<PAGE> 1
LOGO
(FORMERLY PENWEST, LTD.)
BELLEVUE, WASHINGTON
DECEMBER 22, 1997
Dear Shareholders:
You are cordially invited to attend the annual meeting of shareholders of
Penford Corporation to be held on Tuesday, January 27, 1998 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 two
directors and (2) to ratify the selection of independent auditors for the
Company. At the meeting, we also will report on the business operations of
Penford 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,
LOGO
TOD R. HAMACHEK
President and Chief Executive Officer
<PAGE> 2
PENFORD CORPORATION
------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JANUARY 27, 1998
------------------------------
To the Shareholders:
The annual meeting of shareholders of Penford Corporation will be held at
the Seattle Art Museum, 100 University Street, Seattle, Washington, on January
27, 1998, at 10:30 a.m., for the following purposes:
1. To elect two directors;
2. To ratify the selection of Ernst & Young LLP as independent
auditors for the current fiscal year; and
3. To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on December 1, 1997
are entitled to notice of, and to vote at, the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
LOGO
EDMUND O. BELSHEIM, JR.
Corporate Secretary
December 22, 1997
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> 3
PENFORD CORPORATION
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 Penford Corporation ("Penford" or the
"Company," formerly Penwest, Ltd.) to be voted at the annual meeting of the
shareholders of the Company to be held at 10:30 a.m. on January 27, 1998.
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 22, 1997.
Shareholders of record at the close of business on December 1, 1997 will be
entitled to vote at the meeting on the basis of one vote for each share held. On
December 1, 1997, there were outstanding 7,279,054 shares of common stock of the
Company.
SPECIAL NOTE REGARDING PLANNED SPIN-OFF
On October 9, 1997, Penford announced a two-stage plan designed to foster
the growth of its pharmaceuticals business and, separately, its specialty starch
based paper chemicals and food ingredients businesses. Under the first stage of
the plan, Penford's wholly owned subsidiary Penwest Pharmaceuticals Co.
("Penwest," formerly Edward Mendell Co., Inc.) would sell up to 20% of its
common stock through an initial public offering (the "Penwest IPO"). Under the
second stage of the plan, Penford would effect a tax-free spin-off to its
shareholders of its remaining ownership of Penwest common shares, contingent
upon satisfying certain conditions, including receipt of a tax ruling from the
Internal Revenue Service or a written opinion from Ernst & Young LLP to the
effect that, among other things, the spin-off will qualify as a tax-free
distribution. If the spin-off occurs, Penwest will no longer be a subsidiary of
Penford.
In connection with the plan, certain officers of Penford including Tod R.
Hamachek, President and Chief Executive Officer, Edmund O. Belsheim, Jr., Vice
President Corporate Development and General Counsel and John V. Talley, Jr.,
Vice President will resign their positions with Penford to become officers of
Penwest (effective upon the closing of the Penwest IPO). Also, effective upon
the closing of the Penwest IPO, Jeffrey T. Cook, presently Vice President,
Finance and Chief Financial Officer of Penford, will be appointed as President
and Chief Executive officer of Penford and certain other executive changes will
be made. Also upon the closing of the Penwest IPO, Mr. Cook will be elected to
the Board of Directors of Penford. Effective upon the date of the spin-off Mr.
Hamachek and Paul E. Freiman will resign from the Board of Directors of Penford.
1. ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, and directors in each
class are elected for a three-year term. This year, Mr. Hamachek and Ms.
Narodick, have been nominated to be reelected for a term that expires at the
annual meeting of shareholders to be held in 2001. Unless a shareholder
indicates otherwise, each signed proxy will be voted for the election of these
nominees.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE REELECTION OF EACH OF THE
NOMINEES FOR REELECTION AS A DIRECTOR.
1
<PAGE> 4
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.
Two nominees are being proposed because it is anticipated that Mr. Cook
will be added to this class upon the closing of the Penwest IPO.
Nominees for Reelection
TOD R. HAMACHEK, 51, has served as President and Chief Executive Officer of
the Company since 1985 and as a director since 1983. He was also named the
Chairman of the Board of Directors and Chief Executive Officer of Penwest in
October 1997. Mr. Hamachek is also a director of DEKALB Genetics Corporation and
Northwest Natural Gas Company. He will resign his offices with Penford effective
upon the closing of the Penwest IPO. He will resign his position as a director
of Penford, effective upon the date of the spin-off.
