year which was
recorded as a $900,000 reduction of operating expenses accounted for a
substantial portion of the increase. The remaining increase related primarily
to increased investment in research and development, especially in
pharmaceuticals.
Net interest expense for the second quarter of fiscal 1995 was $1.1 million
compared to $621,000 for the corresponding period a year ago. The increase
reflects higher debt levels and overall higher interest rates.
8
<PAGE> 9
PART II - OTHER INFORMATION
Item 4 Submission Of Matters To A Vote Of Security Holders
(a) The annual meeting of shareholders of PENWEST was
held on January 24, 1995.
(b) The following directors were elected to serve a term
of three years: Tod R. Hamachek, Sally G. Narodick,
and James H. Wiborg. The board is comprised of
those elected this year and the following directors
completing their terms: Richard E. Engebrecht,
William G. Parzybok, Jr., William K. Street, C.
Calvert Knudsen, Harry Mullikin, N. Stewart Rogers,
and Paul H. Hatfield.
(c) The following matters were voted upon at the meeting:
1. For the election of directors:
<TABLE>
<CAPTION>
For % Withheld %
--- - -------- -
<S> <C> <C> <C> <C>
Tod R. Hamachek 5,582,418 82.18% 166,480 2.45%
Sally G. Narodick 5,584,990 82.22% 163,908 2.41%
James H. Wiborg 5,587,379 82.25% 161,519 2.38%
</TABLE>
2. Approval of PENWEST, LTD. 1994 Stock Option
Plan.
<TABLE>
<CAPTION>
For Against Abstain Non-Vote
--- ------- ------- --------
<S> <C> <C> <C>
4,486,219 215,637 144,647 902,395
</TABLE>
3. Approve a change in the Company's state of
incorporation from Delaware to Washington
through a merger of the Company into its
wholly-owned Washington subsidiary.
<TABLE>
<CAPTION>
For Against Abstain Non-Vote
--- ------- ------- --------
<S> <C> <C> <C>
4,567,099 171,149 130,890 879,760
</TABLE>
4. Ratification of selection of Ernst & Young
LLP as independent auditors of the Company.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
5,610,311 12,914 125,673
</TABLE>
(d) Not applicable.
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibit 10.8 Note Agreement dated as of October 1,
1994 among PENWEST, LTD., Principal Mutual Life
Insurance Company and TMG Life Insurance Company.
Exhibit 11 Statement re: Computation of earnings per
share
(b) No reports on Form 8-K were filed during the quarter
for which this report is filed.
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements 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.
----------------------------------
(Registrant)
04/10/95 /s/ TOD R. HAMACHEK
- - ---------------- ----------------------------------
Date Tod R. Hamachek
President and
Chief Executive Officer
04/10/95 /s/ JEFFREY T. COOK
- - ---------------- ----------------------------------
Date Jeffrey T. Cook
Vice President, Finance and
Chief Financial Officer (Principal
Financial Officer)
10
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
- - ------- ----
<S> <C> <C>
10.8 Note Agreement dated as of October 1, 1994 12
among PENWEST, LTD., Principal Mutual Life
Insurance Company and TMG Life Insurance
Company
11 Statement re: Computation of earnings per share 69
</TABLE>
11
<PAGE> 1
================================================================================
PENWEST, LTD.
NOTE AGREEMENT
Dated as of October 1, 1994
Re: $10,000,000 7.59% Series A Senior Notes
Due December 15, 1998
and
$10,000,000 8.35% Series B Senior Notes
Due December 15, 2006
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
(Not a part of the Agreement)
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C> <C>
SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT. . . . . . . . . . . . . . . . . . . 1
Section 1.1. Description of Notes . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Commitment, Closing Date . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3. Other Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2. PREPAYMENT OF NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.1. No Required Prepayments . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.2. Optional Prepayment With Premium . . . . . . . . . . . . . . . . . . 3
Section 2.3. Notice of Optional Prepayments . . . . . . . . . . . . . . . . . . . 3
Section 2.4. Application of Prepayments . . . . . . . . . . . . . . . . . . . . . 4
Section 2.5. Direct Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 3. REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.1. Representations of the Company . . . . . . . . . . . . . . . . . . . 4
Section 3.2. Representations of the Purchaser . . . . . . . . . . . . . . . . . . 4
SECTION 4. CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4.1. Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4.2. Waiver of Conditions . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 5. COMPANY COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 5.1. Corporate Existence, Etc . . . . . . . . . . . . . . . . . . . . . . 6
Section 5.2. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 5.3. Taxes, Claims for Labor and Materials, Compliance with Laws . . . . . 6
Section 5.4. Maintenance, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 5.5. Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 5.6. Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . 7
Section 5.7. Limitations on Current Debt and Funded Debt . . . . . . . . . . . . . 7
Section 5.8. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.9. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.10. Mergers, Consolidations and Sales of Assets . . . . . . . . . . . . . 11
Section 5.11. Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.12. Repurchase of Notes . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5.13. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . 13
Section 5.14. Multiemployer Plan Liability and Termination of Pension Plans . . . . 13
Section 5.15. Reports and Rights of Inspection . . . . . . . . . . . . . . . . . . 14
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR . . . . . . . . . . . . . . . . . 17
Section 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.2. Notice to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.3. Acceleration of Maturities . . . . . . . . . . . . . . . . . . . . . 18
Section 6.4. Rescission of Acceleration . . . . . . . . . . . . . . . . . . . . . 19
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS . . . . . . . . . . . . . . . . . . . . 19
Section 7.1. Consent Required . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.2. Solicitation of Holders . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.3. Effect of Amendment or Waiver . . . . . . . . . . . . . . . . . . . . 20
SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS . . . . . . . . . . . . . . . . 20
Section 8.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 8.2. Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.3. Directly or Indirectly . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 9.1. Registered Notes . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 9.2. Exchange of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 9.3. Loss, Theft, Etc. of Notes . . . . . . . . . . . . . . . . . . . . . 29
Section 9.4. Expenses, Stamp Tax Indemnity . . . . . . . . . . . . . . . . . . . . 29
Section 9.5. Powers and Rights Not Waived; Remedies Cumulative . . . . . . . . . . 30
Section 9.6. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 9.7. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . 30
Section 9.8. Survival of Covenants and Representations . . . . . . . . . . . . . . 30
Section 9.9. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 9.10. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 9.11. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 9.12. Oral Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
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<PAGE> 4
ATTACHMENTS TO NOTE AGREEMENT:
Schedule I -- Names and Addresses of Note Purchasers and Amounts of
Commitments
Exhibit A-1 -- Form of 7.59% Series A Senior Note due December 15,
1998
Exhibit A-2 -- Form of 8.35% Series B Senior Note due December 15,
2006
Exhibit B -- Representations and Warranties of the Company
Exhibit C -- Description of Special Counsel's Closing Opinion
Exhibit D -- Description of Closing Opinion of Counsel to the
Company
-iii-
<PAGE> 5
PENWEST, LTD.
777-108TH AVENUE N.E., SUITE 2390
BELLEVUE, WASHINGTON 98004
NOTE AGREEMENT
Re: $10,000,000 7.59% Series A Senior Notes
Due December 15, 1998
and
$10,000,000 8.35% Series B Senior Notes
Due December 15, 2006
Dated as of
October 1, 1994
To the Purchaser named in Schedule I
hereto which is a signatory of this
Agreement
Gentlemen:
The undersigned, PENWEST, LTD., a Delaware corporation (the
"Company"), agrees with you as follows:
SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT.
Section 1.1. Description of Notes. The Company will authorize
the issue and sale of:
(a) $10,000,000 aggregate principal amount of its 7.59%
Series A Senior Notes (the "Series A Notes") to be dated the date of
issue, to bear interest from such date at the rate of 7.59% per annum,
payable semiannually on the fifteenth day of each June and December in
each year (commencing June 15, 1995) and at maturity and to bear
interest on overdue principal (including any overdue required or
optional prepayment of principal) and premium, if any, and (to the
extent legally enforceable) on any overdue installment of interest at
the rate of 9.59% per annum after the date due, whether by
acceleration or otherwise, until paid, to be expressed to mature on
December 15, 1998, and to be substantially in the form attached hereto
as Exhibit A-1.
<PAGE> 6
Penwest, Ltd. Note Agreement
(b) $10,000,000 aggregate principal amount of its 8.35%
Series B Senior Notes (the "Series B Notes") to be dated the date of
issue, to bear interest from such date at the rate of 8.35% per annum,
payable semiannually on the fifteenth day of each June and December in
each year (commencing June 15, 1995) and at maturity and to bear
interest on overdue principal (including any overdue required or
optional prepayment of principal) and premium, if any, and (to the
extent legally enforceable) on any overdue installment of interest at
the rate of 10.35% per annum after the date due, whether by
acceleration or otherwise, until paid, to be expressed to mature on
December 15, 2006, and to be substantially in the form attached hereto
as Exhibit A-2.
The Series A Notes and the Series B Notes are hereinafter collectively referred
to as the "Notes"; and the term "Series" shall include all of the Series A
Notes or all of the Series B Notes, as the case may be. Interest on the Notes
shall be computed on the basis of a 360-day year of twelve 30-day months. If
the date on which a payment shall be due is not a Business Day, then the
payment date shall be the next Business Day. The term "Notes" as used herein
shall include each Note delivered pursuant to this Agreement and the separate
agreements with the other purchaser named in Schedule I. You and the other
purchaser named in Schedule I are hereinafter sometimes referred to as the
"Purchasers".
Section 1.2. Commitment, Closing Date. Subject to the terms and
conditions hereof and on the basis of the representations and warranties
hereinafter set forth, the Company agrees to issue and sell to you, and you
agree to purchase from the Company, Notes of the Series and in the principal
amount set forth opposite your name on Schedule I hereto at a price of 100% of
the principal amount thereof on the Closing Date hereafter mentioned.
Delivery of the Notes will be made at the offices of Bogle & Gates, 2
Union Square, 601 Union, Seattle, Washington 98101, against payment therefor
in Federal Reserve or other funds current and immediately available at the
principal office of Seafirst National Bank, Seattle, Washington, ABA No.
125000024 for the account of Penwest, Ltd. Account No. 67383414 in the amount
of the purchase price at 10:00 A.M., Seattle, Washington time, on December 15,
1994 or such earlier date as may be determined by not less than five Business
Days' prior written notice from the Company to the Purchasers (the "Scheduled
Closing Date").
If a Purchaser (the "First Purchaser") fails to purchase the Notes of
the Series and in the principal amount set forth opposite the First Purchaser's
name on Schedule I hereto on the Scheduled Closing Date, the Company shall give
written notice of such failure by 11:00 A.M. Seattle, Washington time on the
Scheduled Closing Date to the other Purchaser. Upon receipt of such notice,
the other Purchaser may, but shall not be obligated to, purchase the First
Purchaser's Notes by giving notice of such intention to purchase such Notes by
3:00 P.M. Seattle, Washington time on the Scheduled Closing Date to the Company
and the First Purchaser. Such notice shall designate a delayed closing date (a
"Rescheduled Closing Date"), not later than the fifth Business Day after the
Scheduled Closing Date and in no event later than December 20, 1994. As used
herein, "Closing Date" shall mean the later to occur of (x) the Scheduled
Closing Date or (y) the Rescheduled Closing Date.
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Penwest, Ltd. Note Agreement
The Notes delivered to you on the Closing Date will be delivered to
you in the form of a registered Note or registered Notes of each Series to be
purchased by you in the form attached hereto as Exhibit A-1 or A-2, as
appropriate, for the full amount of your purchase (in the denominations
specified by you in Schedule I), registered in your name or in the name of your
nominee, all as you may specify at any time prior to the date fixed for
delivery.
Section 1.3. Other Agreement. Simultaneously with the execution
and delivery of this Agreement, the Company is entering into a similar
agreement with the other Purchaser under which such other Purchaser agrees to
purchase from the Company the principal amount of Notes of the Series set forth
opposite such Purchaser's name in Schedule I, and your obligation and the
obligations of the Company hereunder are subject to the execution and delivery
of the similar agreement by the other Purchaser. This Agreement and said
similar agreement with the other Purchaser are herein collectively referred to
as the "Agreements". The obligations of each Purchaser shall be several and
not joint and no Purchaser shall be liable or responsible for the acts of the
other Purchaser.
SECTION 2. PREPAYMENT OF NOTES.
Section 2.1. No Required Prepayments. No mandatory prepayments
of principal of the Notes are scheduled to be made prior to their expressed
maturity date, and the Notes are not subject to prepayment or redemption at the
option of the Company prior to their expressed maturity date except on the
terms and conditions and in the amounts and with the premium, if any, set forth
below in this Section 2.
Section 2.2. Optional Prepayment With Premium. Upon compliance
with Section 2.3 the Company shall have the privilege of prepaying the
outstanding Notes on any interest payment date, either in whole or in part
(but if in part then in a minimum aggregate principal amount of $100,000) by
payment of the principal amount of the Notes, or portion thereof to be
prepaid, and accrued interest thereon to the date of such prepayment, together
with a premium equal to the Make-Whole Amount, determined as of five business
days prior to the date of such prepayment pursuant to this Section 2.2.
Section 2.3. Notice of Optional Prepayments. The Company will
give notice of any prepayment of the Notes pursuant to Section 2.2 to each
holder thereof not less than 30 days nor more than 60 days before the date
fixed for such optional prepayment specifying (i) such date, (ii) the
principal amount of the holder's Notes of each Series to be prepaid on such
date, (iii) that a premium may be payable, (iv) the date when such premium
will be calculated, (v) the estimated premium, together with a reasonably
detailed computation of such estimated premium, and (vi) the accrued interest
applicable to the prepayment. Such notice of prepayment shall also certify
all facts, if any, which are conditions precedent to any such prepayment.
Notice of prepayment having been so given, the aggregate principal amount of
the Notes of each Series specified in such notice, together with accrued
interest thereon and the premium, if any, payable with respect thereto shall
become due and payable on the prepayment date specified in said notice. Not
later than two business days prior to the prepayment date specified in such
notice, the Company shall provide each holder of a Note
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Penwest, Ltd. Note Agreement
written notice of the premium, if any, payable in connection with the
prepayment of such Note and, whether or not any premium is payable, a
reasonably detailed computation of the Make-Whole Amount applicable to such
prepayment.
