<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
PENWEST, LTD
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
BELLEVUE, WASHINGTON
December 12, 1996
Dear Shareholders:
You are cordially invited to attend the annual meeting of shareholders of
PENWEST, LTD. to be held on Tuesday, January 21, 1997 at 10:30 a.m. at the
Seattle Art Museum, 100 University Street, Seattle, Washington.
Information concerning the business to be conducted at the meeting is
contained in the accompanying Notice of Annual Meeting of Shareholders and Proxy
Statement. The principal business of the meeting will be (1) to elect four
directors, (2) to amend the PENWEST, LTD. 1994 Stock Option Plan, and (3) to
ratify the selection of independent auditors for the Company. At the meeting, we
also will report on the business operations of PENWEST and respond to any
questions you might have.
It is important that your shares be represented at the meeting. Accordingly,
whether or not you plan to attend, please sign, date and return promptly the
enclosed proxy in the enclosed envelope.
Very truly yours,
[SIGNATURE]
TOD R. HAMACHEK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
PENWEST, LTD.
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JANUARY 21, 1997
------------------------
To the Shareholders:
The annual meeting of shareholders of PENWEST, LTD. will be held at the
Seattle Art Museum, 100 University Street, Seattle, Washington, on January 21,
1997, at 10:30 a.m., for the following purposes:
1. To elect four directors;
2. To amend the PENWEST, LTD. 1994 Stock Option Plan;
3. To ratify the selection of Ernst & Young LLP as independent auditors
for the current fiscal year; and
4. To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on November 26, 1996
are entitled to notice of, and to vote at, the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
[SIGNATURE]
JENNIFER L. GOOD
CORPORATE SECRETARY
December 12, 1996
- --------------------------------------------------------------------------------
IMPORTANT
Whether or not you plan to attend the meeting, please sign, date and return
promptly the enclosed proxy in the enclosed envelope, which requires no
postage if mailed in the United States. PROMPTLY SIGNING, DATING AND
RETURNING THE PROXY WILL SAVE THE COMPANY THE ADDITIONAL EXPENSE OF FURTHER
SOLICITATION.
- --------------------------------------------------------------------------------
<PAGE>
PENWEST, LTD.
777 - 108TH AVENUE N.E., SUITE 2390
BELLEVUE, WASHINGTON 98004-5193
------------------------
PROXY STATEMENT
------------------------
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of PENWEST, LTD. ("PENWEST" or the "Company")
to be voted at the annual meeting of the shareholders of the Company to be held
at 10:30 a.m. on January 21, 1997. Shareholders who execute proxies may revoke
them at any time prior to their exercise, by delivering a written revocation to
the Secretary of the Company, by submission of a proxy with a later date or by
voting in person at the meeting. These proxy materials, together with the
Company's annual report to shareholders, are being mailed to shareholders on or
about December 12, 1996.
Shareholders of record at the close of business on November 26, 1996 will be
entitled to vote at the meeting on the basis of one vote for each share held. On
November 26, 1996, there were outstanding 6,851,257 shares of common stock of
the Company (net of 1,832,752 treasury shares).
1. ELECTION OF DIRECTORS
The Board of Directors, which consists of nine members as authorized by the
Company's Bylaws, is divided into three classes. Directors in each class are
elected for a three-year term. This year, Messrs. Freiman, Hatfield, Mullikin
and Rogers, all of whom are current directors, have been nominated to be
reelected for a term that expires at the annual meeting of shareholders to be
held in 2000. The Board of Directors recommends a vote for their reelection, and
unless a shareholder indicates otherwise, each signed proxy will be voted for
the election of these nominees.
Management expects that each of the nominees will be available for election,
but if any of them is not a candidate at the time the election occurs, it is
intended that the proxies will be voted for the election of another nominee to
be designated to fill any such vacancy by the Board of Directors.
The candidates elected are those receiving the largest number of votes cast
by the shares entitled to vote in the election, up to the number of directors to
be elected. Shares held by persons who abstain from voting on the election and
broker "non-votes" will not be counted in the election.
NOMINEES FOR REELECTION
PAUL E. FREIMAN, 62, has served as a director of the Company since April
1996. Mr. Freiman was Chairman and Chief Executive Officer of Syntex
Corporation, a pharmaceutical company, from 1990 to 1995.
PAUL H. HATFIELD, 60, has served as a director of the Company since October
1994. Mr. Hatfield has served as Chairman, President and Chief Executive Officer
of Petrolite Corporation, which provides products and services to the
petrochemicals and other industries ("Petrolite"), since November 1995. He was a
Vice President of the Ralston-Purina Company ("Ralston") and President and Chief
Executive Officer of Ralston's wholly-owned subsidiary, Protein Technologies
International, Inc., from 1988 to 1995. He is also a director of DEKALB Genetics
Corporation.
1
<PAGE>
HARRY MULLIKIN, 69, has served as a director of the Company since 1990. Mr.