SALLY G. NARODICK, 52, has served as a director of the Company since August
1993. Ms. Narodick has served as Educational Technology Consultant to the
Consumer Division of IBM Corporation since December 1996 and 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
Puget Sound Energy Company and Fluke Corporation.
Continuing Directors -- Term Expires 1999
RICHARD E. ENGEBRECHT, 70, 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 Scientific
Products and SeaMED Corporation.
WILLIAM G. PARZYBOK, JR., 55, 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, 67, 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.
Continuing Directors -- Term Expires 2000
PAUL E. FREIMAN, 63, has served as a director of the Company since April
1996. He has been a director of Penwest since October 1997. Mr. Freiman has been
the CEO and President of Neurobiological Technologies Inc., a biotechnology
company, since May, 1997 and Chairman of the Board of Digital Gene Technologies,
a biotechnology company, since February, 1995. Mr. Freiman was Chairman and
Chief Executive Officer of Syntex Corporation, a pharmaceutical company, from
1990 to 1995. He will resign his position as a director of Penford effective
upon the date of the spin-off.
PAUL H. HATFIELD, 61, has served as a director of the Company since October
1994. Mr. Hatfield served as Chairman, President and Chief Executive Officer of
Petrolite Corporation, which provides products and services to the
petrochemicals and other industries ("Petrolite"), from
2
<PAGE> 5
November 1995 to July 1997. 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 director of DEKALB Genetics Corporation, Solutia, Inc. and
Stout Industries.
HARRY MULLIKIN, 70, 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.
N. STEWART ROGERS, 67, has served as Chairman of the Board of Directors of
the Company since 1990 and as a director since 1983. He has been a director of
Penwest since October 1997. 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, VWR
Scientific Products Corporation, and Royal Pakhoed, N.V. Mr. Rogers is the
father-in-law of Jeffrey T. Cook.
3
<PAGE> 6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of December 1, 1997,
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..................................... 568,900 7.82%
One Memorial Drive
Cambridge, MA 02142
Wellington Management.......................................... 483,120 6.64
75 State Street
Boston, MA 02109
Edmund O. Belsheim, Jr......................................... 14,463 *
Jeffrey T. Cook................................................ 172,833(2) 2.37
Richard E. Engebrecht.......................................... 75,454 1.04
Paul E. Freiman................................................ 3,178 *
Tod R. Hamachek................................................ 369,854 5.08
Paul H. Hatfield............................................... 20,227 *
Harry Mullikin................................................. 27,624 *
Sally G. Narodick.............................................. 10,264 *
William G. Parzybok, Jr........................................ 6,238 *
N. Stewart Rogers.............................................. 153,005(3) 2.10
Francis C. Rydzewski........................................... 17,897 *
William K. Street.............................................. 45,263(4) *
John V. Talley, Jr............................................. 14,990 *
All directors and executive officers as a group (16 persons)... 970,214 13.33
</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, 16,875; Mr.
Hamachek, 34,500; Mr. Rydzewski, 10,750; Mr. Talley, 13,250; Mr. Belsheim,
13,250; and all directors and executive officers as a group, 120,375.
(2) Includes 73,800 shares held in irrevocable trusts for which Mr. Cook shares
voting and investment power.
(3) Includes 11,538 shares held in irrevocable trusts for which Mr. Rogers has
sole voting and investment power.
(4) Includes 28,128 shares owned by Mr. Street's spouse as to which Mr. Street
disclaims beneficial ownership.
4
<PAGE> 7
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 one time, the
Compensation Committee met four times, the Executive Committee met three times,
the Nominating Committee met one time, the Pension Committee met one time, and
the Board of Directors met nine times during the fiscal year ended August 31,
1997. All directors attended 75% or more of the aggregate number of Board
meetings and meetings of committees on which they served.
