<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 May 31, 1996
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)
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)
(206) 462-6000
(Registrant's telephone number, including area code.)
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 July 8, 1996.
<TABLE>
<CAPTION>
Class Outstanding
----- -----------
<S> <C>
Common stock, par value $1.00 6,844,413
</TABLE>
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PENWEST, LTD. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets 3
May 31, 1996 and August 31, 1995
Condensed Consolidated Statements of Income 4
Three Months Ended May 31, 1996
and May 31, 1995
Condensed Consolidated Statements of Income 4
Nine Months Ended May 31, 1996 and
May 31, 1995
Condensed Consolidated Statements of Cash Flow 5
Nine Months Ended May 31, 1996 and
May 31, 1995
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 6 - Exhibits and Reports on Form 8-K 9-10
SIGNATURES 11
INDEX TO EXHIBITS 12-13
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
PENWEST, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
May 31, August 31,
1996 1995
----------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,171 $ 5,334
Trade Accounts Receivable 26,728 23,943
Inventories:
Raw materials, supplies and other 5,101 3,828
Work in progress 629 483
Finished goods 11,751 9,898
--------- ---------
17,481 14,209
Prepaid expenses and other 4,318 5,447
--------- ---------
Total current assets 49,698 48,933
Property, plant and equipment, net 117,372 111,440
Deferred income taxes 9,934 9,927
Other assets 18,703 16,460
--------- ---------
Total assets $ 195,707 $ 186,760
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,760 $ 8,749
Accrued liabilities 7,158 6,728
Current portion of long-term debt 1,270 4,270
--------- ---------
Total current liabilities 19,188 19,747
Long-term debt 62,760 58,628
Other postretirement benefits 9,943 10,155
Deferred income taxes and other 27,338 26,248
Shareholders' equity:
Common stock 8,677 8,591
Additional paid-in capital 13,306 12,550
Retained earnings 87,628 84,949
Treasury stock (30,637) (30,637)
Note receivable from PENWEST Savings and
Stock Ownership Plan (1,932) (2,978)
Cumulative translation adjustment (564) (493)
--------- ---------
Total shareholders' equity 76,478 71,982
--------- ---------
Total liabilities and
shareholders' equity $ 195,707 $ 186,760
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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PENWEST, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended May 31 Ended May 31
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 49,106 $ 43,618 $ 141,042 $ 128,818
Cost of sales 37,565 31,153 106,206 93,197
----------- ----------- ----------- -----------
Gross margin 11,541 12,465 34,836 35,621
Operating expenses 8,793 8,240 25,918 24,177
----------- ----------- ----------- -----------
Income from operations 2,748 4,225 8,918 11,444
Interest expense, net (1,188) (1,126) (3,496) (3,231)
Other 899
----------- ----------- ----------- -----------
Income before taxes 1,560 3,099 5,422 9,112
Income taxes 530 1,099 1,738 3,202
----------- ----------- ----------- -----------
Net income $ 1,030 $ 2,000 $ 3,684 $ 5,910
=========== =========== =========== ===========
Weighted average common shares and
equivalents outstanding 6,985,805 6,957,557 7,065,365 7,057,445
Earnings per common share $ 0.15 $ 0.29 $ 0.52 $ 0.84
=========== =========== =========== ===========
Dividends declared per common share $ 0.05 $ 0.05 $ 0.15 $ 0.15
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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PENWEST, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended May 31
------------
1996 1995
---- ----
<S> <C> <C>
Operating Activities:
Net income $ 3,684 $ 5,910
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 8,684 7,597
Deferred income taxes 1,083 793
Gain on the sale of assets (899)
Change in operating assets and liabilities:
Receivables (2,785) (2,207)
Inventories (3,272) 2,306
Accounts payable and other 4,616 4,629
-------- --------
Net cash flow from operating activities 12,010 18,129
Investing Activities:
Additions to plant and equipment (14,616) (20,117)
Proceeds from sale of assets 2,500
Other (13) (3,530)
-------- --------
Net cash used by investing activities (14,629) (21,147)
Financing Activities:
Proceeds from unsecured line of credit 36,627 14,470
Payments on unsecured line of credit (33,792) (13,315)
Proceeds of long-term debt 15,250 20,000
Payments on long-term debt (16,953) (2,622)
Purchase of treasury stock (1,310)
Exercise of stock options 842 43
Purchase of life insurance for officers' benefit plan (2,501) (2,501)
Payment of dividends (1,017) (1,192)
-------- --------
Net cash from (used by) financing activities (1,544) 13,573
-------- --------
Net increase (decrease) in cash and equivalents (4,163) 10,555
Cash and cash equivalents (bank overdraft) at
beginning of period 5,334 (635)
-------- --------
Cash and cash equivalents at end of period $ 1,171 $ 9,920
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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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 nine month periods ended May 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending
August 31, 1996. Certain prior year amounts have been reclassified to
conform to the 1996 classification. For further information, refer to
the consolidated financial statements and footnotes thereto included in
PENWEST, LTD.'s annual report on Form 10-K for the fiscal year ended
August 31, 1995.
2. DEBT
On December 22, 1995, the Company completed an unsecured $35 million
credit agreement with four banks expiring on December 30, 1998 under
which there was $15.3 million outstanding at quarter end. Borrowing
rates available to the Company under the agreement are based on prime
rate or the interbank offered rate depending on the selection of
borrowing options. The agreement replaced an unsecured term agreement
which at December 22, 1995, had $15.3 million of borrowings outstanding
and an unsecured $15 million revolving line of credit under which there
was no outstanding borrowings at December 22, 1995. The agreement
contains certain provisions related to limitations on indebtedness and
minimum net worth and requires the company to maintain a minimum fixed
charge coverage ratio.
3. INCOME TAXES
The effective tax rate for the nine-month period ended May 31, 1996 was
32% compared to the statutory rate of 34%. The effective rate was lower
than the statutory rate due to state tax refunds received by the
Company.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY
PENWEST maintains a highly liquid position which at May 31, 1996 consisted of
the following: cash and cash equivalents of $1.2 million, working capital of
$30.5 million, $20 million remaining available under an unsecured revolving
credit agreement, and several uncommitted lines of credit aggregating $15
million with various banks that may be used for overnight borrowings under which
there was $2.8 million outstanding.