Mullikin has served as Chairman Emeritus of Westin Hotels and Resorts since 1989
and was its Chairman of the Board from 1981 to 1989 and Chief Executive Officer
from 1977 to 1989. He is also a director of Seafirst Corporation and its
subsidiary, Seattle-First National Bank.
N. STEWART ROGERS, 66, has served as Chairman of the Board of Directors of
the Company since 1990 and as a director since 1983. Mr. Rogers was Senior Vice
President of Univar Corporation, a distributor of industrial and agricultural
chemicals ("Univar"), from 1989 to 1992. He is also a director of Fluke
Corporation, U.S. Bancorp and VWR Scientific Products Corporation. Mr. Rogers is
the father-in-law of Jeffrey T. Cook, the Vice President, Finance and Chief
Financial Officer of the Company.
CONTINUING DIRECTORS -- TERM EXPIRES 1998
TOD R. HAMACHEK, 50, has served as President and Chief Executive Officer of
the Company since 1985 and as a director since 1983. Mr. Hamachek is also a
director of DEKALB Genetics Corporation and Northwest Natural Gas Company.
SALLY G. NARODICK, 51, has served as a director of the Company since August
1993. Ms. Narodick served as Chairman and Chief Executive Officer of Edmark
Corporation, an educational software company ("Edmark"), from 1989 to September
1996. She is also a director of Edmark and Washington Energy Company.
CONTINUING DIRECTORS -- TERM EXPIRES 1999
RICHARD E. ENGEBRECHT, 69, has served as a director of the Company since
1983. Mr. Engebrecht has served as Chairman of PrimeSource Corporation since
1994. He was Chairman of Momentum Corporation, a distributor of graphic arts,
photographic, upholstery and bedding supplies ("Momentum"), from 1990 to
September 1994 and was its Chief Executive Officer from 1990 until his
retirement in 1992. He was President and Chief Executive Officer of VWR
Scientific Products Corporation, a distributor of laboratory equipment and
supplies ("VWR"), from 1986 to 1990. He is also a director of VWR and SeaMED
Corporation.
WILLIAM G. PARZYBOK, JR., 54, has served as a director of the Company since
August 1993. Mr. Parzybok has served as Chairman of the Board and Chief
Executive Officer of Fluke Corporation, a manufacturer of electronic test and
measurement instruments, since 1991. He was Vice President and General Manager
of Engineering Applications Group of Hewlett Packard Company from 1988 to 1991.
WILLIAM K. STREET, 66, has served as a director of the Company since 1983.
Mr. Street has served as President of The Ostrom Company, growers and
distributors of mushrooms, since 1965. In 1989 Mr. Street filed for
reorganization under Chapter 11 of the U.S. Bankruptcy Code to address a
liability resulting from his personal guarantee of a United States government
loan made to The Ostrom Company. The reorganization under Chapter 11 was
dismissed by the court on August 7, 1992.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of November 26, 1996,
regarding the beneficial ownership of the Company's common stock by any person
known to the Company to be the beneficial owner of more than five percent of
such outstanding common stock, by the directors, by the executive officers named
in the Summary Compensation Table, and by the directors and executive officers
as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
OF PERCENT
NAME (AND ADDRESS FOR BENEFICIAL OWNERS OVER 5%) COMMON STOCK (1) OF CLASS
- ------------------------------------------------------------------------ ---------------------- ------------
<S> <C> <C>
David L. Babson & Co., Inc. ............................................ 553,300 8.1%
One Memorial Drive
Cambridge, MA 02142
Wellington Management .................................................. 396,420 5.8
75 State Street
Boston, MA 02109
James H. Wiborg ........................................................ 350,330(2) 5.1
c/o PENWEST, LTD.
777 - 108th Avenue N.E.
Bellevue, WA 98004
Jeffrey T. Cook......................................................... 164,887(3) 2.4
Richard E. Engebrecht................................................... 65,040 1.0
Paul E. Freiman......................................................... 986 *
Tod R. Hamachek......................................................... 335,392 4.9
Paul H. Hatfield........................................................ 8,527 *
Harry Mullikin.......................................................... 16,723 *
Sally G. Narodick....................................................... 2,446 *
William G. Parzybok, Jr................................................. 2,446 *
N. Stewart Rogers....................................................... 133,484(4) 1.9
Francis C. Rydzewski.................................................... 6,376 *
William K. Street....................................................... 33,574(5) *
John V. Talley, Jr...................................................... 7,663 *
Robert G. Widmaier...................................................... 27,277 *
All directors and executive officers as a group (16 persons)............ 817,033 11.9
</TABLE>
- ------------------------
* Represents less than 1%.
(1) Unless otherwise indicated, beneficial ownership represents sole voting and
investment power. Includes shares that may be acquired within 60 days
through the exercise of stock options, as follows: Mr. Cook, 11,250; Mr.
Hamachek, 257,242; Mr. Rydzewski, 3,000; Mr. Talley, 6,000; Dr. Widmaier,
13,500; and all directors and executive officers as a group, 299,992.