Section 2.4. Application of Prepayments. All partial
prepayments shall be applied on all outstanding Notes of both Series ratably in
accordance with the unpaid principal amounts thereof.
Section 2.5. Direct Payment. Notwithstanding anything to the
contrary contained in this Agreement or the Notes regarding the place or manner
of payment of the Notes, in the case of any Note owned and registered in
accordance with Section 9.1 by you or by any subsequent Institutional Holder
which has given written notice to the Company requesting that the provisions of
this Section 2.5 shall apply, the Company will punctually pay when due the
principal thereof, interest thereon and premium, if any, due with respect to
said principal, without any presentment thereof, directly to you, to your
nominee or to such subsequent Institutional Holder at your address or your
nominee's address set forth in Schedule I hereto or such other address as you
or such subsequent Institutional Holder may from time to time designate in
writing to the Company or, if a bank account with a United States bank is
designated for you or your nominee on Schedule I hereto or in any written
notice to the Company from you or from any such subsequent Institutional
Holder, the Company will make such payments in immediately available funds to
such bank account, marked for attention as indicated, or in such other manner
or to such other account in any United States bank as you or any such
subsequent Institutional Holder may from time to time direct in writing.
SECTION 3. REPRESENTATIONS.
Section 3.1. Representations of the Company. The Company
represents and warrants that all representations and warranties set forth in
Exhibit B are true and correct as of the date hereof and are incorporated
herein by reference with the same force and effect as though herein set forth
in full.
Section 3.2. Representations of the Purchaser. You represent,
and in entering into this Agreement the Company understands, that you are an
Accredited Investor and acquiring the Notes for the purpose of investment and
not with a view to the distribution thereof, and that you have no present
intention of selling, negotiating or otherwise disposing of the Notes; it being
understood, however, that the disposition of your property shall at all times
be and remain within your control. You further represent that at least one of
the following statements is an accurate representation as to the source of
funds to be used by you to pay the purchase price of the Notes purchased by you
hereunder:
(a) if you are an insurance company, no part of such
funds constitutes assets allocated to any separate account maintained
by you in which any employee benefit plan (or its related trust) has
any interest; or
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Penwest, Ltd. Note Agreement
(b) if you are an insurance company, to the extent that
any part of such funds constitutes assets allocated to any separate
account maintained by you in which any employee benefit plan (or its
related trust) has any interest, (i) such separate account is a
"pooled separate account" within the meaning of Prohibited Transaction
Class Exemption 90-1, as amended, in which case you have disclosed to
the Company the name of each employee benefit plan whose assets in
such separate account exceed 10% of the total assets or are expected
to exceed 10% of the total assets of such account as of the date of
such purchase (and for the purposes of this paragraph (b), all
employee benefit plans maintained by the same employer or employee
organization are deemed to be a single plan), or (ii) such separate
account contains only the assets of a specific employee benefit plan,
complete and accurate information as to the identity of which you have
delivered to the Company; or
(c) if you are other than an insurance company, no part
of such funds constitutes "plan assets".
As used in this Section 3.2, the terms "employee benefit plan" and "separate
account" shall have the respective meanings assigned to such terms in Section
3 of ERISA and the term "plan assets" shall have the meaning specified in
Department of Labor Regulation Section 2510.3-101.
SECTION 4. CLOSING CONDITIONS.
Section 4.1. Conditions. Your obligation to purchase the Notes
on the Closing Date shall be subject to the performance by the Company of its
agreements hereunder which by the terms hereof are to be performed at or prior
to the time of delivery of the Notes and to the following further conditions
precedent:
(a) Closing Certificate. You shall have received a
certificate dated the Closing Date, signed by the President or a Vice
President of the Company, the truth and accuracy of which shall be a
condition to your obligation to purchase the Notes proposed to be sold
to you and to the effect that (i) the representations and warranties
of the Company set forth in Exhibit B hereto are true and correct on
and with respect to the Closing Date, (ii) the Company has performed
all of its obligations hereunder which are to be performed on or prior
to the Closing Date, and (iii) no Default or Event of Default has
occurred and is continuing.
(b) Legal Opinions. You shall have received from Chapman
and Cutler, who are acting as your special counsel in this
transaction, and from Bogle & Gates, counsel for the Company, their
respective opinions dated the Closing Date, in form and substance
satisfactory to you, and covering the matters set forth in Exhibits C
and D, respectively, hereto.
(c) Related Transactions. Subject to the third paragraph
of Section 1.2 hereof, the Company shall have consummated the sale of
the entire principal amount of the Notes scheduled to be sold on the
Closing Date pursuant to this Agreement and the other
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Penwest, Ltd. Note Agreement
Agreement referred to in Section 1.3. This shall also be a condition
to the Company's obligation to sell any Notes pursuant to this
Agreement or any of the other Agreements.
(d) Satisfactory Proceedings. All proceedings taken in
connection with the transactions contemplated by this Agreement, and
all documents necessary to the consummation thereof, shall be
satisfactory in form and substance to you and your special counsel,
and you shall have received a copy (executed or certified as may be
appropriate) of all legal documents or proceedings taken in connection
with the consummation of said transactions.
Section 4.2. Waiver of Conditions. If on the Closing Date the
Company fails to tender to you the Notes to be issued to you on such date or if
the conditions specified in Section 4.1 have not been fulfilled, you may
thereupon elect to be relieved of all further obligations under this Agreement.
Without limiting the foregoing, if the conditions specified in Section 4.1 have
not been fulfilled, you may waive compliance by the Company with any such
condition to such extent as you may in your sole discretion determine. Nothing
in this Section 4.2 shall operate to relieve the Company of any of its
obligations hereunder or to waive any of your rights against the Company.
SECTION 5. COMPANY COVENANTS.
From and after the date of this Agreement and continuing so long as
any amount remains unpaid on any Note:
Section 5.1. Corporate Existence, Etc. The Company will
preserve and keep in full force and effect, and will cause each Restricted
Subsidiary to preserve and keep in full force and effect, its corporate
existence and all licenses and permits necessary to the proper conduct of its
business; provided, however, that the foregoing shall not prevent any
transaction permitted by Section 5.10.
Section 5.2. Insurance. The Company will maintain, and will
cause each Restricted Subsidiary to maintain, insurance coverage by financially
sound and reputable insurers in such forms and amounts and against such risks
as are customary for corporations of established reputation engaged in the same
or a similar business and owning and operating similar properties.
Section 5.3. Taxes, Claims for Labor and Materials, Compliance
with Laws. The Company will promptly pay and discharge, and will cause each
Restricted Subsidiary promptly to pay and discharge, all lawful taxes,
assessments and governmental charges or levies imposed upon the Company or such
Restricted Subsidiary, respectively, or upon or in respect of all or any part
of the property or business of the Company or such Restricted Subsidiary, all
trade accounts payable in accordance with usual and customary business terms,
and all claims for work, labor or materials, which if unpaid might become a
Lien upon any property of the Company or such Restricted Subsidiary; provided,
however, that the Company or such Restricted Subsidiary shall not be required
to pay any such tax,
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Penwest, Ltd. Note Agreement
assessment, charge, levy, account payable or claim if (i) the validity,
applicability or amount thereof is being contested in good faith by appropriate
actions or proceedings which will prevent the forfeiture or sale of any
property of the Company or such Restricted Subsidiary or any material
interference with the use thereof by the Company or such Restricted Subsidiary,
and (ii) the Company or such Restricted Subsidiary shall set aside on its
books, reserves deemed by it to be adequate with respect thereto. The Company
will promptly comply and will cause each Restricted Subsidiary to comply with
all laws, ordinances or governmental rules and regulations to which it is
subject including, without limitation, the Occupational Safety and Health Act
of 1970, as amended, ERISA and all laws, ordinances, governmental rules and
regulations relating to environmental protection in all applicable
jurisdictions, the violation of which could materially and adversely affect the
properties, business, prospects, profits or condition of the Company and its
Restricted Subsidiaries or would result in any Lien not permitted under
Section 5.8.
Section 5.4. Maintenance, Etc. The Company will maintain,
preserve and keep, and will cause each Restricted Subsidiary to maintain,
preserve and keep, its properties which are used or useful in the conduct of
its business (whether owned in fee or a leasehold interest) in good repair and
working order and from time to time will make all necessary repairs,
replacements, renewals and additions so that at all times the efficiency
thereof shall be maintained.
Section 5.5. Nature of Business. Neither the Company nor any
Restricted Subsidiary will engage in any business if, as a result, the general
nature of the business, taken on a consolidated basis, which would then be
engaged in by the Company and its Restricted Subsidiaries would be
substantially changed from the general nature of the business engaged in by the
Company and its Restricted Subsidiaries on the date of this Agreement.
Section 5.6. Consolidated Net Worth. The Company will at all
times keep and maintain Consolidated Net Worth at an amount not less than
$50,000,000.
Section 5.7. Limitations on Current Debt and Funded Debt. (a)
The Company will not, and will not permit any Restricted Subsidiary to, create,
assume or incur or in any manner be or become liable in respect of any Current
Debt or Funded Debt, except:
(1) Funded Debt evidenced by the Notes;
(2) Funded Debt of the Company and its Restricted
Subsidiaries outstanding as of the date of this Agreement and
reflected on the consolidated balance sheet of the Company and its
Restricted Subsidiaries as at August 31, 1994;
(3) other unsecured Funded Debt of the Company and its
Restricted Subsidiaries and Funded Debt of the Company and its
Restricted Subsidiaries secured by Liens permitted by Section 5.8(G)
and (H); provided, however, that at the time of issuance thereof and
after giving effect thereto and to the application of the proceeds
thereof:
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Penwest, Ltd. Note Agreement
(i) Consolidated Funded Debt shall not exceed 55%
of Total Capitalization;
(ii) in the case of the issuance of any Funded
Debt by a Restricted Subsidiary, the aggregate amount of all
Indebtedness of Restricted Subsidiaries (other than
Indebtedness owed to the Company or any Wholly-owned
Restricted Subsidiary) shall not exceed 10% of Total
Capitalization; and
(iii) in the case of the issuance of any Funded
Debt of the Company or a Restricted Subsidiary secured by
Liens permitted by Section 5.8(H), the aggregate amount of all
Indebtedness of the Company and its Restricted Subsidiaries
secured by Liens permitted by Section 5.8(H) shall not exceed
10% of Consolidated Net Worth;
(4) unsecured Current Debt of the Company; provided,
however, that during the twelve-month period immediately preceding the
date of any determination hereunder, there shall have been a period of
thirty consecutive days during which the aggregate principal amount of
unsecured Current Debt of the Company and its Restricted Subsidiaries
outstanding on each day of such thirty-day period did not exceed the
amount of additional unsecured Funded Debt which could have been
incurred pursuant to this Section 5.7 (assuming for purposes of this
computation for the first year that Section 5.7 of this Agreement was
in effect during the 12-month period preceding the date of execution of
this Agreement);
(5) unsecured Current Debt of any Restricted Subsidiary
and Current Debt of the Company and its Restricted Subsidiaries
secured by Liens permitted by Section 5.8(G) and (H) if at the time of
issuance thereof the Company could then issue unsecured Current Debt;
provided, however, that at the time of issuance thereof and after
giving effect thereto and to the application of the proceeds thereof:
(i) in the case of the issuance of any Current
Debt by a Restricted Subsidiary, the aggregate amount of all
Indebtedness of Restricted Subsidiaries (other than
Indebtedness owed to the Company or any Wholly-owned
Restricted Subsidiary) shall not exceed 10% of Total
Capitalization; and
(ii) in the case of the issuance of any Current
Debt of the Company or a Restricted Subsidiary secured by
Liens permitted by Section 5.8(H), the aggregate amount of all
Indebtedness of the Company and its Restricted Subsidiaries
secured by Liens permitted by Section 5.8(H) shall not exceed
10% of Consolidated Net Worth; and
(6) Funded Debt or Current Debt of a Restricted
Subsidiary to the Company or to a Wholly-owned Restricted Subsidiary.
(b) Any corporation which becomes a Restricted Subsidiary after
the date hereof shall for all purposes of this Section 5.7 be deemed to have
created, assumed or incurred at the
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Penwest, Ltd. Note Agreement
time it becomes a Restricted Subsidiary all Funded Debt of such corporation
existing immediately after it becomes a Restricted Subsidiary.