Cash flow from operations for the nine months ended May 31, 1996 was $12.0
million compared to $18.1 million in the corresponding period a year ago. The
decrease is mostly attributed to increases in receivables and inventory
primarily related to the high cost of corn.
The Board of Directors declared a $0.05 per share dividend which was paid on
June 7, 1996, to shareholders of record as of May 24, 1996.
CAPITAL RESOURCES
Additions to property, plant and equipment during the nine months ended May 31,
1996 were $14.6 million. Third quarter and year to date additions were directed
primarily to ongoing enhancements at Penford Products Co. in Cedar Rapids, Iowa.
The Company used operating cash flow and short-term borrowings to finance
capital expenditures during the first nine months of the fiscal year.
RESULTS OF OPERATIONS
Net income was $1.0 million, or $0.15 per share for the third quarter, compared
to net income of $2.0 million or $0.29 per share for the corresponding period a
year ago. Net income for the nine months was $3.7 million, or $0.52 per share,
compared with $5.9 million, or $0.84 per share, in the year earlier period. The
prior year nine-month period included a non-recurring a gain of $899,000 from
the sale of the assets of Pacific Cogeneration, Inc.
Sales increased in the third quarter and the first nine months of fiscal year
1996 to $49.1 million and $141.0 million, respectively, representing a 12.6% and
9.5% increase respectively, from the corresponding periods a year ago. The third
quarter increase is primarily due to corn costs rising to historic highs, a key
component used in pricing Penford's paper chemical products. Changes in corn
costs are generally passed through to customers. Sales volumes at Penford were
slightly less than the corresponding period a year ago due to difficult paper
industry conditions. Penwest Pharmaceuticals Group sustained strong shipments of
its microcrystalline cellulose product line, and signed another drug development
contract for TIMERx. Penwest Foods showed strong volume and revenue improvement
over the corresponding quarter a year ago resulting from higher shipments of its
line of starch-based coatings for french fries.
The gross margin for the three month period ended May 31, 1996 was 23.5%
compared to 28.6% in the corresponding period a year ago and 24.7% and 27.7% for
the nine months ended May 31, 1996 and 1995 respectively. The average market
price of corn in 1996 has increased substantially compared to the prior year.
This rapidly rising corn market has negatively affected Penford's gross margin.
Certain of the Company's sales are based on a recent average of published corn
prices, and in periods of rapidly escalating prices, the Company's ability to
recover the increase in raw materials costs under the pricing
7
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provisions of these contracts lags the rising price of corn. The Company's
fixed price sales contracts were impacted by the high price of cash corn
relative to the futures market. Lower margin dollars on higher sales
prices also adversely impacted the gross margin percentage.
In addition, competitive and market factors, including the historic high price
of corn, put pressure on product pricing in the renewal of customer sales
contracts making it difficult to maintain historical gross margin levels.
Operating expenses in the third quarter rose $553,000, or 6.7% compared to the
same period in the previous year. For the year, operating expenses have
increased $1.7 million or 7.2%, primarily due to increased investment in
research and development at Penwest Pharmaceuticals.
Net interest expense for the third quarter of fiscal 1996 was $1.2 million
compared to $1.1 million for the corresponding period a year ago. The increase
reflects lower capitalized interest and lower investment income.
FORWARD-LOOKING STATEMENTS
Corn costs have continued to fluctuate subsequent to the end of the third
quarter and are expected to negatively impact earnings for the year. However,
the impact cannot be quantified at this time.
The Company is seeing signs of improvement in the paper industry. Volumes have
increased, and Penford has both renewed major existing customer contracts and
secured new ones.
The above discussion contains forward-looking statements. There are certain
important factors that could cause results to differ materially from those
anticipated by the statements made above. These factors include, but are not
limited to, the market price of corn and corn byproducts affected by volatility
in the worldwide demand for feed grains and uncertain weather conditions, the
economic condition of the paper industry, and competition. Additional
information on these and other factors which could affect the Company's
financial results is included in the Company's 1995 Annual Report to
Shareholders, its Form 10-K for the fiscal year ended August 31, 1995, and its
Forms 10-Q for the fiscal quarters ended November 30, 1995 and February 29,
1996, on file with the Securities and Exchange Commission.
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PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibits:
3.1 Restated Articles of Incorporation of Registrant
(filed as an Exhibit to Registrant's Form 10-K for
fiscal year ended August 31, 1995).
3.2 Bylaws of Registrant as amended and restated as of
June 27, 1995 (filed as an Exhibit to Registrant's
Form 10-K for the fiscal year ended August 31, 1995)
4.1 PENWEST, LTD. Common Stock Purchase Rights, dated
June 3, 1988 (filed on Form 8-A dated June 3, 1988)
10.1 Senior Note Agreement among PENWEST, LTD. as Borrower
and Mutual of Omaha and Affiliates as lenders, dated
November 1, 1992 (filed as an Exhibit to Registrant's
Form 10-Q for the quarter ended February 28, 1993)
10.2 Term Loan Agreement among Penford Products Co., and
PENWEST, LTD. as Borrowers, and First Interstate Bank
of Washington, N.A. as Lender, dated September 27,
1990 (Registrant agrees to furnish a copy of this
instrument to the Commission on request)
10.3 Loan Agreement among PENWEST, LTD. as Borrower and
Seattle-First National Bank as Lender, dated December
1, 1989 (Registrant agrees to furnish a copy of this
instrument to the Commission on request)
10.4 PENWEST, LTD. Supplemental Executive Retirement Plan,
dated March 19, 1990 (filed as an Exhibit to
Registrant's Form 10-K for the fiscal year ended
August 31, 1991)
10.5 PENWEST, LTD. Supplemental Survivor Benefit Plan,
dated January 15, 1991 (filed as an Exhibit to
Registrant's Form 10-K for the fiscal year ended
August 31, 1991)
10.6 PENWEST, LTD. Deferred Compensation Plan, dated
January 15, 1991 (filed as an Exhibit to Registrant's
Form 10-K for the fiscal year ended August 31, 1991)
10.7 Change of Control Agreements with Messrs. Hamachek,
Reed, Cook, Widmaier, Schmelzer, Talley, Horn and
Rydzewski (a representative copy of these agreements
is filed as an exhibit to Registrant's Form 10-K for
the fiscal year ended August 31, 1995.)