5
<PAGE> 8
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 $500
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
nonemployee 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,
1996, each non-employee director was granted on option to purchase 2,192 shares
of common stock (based on a price of $18.25 for such a share on that date). Each
non-employee director also may elect to receive during a fiscal year a stock
option in lieu of director cash compensation for that year. Grants of these
options, if so elected, occur quarterly. The number of shares subject to each
option is equal to the amount of compensation (retainer, meeting and committee
fees) payable to the non-employee director as of the quarterly date divided by
25% of the fair market value of a share of the Company's common stock on the
grant date. The exercise price for these deferred compensation options is 75% of
the fair market value of a share of such stock on the grant date. In fiscal
1997, the following non-employee directors elected to receive such options in
lieu of director cash compensation: Messrs. Engebrecht, Hatfield, Mullikin,
Rogers and Street. Unless an option granted under the plan is terminated or its
exercisability is accelerated in accordance with the plan upon the occurrence of
certain events (including a change of control), the option is exercisable six
months after its grant date. The options terminate at the earlier of ten years
after the date of grant or three years after the date the non-employee director
ceases to be a member of the Board.
6
<PAGE> 9
EXECUTIVE COMPENSATION
Compensation paid by the Company during fiscal years 1997, 1996 and 1995
for the Chief Executive Officer and the other four most highly compensated
executive officers (the "Named Executive Officers") is set out in the following
table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
-------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) # ($)(3)
- --------------------------- ------ ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Tod R. Hamachek............ 1997 340,000 453,934 0 96,000 16,529
President and Chief 1996 340,000 123,967 0 0 22,174
Executive Officer 1995 315,000 314,967 2,915 0 49,989
Edmund O. Belsheim, 1997 176,772 156,104 0 53,000 5,286
Jr.(4)...................
Vice President, Corporate
Development and General
Counsel
Francis C. Rydzewski(4).... 1997 205,000 127,408 0 19,000 8,927
Vice President 1996 187,500 52,072 0 0 7,000
1995 74,043 47,731 0 15,000 330
Jack V. Talley, Jr......... 1997 185,000 103,896 0 19,000 8,361
Vice President 1996 180,000 58,183 0 0 9,785
1995 165,000 67,233 0 40,000 3,935
Jeffrey T. Cook............ 1997 155,000 129,813 0 14,500 8,148
Vice President, Finance 1996 152,000 37,793 0 0 10,991
and Chief Financial 1995 142,000 87,375 0 35,000 9,477
Officer
</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 Penford 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 Penford in March 1995. Mr. Belsheim joined Penford in
September 1996.
Penford has approved the grant of options covering an aggregate of 358,000
shares of common stock to a group of executives including Mr. Cook, 125,000
shares and Mr. Rydzewski, 60,000 shares. These options will be granted upon
completion of the spin-off and will have an exercise price equal to the closing
price of Penford common stock on the 15th trading day immediately following the
spin-off.
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.
7
<PAGE> 10
OPTION/SAR GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCKPRICE
SECURITIES OPTIONS/SARS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERMS(1)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ------------------------ ------------- --------------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Tod R. Hamachek 46,000 16% $ 18.50 11/02/06 $535,189 $1,356,275
50,000 17.4% 17.50 12/22/06 550,283 1,394,525
Edmund O. Belsheim, Jr. 35,000 12.2% 18.25 10/07/06 401,706 1,018,003
18,000 6.3% 18.50 11/02/06 209,422 530,716
Francis C. Rydzewski 19,000 6.6% 18.50 11/02/06 221,056 560,200
Jack V. Talley, Jr. 19,000 6.6% 18.50 11/02/06 221,056 560,200
Jeffrey T. Cook 14,500 5.0% 18.50 11/02/06 168,701 427,521
</TABLE>
- ---------------
(1) Potential realizable value is based on the assumption that the stock price
of the Company's common stock appreciates at the annual rate shown
(compounded annually) from the date of grant until the end of the ten year
option term. These numbers are calculated based on the requirements
promulgated by the Securities and Exchange Commission and do not reflect the
Company's estimate of future stock price performance.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF IN-THE-MONEY OPTIONS/SARS
ACQUIRED UNEXERCISED OPTIONS/SARS
ON AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(1)
EXERCISE VALUE --------------------------- ---------------------------
NAME (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- ----------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Tod R. Hamachek.... 257,242 2,495,089 20,000 76,000 $ 295,000 $1,075,000
Francis C.
