<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [x]
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 240.14a-11(c) or 240.14a-12
Penford Corporation
--------------------------------------------------------------------------------
(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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
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previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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<PAGE> 2
[PENFORD LOGO]
Bellevue, Washington
December 20, 2000
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of
Penford Corporation to be held on Tuesday, January 30, 2001 at 10:30 a.m. at the
Hyatt Regency Hotel, 900 Bellevue Way N.E., Bellevue, Washington.
In addition to the items set forth in the accompanying Notice of Annual
Meeting of Shareholders and Proxy Statement, we will report on current
activities of the Company and will provide an opportunity to discuss matters of
interest to you as a shareholder.
We sincerely hope you will be able to attend our Annual Meeting. However,
whether or not you plan to attend, please vote promptly to ensure that your
shares are represented.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in Penford Corporation.
Very truly yours,
/s/ JEFFREY T. COOK
Jeffrey T. Cook
President and Chief Executive Officer
<PAGE> 3
PENFORD CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 30, 2001
------------------------
To the Shareholders:
The Annual Meeting of Shareholders of Penford Corporation will be held at
the Hyatt Regency Hotel, 900 Bellevue Way N.E., Bellevue, Washington, on
Tuesday, January 30, 2001, at 10:30 a.m., for the following purposes:
1. To elect two directors for the ensuing three years;
2. To transact such other business as may properly come before the meeting.
The Board of Directors has no knowledge of any other business to be
transacted at the meeting.
A copy of the Company's Annual Report to Shareholders for the fiscal year
ended August 31, 2000, which contains financial statements and other information
of interest to shareholders, accompanies this notice and the enclosed proxy.
Only shareholders of record at the close of business on December 8, 2000
are entitled to notice of, and to vote at, the meeting.
By Order of the Board of Directors
/s/ SUSAN M. IVERSON
Susan M. Iverson
Corporate Secretary
December 20, 2000
IMPORTANT
Whether or not you plan to attend the meeting in person, we urge you to
promptly vote your shares. This will ensure the presence of a quorum at the
meeting. Enclosed is a self-addressed envelope for which no postage is required
if mailed in the United States. RESPONDING PROMPTLY WILL SAVE THE COMPANY THE
ADDITIONAL EXPENSE OF FURTHER SOLICITATION. Submitting your vote by Proxy will
not prevent you from voting your stock at the meeting if you desire to do so, as
your Proxy is revocable at your option.
<PAGE> 4
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, a Washington
corporation ("Penford" or the "Company") to be voted at the Company's 2001
Annual Meeting of Shareholders to be held at 10:30 a.m. at the Hyatt Regency
Hotel, 900 Bellevue Way N.E., Bellevue, Washington on Tuesday, January 30, 2001.
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 20, 2000.
Shareholders of record at the close of business on December 8, 2000 will be
entitled to vote at the meeting on the basis of one vote for each share held. On
December 8, 2000, there were outstanding 7,453,682 shares of common stock of the
Company.
1. ELECTION OF DIRECTORS
The Board of Directors consists of seven members and is divided into three
classes. Directors in each class are elected for a three-year term. This year,
Mr. Jeffrey T. Cook and Ms. Sally G. Narodick, both 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 2004. 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 Election
Jeffrey T. Cook, 44, has served as a director of the Company since October
1998. In addition, Mr. Cook is President and Chief Executive Officer of the
Company. He served as Vice President, Finance and Chief Financial Officer from
1991 to August 1998, and was the Corporate Treasurer prior to that time. He has
been with the Company since 1983. He is a graduate of Stanford University with a
B.A. in Economics. Mr. Cook serves as a Board member of Eoscene Corporation and
the Pacific Science Center.
Sally G. Narodick, 55, has served as a director of the Company since August
1993. Ms. Narodick is an independent e-learning consultant. From 1998 to 2000,
she served as Chief Executive Officer of Apex Online Learning, an Internet
educational software company. Previously, Ms. Narodick served as an education
technology consultant, both independently and for the Consumer Division of IBM
from 1996 to 1998. From 1989 to 1996, Ms. Narodick served as Chair and Chief
Executive Officer of Edmark Corporation, an educational software company that
was sold to IBM in 1996. A graduate of Boston University, Ms. Narodick
<PAGE> 5
earned an M.A. in Teaching from Columbia University and an M.B.A. from New York
University. She serves as a Board member of click2learn.com, inc., Puget Sound
Energy, Inc., and Solutia Inc.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES AS A DIRECTOR.
Continuing Directors -- Term Expires 2002
John C. Hunter III, 54, has served as a director of the Company since
October 1998. Mr. Hunter is Chairman, President, and Chief Executive Officer of
Solutia Inc., an international producer of a range of high-performance,
chemical-based materials used to make consumer, household, automotive and
industrial products. Previously, he served as President and Chief Operating
Officer since Solutia's spin-off from Monsanto Company in 1997. From 1992 to
1997, Mr. Hunter was President of Fibers for Monsanto Company. He graduated from
the Georgia Institute of Technology with a B.S. in Chemical Engineering and an
M.B.A. from the University of Houston at Clear Lake City. Mr. Hunter serves as a
Board member of the Missouri Baptist Hospital and the President's Advisory Board
of Georgia Tech.