Section 5.8. Limitation on Liens. The Company will not, and
will not permit any Restricted Subsidiary to, create or incur, or suffer to be
incurred or to exist, any Lien on its or their property or assets, whether now
owned or hereafter acquired, or upon any income or profits therefrom, or
transfer any property for the purpose of subjecting the same to the payment of
obligations in priority to the payment of its or their general creditors, or
acquire or agree to acquire, or permit any Restricted Subsidiary to acquire,
any property or assets upon conditional sales agreements or other title
retention devices, except:
(a) Liens for property taxes and assessments or
governmental charges or levies and Liens securing claims or demands of
mechanics and materialmen, provided payment thereof is not at the time
required by Section 5.3;
(b) Liens of or resulting from any judgment or award, the
time for the appeal or petition for rehearing of which shall not have
expired, or in respect of which the Company or a Restricted Subsidiary
shall at any time in good faith be prosecuting an appeal or proceeding
for a review and in respect of which a stay of execution pending such
appeal or proceeding for review shall have been secured provided that
the aggregate amount of such judgments or awards shall not exceed
$5,000,000;
(c) Liens incidental to the conduct of business or the
ownership of properties and assets (including Liens in connection with
worker's compensation, unemployment insurance and other like laws,
warehousemen's and attorneys' liens and statutory landlords' liens)
and Liens to secure the performance of bids, tenders or trade
contracts, or to secure statutory obligations, surety or appeal bonds
or other Liens of like general nature incurred in the ordinary course
of business and not in connection with the borrowing of money;
provided in each case, the obligation secured is not overdue or, if
overdue, is being contested in good faith by appropriate actions or
proceedings;
(d) existing survey exceptions or encumbrances, easements
or reservations, or rights of others for rights-of-way, utilities and
other similar purposes, or zoning or other restrictions as to the use
of real properties ("Encumbrances") or future Encumbrances, which are
necessary for the conduct of the activities of the Company and its
Restricted Subsidiaries or which customarily exist on properties of
corporations engaged in similar activities and similarly situated and
which do not in any event materially impair their use in the operation
of the business of the Company and its Restricted Subsidiaries;
(e) Liens securing Indebtedness of a Restricted
Subsidiary to the Company or to another Restricted Subsidiary;
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Penwest, Ltd. Note Agreement
(f) Liens existing as of the date of this Agreement and
reflected on Annex B to Exhibit B to this Agreement;
(g) Liens incurred after the Closing Date given to secure
the payment of the purchase price incurred in connection with the
acquisition of fixed assets useful and intended to be used in carrying
on the business of the Company or a Restricted Subsidiary, including
Liens existing on such fixed assets at the time of acquisition thereof
or at the time of acquisition by the Company or a Restricted
Subsidiary of any business entity then owning such fixed assets,
whether or not such existing Liens were given to secure the payment of
the purchase price of the fixed assets to which they attach so long as
they were not incurred, extended or renewed in contemplation of such
acquisition, provided that (i) the Lien shall attach solely to the
fixed assets acquired or purchased, (ii) at the time of acquisition of
such fixed assets, the aggregate amount remaining unpaid on all
Indebtedness secured by Liens on such fixed assets whether or not
assumed by the Company or a Restricted Subsidiary shall not exceed the
total purchase price at the time of acquisition of such fixed assets,
and (iii) all such Indebtedness shall have been incurred within the
applicable limitations provided in Section 5.7; and
(h) Liens not otherwise permitted by the foregoing
paragraphs (a) to (g), inclusive, of this Section 5.8 securing
Indebtedness of the Company and its Restricted Subsidiaries if, after
giving effect thereto and the application of any proceeds received by
the Company or its Restricted Subsidiary therefrom, such Indebtedness
shall have been incurred within the applicable limitations provided
in Section 5.7.
Section 5.9. Restricted Payments. The Company will not except
as hereinafter provided:
(a) Declare or pay any dividends, either in cash or
property, on any shares of its capital stock of any class (except
dividends or other distributions payable solely in shares of capital
stock of the Company);
(b) Directly or indirectly, or through any Subsidiary,
purchase, redeem or retire any shares of its capital stock of any
class or any warrants, rights or options to purchase or acquire any
shares of its capital stock (other than in exchange for or out of the
net cash proceeds to the Company from the substantially concurrent
issue or sale of other shares of capital stock of the Company or
warrants, rights or options to purchase or acquire any shares of its
capital stock); or
(c) Make any other payment or distribution, either
directly or indirectly or through any Subsidiary, in respect of its
capital stock;
(such declarations or payments of dividends, purchases, redemptions or
retirements of capital stock and warrants, rights or options and all such other
payments or distributions being herein collectively called "Restricted
Payments"), if after giving effect thereto any Event of Default shall have
occurred and be continuing or the aggregate amount of
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Penwest, Ltd. Note Agreement
Restricted Payments made during the period from and after May 31, 1992 to and
including the date of the making of the Restricted Payment in question, would
exceed the sum of (x) $6,500,000 plus (y) 75% of Consolidated Net Income for
such period, computed on a cumulative basis for said entire period (or if such
Consolidated Net Income is a deficit figure, then minus 100% of such deficit)
plus the net proceeds from the issuance or sale of common stock after May 31,
1992 other than proceeds from an issuance or sale of common stock described in
paragraph (b) of this Section 5.9; provided, that the foregoing limitations
shall not apply to any payment of dividends to the Company by a Subsidiary.
The Company will not declare any dividend which constitutes a
Restricted Payment payable more than 90 days after the date of declaration
thereof.
For the purposes of this Section 5.9, the amount of any Restricted
Payment declared, paid or distributed in property shall be deemed to be the
greater of the book value or fair market value (as determined in good faith by
the Board of Directors of the Company) of such property at the time of the
making of the Restricted Payment in question.
Section 5.10. Mergers, Consolidations and Sales of Assets. (a)
The Company will not, and will not permit any Restricted Subsidiary to, (i)
consolidate with or be a party to a merger with any other corporation or (ii)
sell, lease or otherwise dispose of all or any substantial part (as defined in
paragraph (d) of this Section 5.10) of the assets of the Company and its
Restricted Subsidiaries; provided, however, that:
(1) any Restricted Subsidiary may merge or consolidate
with or into the Company or any Restricted Subsidiary so long as in
any merger or consolidation involving the Company, the Company shall
be the surviving or continuing corporation;
(2) any Restricted Subsidiary may merge or consolidate
with any other corporation if the surviving or continuing corporation
(i) is a United States corporation and (ii) is a Restricted
Subsidiary;
(3) the Company may consolidate or merge with any other
corporation if (i) the surviving or continuing corporation is the
Company or if not, the surviving or continuing corporation (A) is a
United States corporation, (B) concurrently with the consummation of
such merger or consolidation assumes in writing all obligations of the
Company under the Note Agreement and the obligation to pay all
outstanding Notes and delivers a copy thereof to all holders of such
Notes, (ii) at the time of such consolidation or merger and after
giving effect thereto no Default or Event of Default shall have
occurred and be continuing, and (iii) after giving effect to such
consolidation or merger the Company or such other surviving or
continuing corporation, as the case may be, would be permitted to
incur at least $1.00 of additional Funded Debt under the provisions of
Section 5.7(A); and
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Penwest, Ltd. Note Agreement
(4) any Restricted Subsidiary may sell, lease, transfer
or otherwise dispose of all or any substantial part of its assets to
the Company or any other Restricted Subsidiary.
(b) The Company will not permit any Restricted Subsidiary to issue
or sell any shares of stock of any class (including as "stock" for the purposes
of this Section 5.10, any warrants, rights or options to purchase or otherwise
acquire stock or other Securities exchangeable for or convertible into stock)
of such Restricted Subsidiary to any Person other than the Company or a
Wholly-owned Restricted Subsidiary, except for the purpose of qualifying
directors, or except in satisfaction of the validly pre-existing preemptive
rights of minority shareholders in connection with the simultaneous issuance of
stock to the Company and/or a Restricted Subsidiary whereby the Company and/or
such Restricted Subsidiary maintain their same proportionate interest in such
Restricted Subsidiary.
(c) The Company will not sell, transfer or otherwise dispose of
any shares of stock of any Restricted Subsidiary (except to qualify directors)
or any Indebtedness of any Restricted Subsidiary, and will not permit any
Restricted Subsidiary to sell, transfer or otherwise dispose of (except to the
Company or a Wholly-owned Restricted Subsidiary) any shares of stock or any
Indebtedness of any other Restricted Subsidiary, unless:
(1) simultaneously with such sale, transfer, or
disposition, all shares of stock and all Indebtedness of such
Restricted Subsidiary at the time owned by the Company and by every
other Restricted Subsidiary shall be sold, transferred or disposed of
as an entirety;
(2) the Board of Directors of the Company shall have
determined, as evidenced by a resolution thereof, that the proposed
sale, transfer or disposition of said shares of stock and Indebtedness
is in the best interests of the Company;
(3) said shares of stock and Indebtedness are sold,
transferred or otherwise disposed of to a Person, and on terms
reasonably deemed by the Board of Directors to be adequate and
satisfactory;
(4) the Restricted Subsidiary being disposed of shall not
have any continuing investment in the Company or any other Restricted
Subsidiary not being simultaneously disposed of; and
(5) such sale or other disposition does not involve a
substantial part (as hereinafter defined) of the assets of the Company
and its Restricted Subsidiaries.
(d) As used in this Section 5.10, a sale, lease or other
disposition of assets shall be deemed to be a "substantial part" of the
assets of the Company and its Restricted Subsidiaries if the book value of such
assets, when added to the book value of all other assets sold, leased or
otherwise disposed of by the Company and its Restricted Subsidiaries (other
than in the ordinary course of business) during the 12-month period ending with
the date of such sale, lease or other disposition, exceeds 10% of Total Assets,
determined as of the end of the
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Penwest, Ltd. Note Agreement
immediately preceding fiscal year; provided, however, that assets shall not be
deemed to be sold, leased or otherwise disposed of for purposes of making the
computations required by the preceding provisions of this paragraph to the
extent that the proceeds therefrom shall, within 180 days of such sale, lease
or disposition thereof by the Company or its Restricted Subsidiary, as the case
may be, either (i) be used to purchase capital assets for use in the business
of the Company and its Restricted Subsidiaries, or (ii) applied to reduce
Indebtedness of the Company or its Restricted Subsidiaries.
Section 5.11. Guaranties. The Company will not, and will not
permit any Restricted Subsidiary to, become or be liable in respect of any
Guaranty except (i) Guaranties by the Company which are limited in amount to a
stated maximum dollar exposure; (ii) Guaranties which constitute Guaranties of
obligations incurred by any Restricted Subsidiary in compliance with the
provisions of this Agreement; or (iii) Guaranties of the Company and its
Restricted Subsidiaries existing as of the date of this Agreement and reflected
on Annex B to Exhibit B hereto.
Section 5.12. Repurchase of Notes. Neither the Company nor any
Restricted Subsidiary or Affiliate, directly or indirectly, may repurchase or
make any offer to repurchase any Notes unless an offer has been made to
repurchase Notes, pro rata, from all holders of the Notes at the same time and
upon the same terms. In case the Company repurchases or otherwise acquires any
Notes, such Notes shall immediately thereafter be cancelled and no Notes shall
be issued in substitution therefor. Without limiting the foregoing, upon the
repurchase or other acquisition of any Notes by the Company, any Restricted
Subsidiary or any Affiliate (or upon the agreement of the Company, any
Restricted Subsidiary or any Affiliate to purchase or otherwise acquire any
Notes), such Notes shall no longer be outstanding for purposes of any section
of this Agreement relating to the taking by the holders of the Notes of any
actions with respect hereto, including, without limitation, Section 6.3,
Section 6.4 and Section 7.1.
Section 5.13. Transactions with Affiliates. The Company will
not, and will not permit any Restricted Subsidiary to, enter into or be a party
to any transaction or arrangement with any Affiliate (including, without
limitation, the purchase from, sale to or exchange of property with, or the
rendering of any service by or for, any Affiliate), except in the ordinary
course of and pursuant to the reasonable requirements of the Company's or such
Restricted Subsidiary's business and upon fair and reasonable terms no less
favorable to the Company or such Restricted Subsidiary than would obtain in a
comparable arm's-length transaction with a Person other than an Affiliate.
Section 5.14. Multiemployer Plan Liability and Termination of
Pension Plans. The Company will not and will not permit any Restricted
Subsidiary to withdraw from any Multiemployer Plan if such withdrawal could
result in withdrawal liability (as described in Part 1 of Subtitle E of Title
IV of ERISA) which could materially and adversely affect the properties,
business, prospects, profits or condition (financial or otherwise) of the
Company and its Restricted Subsidiaries taken as a whole. The Company and any
Restricted Subsidiary will not permit any employee benefit plan maintained by
it to be terminated if
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Penwest, Ltd. Note Agreement
such termination could result in the imposition of a Lien on any property of
the Company or any Restricted Subsidiary pursuant to Section 4068 of ERISA.