Rydzewski........ -0- 6,000 28,000 69,000 364,750
Jack V. Talley,
Jr............... -0- 6,000 63,000 57,000 749,250
Jeffrey T. Cook.... -0- 11,250 73,250 98,125 803,750
Edmund O. Belsheim,
Jr............... -0- -0- 53,000 -0- 737,500
</TABLE>
- ------------------------------
(1) Values are calculated by subtracting the exercise price from the fair market
value of the stock as of the exercise date.
RETIREMENT BENEFITS
<TABLE>
<CAPTION>
YEARS OF SERVICE
COVERED -----------------------------------------------
COMPENSATION(1) 20 25 30 35
- --------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 200,000 $ 57,569 $ 71,961 $ 86,353 $100,745
300,000 87,569 109,461 131,353 153,245
400,000 117,569 146,961 176,353 205,745
500,000 147,569 184,461 221,353 258,245
600,000 177,569 221,961 266,353 310,745
700,000 207,569 259,461 311,353 363,245
800,000 237,569 296,961 356,353 415,745
900,000 267,569 334,461 401,353 468,245
</TABLE>
- ------------------------------
(1) Represents the highest average annual earnings during five consecutive
calendar years of service.
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<PAGE> 11
The Company has a defined benefit retirement plan (the "Retirement Plan").
The table above shows the estimated annual benefits payable on retirement under
the Retirement Plan to persons in the specified compensation and years of
service classifications. The retirement benefits shown are based upon retirement
at age 65 and the payments of a single-life annuity to the employee using
current average Social Security wage base amounts and are not subject to any
deduction for Social Security or other offset amounts. With certain exceptions,
the Internal Revenue Code restricts to an aggregate amount of $120,000 (subject
to cost of living adjustments) the annual pension that may be paid by an
employer from a plan which is qualified under the Code. The Code also limits the
covered compensation which may be used to determine benefits to $150,000
beginning in 1994. The Board of Directors has established supplemental benefits
for certain highly compensated employees to whom this limit applies, or will
apply in the future, so that these employees will obtain the benefit of the
formula that would have applied in the absence of the limitation. Executive
officers entitled to receive supplemental benefits as of August 31, 1997 were
Messrs. Hamachek, Rydzewski, Talley, Cook and Belsheim.
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, 1997, the approximate years of credited service (rounded
to the nearest year) under the Retirement Plan of the named executive officers
were: Mr. Hamachek, 14, Mr. Rydzewski, 3; Mr. Talley, 4; Mr. Cook, 16; and Mr.
Belsheim, 1.
COMPENSATION AND BENEFITS COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee of Penford'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 Penford, including a balanced
combination of targets requiring the achievement of short term operating
goals and longer-term strategic objectives.
- Encouraging meaningful levels of Penford stock ownership for key
personnel.
- Directing and monitoring retirement programs for all Penford 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, Penford has maintained the
philosophy that compensation of its executive officers should be directly and
materially linked to the long-term results shareholders receive.
The executive compensation program consists of base salary, the Management
Incentive Compensation Program (MICP) based on operating income and shareholder
value objectives, and stock-based incentive programs. Penford 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
9
<PAGE> 12
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 operating
income and shareholder value objectives. Penford's Board of Directors believes
strongly that a balanced combination of targets requiring the achievement of
shortterm operating goals and longer-term strategic objectives translate
directly into increasing the long term value of Penford stock. There is a high
entry point for payout under the MICP. For example, no payouts are generally
made under the operating goals of the MICP unless 75% of specific targets are
achieved. Individual MICP awards are determined by salary grade and are subject
to an adjustment based on judgments of individual performance. The highest
individual target payout is 65% of an individual's base salary, and the lowest
individual target payout is 20%. Payouts can exceed targets when targets are
exceeded.
Stock Based Incentive Programs
The Board of Directors strongly encourages all executive officers of
Penford to build a significant ownership position, over time, in Penford common
stock. Penford has used stock-based incentive programs since its spin-off in
1984 to support this ownership objective. All stock options to 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 Penford have a
significant position in Penford 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 Penford stock. Factors such as dilution of existing
shareholders and existing open market stock buyback programs are taken into
account.