(2) Includes 10,800 shares owned by the University of Puget Sound and 29,201
shares held in certain Laird Norton trusts over which Mr. Wiborg shares
voting and investment power.
(3) Includes 73,800 shares held in irrevocable trusts for which Mr. Cook shares
voting and investment power.
(4) Includes 11,538 shares held in irrevocable trusts for which Mr. Rogers has
sole voting and investment power.
(5) Includes 28,128 shares owned by Mr. Street's spouse as to which Mr. Street
disclaims beneficial ownership.
3
<PAGE>
COMMITTEES OF THE BOARD AND DIRECTOR FEES
The Board of Directors has the following standing committees:
AUDIT AND ENVIRONMENTAL, HEALTH AND SAFETY COMMITTEE -- This committee
consists of Messrs. Engebrecht (Chairperson), Hatfield and Street and Ms.
Narodick. The committee recommends to the Board the selection of the
independent auditors, reviews the proposed scope of the independent
audit, reviews the annual financial statements and the independent
auditor's report, reviews the independent auditor's recommendations
relating to accounting, internal controls and other matters, reviews
internal controls and accounting procedures with management, approves
policies relating to environmental, health and safety matters, and
resolves conflict of interest issues.
COMPENSATION COMMITTEE -- This committee consists of Messrs. Mullikin
(Chairperson), Freiman, Hatfield and Parzybok. The committee reviews
current remuneration of the directors and the executive officers of the
Company and makes recommendations to the Board regarding appropriate
periodic adjustments of such amounts. The committee also makes
recommendations regarding the Company's benefit plans, the bonus plan and
the grants of stock options to officers and employees under the Company's
stock option plan.
EXECUTIVE COMMITTEE -- This committee consists of Messrs. Rogers
(Chairperson), Engebrecht, Freiman and Hamachek. The committee is
authorized to exercise all powers and authority of the Board with certain
exceptions.
NOMINATING COMMITTEE -- This committee consists of Messrs. Hatfield
(Chairperson) and Parzybok and Ms. Narodick. The committee proposes
nominees for election by the shareholders at each annual meeting and
candidates to fill any vacancies. The Company's Restated Articles of
Incorporation allow a majority of disinterested directors (generally,
directors who are not affiliated with any shareholder owning 5% or more
of the Company's outstanding voting stock) or persons beneficially owning
1% or more of the outstanding shares of voting stock when cumulative
voting is in effect as a result of a shareholder owning 40% or more of
the Company's outstanding voting stock to nominate candidates for
election as a director and to have information relating to such nominees
included in the Company's proxy statement. The procedures to be followed
in the case of any such nomination are set forth in the Bylaws of the
Company. The committee also makes recommendations for other committee
appointments.
PENSION COMMITTEE -- This committee consists of Ms. Narodick
(Chairperson) and Messrs. Mullikin, Rogers and Street. The committee
makes recommendations to the Board regarding the Company's retirement
plans, directs the investment, directly or indirectly through trustees or
investment managers, of the assets of such plans and reviews investment
manager performance.
The Audit and Environmental, Health and Safety Committee met three times,
the Compensation Committee met three times, the Executive Committee met two
times, the Nominating Committee met one time, the Pension Committee met two
times, and the Board of Directors met six times during the fiscal year ended
August 31, 1996. All directors attended 75% or more of the aggregate number of
Board meetings and meetings of committees on which they served.
4
<PAGE>
Non-employee directors were compensated during the last fiscal year as
follows:
<TABLE>
<S> <C>
Annual retainer for Chairman of the Board of Directors.................... $ 30,000
Annual retainer as a director............................................. 9,000
Annual retainer as Chairman of the Executive Committee.................... 4,000
Annual retainer as Chairman of all other standing committees.............. 2,000
Fee for each meeting of the of Board of Directors attended................ 1,000
Fee for each meeting of the Board of Directors attended when held out of
state of director's residence............................................ 2,000
Fee for Chairman of each standing committee for each meeting attended..... 1,000
Fee for member of each standing committee for each meeting attended....... 1,000
Reimbursement for all reasonable expenses incurred in attending Board or
committee meetings
</TABLE>
Under a deferred compensation plan, non-employee directors may elect to defer
with interest all or part of such compensation.
Non-employee directors also receive restricted stock under a restricted
stock plan. The plan provides that every three years, commencing on September 1,
1993, each non-employee director will be awarded $18,000 worth of common stock
of the Company, based on the last reported sale price of the stock on the
preceding trading day. A person who becomes a non-employee director after a
September 1 on which an award was made will be awarded the number of shares
determined by dividing the amount equal to $18,000 minus the product of $600
times the number of months since such September 1 by the last reported sale
price of the stock on the trading day next preceding the award date. A
non-employee director may sell or otherwise transfer one-third of the shares
covered by an award on each anniversary of the date of the award. If a
non-employee director ceases to be a director before the restrictions against
transfer have lapsed with respect to any shares, then, except in certain
circumstances, the director must forfeit such shares.