10.8 PENWEST, LTD. 1993 Non-Employee Director
9
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Restricted Stock Plan (filed as an Exhibit to
Registrant's Form 10-Q for the quarter ended November
30, 1993)
10.9 Note Agreement dated as of October 1, 1994 among
PENWEST, LTD., Principal Mutual Life Insurance
Company and TMG Life Insurance Company (filed as an
Exhibit to Registrant's Form 10-Q for the quarter
ended February 28, 1995)
10.10 PENWEST, LTD. 1994 Stock Option Plan as amended and
restated as of January 23, 1996.
10.11 Credit Agreement dated as of December 22, 1995 among
PENWEST, LTD., and its subsidiaries, Bank of America
National Trust and Savings Association, ABN-AMRO
Bank, N.V., The Bank of Nova Scotia, and
Seattle-First National Bank (filed as an Exhibit to
Registrant's Form 10-Q for the quarter ended February
29, 1996)
10.12 PENWEST, LTD. Stock Option Plan for non-employee
directors.
11 Statement re: Computation of Earnings Per Share
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
10
<PAGE> 11
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)
July 12, 1996 /s/ Tod R. Hamachek
- ------------------- ----------------------------------
Date Tod R. Hamachek
President and
Chief Executive Officer
July 12, 1996 /s/ Jeffrey T. Cook
- ------------------- ----------------------------------
Date Jeffrey T. Cook
Vice President, Finance and
Chief Financial Officer (Principal
Financial Officer)
11
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INDEX TO EXHIBITS
Exhibits identified in parentheses below, on file with the Securities and
Exchange Commission, are incorporated by reference.
<TABLE>
<CAPTION>
Exhibit No. Item
- ---------- ----
<S> <C>
(3.1) Restated Articles of Incorporation of Registrant (filed as an
Exhibit to Registrant's Form 10-K for fiscal year ended August
31, 1995)
(3.2) Bylaws of Registrant as amended and restated as of June 27,
1995 (filed as an Exhibit to Registrant's Form 10-K for the
fiscal year ended August 31, 1995)
(4.1) PENWEST, LTD. Common Stock Purchase Rights, dated June 3, 1988
(filed on Form 8-A dated June 3, 1988)
(10.1) Senior Note Agreement among PENWEST, LTD. as Borrower and
Mutual of Omaha and Affiliates as lenders, dated November 1,
1992 (filed as an Exhibit to Registrant's Form 10-Q for the
quarter ended February 28, 1993)
(10.2) Term Loan Agreement among Penford Products Co., and PENWEST,
LTD. as Borrowers, and First Interstate Bank of Washington,
N.A. as Lender, dated September 27, 1990 (Registrant agrees to
furnish a copy of this instrument to the Commission on request)
(10.3) Loan Agreement among PENWEST, LTD. as Borrower and
Seattle-First National Bank as Lender, dated December 1, 1989
(Registrant agrees to furnish a copy of this instrument to the
Commission on request)
(10.4) PENWEST, LTD. Supplemental Executive Retirement Plan, dated
March 19, 1990 (filed as an Exhibit to Registrant's Form 10-K
for the fiscal year ended August 31, 1991)
(10.5) PENWEST, LTD. Supplemental Survivor Benefit Plan, dated January
15, 1991 (filed as an Exhibit to Registrant's Form 10-K for the
fiscal year ended August 31, 1991)
(10.6) PENWEST, LTD. Deferred Compensation Plan, dated January 15,
1991 (filed as an Exhibit to Registrant's Form 10-K for the
fiscal year ended August 31, 1991)
(10.7) Change of Control Agreements with Messrs. Hamachek, Reed, Cook,
Widmaier, Schmelzer, Talley, Horn and Rydzewski (a
representative copy of these agreements is filed as an exhibit
to Registrant's Form 10-K for the fiscal year ended August 31,
1995.)
</TABLE>
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<TABLE>
<S> <C>
(10.8) PENWEST, LTD. 1993 Non-Employee Director Restricted Stock Plan
(filed as an Exhibit to Registrant's Form 10-Q for the quarter
ended November 30, 1993)
(10.9) Note Agreement dated as of October 1, 1994 among PENWEST, LTD.,
Principal Mutual Life Insurance Company and TMG Life Insurance
Company (filed as an Exhibit to Registrant's Form 10-Q for the
quarter ended February 28, 1995)
10.10 PENWEST, LTD. 1994 Stock Option Plan as amended and restated as
of January 23, 1996
(10.11) Credit Agreement dated as of December 22, 1995 among PENWEST,
LTD., and its subsidiaries, Bank of America National Trust and
Savings Association, ABN-AMRO Bank, N.V., The Bank of Nova
Scotia, and Seattle-First National Bank (filed as an Exhibit to
Registrant's Form 10-Q for the quarter ended February 29, 1996)
10.12 PENWEST, LTD. Stock Option Plan for Non-Employee Directors
11 Statement re: Computation of Earnings Per Share
27 Financial Data Schedule
</TABLE>
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<PAGE> 1
PENWEST, LTD.
1994 STOCK OPTION PLAN
(AS AMENDED JANUARY 23, 1996)
1. INTRODUCTION:
This Plan establishes the right of and procedures for PENWEST, LTD.
(the "Company") to grant stock options to its key employees. The Plan provides
for the granting of two types of options, namely, (1) Non-Statutory Stock
Options and (2) Incentive Stock Options. This Plan sets forth provisions
applicable to both types of options, to Non-Statutory Options only and to
Incentive Stock Options only.
2. PROVISIONS OF GENERAL APPLICATION:
The provisions of this Section 2 apply to both Non-Statutory Options
and Incentive Stock Options granted by the Company.