Supplemental Benefit Plans
Supplemental Benefit Plans for executive officers and other key personnel
include a supplemental retirement plan, deferred compensation plan, and survivor
benefit life and disability plan. These plans are designed to be competitive
with other plans for comparably sized companies and to attract and retain highly
qualified management.
CEO Compensation
As discussed above, Penford'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 Penford. Mr. Hamachek's
performance related pay for fiscal years 1997, 1996 and 1995 was paid under the
MICP. Such pay for fiscal years 1997 and 1995 was based on the fact that
predetermined MICP objectives were met or exceeded in each of those years. Such
pay for 1996 was based on the fact that only 85% of Penford's targets were
achieved in that year. Historically, Mr. Hamachek's base salary has been
reviewed every eighteen months, in an effort to maintain market competitiveness
of his base salary. His salary was last reviewed March 1, 1997.
Harry Mullikin, Chairperson
Paul E. Freiman
Paul H. Hatfield
William G. Parzybok, Jr.
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<PAGE> 13
PERFORMANCE GRAPH
The following graph compares the Company's cumulative total shareholder
return on its common stock for a five year period (August 31, 1992 to August 31,
1997) with the cumulative total return of the Nasdaq Market Index and all
companies traded on Nasdaq with a market capitalization of $150 - $250 million,
excluding financial institutions. The graph assumes that $100 was invested on
August 31, 1992 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
Penford, 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.
<TABLE>
<CAPTION>
Measurement Period NASDAQ MARKET
(Fiscal Year Covered) 'PENWEST, LTD.' PEER GROUP INDEX INDEX
<S> <C> <C> <C>
1992 100 100 100
1993 79.74 114.87 130.18
1994 104.09 107.3 142.24
1995 110.45 129.61 169.25
1996 79.8 131.85 190.05
1997 142.4 138.82 263.05
</TABLE>
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<PAGE> 14
2. 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 1998.
CHANGE-OF-CONTROL ARRANGEMENTS
The Company has change-of-control agreements with the following executive
officers: Messrs. Hamachek, Cook, Rydzewski, Belsheim, Talley, Gregory C. Horn
and Robert G. Widmaier. 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, $1,573,000; Mr. Cook, $586,000; Dr. Widmaier,
$502,000; Mr. Rydzewski, $698,000; Mr. Talley, $633,000; Mr. Horn, $435,000; and
Mr. Belsheim, $865,000. 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.
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 27, 1998, 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 Corporate Communications, Inc., which is retained on an
annual basis as the Company's investor relations consultant, also may solicit
proxies as a part of its services under the annual retainer arrangement.
Solicitations of proxies may be made
12
<PAGE> 15
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 22, 1997
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR 1997,
CONTAINING INFORMATION ON OPERATIONS, FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, IS AVAILABLE UPON REQUEST. PLEASE WRITE TO: VICTOR W. BREED,
CORPORATE DIRECTOR OF FINANCE, PENFORD CORPORATION, POST OFFICE BOX 1688,
BELLEVUE, WASHINGTON 98009-1688.
13
<PAGE> 16
PROXY
PROXY
For Annual Meeting of the Shareholders of
PENFORD CORPORATION
(formerly Penwest, Ltd.)
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS.
The undersigned hereby appoints Jeffrey T. Cook and Victor W. Breed, 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 27, 1998 and at any adjournment thereof.
(Continued and to be signed on the reverse side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 17
<TABLE>
<S> <C>
Please mark [X]
your votes as
indicated in
this sample.
FOR NOT FOR FOR AGAINST ABSTAIN
Election of Directors. 2. Ratification of selection of
Tod R. Hamachek, [ ] [ ] Ernst & Young LLP as independent [ ] [ ] [ ]
Sally G. Narodick auditors of the Company
Except vote withheld from following 3. In their discretion, the proxies are authorized to vote upon
nominee(s) listed in space at such other business as may properly come before the meeting.
right: ____________________________
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 AND 2.
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(s) _____________________________________________________________________________________ Dated ______________, 1997/1998
- ----------------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
</TABLE>