In addition, non-employee directors receive stock options under a stock
option plan. The plan provides that on each September 1, each non-employee
director will automatically be granted an option to purchase the number of
shares of the Company's common stock equal to $10,000 divided by 25% of the fair
market value of a share of such stock on such date. The exercise price is 75% of
the fair market value of a share of such stock on the grant date. If a
non-employee director will not serve during the full fiscal year due to
retirement, then a pro rata award will be made. Accordingly, on September 1,
1995, each non-employee director was granted on option to purchase 1,600 shares
of common stock (based on a price of $25.00 for such a share on that date),
except that one non-employee director who retired in October 1995 was granted an
option to purchase 267 shares. Each non-employee director also may elect to
receive during a fiscal year a stock option in lieu of director cash
compensation for that year. Grants of these options, if so elected, occur
quarterly. The number of shares subject to each option is equal to the amount of
compensation (retainer, meeting and committee fees) payable to the non-employee
director as of the quarterly date divided by 25% of the fair market value of a
share of the Company's common stock on the grant date. The exercise price for
these deferred compensation options is 75% of the fair market value of a share
of such stock on the grant date. In fiscal 1996, the following non-employee
directors elected to receive such options in lieu of director cash compensation:
Messrs. Engebrecht, Hatfield, Mullikin, Rogers and Street and Ms. Narodick.
Unless an option granted under the plan is terminated or its exercisability is
accelerated in accordance with the plan upon the occurrence of certain events
(including a change of control), the option is exercisable six months after its
grant date. The options terminate at the earlier of ten years after the date of
grant or three years after the date the non-employee director ceases to be a
member of the Board.
5
<PAGE>
EXECUTIVE COMPENSATION
Compensation paid by the Company during fiscal years 1996, 1995 and 1994 for
the Chief Executive Officer and the other four most highly compensated executive
officers is set out in the following table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) # ($)(3)
- ------------------------------------------ --------- --------- --------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Tod R. Hamachek
President and Chief Executive Officer.... 1996 340,000 123,636 0 0 22,174
1995 315,000 314,967 2,915 0 49,989
1994 306,250 275,266 932 0 28,435
Francis C. Rydzewski (4)
Vice President........................... 1996 187,500 52,072 0 0 7,000
1995 74,043 47,731 0 15,000 330
Jack V. Talley, Jr.(4)
Vice President........................... 1996 180,000 58,183 0 0 9,785
1995 165,000 67,233 0 40,000 10,934
1994 111,057 25,000 0 10,000 3,935
Jeffrey T. Cook
Vice President, Finance and
Chief Financial Officer................. 1996 152,000 37,793 0 0 10,991
1995 142,000 87,375 0 35,000 9,477
1994 133,250 76,362 0 0 9,899
Robert G. Widmaier
Vice President, Technical Director
and Chief Innovation Officer............ 1996 140,000 34,810 0 0 11,071
1995 131,000 80,607 176 32,000 10,895
1994 122,250 70,447 15 0 9,222
</TABLE>
- ------------------------
(1) Reflects bonuses earned during the fiscal year, but paid in the next fiscal
year.
(2) These amounts represent the portion of interest earned on deferred
compensation above 120% of the applicable federal rate.
(3) These amounts represent the Company's matching and profit sharing
contributions under the PENWEST Savings and Stock Ownership Plan and
premiums paid on behalf of the named executive officers for supplemental
life and disability insurance plans.
(4) Mr. Rydzewski joined PENWEST in March 1995. Mr. Tally joined PENWEST in
December 1993.
6
<PAGE>
The Company has a stock option plan pursuant to which options to purchase
common stock are granted to officers and key employees of the Company. The plan
is administered by the Compensation Committee of the Board of Directors, which
determines to whom the options are granted, the number of shares subject to each
option, the vesting schedule and the exercise price. The plan and related
agreements contain provisions that, in certain circumstances, may cause the date
of exercise of such option to accelerate upon a change of control of the
Company. No stock options were granted to the named executive officers of the
Company in fiscal 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
ACQUIRED VALUE AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(1)
ON EXERCISE REALIZED -------------------------- --------------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- ----------------- ------------- ----------- ------------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Tod R. Hamachek................... 0 0 291,484 0 2,967,742 0
Francis C. Rydzewski.............. 0 0 3,000 12,000 0 0
Jack V. Talley, Jr................ 0 0 6,000 44,000 0 0
Jeffrey T. Cook................... 0 0 11,250 58,750 0 0
Robert G. Widmaier................ 0 0 13,500 56,500 0 0
</TABLE>
- ------------------------
(1) Values are calculated by subtracting the exercise price from the fair market
value of the stock as of August 31, 1996.