2.1 Objectives of the Plan:
The purpose of this Plan is to encourage ownership of Common Stock of
the Company by key employees of the Company and any subsidiary. This Plan is
intended to provide an incentive for maximum effort in the successful operation
of the Company and is expected to benefit the shareholders by enabling the
Company to attract and retain personnel of the best available talent through the
opportunity to share, by the proprietary interests created by this Plan, in the
increased value of the Company's shares to which such personnel have
contributed.
2.2 Stock Reserved for this Plan:
The stock reserved for issue upon the exercise of options granted under
this Plan will not exceed 500,000 shares of the Common Stock of the Company (the
"Shares"). Except to the extent provided by the last sentence of this Section
2.2, if any outstanding option under this Plan expires or is terminated for any
reason, Shares allocable to the unexercised portion of such option shall remain
available for other options under this Plan provided that the aggregate number
of Shares subject to options under this Plan shall not exceed 500,000 Shares.
The maximum number of Shares for which grants of options may be made to any
employee over the life of this Plan is 100,000. If an option granted to an
employee is canceled, the canceled option shall be counted against the maximum
number of shares for which options may be granted to the employee hereunder.
2.3 Administration of this Plan:
This Plan will be administered by the Compensation Committee of the
Board of Directors of the Company (the "Committee") composed of two or more
members all of whom shall be "disinterested persons" as defined in the rules and
regulations promulgated by the Securities and Exchange Commission pursuant to
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and all of whom shall be "outside directors" as defined in the regulations
promulgated by the Internal Revenue Service pursuant to Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code").
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A majority of the Committee shall constitute a quorum, and acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by all members of the Committee, shall be deemed the
acts of the Committee.
The Committee, after considering the recommendations of the President
and other officers of the Company, if the Committee shall deem the same
appropriate, shall:
(a) determine the number of shares subject to each option, the
terms thereof and the type of options to be granted, and direct the
President, or other officer in his absence, to enter into an
appropriate agreement evidencing such option;
(b) prescribe rules and regulations from time to time for
administration of this Plan;
(c) decide any questions arising as to the interpretation or
application of any provision of this Plan.
Any action, decision, interpretation or determination by the Committee
with respect to this Plan shall be final and binding upon all employees.
This Plan shall otherwise be administered in accordance with Section 16
of the Exchange Act, including where required or advisable any amendments
thereto or successor statutes.
2.4 Eligibility Facts to be Considered in Granting Options:
An option may be granted to any officer or key employee who, at the
time the option is granted, is a regular full time employee of the Company or of
any subsidiary. In its determination of an employee to whom an option shall be
granted and the number of Shares to be covered by such option, the Committee
shall take into account the duties of the employee, the present and potential
contributions of the employee to the success of the Company, the anticipated
number of years of service remaining before the attainment by the employee of
the age of retirement, and other factors deemed relevant by the Committee in
connection with accomplishing the purpose of this Plan. An employee who has been
granted an option to purchase Shares, whether under this Plan or otherwise, may,
if the Committee shall so determine, be granted additional options. As used in
this Plan, the term "Optionee" shall refer to the holder of an option granted
hereunder.
2.5 Vesting of Options:
The Committee shall have the authority to establish the conditions for
determining when the optioned Shares may be purchased, and whether all of the
options may be exercised at one time or in increments. The conditions for
vesting may include continued employment, attainment of individual,
departmental, divisional or Company goals, or such other conditions as the
Committee may designate.
2.6 Accelerated Vesting:
The Committee shall have the authority to establish criteria for
accelerating the vesting of options if certain events occur. The Committee may
provide for accelerated vesting in the case of such events as merger,
consolidation, reorganization, tender offer, takeover bid, sale of assets, or
dissolution.
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All options shall automatically vest upon the option holder's: (i) death, (ii)
"disability" as defined in, and determined in accordance with, the Company's
Supplemental Plan of Disability, or (iii) retirement (1) in accordance with the
Company's normal retirement policy or (2) prior to attaining sixty-five (65)
years of age provided specific approval of such vesting is given by the Company.
No such acceleration shall allow the holder of an option to purchase any
optioned Shares for which the options have expired.
2.7 Terms and Expiration of Options:
Each option granted under this Plan shall be in writing, shall be
subject to such amendment or modification from time to time as the Committee
shall deem necessary or appropriate to comply with, or take advantage of
applicable laws or regulations and shall contain provisions to the following
effect, together with such other provisions as the Committee shall from time to
time approve:
(a) that, subject to the provisions of Section 2.7(b) below,
the option, as to the whole or any part thereof, may be exercised only
by the Optionee or his or her personal representative;
(b) that neither the whole nor any part of the option shall be
transferable by the Optionee or by operation of law otherwise than by
the will of, or by the laws of descent and distribution applicable to,
a deceased Optionee and that the option and any and all rights granted
to the Optionee thereunder and not theretofore effectively and
completely exercised shall automatically terminate and expire upon any
sale, transfer or hypothecation or any attempted sale, transfer or
hypothecation of such rights or upon the bankruptcy or insolvency of
the Optionee or his or her estate;
(c) that subject to the foregoing provisions, an option may be
exercised at different times for portions of the total number of option
Shares for which the right to purchase or exercise shall have vested
provided that such portions are in multiples of five (5) Shares;
(d) that the Optionee shall have no right to receive any
dividend on or to vote or exercise and right in respect of any Shares
the certificate for which has not been issued to him or her;
(e) that the option shall each expire at the earliest of the
following:
(1) the date specified in the option;
(2) a date specified in the option but not later than
twelve (12) months after voluntary or involuntary termination
of the Optionee's employment other than termination as
described in Paragraph (3) below;
(3) upon the discharge of the Optionee for
misconduct, willfully or wantonly harmful to the Company;
(4) twelve (12) months after the Optionee's death or
disability;
(5) such earlier date as the Committee may specify in
the event of a merger, consolidation, reorganization, tender
offer, takeover bid, sale of assets, or dissolution;
3
<PAGE> 4
(f) that the terms of the option shall not be affected by any
change of the Optionee's duties or position so long as the Optionee
shall continue to be employed by the Company or a subsidiary.