Section 5.15. Reports and Rights of Inspection. The Company will
keep, and will cause each Restricted Subsidiary to keep, proper books of record
and account in which full and correct entries will be made of all dealings or
transactions of, or in relation to, the business and affairs of the Company or
such Restricted Subsidiary, in accordance with GAAP consistently applied
(except for changes disclosed in the financial statements furnished to you
pursuant to this Section 5.15 and concurred in by the independent public
accountants referred to in Section 5.15(b) hereof), and will furnish to you so
long as you are the holder of any Note and to each other Institutional Holder
of the then outstanding Notes (in duplicate if so specified below or otherwise
requested):
(a) Quarterly Statements. As soon as available and in
any event within 60 days after the end of each quarterly fiscal period
(except the last) of each fiscal year, copies of:
(1) consolidated balance sheets of the Company
and its Restricted Subsidiaries as of the close of such
quarterly fiscal period, setting forth in comparative form the
consolidated figures for the fiscal year then most recently
ended,
(2) consolidated statements of income of the
Company and its Restricted Subsidiaries for such quarterly
fiscal period and for the portion of the fiscal year ending
with such quarterly fiscal period, in each case setting forth
in comparative form the consolidated figures for the
corresponding periods of the preceding fiscal year, and
(3) consolidated and consolidating statements of
cash flows of the Company and its Restricted Subsidiaries for
the portion of the fiscal year ending with such quarterly
fiscal period, setting forth in comparative form the
consolidated figures for the corresponding period of the
preceding fiscal year,
all in reasonable detail and certified as complete and correct by an
authorized financial officer of the Company;
(b) Annual Statements. As soon as available and in any
event within 120 days after the close of each fiscal year of the
Company, copies of:
(1) consolidated balance sheets of the Company
and its Restricted Subsidiaries as of the close of such fiscal
year, and
(2) consolidated statements of income and
retained earnings and cash flows of the Company and its
Restricted Subsidiaries for such fiscal year,
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Penwest, Ltd. Note Agreement
in each case setting forth in comparative form the consolidated
figures for the preceding fiscal year, all in reasonable detail and
accompanied by a report thereon of a firm of independent public
accountants of recognized national standing selected by the Company to
the effect that the consolidated financial statements present fairly,
in all material respects, the consolidated financial position of the
Company and its Restricted Subsidiaries as of the end of the fiscal
year being reported on and the consolidated results of the operations
and cash flows for said year in conformity with GAAP and that the
examination of such accountants in connection with such financial
statements has been conducted in accordance with generally accepted
auditing standards and included such tests of the accounting records
and such other auditing procedures as said accountants deemed
necessary in the circumstances;
(c) Audit Reports. Promptly upon receipt thereof, one
copy of each interim or special audit made by independent accountants
of the books of the Company or any Restricted Subsidiary and upon
written request any annual management letter received from such
accountants;
(d) SEC and Other Reports. Promptly upon their becoming
available, one copy of each financial statement, report, notice or
proxy statement sent by the Company to stockholders generally and of
each regular or periodic report, and any registration statement or
prospectus filed by the Company or any Subsidiary with any securities
exchange or the Securities and Exchange Commission or any successor
agency;
(e) ERISA Reports. Promptly upon the occurrence thereof,
written notice of (i) a Reportable Event with respect to any Plan;
(ii) the institution of any steps by the Company, any ERISA Affiliate,
the PBGC or any other person to terminate any Plan in a distress
termination under Section 4041(c) of ERISA or an involuntary
termination under Section 4042 of ERISA; (iii) the institution of any
steps by the Company or any ERISA Affiliate to withdraw from any
Multiemployer Plan if such withdrawal could result in withdrawal
liability (as described in Part 1 of Subtitle E of Title IV of ERISA)
which could materially and adversely affect the properties, business,
prospects or condition (financial or otherwise) of the Company and its
Restricted Subsidiaries taken as a whole; (iv) a transaction which is
prohibited under Section 406 of ERISA and which is not exempt under
Section 408 of ERISA in connection with any Plan if such prohibited
transaction could result in liability which could materially and
adversely affect the properties, business, prospects or condition
(financial or otherwise) of the Company and its Restricted
Subsidiaries taken as a whole; (v) any material increase in the
contingent liability of the Company or any Restricted Subsidiary with
respect to any post-retirement welfare liability; or (vi) the
commencement or threatened (in writing) commencement of legal
proceedings by the Internal Revenue Service, the Department of Labor
or the PBGC with respect to any of the foregoing;
(f) Officer's Certificates. Within the periods provided
in paragraphs (a) and (b) above, a certificate of an authorized
financial officer of the Company stating that
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Penwest, Ltd. Note Agreement
such officer has reviewed the provisions of this Agreement and setting
forth: (i) the information and computations (in sufficient detail)
required in order to establish whether the Company was in compliance
with the requirements of Section 5.6 through Section 5.14 at the end
of the period covered by the financial statements then being
furnished, and (ii) whether there existed as of the date of such
financial statements and whether, to the best of such officer's
knowledge, there exists on the date of the certificate or existed at
any time during the period covered by such financial statements any
Default or Event of Default and, if any such condition or event exists
on the date of the certificate, specifying the nature and period of
existence thereof and the action the Company is taking and proposes to
take with respect thereto;
(g) Accountant's Certificates. Within the period
provided in paragraph (b) above, a certificate of the accountants who
render an opinion with respect to such financial statements, stating
that they have reviewed this Agreement and stating further whether, in
making their audit, such accountants have become aware of any Default
or Event of Default under any of the terms or provisions of this
Agreement insofar as any such terms or provisions pertain to or
involve accounting matters or determinations, and if any such
condition or event then exists, specifying the nature and period of
existence thereof; and
(h) Requested Information. With reasonable promptness,
such other data and information as you or any such Institutional
Holder may reasonably request.
Without limiting the foregoing, the Company will permit you, so long as you are
the holder of any Note, and each Institutional Holder of the then outstanding
Notes (or such Persons as either you or such Institutional Holder may
designate), to visit and inspect, under the Company's guidance, any of the
properties of the Company or any Restricted Subsidiary, to examine all of their
books of account, financial records, reports and other papers, to make copies
and extracts therefrom and to discuss their respective affairs, finances and
accounts with their respective officers, employees, and independent public
accountants (and by this provision the Company authorizes said accountants to
discuss with you the finances and affairs of the Company and its Restricted
Subsidiaries) all at such reasonable times and as often as may be reasonably
requested. You agree and any subsequent holder of any Note shall be deemed to
agree to keep confidential any information made available to you pursuant to
such a visit or inspection, provided that you may disclose any such information
(i) as may be appropriate in connection with enforcing compliance with the
terms and conditions of this Agreement or the Notes, (ii) as has become
generally available to the public, (iii) as may be required in any report,
statement or testimony submitted to or required by any municipal, state, or
Federal regulatory body, agency, authority or commission having or claiming to
have jurisdiction over you, (iv) as may be necessary in connection with the
sale of the Notes to any prospective bona fide purchaser, (v) to the National
Association of Insurance Commissioners (or any successor agency thereto), or
(vi) to any entity utilizing such information to rate or classify your debt or
equity Securities or to report to the public concerning the industry of which
you are a part.
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Penwest, Ltd. Note Agreement
SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR.
Section 6.1. Events of Default. Any one or more of the
following shall constitute an "Event of Default" as such term is used herein:
(a) Default shall occur in the payment of interest on any
Note when the same shall have become due and such default shall
continue for more than five Business Days; or
(b) Default shall occur in the making of any payment of
the principal of any Note or premium, if any, thereon at any date
fixed for prepayment; or
(c) Default shall occur in the making of any other
payment of the principal of any Note or premium, if any, thereon at
the expressed or any accelerated maturity date; or
(d) Default shall be made in the payment when due
(whether by lapse of time, by declaration, by call for redemption or
otherwise) of the principal of or interest on any Indebtedness (other
than the Notes) of the Company or any Restricted Subsidiary in an
aggregate amount in excess of $5,000,000 and such default shall
continue beyond the period of grace, if any, allowed with respect
thereto; or
(e) Default or the happening of any event shall occur
under any indenture, agreement or other instrument under which
Indebtedness of the Company or any Restricted Subsidiary may be issued
and such default or event shall continue for a period of time
sufficient to permit the acceleration of the maturity of any
Indebtedness of the Company or any Restricted Subsidiary outstanding
thereunder in an aggregate amount in excess of $5,000,000; or
(f) Default shall occur in the observance or performance
of any covenant or agreement contained in Section 5.5 through
Section 5.7 and Section 5.9 through Section 5.14; or
(g) Default shall occur in the observance or performance
of any other provision of this Agreement which is not remedied within
30 days after the earlier of (i) the day on which the Company first
obtains knowledge of such default, or (ii) the day on which written
notice thereof is given to the Company by the holder of any Note; or
(h) Any representation or warranty made by the Company
herein, or made by the Company in any statement or certificate
furnished by the Company in connection with the consummation of the
issuance and delivery of the Notes or furnished by the Company
pursuant hereto, is untrue in any material respect as of the date of
the issuance or making thereof; or
(i) Final judgment or judgments for the payment of money
aggregating in excess of $5,000,000 is or are outstanding against the
Company or any Restricted
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Penwest, Ltd. Note Agreement
Subsidiary or against any property or assets of either and any one of
such judgments has remained unpaid, unvacated, unbonded or unstayed by
appeal or otherwise for a period of 30 days from the date of its
entry; or
(j) A custodian, liquidator, trustee or receiver is
appointed for the Company or any Restricted Subsidiary or for the
major part of the property of either and is not discharged within 90
days after such appointment; or
(k) The Company or any Restricted Subsidiary becomes
insolvent or bankrupt, is generally not paying its debts as they
become due or makes an assignment for the benefit of creditors, or the
Company or any Restricted Subsidiary applies for or consents to the
appointment of a custodian, liquidator, trustee or receiver for the
Company or such Restricted Subsidiary or for the major part of the
property of either; or
(l) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors, are instituted by or
against the Company or any Restricted Subsidiary and, if instituted
against the Company or any Restricted Subsidiary, are consented to or
are not dismissed within 90 days after such institution.
Section 6.2. Notice to Holders. When any Event of Default
described in the foregoing Section 6.1 has occurred, or if the holder of any
Note or of any other evidence of Funded Debt or Current Debt of the Company
gives any notice or takes any other action with respect to a claimed default,
the Company agrees to give notice within three business days of such event to
all holders of the Notes then outstanding.
Section 6.3. Acceleration of Maturities. When any Event of
Default described in paragraph (a), (b) or (c) of Section 6.1 has happened and
is continuing, any holder of any Note may, and when any Event of Default
described in paragraphs (d) through (i), inclusive, of said Section 6.1 has
happened and is continuing, the holder or holders of 25% or more of the
principal amount of Notes of either Series at the time outstanding may, by
notice to the Company, declare the entire principal and all interest accrued on
all Notes to be, and all Notes shall thereupon become, forthwith due and
payable, without any presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived. When any Event of Default described
in paragraphs (j), (k) or (l) of Section 6.1 has occurred, then all outstanding
Notes shall immediately become due and payable without presentment, demand or
notice of any kind. Upon the Notes becoming due and payable as a result of any
Event of Default as aforesaid, the Company will forthwith pay to the holders of
the Notes the entire principal and interest accrued on the Notes and, to the
extent not prohibited by applicable law, an amount as liquidated damages for
the loss of the bargain evidenced hereby (and not as a penalty) equal to the
Make-Whole Amount, determined as of the date on which the Notes shall so become
due and payable. No course of dealing on the part of the holder or holders of
any Notes nor any delay or failure on the part of any holder of Notes to
exercise any right shall operate as a waiver of such right or otherwise
prejudice such holder's rights, powers and remedies. The Company further
agrees, to the extent permitted by law, to pay
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Penwest, Ltd. Note Agreement
to the holder or holders of the Notes all costs and expenses incurred by them
in the collection of any Notes upon any default hereunder or thereon, including
reasonable compensation to such holder's or holders' attorneys for all services
rendered in connection therewith.
Section 6.4. Rescission of Acceleration. The provisions of
Section 6.3 are subject to the condition that if the principal of and accrued
interest on all or any outstanding Notes have been declared immediately due
and payable by reason of the occurrence of any Event of Default described in
paragraphs (a) through (i), inclusive, of Section 6.1, the holders of 66-2/3%
in aggregate principal amount of the Notes of each Series then outstanding
may, by written instrument filed with the Company, rescind and annul such
declaration and the consequences thereof, provided that at the time such
declaration is annulled and rescinded:
(a) no judgment or decree has been entered for the
payment of any monies due pursuant to the Notes or this Agreement;
(b) all arrears of interest upon all the Notes and all
other sums payable under the Notes and under this Agreement (except
any principal, interest or premium on the Notes which has become due
and payable solely by reason of such declaration under Section 6.3)
shall have been duly paid; and
(c) each and every other Default and Event of Default
shall have been made good, cured or waived pursuant to Section 7.1;
and provided further, that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right
consequent thereto.
SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS.
Section 7.1. Consent Required. Any term, covenant, agreement or
condition of this Agreement may, with the consent of the Company, be amended or
compliance therewith may be waived (either generally or in a particular
instance and either retroactively or prospectively), if the Company shall have
obtained the consent in writing of the holders of more than 50% in aggregate
principal amount of outstanding Notes of each Series; provided that without the
written consent of the holders of all of the Notes then outstanding, no such
amendment or waiver shall be effective (i) which will change the time of
payment of the principal of or the interest on any Note or change the principal
amount thereof or change the rate of interest thereon, or (ii) which will
change any of the provisions with respect to optional prepayments, or (iii)
which will change the percentage of holders of the Notes required to consent to
any such amendment or waiver of any of the provisions of this Section 7 or
Section 6.
Section 7.2. Solicitation of Holders. So long as there are any
Notes outstanding, the Company will not solicit, request or negotiate for or
with respect to any proposed waiver or amendment of any of the provisions of
this Agreement or the Notes unless each holder of Notes (irrespective of the
amount of Notes then owned by it) shall be informed thereof by
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Penwest, Ltd. Note Agreement
the Company and shall be afforded the opportunity of considering the same and
shall be supplied by the Company with sufficient information to enable it to
make an informed decision with respect thereto. The Company will not, directly
or indirectly, pay or cause to be paid any remuneration, whether by way of
supplemental or additional interest, fee or otherwise, to any holder of Notes
as consideration for or as an inducement to entering into by any holder of
Notes of any waiver or amendment of any of the terms and provisions of this
Agreement or the Notes unless such remuneration is concurrently offered, on the
same terms, ratably to the holders of all Notes then outstanding.
Section 7.3. Effect of Amendment or Waiver. Any such amendment
or waiver shall apply equally to all of the holders of the Notes and shall be
binding upon them, upon each future holder of any Note and upon the Company,
whether or not such Note shall have been marked to indicate such amendment or
waiver. No such amendment or waiver shall extend to or affect any obligation
not expressly amended or waived or impair any right consequent thereon.
SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS.
Section 8.1. Definitions. Unless the context otherwise
requires, the terms hereinafter set forth when used herein shall have the
following meanings and the following definitions shall be equally applicable to
both the singular and plural forms of any of the terms herein defined:
"Accredited Investor" shall have the meaning set forth in Rule 501(a)
of Regulation D as promulgated by the Securities and Exchange Commission under
the Securities Act of 1933, as amended.
"Affiliate" shall mean any Person (other than a Restricted Subsidiary)
(i) which directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, the Company, (ii) which
beneficially owns or holds 5% or more of any class of the Voting Stock of the
Company, (iii) 5% or more of the Voting Stock (or in the case of a Person which
is not a corporation, 5% or more of the equity interest) of which is
beneficially owned or held by the Company or a Subsidiary, or (iv) who is an
officer or director of the Company or any of its Restricted Subsidiaries. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of Voting Stock, by contract or otherwise.
"Business Day" shall mean any day other than a Saturday, Sunday or a
legal holiday for banks in the States of Washington or Iowa.
"Capitalized Lease" shall mean any lease the obligation for Rentals
with respect to which is required to be capitalized on a consolidated balance
sheet of the lessee and its subsidiaries in accordance with GAAP.
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Penwest, Ltd. Note Agreement
"Capitalized Rentals" of any Person shall mean as of the date of any
determination thereof the amount at which the aggregate Rentals due and to
become due under all Capitalized Leases under which such Person is a lessee
would be reflected as a liability on a consolidated balance sheet of such
Person.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Consolidated Current Debt" shall mean all Current Debt of the Company
and its Restricted Subsidiaries, determined on a consolidated basis eliminating
intercompany items.