RETIREMENT BENEFITS
<TABLE>
<CAPTION>
YEARS OF SERVICE
COVERED --------------------------------------------------
COMPENSATION (1) 20 25 30 35
- ---------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
$ 200,000 $ 57,242 $ 71,553 $ 85,864 $ 100,174
300,000 87,242 109,053 130,864 152,674
400,000 117,242 146,553 175,864 205,174
500,000 147,242 184,053 220,864 257,674
600,000 177,242 221,553 265,864 310,174
700,000 207,242 259,053 310,864 362,674
800,000 237,242 296,553 355,864 415,174
900,000 267,242 334,053 400,864 467,674
</TABLE>
- ------------------------
(1) Represents the highest average annual earnings during five consecutive
calendar years of service.
The Company has a defined benefit retirement plan (the "Retirement Plan").
The table above shows the estimated annual benefits payable on retirement under
the Retirement Plan to persons in the specified compensation and years of
service classifications. The retirement benefits shown are based upon retirement
at age 65 and the payments of a single-life annuity to the employee using
current average Social Security wage base amounts and are not subject to any
deduction for Social Security or other offset amounts. With certain exceptions,
the Internal Revenue Code restricts to an aggregate amount of $120,000 (subject
to cost of living adjustments) the annual pension that may be paid by an
employer from a plan which is qualified under the Code. The Code also limits the
covered compensation which may be used to determine benefits to $150,000
beginning in 1994. The Board of Directors has established supplemental benefits
for certain highly compensated employees to whom this limit applies, or will
apply in the future, so that these employees will obtain the benefit of the
7
<PAGE>
formula that would have applied in the absence of the limitation. Executive
officers entitled to receive supplemental benefits as of August 31, 1996 were
Messrs. Hamachek, Rydzewski, Talley, Cook and Widmaier.
Compensation of executive officers covered by the Retirement Plan includes
salaries and bonuses as shown in the Salary and Bonus columns of the Summary
Compensation Table. Compensation of all other employees covered by the
Retirement Plan includes salaries, commissions and bonuses. All regular,
full-time employees not members of a collective bargaining unit are eligible to
participate in the Retirement Plan.
As of August 31, 1996, the approximate years of credited service (rounded to
the nearest year) under the Retirement Plan of the named executive officers
were: Mr. Hamachek, 13, Mr. Rydzewski, 2; Mr. Talley, 3; Mr. Cook, 15; and Dr.
Widmaier, 14.
8
<PAGE>
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation Committee of PENWEST'S Board of Directors (the "Committee")
is comprised of non-employee, outside directors. The Committee is broadly
charged by the Board of Directors with the following responsibilities:
-Establishing compensation and incentive programs that are directly tied to
the long-term financial performance of PENWEST, specifically, return on
operating capital and/or return on net assets.
-Encouraging meaningful levels of PENWEST stock ownership for key personnel.
-Directing and monitoring benefit programs for all PENWEST employees.
Following review and approval by the Committee, issues pertaining to
executive compensation are submitted to the full Board of Directors for approval
or ratification.
Since its spin-off from Univar in 1984, PENWEST has maintained the
philosophy that compensation of its executive officers should be directly and
materially linked to the long-term results shareholders receive.
The executive compensation program consists of base salary, the Management
Incentive Compensation Program (MICP) based primarily on return on operating
capital exceeding PENWEST's cost of capital, and stock-based incentive programs.
PENWEST also contributes to savings and retirement programs.
BASE SALARY
The Committee uses outside consultants to identify competitive salary grades
and ranges. The Committee directs the outside firm to consider similar sized
companies (based on market capitalization), geographic factors, similar
market-related companies, and growth profiles of other companies. These
competitive standards are reviewed every eighteen months and are targeted
towards the 50th percentile of the companies surveyed. In addition, an executive
officer's performance and potential, as well as changes in duties and
responsibilities, are factors that may be considered in adjusting base salaries.
MANAGEMENT INCENTIVE COMPENSATION PROGRAM (MICP)
This program is an annual cash payout dependent on achieving long-term
return on operating capital targets, as well as certain qualitative
measurements. PENWEST's Board of Directors believes that long-term returns on
capital translate directly into increasing the long-term value of PENWEST stock.
Return on operating capital targets are set by a formula that requires above
market returns on operating capital based on risk adjusted market rates of
return. There is a relatively high entry point for payout under the MICP. For
example, there are no payouts under the MICP unless 70% of return on capital
targets is made. Individual MICP awards are determined by salary grade and are
subject to an adjustment based on subjective judgments of individual
performance. The highest individual target payout is 65% of an individual's base
salary, and the lowest individual target payout is 30%. Payouts can exceed
targets when operating capital targets are exceeded.
STOCK BASED INCENTIVE PROGRAMS
The Board of Directors encourages all executive officers of PENWEST to build
a significant ownership position, over time, in PENWEST common stock. PENWEST
has used stock-based incentive programs since its spin-off in 1984 to support
this ownership objective. All stock options to
9
<PAGE>
executive officers have been granted at market price. Options under the
stock-based incentive programs consist of performance shares requiring
achievement of return on capital targets, incentive stock options, and five-year
and ten-year long term non-qualified stock options. All executive officers of
PENWEST have a significant position in PENWEST stock relative to their net
worth.