2.8 Notice of Intent to Exercise Option:
The Optionee (or other person or persons, if any, entitled thereto
hereunder) desiring to exercise an option granted hereunder as to all or part of
the Shares covered thereby shall in writing notify the Company at its principal
office at Bellevue, Washington, to that effect specifying the number of option
Shares to be purchased. With respect to any Shares acquired pursuant to Section
2.6, the Optionee shall be deemed to have given to the Company the notice of
exercise required by this Section 2.8 ten (10) days prior to the closing or
effective date of any accelerating event.
2.9 Recapitalization:
The aggregate number of Shares for which options may be granted
hereunder, the number of Shares covered by each outstanding option and the price
per share thereof in each such option shall be proportionately adjusted for any
increase or decrease in the number of outstanding shares of Common Stock of the
Company resulting from a division or consolidation of shares or any other
increase or decrease in such shares effected without receipt of consideration by
the Company excluding any decrease resulting from the purchase of shares for the
treasury. If the adjustment would result in a fractional share, the Optionee
shall be entitled to one (1) additional share, provided that the total number of
Shares to be granted under this Plan shall not be increased above the equivalent
number of shares initially allocated to this Plan or subsequently approved by
the shareholders of the Company for issuance hereunder.
2.10 Termination and Amendment of this Plan:
The directors of the Company may at any time modify, amend or terminate
this Plan except with respect to options granted prior to such action, provided,
however, that no such amendment or modification shall increase the number of
Shares as to which options may be granted under this Plan or change the class of
employee to whom options may be granted under this Plan.
2.11 Granting of Options:
The granting of any option pursuant to this Plan shall be entirely in
the discretion of the Committee and nothing herein contained shall be construed
to give any officer or employee any right to participate under this Plan or to
receive any option under it.
The granting of an option pursuant to this Plan shall not constitute an
agreement or understanding, express or implied, on the part of the Company or a
subsidiary to employ the Optionee for any specified period.
2.12 Withdrawal:
An Optionee may at any time elect in writing to abandon an option with
respect to the number of Shares as to which the option shall not have been
exercised.
4
<PAGE> 5
2.13 Government Regulations:
This Plan and the granting and exercise of any option hereunder and the
obligations of the Company to sell and deliver Shares under any such option
shall be subject to all applicable laws, rules and regulations, and to such
approvals by any governmental agencies as may be required. This Plan shall be
governed by the laws of the State of Washington.
2.14 Shareholder Approval:
This Plan shall be submitted to the shareholders for their approval
within twelve (12) months - from the date hereof.
2.15 Compliance with Securities Laws:
The Committee shall have the right to:
(a) require an Optionee to execute, as a condition of the
exercise of an option, a letter evidencing the Optionee's intent to
acquire the Shares for investment and not with a view to the
distribution thereof;
(b) place appropriate legends upon the certificate or
certificates for the Shares; and
(c) take such other acts as it deems necessary in order to
cause the issuance of optioned Shares to comply with applicable
provisions of state and federal securities laws.
3. PROVISIONS APPLICABLE TO NON-STATUTORY AND INCENTIVE STOCK
OPTIONS:
The provisions of this Section 3 shall apply to Non-Statutory Options
and Incentive Stock Options.
3.1 Method of Exercise of Option:
Within ten (10) days after receipt by the Company of the notice
provided for in Section 2.8, but not later than the expiration date specified in
Section 2.7(e), the option shall be exercised as to the number of Shares
specified in the notice of payment to the Company of the amount specified in
either Section 4.2 or Section 5.5, as may be applicable. Payment of the purchase
price provided in the option shall be made in cash, in shares of the Company's
Common Stock, or in any combination of cash and shares of the Company's Common
Stock. Full or partial payment in shares of the Company's Common Stock shall be
deemed to be the equivalent of payment in cash of the fair market value of those
shares. For purposes of the preceding sentence and this Plan, "fair market
value" is defined as the average, if any, of the closing prices for the Common
Stock as of 4:00 p.m. Eastern Time on the date of exercise on the principal
trading exchange or national automated stock quotation system on which the
Common Stock is traded or quoted. Payment of the purchase price in shares of the
Company's Common Stock shall be subject to rules and procedures established by
the Committee including but not limited to any minimum holding period of the
shares used in payment of the purchase price.
5
<PAGE> 6
3.2 Holding Period:
Any Optionee who is an officer, director or ten percent (10%)
shareholder of the Company shall be precluded from selling or transferring any
Common Stock or other security of the Company underlying an option during the
six (6) months immediately following the grant of the option.
3.3 Substitutions and Assumptions:
The Committee shall have the right to substitute or assume options in
connection with mergers, reorganizations, separations or other "corporate
transactions" as that term is defined in and said substitutions and assumptions
are permitted by Section 425 of the Code, and the regulations promulgated
thereunder. The number of Shares reserved pursuant to Section 2.2 may be
increased by the corresponding number of options assumed and, in the case of a
substitution, by the net increase in the number of Shares subject to options
before and after the substitution.
3.4 Proceeds from Sale of Stock:
Proceeds of the purchase of optioned Shares by an Optionee shall be for
the general business purposes of the Company.
4. PROVISIONS APPLICABLE SOLELY TO NON-STATUTORY STOCK OPTIONS:
In addition to the provisions of Sections 2 and 3, the following
paragraphs shall apply to any options granted under this Plan which are not
Incentive Stock Options.
4.1 Option Price:
The option or purchase price of each Share optioned under this Plan
shall be determined by the Committee at the time the option is granted, provided
that the option price shall not be less than the fair market value of such
Shares on the date of grant.
4.2 Method of Exercise of Option:
The amount to be paid by the optionee upon exercise of a Non-Statutory
Option shall be the full purchase price thereof provided in the option, together
with the amount of federal, state or local taxes of any kind required to be
withheld by the Company. An Optionee may elect to pay his or her withholding
taxes by having the Company withhold shares of Company stock having a value
equal to the amount required to be withheld. The value of the shares to be
withheld is deemed to be equal to the fair market value of the shares on the day
the option is exercised. An election by an Optionee to have shares withheld for
this purpose will be subject to the following restrictions:
(a) if an Optionee has received multiple option grants, a
separate election must be made for each grant;
(b) the election must be made prior to the day the option is
exercised;
(c) the election will be irrevocable; and
6
<PAGE> 7
(d) the election will be subject to the disapproval of the
Committee.