"Consolidated Funded Debt" shall mean all Funded Debt of the Company
and its Restricted Subsidiaries, determined on a consolidated basis eliminating
intercompany items.
"Consolidated Net Income" for any period shall mean the gross revenues
of the Company and its Restricted Subsidiaries for such period less all
expenses and other proper charges (including taxes on income), determined on a
consolidated basis after eliminating earnings or losses attributable to
outstanding Minority Interests, but excluding in any event:
(a) any gains or losses on the sale or other disposition
of Investments or fixed or capital assets, and any taxes on such
excluded gains and any tax deductions or credits on account of any
such excluded losses;
(b) the proceeds of any life insurance policy;
(c) net earnings and losses of any Restricted Subsidiary
accrued prior to the date it became a Restricted Subsidiary;
(d) net earnings and losses of any corporation (other
than a Restricted Subsidiary), substantially all the assets of which
have been acquired in any manner by the Company or any Restricted
Subsidiary, realized by such corporation prior to the date of such
acquisition;
(e) net earnings and losses of any corporation (other
than a Restricted Subsidiary) with which the Company or a Restricted
Subsidiary shall have consolidated or which shall have merged into or
with the Company or a Restricted Subsidiary prior to the date of such
consolidation or merger;
(f) net earnings of any business entity (other than a
Restricted Subsidiary) in which the Company or any Restricted
Subsidiary has an ownership interest unless such net earnings shall
have actually been received by the Company or such Restricted
Subsidiary in the form of cash distributions;
(g) any portion of the net earnings of any Restricted
Subsidiary which for any reason is unavailable for payment of
dividends to the Company or any other Restricted Subsidiary;
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Penwest, Ltd. Note Agreement
(h) earnings resulting from any reappraisal, revaluation
or write-up of assets;
(i) any deferred or other credit representing any excess
of the equity in any Subsidiary at the date of acquisition thereof
over the amount invested in such Subsidiary;
(j) any gain arising from the acquisition of any
Securities of the Company or any Restricted Subsidiary; and
(k) any reversal of any contingency reserve, except to
the extent that provision for such contingency reserve shall have been
made from income arising during such period.
"Consolidated Net Worth" shall mean the sum of Stockholders' Equity
and the amount, if any, reflected on the current balance sheets of the Company
as a liability for FASB 106, less the amount, if any, by which Restricted
Investments exceed 10% of Stockholders' Equity.
"Current Debt" of any Person shall mean as of the date of any
determination thereof (i) all Indebtedness of such Person for borrowed money
other than Funded Debt of such Person and (ii) Guaranties by such Person of
Current Debt of others.
"Default" shall mean any event or condition the occurrence of which
would, with the lapse of time or the giving of notice, or both, constitute an
Event of Default.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, together with
the regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA shall be construed to also refer to any
successor sections.
"ERISA Affiliate" shall mean any corporation, trade or business that
is, along with the Company, a member of a controlled group of corporations or a
controlled group of trades or businesses, as described in section 414(b) and
414(c), respectively, of the Code or Section 4001 of ERISA.
"Event of Default" shall have the meaning set forth in Section 6.1.
"Funded Debt" of any Person shall mean all Indebtedness of such Person
in each case having a final maturity of one or more than one year from the date
of origin thereof (or which is renewable or extendible at the option of the
obligor for a period or periods more than one year from the date of origin),
including all payments in respect thereof that are required to be made within
one year from the date of any determination of Funded Debt, whether or not
the obligation to make such payments shall constitute a current liability
of the obligor under GAAP.
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Penwest, Ltd. Note Agreement
"GAAP" shall mean generally accepted accounting principles at the time
in the United States.
"Guaranties" by any Person shall mean all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing, or in effect guaranteeing,
any Indebtedness, dividend or other obligation of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, all obligations incurred through an agreement, contingent
or otherwise, by such Person: (i) to purchase such Indebtedness or obligation
or any property or assets constituting security therefor, (ii) to advance or
supply funds (x) for the purchase or payment of such Indebtedness or
obligation, (y) to maintain working capital or other balance sheet condition or
otherwise to advance or make available funds for the purchase or payment of
such Indebtedness or obligation, (iii) to lease property or to purchase
Securities or other property or services primarily for the purpose of assuring
the owner of such Indebtedness or obligation of the ability of the primary
obligor to make payment of the Indebtedness or obligation, or (iv) otherwise to
assure the owner of the Indebtedness or obligation of the primary obligor
against loss in respect thereof. For the purposes of all computations made
under this Agreement, a Guaranty in respect of any Indebtedness for borrowed
money shall be deemed to be Indebtedness equal to the principal amount of such
Indebtedness for borrowed money which has been guaranteed, and a Guaranty in
respect of any other obligation or liability or any dividend shall be deemed to
be Indebtedness equal to the maximum aggregate amount of such obligation,
liability or dividend.
"Indebtedness" of any Person shall mean and include (i) obligations of
such Person for borrowed money or which has been incurred in connection with
the acquisition of property or assets, (ii) obligations secured by any Lien
upon property or assets owned by such Person, even though such Person has not
assumed or become liable for the payment of such obligations, (iii) obligations
created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person, notwithstanding the
fact that the rights and remedies of the seller, lender or lessor under such
agreement in the event of default are limited to repossession or sale of
property, (iv) Capitalized Rentals and (v) Guaranties of obligations of others
of the character referred to in this definition.
"Institutional Holder" shall mean any insurance company, bank, savings
and loan association, trust company, investment company, charitable foundation,
employee benefit plan (as defined in ERISA) or other institutional investor or
financial institution.
"Investments" shall mean all investments, in cash or by delivery of
property made, directly or indirectly in any Person, whether by acquisition of
shares of capital stock, indebtedness or other obligations or Securities or by
loan, advance, capital contribution or otherwise; provided, however, that
"Investments" shall not mean or include routine investments in property to be
used or consumed in the ordinary course of business.
"Lien" shall mean any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the property, whether such
interest is based on the
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Penwest, Ltd. Note Agreement
common law, statute or contract, and including but not limited to the security
interest lien arising from a mortgage, encumbrance, pledge, conditional sale or
trust receipt or a lease, consignment or bailment for security purposes. The
term "Lien" shall include reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases and other title
exceptions and encumbrances (including, with respect to stock, stockholder
agreements, voting trust agreements, buy-back agreements and all similar
arrangements) affecting property. For the purposes of this Agreement, the
Company or a Restricted Subsidiary shall be deemed to be the owner of any
property which it has acquired or holds subject to a conditional sale
agreement, Capitalized Lease or other arrangement pursuant to which title to
the property has been retained by or vested in some other Person for security
purposes and such retention or vesting shall constitute a Lien.
"Make-Whole Amount" shall mean in connection with any prepayment or
acceleration of the Notes of any Series the excess, if any, of (i) the
aggregate present value as of the date of such prepayment of each dollar of
principal being prepaid and the amount of interest (exclusive of interest
accrued to the date of prepayment) that would have been payable in respect of
such dollar if such prepayment had not been made, determined by discounting
such amounts at the Reinvestment Rate from the respective dates on which they
would have been payable, over (ii) 100% of the principal amount of the
outstanding Notes of such Series being prepaid. If the Reinvestment Rate is
equal to or higher than 7.59%, with respect to the Series A Notes or 8.35%,
with respect to the Series B Notes, the Make-Whole Amount shall be zero. For
purposes of any determination of the Make-Whole Amount:
As to the Notes of either Series, "Reinvestment Rate" shall
mean 0.50% plus the arithmetic mean of the yields for the two columns
under the heading "Week Ending" published in the Statistical Release
under the caption "Treasury Constant Maturities" for the maturity
(rounded to the nearest month) corresponding to the Weighted Average
Life to Maturity of the principal of the Notes of such Series being
prepaid. If no maturity exactly corresponds to such Weighted Average
Life to Maturity, yields for the two published maturities most closely
corresponding to such Weighted Average Life to Maturity shall be
calculated pursuant to the immediately preceding sentence and the
Reinvestment Rate shall be interpolated or extrapolated from such
yields on a straight-line basis, rounding in each of such relevant
periods to the nearest month. For the purposes of calculating the
Reinvestment Rate, the most recent Statistical Release published prior
to the date of determination of the Make-Whole Amount shall be used.
"Statistical Release" shall mean the then most recently
published statistical release designated "H.15(519)" or any successor
publication which is published weekly by the Federal Reserve System
and which establishes yields on actively traded U.S. Government
Securities adjusted to constant maturities or, if such statistical
release is not published at the time of any determination hereunder,
then such other reasonably comparable index which shall be designated
by the holders of 66-2/3% in aggregate principal amount of the
outstanding Notes.
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<PAGE> 29
Penwest, Ltd. Note Agreement
"Weighted Average Life to Maturity" of the principal amount of
the Notes of either Series being prepaid shall mean, as of the time of
any determination thereof, the number of years obtained by dividing
the then Remaining Dollar-Years of such principal by the aggregate
amount of such principal. The term "Remaining Dollar-Years" of such
principal shall mean the amount obtained by (i) multiplying (x) the
remainder of (1) the amount of principal of the Notes of such Series
that would have become due on each scheduled payment date if such
prepayment had not been made, less (2) the amount of principal on the
Notes of such Series scheduled to become due on such date after giving
effect to such prepayment, by (y) the number of years (calculated to
the nearest one-twelfth) which will elapse between the date of
determination and such scheduled payment date, and (ii) totalling the
products obtained in (i).
"Minority Interests" shall mean any shares of stock of any class of a
Restricted Subsidiary (other than directors' qualifying shares as required by
law) that are not owned by the Company and/or one or more of its Restricted
Subsidiaries. Minority Interests shall be valued by valuing Minority Interests
constituting preferred stock at the voluntary or involuntary liquidating value
of such preferred stock, whichever is greater, and by valuing Minority
Interests constituting common stock at the book value of capital and surplus
applicable thereto adjusted, if necessary, to reflect any changes from the book
value of such common stock required by the foregoing method of valuing Minority
Interests in preferred stock.
"Multiemployer Plan" shall have the same meaning as in ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, and a government or agency or political
subdivision thereof.
"Plan" means a "pension plan," as such term is defined in Section
3(2)(A) of ERISA, which is a defined benefit plan, established or maintained by
the Company or any ERISA Affiliate or as to which the Company or any ERISA
Affiliate contributed or is a member or otherwise may have any liability.
"Purchasers" shall have the meaning set forth in Section 1.1.
"Rentals" shall mean and include as of the date of any determination
thereof all fixed payments (including as such all payments which the lessee is
obligated to make to the lessor on termination of the lease or surrender of the
property) payable by the Company or a Restricted Subsidiary, as lessee or
sublessee under a lease of real or personal property, but shall be exclusive of
any amounts required to be paid by the Company or a Restricted Subsidiary
(whether or not designated as rents or additional rents) on account of
maintenance, repairs, insurance, taxes and similar charges. Fixed rents under
any so-called
-25-
<PAGE> 30
Penwest, Ltd. Note Agreement
"percentage leases" shall be computed solely on the basis of the minimum rents,
if any, required to be paid by the lessee regardless of sales volume or gross
revenues.
"Reportable Event" shall have the same meaning as in Section 4043(b)
of ERISA other than a Reportable Event as to which the provision of 30 days'
notice to the PBGC is waived under applicable regulations; provided, however,
that the loss of qualification of a Plan and the failure to meet the minimum
funding standard of Section 412 of the Code or Section 302 of ERISA shall
constitute a Reportable Event regardless of the issuance of any waiver of the
reporting requirement by the PBGC.
"Restricted Investments" shall mean all Investments other than
Investments described in the following subparagraphs (a) through (g):
(a) Investments by the Company and its Subsidiaries in
property to be used in, and receivables arising from the sale of goods
and services in, the ordinary course of business of the Company and
its Restricted Subsidiaries;
(b) Investments by the Company and its Restricted
Subsidiaries in and to Restricted Subsidiaries, including any
Investment in a corporation which, after giving effect to such
Investment, will become a Restricted Subsidiary;
(c) Investments in direct obligations of the United
States of America or any agency or instrumentality of the United
States of America, the payment or guarantee of which constitutes a
full faith and credit obligation of the United States of America, in
either case, maturing in three years or less from the date of
acquisition thereof;
(d) Investments in securities maturing within three years
from the date of acquisition thereof, issued by a municipality located
in the United States which are, at the time of acquisition thereof by
the Company or a Restricted Subsidiary, accorded one of the top two
rating classifications by Standard & Poor's Corporation, Moody's
Investors Service, Inc. or other nationally recognized credit rating
agency of similar standing;
(e) Investments in certificates of deposit or banker's
acceptances maturing within one year from the date of issuance
thereof, issued by a bank or trust company organized under the laws of
either the United States, Canada, Japan or a country located in
Western Europe and having capital, surplus and undivided profits
aggregating at least $100,000,000;
(f) Investments in commercial paper maturing in 270 days
or less from the date of issuance which, at the time of acquisition by
the Company or any Restricted Subsidiary, is accorded one of the top
two rating classifications of Standard & Poor's Corporation, Moody's
Investors Service, Inc. or other nationally recognized credit rating
agency of similar standing; and
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<PAGE> 31
Penwest, Ltd. Note Agreement
(g) other Investments of the Company and/or its
Restricted Subsidiaries existing as of the date of this Agreement
which are described in Annex B to Exhibit B to this Agreement.
In valuing any Investments for the purposes of this Agreement, such
Investments shall be taken at the original cost thereof, without allowance for
any subsequent write-offs or appreciation or depreciation therein, but less any
amount repaid or recovered on account of capital or principal.
For purposes of this definition, at any time when a corporation
becomes a Restricted Subsidiary, all Investments of such corporation at such
time shall be deemed to have been made by such corporation, as a Restricted
Subsidiary, at such time.
"Restricted Subsidiary" shall mean any Subsidiary other than Pacific
Cogeneration, Inc. (i) which is organized under the laws of the United States
or any State thereof; (ii) which conducts substantially all of its business and
has substantially all of its assets within the United States; and (iii) of
which more than 80% (by number of votes) of the Voting Stock is beneficially
owned, directly or indirectly, by the Company.