The amount of stock option shares granted under any given program is
calculated based on a potential long-term total return to shareholders versus
the potential long-term return to the option holder for performance in
increasing the value of PENWEST stock. Factors such as dilution of existing
shareholders are taken into account.
SUPPLEMENTAL BENEFIT PLANS
Supplemental Benefit Plans for executive officers and other key personnel
include a supplemental retirement plan, deferred compensation plan, and survivor
benefit life and disability plan. These plans are designed to be competitive
with other plans for comparably sized companies and to attract and retain highly
qualified management.
CEO COMPENSATION
As discussed above, PENWEST's executive cash compensation program includes a
base salary and a Company performance-based Management Incentive Compensation
Program (MICP). Mr. Hamachek participates in the same MICP applicable to the
other named executive officers. The Committee's objective is to correlate Mr.
Hamachek's MICP remuneration with the performance of PENWEST. Mr. Hamachek's
entire performance related pay for fiscal years 1996, 1995 and 1994 was paid
under the MICP. Such pay for fiscal years 1995 and 1994 was based on the fact
that PENWEST's return on operating capital targets were met or exceeded in each
of those years. Such pay for fiscal year 1996 was based on the fact that only
85% of PENWEST's return on operating capital targets was achieved in that year.
Consequently, Mr. Hamachek's bonus in fiscal year 1996 was substantially reduced
to 39% of his bonus in fiscal year 1995. Mr. Hamachek's base salary is reviewed
every eighteen months. Effective September 1, 1995, the Committee approved an
increase in Mr. Hamachek's annual base salary of $25,000 (7.9%), applicable to
the following 18 month period. The Committee considered this increase to be
appropriate to maintain market competitiveness of his base salary.
Harry Mullikin, Chairperson
Paul E. Freiman
Paul H. Hatfield
William G. Parzybok, Jr.
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<PAGE>
PERFORMANCE GRAPH
The following graph compares the Company's cumulative total shareholder
return on its common stock for a five year period (August 31, 1991 to August 31,
1996) with the cumulative total return of the Nasdaq Market Index and all
companies traded on Nasdaq with a market capitalization of $100 - $200 million,
excluding financial institutions. The graph assumes that $100 was invested on
August 31, 1991 in the Company's common stock and in the stated indices. The
comparison assumes that all dividends are reinvested. Management does not
believe there is either a published index, or a group of companies whose overall
business is sufficiently similar to the business of PENWEST, to allow a
meaningful benchmark against which the Company can be compared. The Company
operates in three distinct market lines making overall comparisons to one of
these markets misleading to the Company as a whole. For these reasons, the
Company has elected to use companies traded on Nasdaq with a similar market
capitalization as a peer group.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG PENWEST, LTD.,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PENWEST, LTD. PEER GROUP INDEX NASDAQ MARKET INDEX
<S> <C> <C> <C>
1991 100.00 100.00 100.00
1992 96.45 96.06 101.69
1993 76.91 111.97 132.39
1994 100.40 108.34 144.65
1995 106.53 129.02 172.11
1996 76.97 119.31 193.26
</TABLE>
11
<PAGE>
2. AMENDMENTS TO PENWEST, LTD. 1994 STOCK OPTION PLAN
BACKGROUND
In October 1994, the Board of Directors adopted the PENWEST, LTD. 1994 Stock
Option Plan (the "1994 Plan"), subject to the approval of the shareholders. In
January 1995, the shareholders approved the 1994 Plan.
The 1994 Plan currently provides for the grant of options to purchase up to
500,000 shares of the Company's common stock to key employees. At November 26,
1996, options to purchase 417,300 shares were outstanding under the 1994 Plan,
and options to purchase 82,700 shares remained available for grant. The 1994
Plan currently limits to 100,000 the maximum number of shares for which grants
of options may be made to any key employee during the life of the plan.
AMENDMENTS
Subject to shareholder approval, the Board of Directors has approved an
amendment to the 1994 Plan to reserve an additional 500,000 shares of common
stock for purchase upon exercise of options granted under the plan. Also subject
to shareholder approval, the Board of Directors has approved an amendment to the
1994 Plan to increase the maximum number of shares for which grants of options
may be made to any key employee to 150,000 in any one fiscal year of the
Company.
The Board of Directors believes that these amendments promote the interests
of the Company and its shareholders by assisting the Company in attracting,
retaining and motivating its key employees. The Board believes that the first
amendment, which provides for an additional 500,000 shares for issuance under
the 1994 Plan, is necessary to support the Company's continued growth and to
carry-out the Company's strategy of providing greater equity-based compensation
to its increasing number of key employees. This increase should be sufficient to
meet the Company's requirements for the next three to four years. The Board
believes that the second amendment, which increases the maximum number of shares
for which option grants may be made to any key employee, is necessary to allow
it greater flexibility in providing for significant grants in appropriate
circumstances as well as to make such grants exempt from the limitation on
deductibility of executive compensation imposed by Section 162(m) of the
Internal Revenue Code.