5. PROVISIONS APPLICABLE SOLELY TO INCENTIVE STOCK OPTIONS:
In addition to the provisions of Sections 2 and 3, the following
paragraphs shall apply to any options granted under this Plan which are
Incentive Stock Options.
5.1 Conformance with Internal Revenue Code:
Options granted under this Plan which are "Incentive Stock Options"
shall conform to, be governed by and interpreted in accordance with, Section 422
of the Code and any regulations promulgated thereunder as well as any amendments
to the Code and such regulations.
5.2 Option Price:
The option or purchase price of each Share optioned under the Incentive
Stock Option provisions of this Plan shall be determined by the Committee at the
time of the action for the granting of the option but shall not, in any event,
be less than the fair market value of such Shares on the date of grant.
5.3 Limitation on Vesting of Incentive Stock Option:
The aggregate fair market value of the option Shares (determined on the
date of grant) with respect to which Incentive Stock Options are exercisable for
the first time by an Optionee during any calendar year (under this Plan and any
other plan of the Company or its subsidiaries which authorizes Incentive Stock
Options) shall not exceed $100,000.
5.4 Limitation on Grants to Substantial Shareholders:
An employee may not, immediately prior to the grant of an Incentive
Stock Option hereunder, own stock in the Company representing more than ten
percent (10%) of the voting power of all classes of stock of the Company unless
the per share option price specified by the Committee for the Incentive Stock
Options granted such an employee is at least one hundred ten percent (110%) of
the fair market value of the Company's stock on the date of grant and such
option, by its terms, is not exercisable after the expiration of five (5) years
from the date such option is granted.
5.5 Method of Exercise of Option:
The amount to be paid by the Optionee upon exercise of an Incentive
Stock Option shall be the full purchase price thereof provided in the option.
5.6 Time Limits on Grants and Exercises:
No Incentive Stock Option may be granted after October 26, 2004, and no
Incentive Stock Option may have a term of more than ten (10) years.
DATED as of this 26th day of October, 1994.
7
<PAGE> 8
PENWEST, LTD.
By /s/ Tod R. Hamachek
--------------------------------
Its President
--------------------------------
ATTEST:
/s/ Jeffrey T. Cook
- ---------------------------------
Its Secretary
------------------------------
8
<PAGE> 1
PENWEST, LTD.
STOCK OPTION PLAN
FOR
NON-EMPLOYEE DIRECTORS
1. PURPOSE.
The purpose of the PENWEST, LTD. Stock Option Plan for
Non-Employee Directors (the "Plan") is to promote the interests of PENWEST, LTD.
(the "Corporation") and its shareholders by encouraging Non-Employee Directors
of the Corporation to have a direct and personal stake in the performance of the
Corporation's Common Stock.
2. DEFINITIONS.
Unless the context clearly indicates otherwise, the following
terms have the meanings set forth below.
"Annual Option" means a stock option granted under Section 7.
"Board of Directors" or "Board" means the Board of Directors
of the Corporation.
"Business Day" means any day except Saturday, Sunday or a
legal holiday in the State of Washington.
"Change in Control" means (i) the first purchase of shares
pursuant to a tender offer or exchange offer (other than a
tender offer or exchange offer by the Corporation) for all or
part of the Common Stock or any securities convertible into
Common Stock, (ii) the receipt by the Corporation of a
Schedule 13D or other advice indicating that a person is the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of 20% or more of the Common Stock, (iii) the
date of approval by the shareholders of the Corporation of an
agreement providing for any consolidation or merger of the
Corporation in which the Corporation will not be the
continuing or surviving corporation or pursuant to which
shares of Common Stock would be converted into cash,
securities or other property, other than a merger of the
Corporation in which the holders of Common Stock immediately
prior to the merger would have the same proportion of
ownership of common stock of the surviving corporation
immediately after the merger, (iv) the date of approval by the
shareholders of the Corporation of any sale, lease, exchange
or other transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of the
Corporation, (v) the adoption of any plan or proposal for the
liquidation (but not a partial liquidation) or dissolution of
the Corporation or (vi) the date upon which the individuals
who constitute the Board
1
<PAGE> 2
of Directors as of September 1, 1995 (the "Incumbent Board")
cease to constitute at least a majority of the Board, provided
that any person becoming a director subsequent to such date
whose election, or nomination for election by the
Corporation's shareholders, was approved by at least
two-thirds of the directors comprising the Incumbent Board
shall be considered as though such person were a member of the
Incumbent Board.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation Committee of the Board of
Directors.
"Common Stock" means the common stock of PENWEST, LTD.
"Compensation" means for any Plan Year all retainer, meeting
and committee fees payable to a Non-Employee Director for
service on the Board of Directors and any board of directors
of the Corporation's Subsidiaries (a "Subsidiary Board").
"Deferral Election" means an election by a Non-Employee
Director under Section 8 to receive Deferred Compensation
Options in lieu of all of such Director's Compensation.
"Deferred Compensation Option" means a stock option granted in
connection with a Deferral Election under Section 8.
"Disability," as applied to a Grantee, has the meaning set
forth in Section 22(e)(3) of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" of a share of Common Stock on any
particular date means, (i) if the Common Stock is traded on
the NASDAQ National Market System, the last sales price of a
share of Common Stock on such system as reported for that date
by NASDAQ, and if no such sales are reported for such date,
the last sales price as reported by NASDAQ for the next
preceding date on which the sale of a share of Common Stock
took place, or (ii) if the Common Stock is traded on a
national exchange, the closing price of a share of Common
Stock on such exchange as reported for that date by the
principal consolidated transaction reporting system for such
exchange, and if no such sales are reported for such date, the
closing price as reported by such system for the next
preceding date on which the sale of a share of Common Stock
took place.
"Grant Date," as used with respect to an Option, means the
date on which such Option is granted pursuant to the Plan.
2
<PAGE> 3
"Grantee" means the Non-Employee Director to whom an Option is
granted pursuant to the Plan.
"Non-Employee Director" means a member of the Board of
Directors who is not an employee of the Corporation or any
Subsidiary.