"Security" shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
"Series" shall have the meaning set forth in Section 1.1.
"Series A Notes" shall have the meaning set forth in Section 1.1(A).
"Series B Notes" shall have the meaning set forth in Section 1.1(B).
"Stockholders' Equity" shall mean the sum of capital stock, premium
(exclusive of any premium arising by virtue of any appraisal or revaluation of
any assets) and retained earnings of the Company.
The term "subsidiary" shall mean as to any particular parent
corporation any corporation of which more than 50% (by number of votes) of the
Voting Stock shall be beneficially owned, directly or indirectly, by such
parent corporation. The term "Subsidiary" shall mean a subsidiary of the
Company.
"Total Assets" shall mean as of the date of any determination thereof
the total amount of all assets of the Company and its Restricted Subsidiaries
(less depreciation, depletion and other properly deductible valuation
reserves).
"Total Capitalization" shall mean as of any date of determination
thereof, the sum of (i) the aggregate principal amount of all Consolidated
Funded Debt and Consolidated Current Debt then outstanding plus (ii)
Consolidated Net Worth as of such date.
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<PAGE> 32
Penwest, Ltd. Note Agreement
"Voting Stock" shall mean Securities of any class or classes, the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
"Wholly-owned" when used in connection with any Subsidiary shall mean
a Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares) and all Funded Debt and
Current Debt shall be owned by the Company and/or one or more of its
Wholly-owned Subsidiaries.
Section 8.2. Accounting Principles. Where the character or
amount of any asset or liability or item of income or expense is required to be
determined or any consolidation or other accounting computation is required to
be made for the purposes of this Agreement, the same shall be done in
accordance with GAAP, to the extent applicable, except where such principles
are inconsistent with the requirements of this Agreement.
Section 8.3. Directly or Indirectly. Where any provision in
this Agreement refers to action to be taken by any Person, or which such Person
is prohibited from taking, such provision shall be applicable whether the
action in question is taken directly or indirectly by such Person.
SECTION 9. MISCELLANEOUS.
Section 9.1. Registered Notes. The Company shall cause to be
kept at its principal office a register for the registration and transfer of
the Notes (hereinafter called the "Note Register") and the Company will
register or transfer or cause to be registered or transferred as hereinafter
provided any Note issued pursuant to this Agreement.
At any time and from time to time the registered holder of any Note
which has been duly registered as hereinabove provided may transfer such Note
upon surrender thereof at the principal office of the Company duly endorsed or
accompanied by a written instrument of transfer duly executed by the registered
holder of such Note or its attorney duly authorized in writing.
The Person in whose name (or in whose nominee's name) any registered
Note shall be registered shall be deemed and treated as the owner and holder
thereof for all purposes of this Agreement. Payment of or on account of the
principal, premium, if any, and interest on any registered Note shall be made
to or upon the written order of such Person.
Section 9.2. Exchange of Notes. At any time and from time to
time, upon not less than ten days' notice to that effect given by the holder of
any Note initially delivered or of any Note substituted therefor pursuant to
Section 9.1, this Section 9.2 or Section 9.3, and, upon surrender of such Note
at its office, the Company will deliver in exchange therefor, without expense
to such holder, except as set forth below, a Note for the same aggregate
principal amount as the then unpaid principal amount of the Note so
surrendered, or Notes in the denomination of $50,000 or any amount in excess
thereof as such holder shall specify, dated as of the date to which interest
has been paid on the Note so surrendered or, if such surrender is prior to the
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<PAGE> 33
Penwest, Ltd. Note Agreement
payment of any interest thereon, then dated as of the date of issue, registered
in the name of such Person or Persons as may be designated by such holder, and
otherwise of the same form and tenor as the Notes so surrendered for exchange.
The Company may require the payment of a sum sufficient to cover any stamp tax
or governmental charge imposed upon such exchange or transfer. For a period of
three years after the Closing Date, the Company may require representations, an
opinion of counsel or other documentation reasonable to verify that any
transfer of a Note is not in violation of the registration requirements of the
Securities Act of 1933, as amended or similar state securities laws; provided
that the Company shall reimburse or pay directly any out-of-pocket expenses
incurred by any Holder of a Note in connection with the compliance by such
Holder with the requirements of this sentence.
Section 9.3. Loss, Theft, Etc. of Notes. Upon receipt of
evidence satisfactory to the Company of the loss, theft, mutilation or
destruction of any Note, and in the case of any such loss, theft or destruction
upon delivery of a bond of indemnity in such form and amount as shall be
reasonably satisfactory to the Company, or in the event of such mutilation upon
surrender and cancellation of the Note, the Company will make and deliver
without expense to the holder thereof, a new Note, of like tenor, in lieu of
such lost, stolen, destroyed or mutilated Note. If the Purchaser or any
subsequent Institutional Holder is the owner of any such lost, stolen or
destroyed Note, then the affidavit of an authorized officer of such owner
setting forth the fact of loss, theft or destruction and of its ownership of
such Note at the time of such loss, theft or destruction shall be accepted as
satisfactory evidence thereof and no further indemnity shall be required as a
condition to the execution and delivery of a new Note other than the written
agreement of such owner to indemnify the Company; provided, that upon request
by the Company such owner shall verify the authority of any such authorized
officer by the delivery to the Company of a certificate to such effect from
senior officials of such owner who have supervisory responsibility of such
officer.
Section 9.4. Expenses, Stamp Tax Indemnity. Whether or not the
transactions herein contemplated shall be consummated, the Company agrees to
pay directly all of your out-of-pocket expenses in connection with the
preparation, execution and delivery of this Agreement and the transactions
contemplated hereby, including but not limited to the reasonable charges and
disbursements of Chapman and Cutler, your special counsel, duplicating and
printing costs and charges for shipping the Notes, adequately insured to you at
your home office or at such other place as you may designate, and all such
expenses relating to any amendment, waivers or consents pursuant to the
provisions hereof, including, without limitation, any amendments, waivers, or
consents resulting from any work-out, renegotiation or restructuring relating
to the performance by the Company of its obligations under this Agreement and
the Notes. The Company also agrees that it will pay and save you harmless
against any and all liability with respect to stamp and other taxes, if any,
which may be payable or which may be determined to be payable in connection
with the execution and delivery of this Agreement or the Notes, whether or not
any Notes are then outstanding. The Company agrees to protect and indemnify
you against any liability for any and all brokerage fees and commissions
payable or claimed to be payable to any Person in connection with the
transactions contemplated by this Agreement. You represent that you
-29-
<PAGE> 34
Penwest, Ltd. Note Agreement
have not engaged any broker or finder in connection with the negotiation,
execution or delivery of this Agreement.
Section 9.5 Powers and Rights Not Waived; Remedies Cumulative.
No delay or failure on the part of the holder of any Note in the exercise of
any power or right shall operate as a waiver thereof; nor shall any single or
partial exercise of the same preclude any other or further exercise thereof, or
the exercise of any other power or right, and the rights and remedies of the
holder of any Note are cumulative to, and are not exclusive of, any rights or
remedies any such holder would otherwise have.
Section 9.6. Notices. All communications provided for hereunder
shall be in writing and, if to you, delivered or mailed prepaid by registered
or certified mail or overnight air courier, or by facsimile communication, in
each case addressed to you at your address appearing on Schedule I to this
Agreement or such other address as you or the subsequent holder of any Note
initially issued to you may designate to the Company in writing, and if to the
Company, delivered or mailed by registered or certified mail or overnight air
courier, or by facsimile communication, to the Company at 777-108th Avenue
N.E., Suite 2390, Bellevue, Washington 98004-5193, Attention: Jeffrey T. Cook
or to such other address as the Company may in writing designate to you or to a
subsequent holder of the Note initially issued to you; provided, however, that
a notice to you by overnight air courier shall only be effective if delivered
to you at a street address designated for such purpose in Schedule I, and a
notice to you by facsimile communication shall only be effective if made by
confirmed transmission to you at a telephone number designated for such purpose
in Schedule I, or, in either case, as you or a subsequent holder of any Note
initially issued to you may designate to the Company in writing.
Section 9.7. Successors and Assigns. This Agreement shall be
binding upon the Company and its successors and assigns and shall inure to your
benefit and to the benefit of your successors and assigns, including each
successive holder or holders of any Notes.
Section 9.8. Survival of Covenants and Representations. All
covenants, representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto, whether or not in connection with the
Closing Date, shall survive the closing and the delivery of this Agreement and
the Notes.
Section 9.9. Severability. Should any part of this Agreement
for any reason be declared invalid or unenforceable, such decision shall not
affect the validity or enforceability of any remaining portion, which remaining
portion shall remain in force and effect as if this Agreement had been executed
with the invalid or unenforceable portion thereof eliminated and it is hereby
declared the intention of the parties hereto that they would have executed the
remaining portion of this Agreement without including therein any such part,
parts or portion which may, for any reason, be hereafter declared invalid or
unenforceable.
Section 9.10. Governing Law. This Agreement and the Notes issued
and sold hereunder shall be governed by and construed in accordance with
Washington law.
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<PAGE> 35
Penwest, Ltd. Note Agreement
Section 9.11. Captions. The descriptive headings of the various
Sections or parts of this Agreement are for convenience only and shall not
affect the meaning or construction of any of the provisions hereof.
Section 9.12. Oral Agreements. Oral agreements or oral
commitments to loan money, extend credit, or to forbear from enforcing
repayment of a debt are not enforceable under Washington law.
-31-
<PAGE> 36
Penwest, Ltd. Note Agreement
The execution hereof by you shall constitute a contract between us for
the uses and purposes hereinabove set forth, and this Agreement may be executed
in any number of counterparts, each executed counterpart constituting an
original but all together only one agreement.
PENWEST, LTD.
By /s/ Jeffrey T. Cook
-------------------------------------
Its Chief Financial Officer
TMG LIFE INSURANCE COMPANY
By
-------------------------------------
Its
Accepted as of October 1, 1994
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<PAGE> 37
Penwest, Ltd. Note Agreement
The execution hereof by you shall constitute a contract between us for
the uses and purposes hereinabove set forth, and this Agreement may be executed
in any number of counterparts, each executed counterpart constituting an
original but all together only one agreement.
PENWEST, LTD.
By
------------------------------------------
Its
TMG LIFE INSURANCE COMPANY
By: The Mutual Group (U.S.), Inc.; Its Agent
By /s/ Robert Lapointe
------------------------------------------
Its Vice President
TMG LIFE INSURANCE COMPANY
By: The Mutual Group (U.S.), Inc.; Its Agent
By /s/ Michael J. Carew
------------------------------------------
Its Assistant Vice President
Accepted as of October 1, 1994.
-32-
<PAGE> 38
SCHEDULE I
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
NAME AND ADDRESS OF SERIES A NOTES TO BE OF SERIES B NOTES TO BE
OF PURCHASERS PURCHASED PURCHASED
<S> <C> <C>
PRINCIPAL MUTUAL
LIFE INSURANCE COMPANY $8,500,000(1) $8,500,000(2)
</TABLE>
711 High Street
Des Moines, Iowa 50392-0800
Attention: Investment Department -- Securities Division
Regarding Bond No. 1-B-60161 (with respect to the $6,800,000 Series A Note)
Regarding Bond No. 16-B-60161 (with respect to the $1,700,000 Series A Note)
Regarding Bond No. 1-B-60162 (with respect to the $4,500,000 Series B Note)
Regarding Bond No. 16-B-60162 (with respect to the $4,000,000 Series B Note)
Telefacsimile: (515) 248-2490
Confirmation: (515) 248-3495
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment with
respect to the Series A Notes as "Penwest, Ltd., 7.59% Series A Senior Notes
due December 15, 1998, PPN 709752 A* 0, Bond Number 1-B-60161 (with respect to
the $6,800,000 Series A Note) and Bond Number 16-B-60161 (with respect to the
$1,700,000 Series A Note) principal, premium or interest" and identifying each
payment with respect to the Series B Notes as "Penwest, Ltd., 8.35% Series B
Senior Notes due December 15, 2006, PPN 709752 A@ 8, Bond Number 1-B-60162
(with respect to the $4,500,000 Series B Note) and Bond Number 16-B-60162 (with
respect to the $4,000,000 Series B Note) principal, premium or interest") to:
Norwest Bank Iowa, N.A.
7th and Walnut Streets
Des Moines, Iowa 50309
ABA #073 000 228
for credit to: Principal Mutual Life Insurance Company
Account No. 014752 (with respect to the $6,800,000 Series A Note
and the $4,500,000 Series B Note)
Separate Account No. 032395 (with respect to the $1,700,000 Series A
Note and the $4,000,000 Series B Note)
Notices
_______________
1 In two Notes denominated as follows: (i) $6,800,000 and (ii) $1,700,000
2 In two Notes denominated as follows: (i) $4,500,000 and (ii) $4,000,000
I-1
<PAGE> 39
All notices concerning payment on or in respect of the Notes, to:
Principal Mutual Life Insurance Company
711 High Street
Des Moines, Iowa 50392-0960
Attention: Investment Department, Accounting & Treasury
All notices and communications other than those in respect to payments to
be addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 42-012-7290
I-2
<PAGE> 40
SCHEDULE I
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
NAME AND ADDRESS OF SERIES A NOTES TO BE OF SERIES B NOTES TO BE
OF PURCHASERS PURCHASED PURCHASED
<S> <C> <C>
TMG LIFE INSURANCE COMPANY $1,500,000 $1,500,000
</TABLE>
401 North Executive Drive
Brookfield, Wisconsin 53008-0980
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment with
respect to the Series A Notes as "Penwest, Ltd., 7.59% Series A Senior Notes
due December 15, 1998, PPN 709752 A* 0, principal, premium or interest" and
identifying each payment with respect to the Series B Notes as "Penwest, Ltd.,
8.35% Series B Senior Notes due December 15, 2006, PPN 709752 A@ 8, principal,
premium or interest") to:
Federal Reserve Bank Minneapolis
Norwest Bank MN/Trust
ABA #091000019
Credit Account Number: 08-40-245
For credit to: TMG Life UL Bank Plan
Account Number 13075700
Contact: Michael Eiynck
Notices
All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed to:
Lisa Harris
The Mutual Group (U.S.)