DESCRIPTION OF THE 1994 PLAN
Under the 1994 Plan, options to purchase up to 500,000 shares of common
stock of the Company may be granted to key employees of the Company and its
subsidiaries. Employees may receive either incentive stock options or
non-qualified stock options. The maximum number of shares for which grants of
options may be made to any employee is 100,000.
The Compensation Committee of the Board of Directors administers the 1994
Plan. The Compensation Committee determines which employees will be granted
options, the number of shares subject to each option, the type of options
granted, the option exercise price and any other terms consistent with the terms
of the 1994 Plan. As of August 31, 1996, approximately 40 employees were
eligible to receive options granted under the 1994 Plan. The 1994 Plan may be
amended by the Board of Directors, however, no outstanding options may be
modified without the consent of the holder thereof, nor may the number of shares
as to which options may be granted be increased nor the class of employee to
whom options may be granted be changed, without shareholder approval.
The option exercise price must be not less than the fair market value of the
common stock on the date of grant. In the case of any holder of 10% or more of
the voting power of the Company, the exercise price of an incentive stock option
must be at least 110% of the fair market value of the common stock on the date
of grant.
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<PAGE>
The Compensation Committee establishes the time or times at which options
may be exercised. The aggregate fair market value of shares with respect to
which incentive stock options are exercisable by an optionee during any year
shall not exceed $100,000 (measured at the time of the option grant).
Options expire at the earliest of (i) the date specified in the option; (ii)
twelve months after termination of employment; (iii) the date of termination of
employment for certain misconduct; (iv) twelve months after death or disability;
or (v) the date the Compensation Committee may specify in the event of a merger,
consolidation, reorganization, tender offer, takeover bid, sale of assets or
dissolution.
The Compensation Committee may accelerate the vesting of options if a
merger, consolidation, reorganization, tender offer, takeover bid, sale of
assets or dissolution occurs. Options will automatically vest upon an optionee's
death, disability or retirement in certain instances.
No incentive stock option may be granted after October 26, 2004, or have a
term of more than ten years.
No optionee, as such, will have any rights as a shareholder of PENWEST
except with respect to shares of common stock received on the exercise of an
option. The options are not transferable or assignable except by will or the
laws of descent and distribution or pursuant to a domestic relations order,
provided that the Compensation Committee may, in its discretion, authorize the
transfer by gift of non-qualified options to immediate family members of the
optionee or to trusts or partnerships established for the exclusive benefit of
such immediate family members.
On November 26, 1996, the closing market price of the Company's common stock
was $18.25.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the current federal income
tax consequences to participants in the 1994 Plan. The summary does not discuss
all aspects of federal income taxation that may be relevant to a participant in
the light of such participant's personal investment circumstances, nor does it
describe state or other tax consequences.
INCENTIVE STOCK OPTION ("ISO"). There is no taxable income to an optionee
when an ISO is granted or when that option is exercised. Gain realized by an
optionee upon the sale of stock issued on exercise of an ISO is taxable at
capital gains rates, and no tax deduction is available to the Company, unless
the optionee disposes of the shares within two years after the date of grant of
the option or within one year of the date the shares were transferred to the
optionee. If the shares are disposed of before the expiration of these one-year
or two-year periods, the difference between the option exercise price and the
fair market value of the shares on the date of the option's exercise will be
taxed at ordinary income rates; the balance of the gain, if any, will be taxed
as capital gain. The Company will be entitled to a tax deduction equal to the
ordinary income, if any, realized by the optionee.
NON-QUALIFIED STOCK OPTION ("NSO"). The recipient of NSOs granted under the
1994 Plan will not recognize taxable income upon the grant of the option, nor
will the Company be entitled to any tax deduction. Generally, upon exercise of a
NSO, the optionee will recognize ordinary income and the Company will be
entitled to a tax deduction in an amount equal to the amount by which the fair
market value of the stock at the date of exercise exceeds the option exercise
price. The Company will be required to withhold taxes on ordinary income
recognized by an optionee upon the exercise of a NSO. Any ordinary income
recognized by an optionee upon exercise of a NSO will increase the
13
<PAGE>
optionee's tax basis in the shares received. Upon a subsequent sale of such
shares, the optionee will recognize capital gain or loss to the extent of the
difference between the selling price of such shares and the optionee's tax basis
in such shares.
Approval of these amendments to the 1994 Plan will require the affirmative
vote of the holders of a majority of the shares of common stock of the Company
represented in person or by proxy at the meeting. An abstention from voting on
the proposal to amend the 1994 Plan will have the effect of a vote "Against" the
proposal. Broker "non-votes" will have no effect on the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENTS TO THE PENWEST, LTD.
1994 STOCK OPTION PLAN.
3. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors requests that the shareholders ratify its selection
of Ernst & Young LLP, Certified Public Accountants, as independent auditors for
the Company for the current fiscal year. If the shareholders do not ratify the
selection of Ernst & Young LLP, another firm of certified public accountants
will be selected as independent auditors by the Board.