"Option" means an Annual Option or a Deferred Compensation
Option granted pursuant to the Plan to purchase shares of
Common Stock which shall be a non-qualified stock option not
intended to qualify as an incentive stock option under Section
422 of the Code. Reference to "Options" shall include Annual
Options and Deferred Compensation Options.
"Payment Date" means September 1, December 1, March 1, and
June 1 in a Plan Year.
"Plan" means the PENWEST, LTD. Stock Option Plan for
Non-Employee Directors as set forth herein and as amended from
time to time.
"Plan Year" means each fiscal year beginning on September 1
and ending on August 31, commencing with the fiscal year
beginning on September 1, 1995.
"Retirement," as applied to a Non-Employee Director, means
when such Director ceases to serve as a member of the Board
because of failure to meet the eligibility requirements set
forth in the Corporation's bylaws.
"Subsidiary" means a "subsidiary corporation" of the
Corporation as defined in Section 425(f) of the Code.
3. ADMINISTRATION.
The Plan shall be administered by the Committee. The Committee
shall have full authority to make such rules and regulations as it deems
necessary to administer the Plan and to interpret and administer the provisions
of the Plan. Any determination, decision or action of the Committee in
connection with the construction, interpretation, administration or application
of the Plan shall be final and binding on all parties.
4. ELIGIBILITY.
The persons eligible to receive Options under the Plan are the
Non-Employee Directors.
5. EFFECTIVE DATE OF THE PLAN AND TERM OF OPTION PERIOD.
The Plan shall become effective upon its adoption by the Board
of Directors, provided, that if the Plan is not approved by the Corporation's
shareholders within 12 months of
3
<PAGE> 4
its adoption by the Board, then the Plan and all awards under the Plan shall be
void from inception. The term during which awards may be granted under the Plan
shall expire on the tenth anniversary of the adoption of the Plan by the Board
of Directors. The period during which an Option granted under the Plan may be
exercised shall expire on the earlier of the tenth anniversary of the Grant Date
of such Option or the third anniversary of the date the Grantee ceases to be a
member of the Board.
6. SHARES SUBJECT TO THE PLAN.
The shares of Common Stock that may be delivered upon the
exercise of Options under the Plan shall be shares of the Corporation's
authorized Common Stock and may be unissued shares or treasury shares. Subject
to adjustment as provided in Section 14, the aggregate number of shares subject
to Option grants under the Plan is 500,000 shares of Common Stock. If any shares
are subject to an Option which expires or terminates during the term of the Plan
prior to the issuance of such shares, such shares shall be available for
issuance under the Plan.
7. ANNUAL OPTIONS.
(a) Grant of Annual Options. Commencing on September 1, 1995
and on each September 1 thereafter during the term of the Plan, each
Non-Employee Director of the Corporation shall automatically be granted a stock
option to purchase the number of shares of Common Stock (rounded to the nearest
share) determined by dividing (i) $10,000 by (ii) 25% of the Fair Market Value
of a share of Common Stock on such September 1, upon the terms and conditions
specified in the Plan. If a Non-Employee Director will not serve during the full
Plan Year due to Retirement, then such Director shall receive a pro rata award
of such shares for such year based on the number of full months of service of
such Director during such year.
(b) Terms of Annual Options. Each Annual Option shall have the
following terms and conditions:
(i) Price. The exercise price per share of each
Annual Option shall equal 75% of the Fair
Market Value of a share of Common Stock on
the Grant Date;
(ii) Term. The term of each Annual Option shall
expire on the earlier of the tenth
anniversary of its Grant Date or the third
anniversary of the date the Grantee ceases
to be a member of the Board;
(iii) Time of Exercise. Unless an Annual Option is
terminated or the time of its exercisability
is accelerated in accordance with the Plan,
each Annual Option shall be exercisable in
full following six months from its Grant
Date;
4
<PAGE> 5
(iv) Acceleration of Exercisability.
Notwithstanding the schedule provided in
subparagraph (iii), an Annual Option shall
become fully exercisable upon the Grantee's
death or withdrawal from the Board of
Directors by reason of Disability or
Retirement or upon a Change in Control; and
(v) Option Agreement. Each Annual Option shall
be evidenced by an option agreement duly
executed on behalf of the Corporation.
8. DEFERRED COMPENSATION OPTIONS.
(a) Grant of Deferred Compensation Options. On each Payment
Date in a Plan Year, each Non-Employee Director who has made a Deferral Election
pursuant to paragraph (c) for such Plan Year automatically shall be granted a
Deferred Compensation Option to purchase the number of shares of Common Stock
(rounded to the nearest share) determined by dividing (i) the amount of
Compensation payable to such Non-Employee Director as of such Payment Date
divided by (ii) 25% of the Fair Market Value of a share of Common Stock on such
Payment Date.
(b) Terms of Deferred Compensation Options. Each Deferred
Compensation Option shall have the following terms and conditions:
(i) Price. The exercise price per share of each
Deferred Compensation Option shall equal 75%
of the Fair Market Value of a share of
Common Stock on the Grant Date;
(ii) Term. The term of each Deferred Compensation
Option shall expire on the earlier of the
tenth anniversary of its Grant Date or the
third anniversary of the date the Grantee
ceases to be a member of the Board;
(iii) Time of Exercise. Unless a Deferred
Compensation Option is terminated or the
time of its exercisability is accelerated in
accordance with the Plan, each Deferred
Compensation Option shall be exercisable in
full following six months from its Grant
Date;
(iv) Acceleration of Exercisability.
Notwithstanding the schedule provided in
subparagraph (iii), a Deferred Compensation
Option shall become fully exercisable upon
the Grantee's death or withdrawal from the
Board by reason of Disability or Retirement
or upon a Change in Control; and
5
<PAGE> 6
(v) Option Agreement. Each Deferred Compensation
Option shall be evidenced by an option
agreement duly executed on behalf of the
Corporation.
(c) Deferral Elections. Each Non-Employee Director may elect
to receive Deferred Compensation Options in lieu of all of such Non-Employee
Director's Compensation during a Plan Year. Each Deferral Election shall be in
the form of a written notice and shall set forth the Non-Employee Director's
election to receive Deferred Compensation Options during the Plan Year. Each
Deferral Election shall specify the Plan Year covered by the Deferral Election,
must be made not later than 10 days prior to the first day of such Plan Year
covered by the Deferral Election and shall be irrevocable.