401 North Executive Drive
Brookfield, Wisconsin 53008-0980
Telephone Number: (414) 797-2305
Facsimile Number: (414) 797-3988
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 45-0208990
I-3
<PAGE> 41
PENWEST, LTD.
7.59% Series A Senior Note
Due December 15, 1998
No.
_________, 19__
$
Penwest, Ltd., a Delaware corporation (the "Company"), for value
received, hereby promises to pay to
or registered assigns
on the fifteenth day of December, 1998
the principal amount of
DOLLARS ($____________)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at
the rate of 7.59% per annum from the date hereof until maturity, payable
semiannually on the fifteenth day of each June and December in each year
(commencing on June 15, 1995) and at maturity. The Company agrees to pay
interest on overdue principal (including any overdue required or optional
prepayment of principal) and premium, if any, and (to the extent legally
enforceable) on any overdue installment of interest, at the rate of 9.59% per
annum after the due date, whether by acceleration or otherwise, until paid.
Both the principal hereof and interest hereon are payable at the principal
office of the Company in Bellevue, Washington in coin or currency of the United
States of America which at the time of payment shall be legal tender for the
payment of public and private debts.
This Note is one of the Company's $10,000,000 aggregate principal
amount 7.59% Series A Senior Notes due December 15, 1998 (the "Series A Notes")
issued or to be issued, together with the Company's $10,000,000 aggregate
principal amount 8.35% Series B Senior Notes due December 15, 2006 (the "Series
B Notes", said Series B Notes together with the Series A Notes are hereinafter
referred to collectively as the "Notes") under and pursuant and subject to the
terms and provisions of the separate Note Agreements, each dated as of October
1, 1994 (the "Note Agreements"), entered into by the Company with the original
Purchasers therein referred to. This Note and the holder hereof are entitled
equally and ratably with the holders of all other Notes outstanding under the
Note
EXHIBIT A-1
(to Note Agreement)
<PAGE> 42
Agreements to all the benefits provided for thereby or referred to therein.
Reference is hereby made to the Note Agreements for a statement of such rights
and benefits.
This Note and the other Notes outstanding under the Note Agreements
may be declared due prior to their expressed maturity dates, all in the events,
on the terms and in the manner and amounts as provided in the Note Agreements.
The Notes are not subject to prepayment or redemption at the option of
the Company prior to their expressed maturity dates except on the terms and
conditions and in the amounts and with the premium, if any, set forth in the
Note Agreements.
This Note is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the Company
duly endorsed or accompanied by a written instrument of transfer duly executed
by the registered holder of this Note or its attorney duly authorized in
writing. Payment of or on account of principal, premium, if any, and interest
on this Note shall be made only to or upon the order in writing of the
registered holder.
PENWEST, LTD.
By_______________________________
Its
A-I-2
<PAGE> 43
PENWEST, LTD.
8.35% Series B Senior Note
Due December 15, 2006
No.
_________, 19__
$
Penwest, Ltd., a Delaware corporation (the "Company"), for value
received, hereby promises to pay to
or registered assigns
on the fifteenth day of December, 2006
the principal amount of
DOLLARS ($____________)
and to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at
the rate of 8.35% per annum from the date hereof until maturity, payable
semiannually on the fifteenth day of each June and December in each year
(commencing on June 15, 1995) and at maturity. The Company agrees to pay
interest on overdue principal (including any overdue required or optional
prepayment of principal) and premium, if any, and (to the extent legally
enforceable) on any overdue installment of interest, at the rate of 10.35% per
annum after the due date, whether by acceleration or otherwise, until paid.
Both the principal hereof and interest hereon are payable at the principal
office of the Company in Bellevue, Washington in coin or currency of the
United States of America which at the time of payment shall be legal tender
for the payment of public and private debts.
This Note is one of the Company's $10,000,000 aggregate principal
amount 8.35% Series B Senior Notes due December 15, 2006 (the "Series B Notes")
issued or to be issued, together with the Company's $10,000,000 aggregate
principal amount 7.59% Series A Senior Notes due December 15, 1998 (the "Series
A Notes", said Series A Notes together with the Series B Notes are hereinafter
referred to collectively as the "Notes") under and pursuant and subject to the
terms and provisions of the separate Note Agreements, each dated as of October
1, 1994 (the "Note Agreements"), entered into by the Company with the original
Purchasers therein referred to. This Note and the holder hereof are entitled
equally and ratably with the holders of all other Notes outstanding under the
Note
EXHIBIT A-2
(to Note Agreement)
<PAGE> 44
Agreements to all the benefits provided for thereby or referred to therein.
Reference is hereby made to the Note Agreements for a statement of such rights
and benefits.
This Note and the other Notes outstanding under the Note Agreements
may be declared due prior to their expressed maturity dates, all in the events,
on the terms and in the manner and amounts as provided in the Note Agreements.
The Notes are not subject to prepayment or redemption at the option of
the Company prior to their expressed maturity dates except on the terms and
conditions and in the amounts and with the premium, if any, set forth in the
Note Agreements.
This Note is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the Company
duly endorsed or accompanied by a written instrument of transfer duly executed
by the registered holder of this Note or its attorney duly authorized in
writing. Payment of or on account of principal, premium, if any, and interest
on this Note shall be made only to or upon the order in writing of the
registered holder.
PENWEST, LTD.
By_______________________________
Its
A-2-2
<PAGE> 45
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to you as follows:
1. Subsidiaries. Annex A attached hereto states the name of each
of the Company's Subsidiaries, its jurisdiction of incorporation and the
percentage of its Voting Stock owned by the Company and/or its Subsidiaries.
Those Subsidiaries listed in Section 1 of said Annex A constitute Restricted
Subsidiaries. The Company and each Subsidiary has good and marketable title to
all of the shares it purports to own of the stock of each Subsidiary, free and
clear in each case of any Lien. All such shares have been duly issued and are
fully paid and non-assessable.
2. Corporate Organization and Authority. The Company, and each
Restricted Subsidiary,
(a) is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation;
(b) has all requisite power and authority and all
necessary licenses and permits to own and operate its properties and
to carry on its business as now conducted and as presently proposed to
be conducted; and
(c) is duly licensed or qualified and is in good standing
as a foreign corporation in each jurisdiction wherein the nature of
the business transacted by it or the nature of the property owned or
leased by it makes such licensing or qualification necessary.
3. Business and Property. You have heretofore been furnished
with a copy of the Private Placement Memorandum dated June, 1994 (the
"Memorandum") prepared by Continental Bank, N.A. which generally sets forth the
business conducted and proposed to be conducted by the Company and its
Subsidiaries and the principal properties of the Company and its Subsidiaries.
4. Financial Statements. (a) The consolidated balance sheets of
the Company and its consolidated Subsidiaries as of August 31 in each of the
years 1989 to 1994, both inclusive, and the statements of income and retained
earnings and changes in financial position or cash flows for the fiscal years
ended on said dates, each accompanied by a report thereon containing an opinion
unqualified as to scope limitations imposed by the Company and otherwise
without qualification except as therein noted, by Ernst & Young, have been
prepared in accordance with GAAP consistently applied except as therein noted,
are correct and complete and present fairly the financial position of the
Company and its Restricted Subsidiaries as of such dates and the results of
their operations and changes in their financial position or cash flows for such
periods.
EXHIBIT B
(to Note Agreement)
<PAGE> 46
(b) Since August 31, 1994, there has been no change in the
condition, financial or otherwise, of the Company and its consolidated
Subsidiaries as shown on the consolidated balance sheet as of such date except
changes in the ordinary course of business, none of which individually or in
the aggregate has been materially adverse.
5. Indebtedness. Annex B attached hereto correctly describes all
Current Debt, Funded Debt and Capitalized Leases of the Company and its
Restricted Subsidiaries outstanding on August 31, 1994.
6. Full Disclosure. Neither the financial statements referred to
in paragraph 4 hereof nor the Agreements, the Memorandum or any other written
statement furnished by the Company to you in connection with the negotiation of
the sale of the Notes, contains any untrue statement of a material fact or
omits a material fact necessary to make the statements contained therein or
herein not misleading. There is no fact peculiar to the Company or its
Subsidiaries which the Company has not disclosed to you in writing which
materially affects adversely nor, so far as the Company can now foresee, will
materially affect adversely the properties, business, prospects, profits or
condition (financial or otherwise) of the Company and its Restricted
Subsidiaries, taken as a whole.
7. Pending Litigation. There are no proceedings pending or, to
the knowledge of the Company, threatened against the Company or any Restricted
Subsidiary in any court or before any governmental authority or arbitration
board or tribunal which involve the possibility of materially and adversely
affecting the properties, business, prospects, profits or condition (financial
or otherwise) of the Company and its Restricted Subsidiaries.
8. Title to Properties. The Company and each Restricted
Subsidiary has good and marketable title in fee simple (or its equivalent under
applicable law) to all material parcels of real property which it purports to
own, and has good title to all the other material items of property which it
purports to own, including that reflected in the most recent balance sheet
referred to in paragraph 4 hereof, except as sold or otherwise disposed of in
the ordinary course of business and except for Liens permitted by the
Agreements.
9. Patents and Trademarks. Except as disclosed on Annex C
attached hereto, the Company and each Restricted Subsidiary owns or possesses
all the patents, trademarks, trade names, service marks, copyright, licenses
and rights with respect to the foregoing necessary for the present and planned
future conduct of its business, without any known conflict with the rights of
others.
10. Sale is Legal and Authorized. The sale of the Notes and
compliance by the Company with all of the provisions of the Agreements and the
Notes --
(a) are within the corporate powers of the Company;
(b) will not violate any provisions of any law or any
order of any court or governmental authority or agency and will not
conflict with or result in any breach of any of the terms, conditions
or provisions of, or constitute a default under the
B-2
<PAGE> 47
Certificate of Incorporation or By-laws of the Company or any
indenture or other agreement or instrument to which the Company is a
party or by which it may be bound or result in the imposition of any
Liens or encumbrances on any property of the Company; and
(c) have been duly authorized by proper corporate action
on the part of the Company (no action by the stockholders of the
Company being required by law, by the Certificate of Incorporation or
By-laws of the Company or otherwise which action has not been taken),
executed and delivered by the Company and the Agreements and the Notes
constitute the legal, valid and binding obligations, contracts and
agreements of the Company enforceable in accordance with their
respective terms.
11. No Defaults. No Default or Event of Default has occurred and
is continuing. Neither the Company nor any Restricted Subsidiary is in default
in the payment of principal or interest on any Funded Debt or Current Debt or
is not in default under any instrument or instruments or agreements under and
subject to which any Funded Debt or Current Debt has been issued and no event
has occurred and is continuing under the provisions of any such instrument or
agreement which with the lapse of time or the giving of notice, or both, would
constitute an event of default thereunder.
12. Governmental Consent. No approval, consent or withholding of
objection on the part of any regulatory body, state, Federal or local, is
necessary in connection with the execution and delivery by the Company of the
Agreements or the Notes or compliance by the Company with any of the provisions
of the Agreements or the Notes.
13. Taxes. All tax returns required to be filed by the Company or
any Restricted Subsidiary in any jurisdiction have, in fact, been filed, and
all taxes, assessments, fees and other governmental charges upon the Company or
any Restricted Subsidiary or upon any of their respective properties, income or
franchises, which are shown to be due and payable in such returns have been
paid. For all taxable years ending on or before August 31, 1989, the Federal
income tax liability of the Company and its Restricted Subsidiaries has been
satisfied and either the period of limitations on assessment of additional
Federal income tax has expired or the Company and its Restricted Subsidiaries
have entered into an agreement with the Internal Revenue Service closing
conclusively the total tax liability for the taxable year. The Company does
not know of any proposed additional tax assessment against it for which
adequate provision has not been made on its accounts, and no material
controversy in respect of additional Federal or state income taxes due since
said date is pending or to the knowledge of the Company threatened. The
provisions for taxes on the books of the Company and each Restricted Subsidiary
are adequate for all open years, and for its current fiscal period.
14. Use of Proceeds. The net proceeds from the sale of the Notes
will be used for capital expenditures and for general corporate purposes.
None of the transactions contemplated in the Agreements (including, without
limitation thereof, the use of proceeds from the issuance of the Notes) will
violate or result in a violation of Section 7 of the Securities Exchange Act of
1934, as amended, or any regulation issued pursuant thereto, including, without
limitation, Regulations G, T and X of the Board of Governors of the
B-3
<PAGE> 48
Federal Reserve System, 12 C.F.R., Chapter II. Neither the Company nor any
Subsidiary owns or intends to carry or purchase any "margin stock" within the
meaning of said Regulation G. None of the proceeds from the sale of the Notes
will be used to purchase, or refinance any borrowing the proceeds of which were
used to purchase, any "security" within the meaning of the Securities Exchange
Act of 1934, as amended.
15. Private Offering. Neither the Company, directly or
indirectly, nor any agent on its behalf has offered or will offer the Notes or
any similar Security or has solicited or will solicit an offer to acquire the
Notes or any similar Security from or has otherwise approached or negotiated or
will approach or negotiate in respect of the Notes or any similar Security with
any Person other than the Purchasers and not more than 4 other institutional
investors, each of whom was offered a portion of the Notes at private sale for
investment. Neither the Company, directly or indirectly, nor any agent on its
behalf has offered or will offer the Notes or any similar Security or has
solicited or will solicit an offer to acquire the Notes or any similar Security
from any Person so as to bring the issuance and sale of the Notes within the
provisions of Section 5 of the Securities Act of 1933, as amended.