Representatives of Ernst & Young LLP will be present at the meeting, will
have the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE SELECTION
OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR FISCAL YEAR 1997.
CHANGE-OF-CONTROL ARRANGEMENTS
The Company has change-of-control agreements with the following executive
officers: Messrs. Hamachek, Cook, Widmaier, Rydzewski, Talley, Gregory C. Horn
and Edmund O. Belsheim, Jr. Each agreement provides that the executive will
receive compensation for 30 months if his employment is terminated by the
Company for any reason other than gross misconduct, death, disability or
reaching age 65, or if he terminates his employment following (i) the assignment
to him of responsibilities or title materially less than his responsibilities
and title prior to a change of control, (ii) the reduction in the aggregate of
his salary and bonus or (iii) a material breach by the Company of the agreement,
provided such termination occurs within 24 months after certain defined events
which might lead to a change in control of the Company. The compensation will be
paid at a rate equal to the executive's then current salary and target bonus.
The compensation is subject to a minimum annual rate of not less than the
executive's average compensation for the preceding three calendar years and is
subject to reduction if the aggregate present value of all payments would equal
or exceed three times the executive's "base amount," as defined in Section 280G
of the Internal Revenue Code. The executive also will continue to have
"employee" status for the 30-month period and will retain most employee benefits
during this period. The amount to be paid is reduced by amounts received by the
executive from other employers during the 30-month period.
The estimated aggregate amounts presently payable in the event of a change
of control (assuming each executive receives payments for the maximum 30-month
period) would be: Mr. Hamachek, $1,402,500; Mr. Cook, $532,000; Dr. Widmaier,
$490,000; Mr. Rydzewski, $769,000; Mr. Talley, $630,000; Mr. Horn, $577,500; and
Mr. Belsheim, $665,000. This does not include the value of employee benefits
that might be payable to the executive during the 30-month period. The value of
these benefits cannot be calculated at this time. Continuation of these benefits
would include participation in the Company's health and welfare plans and
policies, continued vesting of stock options, and continuation of years of
service for pension and other retirement plan benefit computation purposes.
14
<PAGE>
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the next annual
meeting of shareholders must be received by the Secretary of the Company at its
executive offices no later than August 12, 1997, to be included in the Company's
proxy statement and form of proxy relating to that meeting.
SOLICITATION OF PROXIES
The proxy accompanying this proxy statement is solicited by the Board of
Directors. Proxies may be solicited by officers, directors and other employees
of the Company, none of whom will receive any additional compensation for their
services. Employees of Kekst & Co., Incorporated, which is retained on an annual
basis as the Company's investor relations consultant, also may solicit proxies
as a part of its services under the annual retainer arrangement. Solicitations
of proxies may be made personally, or by mail, telephone, telegraph, facsimile
or messenger. The Company will pay persons holding shares of common stock in
their names or in the names of nominees, but not owning such shares
beneficially, such as brokerage houses, banks and other fiduciaries, for the
expense of forwarding soliciting materials to their principals. All costs of
soliciting proxies will be paid by the Company.
OTHER MATTERS
The Company is not aware of any other business to be acted upon at the
meeting. If other business requiring a vote of the shareholders should come
before the meeting, the holders of the proxies will vote in accordance with
their best judgment.
DECEMBER 12, 1996
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR 1996,
CONTAINING INFORMATION ON OPERATIONS, FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, IS AVAILABLE UPON REQUEST. PLEASE WRITE TO: JENNIFER L. GOOD,
CORPORATE DIRECTOR OF FINANCE, PENWEST, LTD., POST OFFICE BOX 1688, BELLEVUE,
WASHINGTON 98009-1688.
15
<PAGE>
PROXY
PROXY
For Annual Meeting of the Shareholders of
Penwest, LTD.
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS.
The undersigned hereby appoints Tod R. Hamachek and Jennifer L. Good, and
each of them, with full power of substitution, as proxies to vote the shares
which the undersigned is entitled to vote at the Annual Meeting of
Shareholders to be held on January 21, 1997 and at any adjournment thereof.
(Continued and to be signed on the reverse side)
<PAGE>
Please mark your votes as indicated in this example /X/
1. Election of Directors. FOR / / NOT FOR / /
Paul E. Freiman, Paul H. Hatfield, Harry Mullikin, N. Stewart Rogers
Except vote withheld from following nominee(s) listed in space at right:
- ------------------------------------------------------------------------
2. Approval of amendments to Penwest, LTD. 1994 Stock Option Plan.
FOR / / AGAINST / / ABSTAIN / /
3. Ratification of selection of Ernst & Young LLP as independent auditors of
the Company.
FOR / / AGAINST / / ABSTAIN / /
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
FOR / / AGAINST / / ABSTAIN / /
I plan to attend the meeting. / /
This proxy, when properly signed, will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this proxy will be
voted for proposals 1, 2 and 3.
IMPORTANT -- please sign and return this proxy promptly. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by an
authorized person.
- --------------------------------------
Signature
- --------------------------------------
Signature
Dated ---------------------, 1996/1997