9. EXERCISE OF OPTIONS.
(a) Each Option granted shall be exercisable in whole or in
part at any time, or from time to time, during the Option term as specified in
the Plan. The election to exercise an Option shall be made in accordance with
Federal laws and regulations. Each Option may be exercised by delivery of a
written notice to the Corporation stating the number of shares to be exercised
and accompanied by the payment of the Option exercise price therefor in
accordance with this Section. The Grantee shall furnish the Corporation, prior
to the delivery of any shares upon the exercise of an Option, with such other
documents and representations as the Corporation may require, to assure
compliance with laws and regulations.
(b) No shares shall be delivered pursuant to the exercise of
any Option until qualified for delivery under securities laws and regulations
and until payment of the Option price is received by the Corporation in cash, by
check or in shares of Common Stock as provided in Section 10.
10. STOCK AS FORM OF EXERCISE PAYMENT.
A Grantee who owns shares of Common Stock may elect to use
previously acquired shares, valued at the Fair Market Value on the last Business
Day preceding the date of delivery of such shares, to pay all or part of the
exercise price of an Option, provided, however, that such form of payment shall
not be permitted unless the shares delivered have been held by the Grantee for
at least six months.
11. WITHHOLDING TAXES FOR AWARDS.
Each Grantee exercising an Option as a condition to such
exercise shall pay to the Corporation the amount, if any, required to be
withheld from distributions resulting from such exercise under federal and state
income tax laws ("Withholding Taxes"). Such Withholding Taxes shall be payable
as of the date income from the award is includable in the Grantee's gross income
for Federal income tax purposes (the "Tax Date"). The Grantee may satisfy this
requirement by remitting to the Corporation in cash or by check the amount of
such Withholding Taxes or a number of previously owned shares of Common Stock
having an aggregate Fair
6
<PAGE> 7
Market Value as of the last Business Day preceding the Tax Date equal to the
amount of such Withholding Taxes.
12. TRANSFER OF AWARDS.
Options granted under the Plan may not be transferred except
by will or the laws of descent and distribution or pursuant to a qualified
domestic relations order, as defined in the Code.
13. CHANGES IN COMMON STOCK.
In the event of a merger, consolidation, reorganization,
recapitalization, stock dividend, stock split or other change in corporate
structure or capitalization affecting the Common Stock, such appropriate
adjustment shall be made in the number, kind, option price and other terms of
shares subject to Options granted under the Plan, including appropriate
adjustment in the maximum number of shares referred to in Section 6, as may be
determined by the Committee.
14. REGULATORY COMPLIANCE.
The Corporation will not be obligated to issue shares of
Common Stock upon the exercise of any Option granted under the Plan if counsel
to the Corporation determines that such issuance would violate any law or
regulation of any governmental authority.
15. NO RIGHTS AS SHAREHOLDERS.
No Grantee, and no beneficiary or other person claiming
through a Grantee, shall have any interest in any shares of Common Stock
allocated for the purpose of the Plan or subject to any award until such person
shall have become a holder of record of such shares.
16. BOARD MEMBERSHIP.
Nothing in the Plan or in any Option shall confer upon any
Grantee any right to continue as a director of the Corporation.
17. AMENDMENT AND DISCONTINUANCE.
Subject to the limitation that the provisions of the Plan
shall not be amended more than once every six months other than to comport with
changes in the Code, the Employee Retirement Income Security Act or the rules
thereunder, the Board of Directors may amend, suspend, or discontinue the Plan,
but may not, without the approval of a majority of the holders of the Common
Stock, make any amendment which would (a) materially increase the benefits
accruing to Grantees under the Plan, (b) materially increase the number of
shares which may be issued under the Plan, or (c) materially modify the
requirements as to eligibility for participation in the Plan.
7
<PAGE> 8
18. COMPLIANCE WITH RULE 16b-3.
The Plan and all awards under the Plan are intended to satisfy
the conditions of Rule 16b-3 of the Securities and Exchange Commission, and all
provisions of the Plan shall be construed so as to effectuate that intent. If
any provision of the Plan is found not to comply with Rule 16b-3, then such
provision shall be deemed to be of no force and effect.
Adopted by the Board of Directors on August 14, 1995, subject
to approval of the Corporation's shareholders.
8
<PAGE> 1
Exhibit 11
PENWEST, LTD. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
May 31 May 31
------ ------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY:
Net income $1,030,000 $2,000,000 $3,684,000 $5,910,000
========== ========== ========== ==========
Weighted average number of
shares outstanding 6,844,413 6,748,542 6,856,945 6,767,475
Net effect of dilutive stock options 141,392 209,015 208,420 289,970
---------- ---------- ---------- ----------
Adjusted shares outstanding 6,985,805 6,957,557 7,065,365 7,057,445
========== ========== ========== ==========
Earnings per share $ 0.15 $ 0.29 $ 0.52 $ 0.84
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets at May 31, 1996 (unaudited), the Condensed
Consolidated Statements of Income at May 31, 1996 (unaudited), and the Condensed
Consolidated Statements of Cash Flow at May 31, 1996 (unaudited) and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> MAR-01-1996
<PERIOD-END> MAY-31-1996
<CASH> 1,171
<SECURITIES> 0
<RECEIVABLES> 26,728
<ALLOWANCES> 0
<INVENTORY> 17,481
<CURRENT-ASSETS> 49,698
<PP&E> 117,372
<DEPRECIATION> 0
<TOTAL-ASSETS> 195,707
<CURRENT-LIABILITIES> 19,188
<BONDS> 0
0
0
<COMMON> 8,677
<OTHER-SE> 67,801
<TOTAL-LIABILITY-AND-EQUITY> 195,707
<SALES> 49,106
<TOTAL-REVENUES> 49,106
<CGS> 37,565
<TOTAL-COSTS> 37,565
<OTHER-EXPENSES> 8,793
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,188
<INCOME-PRETAX> 1,560
<INCOME-TAX> 530
<INCOME-CONTINUING> 1,030
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,030
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