16. ERISA. The consummation of the transactions provided for in
the Agreements and compliance by the Company with the provisions thereof and
the Notes issued thereunder will not involve any nonexempt prohibited
transaction with respect to any Plan as to which the Company is a
party-in-interest within the meaning of ERISA or Section 4975 of the Internal
Revenue Code of 1986, as amended. Each Plan complies in all material respects
with all applicable statutes and governmental rules and regulations, and (a) no
Reportable Event has occurred and is continuing with respect to any Plan, (b)
neither the Company nor any ERISA Affiliate has withdrawn from any Plan or
Multiemployer Plan or instituted steps to do so which has or would result in
withdrawal liability (as described in Part 1 of Subtitle E of Title IV of
ERISA) which could materially and adversely affect the properties, business,
prospects, profits or condition (financial or otherwise) of the Company and its
Subsidiaries taken as a whole and (c) no steps have been instituted to
terminate any Plan in a distress termination under Section 4041(c) of ERISA or
a termination instituted by the PBGC under Section 4042 of ERISA. No condition
exists or event or transaction has occurred in connection with any Plan which
could result in the incurrence by the Company or any ERISA Affiliate of any
material liability, fine or penalty. No Plan maintained by the Company or any
ERISA Affiliate, nor any trust created thereunder, has incurred any
"accumulated funding deficiency" as defined in Section 302 of ERISA nor does
the present value of all benefits vested under all Plans exceed, as of the last
annual valuation date, the value of the assets of the Plans allocable to such
vested benefits by an amount greater than $1,000,000 in the aggregate. Neither
the Company nor any ERISA Affiliate has any contingent liability with respect
to any post-retirement "welfare benefit plan" (as such term is defined in
ERISA) except as has been disclosed to the Purchasers.
17. Compliance with Law. Neither the Company nor any Restricted
Subsidiary (a) is in violation of any law, ordinance, franchise, governmental
rule or regulation to which it is subject; or (b) has failed to obtain any
license, permit, franchise or other governmental authorization necessary to the
ownership of its property or to the conduct of
B-4
<PAGE> 49
its business, which violation or failure to obtain would materially adversely
affect the business, prospects, profits, properties or condition (financial or
otherwise) of the Company and its Restricted Subsidiaries, taken as a whole, or
impair the ability of the Company to perform its obligations contained in the
Agreements or the Notes. Neither the Company nor any Restricted Subsidiary is
in default with respect to any order of any court or governmental authority or
arbitration board or tribunal.
18. Compliance with Environmental Laws. Neither the Company nor
any Restricted Subsidiary is in material violation of any applicable Federal,
state, or local laws, statutes, rules, regulations or ordinances relating to
public health, safety or the environment, including, without limitation,
relating to releases, discharges, emissions or disposals to air, water, land or
ground water, to the withdrawal or use of ground water, to the use, handling or
disposal of polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde, to
the treatment, storage, disposal or management of hazardous substances
(including, without limitation, petroleum, crude oil or any fraction thereof,
or other hydrocarbons), pollutants or contaminants, to exposure to toxic,
hazardous or other controlled, prohibited or regulated substances which
violation could have a material adverse effect on the business, prospects,
profits, properties or condition (financial or otherwise) of the Company and
its Restricted Subsidiaries, taken as a whole. The Company does not know of
any material liability or class of liability of the Company or any Restricted
Subsidiary under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.), or the
Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. Section
6901 et seq.).
B-5
<PAGE> 50
SUBSIDIARIES OF THE COMPANY
1. RESTRICTED SUBSIDIARIES:
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING STOCK
NAME OF JURISDICTION OF OWNED BY COMPANY AND
SUBSIDIARY INCORPORATION EACH OTHER SUBSIDIARY
<S> <C> <C>
Penford Products Co. Delaware 100% PENWEST, LTD.
Edward Mendell Co., Inc. Washington 100% PENWEST, LTD.
</TABLE>
2. SUBSIDIARIES (OTHER THAN RESTRICTED SUBSIDIARIES):
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING STOCK
NAME OF JURISDICTION OF OWNED BY COMPANY AND
SUBSIDIARY INCORPORATION EACH OTHER SUBSIDIARY
<S> <C> <C>
Edward Mendell GmBH Germany 100% Mendell
Edward Mendell Finland OY Finland 100% Mendell
Pacific Cogeneration, Inc. Washington 100% PENWEST, LTD.
Penwest Foreign Sales
Corporation Virgin Islands 100% PENWEST, LTD.
</TABLE>
ANNEX A
(to Exhibit B)
<PAGE> 51
DESCRIPTION OF DEBT, LEASES,
INVESTMENTS, GUARANTIES AND LIENS
1. Current Debt of the Company and its Restricted Subsidiaries
outstanding on August 31, 1994 is as follows:
None.
2. Funded Debt (other than Capitalized Rentals) of the Company and its
Restricted Subsidiaries outstanding on August 31, 1994 is as follows:
a. Borrowings under unsecured term agreement (Seafirst Bank, U.S.
Bank, Continental Bank, Bank of Nova Scotia): $19,000,000
b. 9.55% unsecured note (Seafirst Bank): $4,450,000
c. 10.43% note (First Interstate of Washington): $3,547,500
d. 7.93% senior notes (Mutual of Omaha): $20,000,000
3. Capitalized Leases of the Company and its Restricted Subsidiaries
outstanding on August 31, 1994 are as follows:
None.
4. Investments of the Company and its Restricted Subsidiaries existing as
of the date of this Agreement are as follows:
None.
ANNEX B
(to Exhibit B)
<PAGE> 52
5. Guaranties of the Company and its Restricted Subsidiaries existing as
of the date of this Agreement are as follows:
None.
6. Liens of the Company and its Restricted Subsidiaries existing as of
the date of this Agreement are as follows:
None.
-2-
<PAGE> 53
PATENTS AND TRADEMARKS DISCLOSURE
On or about April 30, 1994, the Boots Company PLC filed in the
European Patent Office ("EPO") an Opposition to a patent granted by the EPO to
Edward Mendell Co., Inc. The patent relates to the Company's "TIMERx"
controlled-released product and was granted by the EPO under number 360562 B1.
The Company expects to file its response to the Opposition in early 1995.
ANNEX C
(to Exhibit B)
<PAGE> 54
DESCRIPTION OF SPECIAL COUNSEL'S CLOSING OPINION
The closing opinion of Chapman and Cutler, special counsel to the
Purchasers, called for by Section 4.1 of the Note Agreements, shall be dated the
Closing Date and addressed to the Purchasers, shall be satisfactory in form and
substance to the Purchasers and shall be to the effect that:
1. The Company is a corporation, validly existing and in
good standing under the laws of the State of Delaware and has the
corporate power and the corporate authority to execute and deliver the
Note Agreements and to issue the Notes.
2. The Note Agreements have been duly authorized by all
necessary corporate action on the part of the Company, have been duly
executed and delivered by the Company and constitute the legal, valid
and binding contract of the Company enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent conveyance
and similar laws affecting creditors' rights generally, and general
principles of equity (regardless of whether the application of such
principles is considered in a proceeding in equity or at law).
3. The Notes have been duly authorized by all necessary
corporate action on the part of the Company, and the Notes being
delivered on the date hereof have been duly executed and delivered by
the Company and constitute the legal, valid and binding obligations of
the Company enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent conveyance and similar laws
affecting creditors' rights generally, and general principles of
equity (regardless of whether the application of such principles is
considered in a proceeding in equity or at law).
4. The issuance, sale and delivery of the Notes under
the circumstances contemplated by the Note Agreements do not, under
existing law, require the registration of the Notes under the
Securities Act of 1933, as amended, or the qualification of an
indenture under the Trust Indenture Act of 1939, as amended.
The opinion of Chapman and Cutler shall also state that the opinion of
Bogle & Gates is satisfactory in scope and form to Chapman and Cutler and that,
in their opinion, the Purchasers are justified in relying thereon.
In rendering the opinion set forth in paragraph 1 above, Chapman and
Cutler may rely, as to matters referred to in paragraph 1, solely upon an
examination of the Certificate of Incorporation certified by, and a certificate
of good standing of the Company from, the Secretary of State of the State of
Delaware, the By-laws of the Company and the General Corporation Law of the
State of Delaware. The opinion of Chapman and Cutler is limited to the laws of
the State of Illinois, the General Corporation Law of the State of Delaware and
the Federal laws of the United States.
EXHIBIT C
(to Note Agreement)
<PAGE> 55
With respect to matters of fact upon which such opinion is based,
Chapman and Cutler may rely on appropriate certificates of public officials and
officers of the Company and upon representations of the Company and the
Purchasers delivered in connection with the issuance and sale of the Notes.
C-2
<PAGE> 56
DESCRIPTION OF CLOSING OPINION
OF COUNSEL TO THE COMPANY
The closing opinion of Bogle & Gates, counsel for the Company, which is
called for by Section 4.1 of the Note Agreements, shall be dated the Closing
Date and addressed to the Purchasers, shall be satisfactory in scope and form
to the Purchasers and shall be substantially to the effect that:
1. The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of
Delaware. The Company is duly qualified to do business as a foreign
corporation and is in good standing in the State of Washington. The
Company has all requisite corporate power and corporate authority to
execute and perform the Note Agreements, to issue the Notes and to
carry on its business as presently conducted.
2. Penford Products, Co. is a corporation duly
incorporated, validly existing and in good standing under the laws of
the State of Delaware. Edward Mendell Co., Inc. is a corporation duly
incorporated, validly existing and authorized to transact business in
the corporate form under the laws of the State of Washington.
(Penford Products, Co. and Edward Mendell Co., Inc. are sometimes
collectively referred to herein as "Significant Subsidiaries.")
Penford Products, Co. is duly qualified to do business as a foreign
corporation and is in good standing in the States of Idaho, Iowa,
Colorado and Washington. Edward Mendell Co., Inc. is duly qualified
to do business as a foreign corporation and is in good standing in the
States of Iowa and New York. All of the issued and outstanding shares
of capital stock of each Significant Subsidiary have been duly
authorized and validly issued and are fully paid and nonassessable;
and, based on our review of the minutes, stock records and other
corporate records of the Significant Subsidiaries, all such issued and
outstanding capital stock of each of the Significant Subsidiaries is
owned of record by the Company.
3. Each Note Agreement has been duly authorized by all
necessary corporate action on the part of the Company, has been duly
executed and delivered by the Company and constitutes the legal, valid
and binding obligation of the Company enforceable against the Company
in accordance with its terms.
4. The Notes have been duly authorized by all necessary
corporate action on the part of the Company, have been duly executed
and delivered by the Company and constitute the legal, valid and
binding obligations of the Company enforceable against the Company in
accordance with their terms.
5. No approval, consent or withholding of objection on
the part of, or filing, registration or qualification with, any
governmental body, Federal or state, is necessary in connection with
the execution and delivery of the Note Agreements or the Notes.
EXHIBIT D
(to Note Agreement)
<PAGE> 57
6. The issuance and sale of the Notes and the execution,
delivery and performance by the Company of the Note Agreements do not
result in any breach of any of the provisions of or constitute a
default under or result in the creation or imposition of any Lien upon
any of the property of the Company pursuant to the provisions of the
Certificate of Incorporation or By-laws of the Company or any material
agreement or other instrument known to us to which the Company is a
party or by which the Company may be bound.
7. Assuming the accuracy of the representations and
warranties of the Purchasers contained in Section 3.2 of the Note
Agreements, the issuance, sale and delivery of the Notes under the
circumstances contemplated by the Note Agreements do not require the
registration of the Notes under the Securities Act of 1933, as
amended, or the qualification of an indenture under the Trust
Indenture Act of 1939, as amended.
Our opinions set forth in paragraphs 3 and 4 above are subject to
bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or
similar laws relating to or affecting creditor's rights generally and general
principles of equity, reasonableness, good faith and fair dealing (regardless
of whether considered in a proceeding in equity or at law).
The opinion of Bogle & Gates shall cover such other matters relating
to the sale of the Notes as the Purchasers may reasonably request. With
respect to matters of fact on which such opinion is based, such counsel shall
be entitled to rely on appropriate certificates of public officials and
officers of the Company.
D-2
<PAGE> 1
Exhibit 11
PENWEST, LTD. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
February 28 February 28
1995 1994 1995 1994
---- ---- ---- ----
PRIMARY:
- - --------
<S> <C> <C> <C> <C>
Net income $2,153,000 $863,000 $3,910,000 $2,624,000
========== ======== ========== ==========
Weighted average number of
shares outstanding 6,682,942 6,829,325 6,738,142 6,833,492
Net effect of dilutive stock options 343,033 270,675 346,396 270,422
------- ------- ------- -------
Adjusted shares outstanding 7,025,975 7,100,000 7,084,538 7,103,914
========= ========= ========= =========
Earnings per share $0.31 $0.12 $0.55 $0.37
===== ===== ===== =====
FULLY DILUTED:
- - --------------
Net income $2,153,000 $863,000 $3,910,000 $2,624,000
========== ======== ========== ==========
Weighted average number of
shares outstanding 6,682,942 6,829,325 6,738,142 6,833,491
Net effect of dilutive stock options 327,712 284,002 363,682 291,079
------- ------- ------- -------
Adjusted shares outstanding 7,010,654 7,113,327 7,101,824 7,124,570
========= ========= ========= =========
Earnings per share $0.31 $0.12 $0.55 $0.37
===== ===== ===== =====
</TABLE>
69
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> FEB-28-1995
<CASH> 17,126
<SECURITIES> 0
<RECEIVABLES> 21,673
<ALLOWANCES> 0
<INVENTORY> 12,492
<CURRENT-ASSETS> 55,027
<PP&E> 174,139
<DEPRECIATION> 66,167
<TOTAL-ASSETS> 188,469
<CURRENT-LIABILITIES> 23,251
<BONDS> 60,848
<COMMON> 8,583
0
0
<OTHER-SE> 61,460
<TOTAL-LIABILITY-AND-EQUITY> 188,469
<SALES> 85,199
<TOTAL-REVENUES> 85,199
<CGS> 62,044
<TOTAL-COSTS> 77,980
<OTHER-EXPENSES> (899)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,105
<INCOME-PRETAX> 6,013
<INCOME-TAX> 2,103
<INCOME-CONTINUING> 3,910
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,910
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
</TABLE>