William G. Parzybok, Jr., 58, has served as a director of the Company since
August 1993. Mr. Parzybok served as Chairman and Chief Executive Officer of
Fluke Corporation until July 1998. He joined Fluke in early 1991. He began his
career with Hewlett-Packard in 1968, spending 16 years in various executive
management positions. Mr. Parzybok received a B.S. in Electrical Engineering and
an M.S. in Business Management from Colorado State University. He serves as a
Board member of Marned Corporation, the Pacific Science Center, SonoSite, Inc.,
and WRQ, Inc. Mr. Parzybok is also on the University of Washington's College of
Engineering Visiting Committee.
William K. Street* 71, has served as a director of the Company since 1983.
Mr. Street is Chairman, President and General Manager of The Ostrom Company, a
regional grower and distributor of mushrooms. He was appointed Chairman in 1990
and has served as President and General Manager since 1965. Earlier in his
career, he was General Manager of Elkhorn Ranch, Ltd. and Vice President and
General Manager of Physio-Control Corporation. He is also a member and Treasurer
of the National Mushroom Council and Trustee Emeritus of the Tacoma Art Museum.
A University of Washington graduate, Mr. Street is a member of the Advisory
Committee of the University of Washington, Tacoma.
Continuing Directors -- Term Expires 2003
Paul H. Hatfield, 64, has served as director of the Company since October
1994. Mr. Hatfield is Principal of the Hatfield Capital Group. He served as
Chairman, President, and Chief Executive Officer of Petrolite Corporation until
July 1997. Previously, he worked for Ralston Purina Company from 1959 until his
retirement in 1995. He served as a Vice President of Ralston, as well as the
President and Chief Executive Officer of Protein Technologies International,
Inc., then a wholly-owned subsidiary of Ralston. He serves as a Board member and
is Chairman of the Executive Development and Compensation Committee of Solutia
Inc., and as a Director of Maritz Inc. and Stout Industries. Mr. Hatfield is
also a member of the Advisory Board for International Business for St. Louis
University.
---------------
*Although a continuing director, Mr. Street has expressed his intention to
retire from his position as director of the Company at the Company's 2001 Annual
Meeting of Shareholders.
2
<PAGE> 6
N. Stewart Rogers** 70, has served as Chairman of the Board of the Company
since 1990 and as a director since 1983. Mr. Rogers served as Senior Vice
President of Univar Corporation until retiring in 1991. He is a graduate of
Stanford University with a B.A. in Economics. Mr. Rogers serves as a Board
member of Penwest Pharmaceuticals Co. and Royal Vopak, N.V.
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. Street (Chair), Hunter, Rogers, and Ms. Narodick, all of
whom are independent directors as defined in Rule 4200(a)(14) of the NASD's
listing standards, with the exception of Mr. Rogers, who is the father-in-law of
the Company's President and CEO**. 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
auditors' report; reviews the independent auditors' recommendations relating to
accounting, internal controls and other matters; reviews internal controls and
accounting procedures with management; and approves policies relating to
environmental, health, and safety matters. On June 16, 2000 the committee
adopted a written charter, a copy of which is attached as Appendix A hereto.
Compensation and Benefits Committee -- This committee consists of Messrs.
Parzybok (Chair), Hatfield, Street, and Ms. Narodick. 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, determines executive bonus payments, and grants
stock options to officers and employees under the Company's stock option plan.
Executive Committee -- This committee consists of Messrs. Rogers (Chair),
Cook, Hatfield, and Parzybok. The committee is authorized to exercise all powers
and authority of the Board with certain exceptions and establishes the fiscal
year Company targets from which executive bonus payments are measured.
Nominating Committee -- This committee consists of Ms. Narodick (Chair),
Messrs. Cook, Hunter, and Parzybok. The committee proposes candidates to fill
any vacancies on the Board. 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 nominations are set forth in the Bylaws of the
Company. The committee also makes recommendations for other committee
appointments.
In fiscal year 2000, the Audit and Environmental, Health, and Safety
Committee met one time; the Compensation and Benefits Committee met three times;
the Executive Committee met one time; the Nominating Committee met one time; and
the Board of Directors met five times. All directors attended 75% or more of the
aggregate number of Board meetings and meetings of committees on which they
served.
---------------
**Although a continuing director, Mr. Rogers has expressed his intention to
retire from his position as director of the Company at the Company's 2001 Annual
Meeting of Shareholders.
3
<PAGE> 7
Non-employee directors were compensated during the last fiscal year as follows:
<TABLE>
<S> <C>
Annual retainer as Chairman of the Board of Directors....... $30,000
Annual retainer as a director............................... 9,000
Annual retainer as Chair of the Executive Committee......... 4,000
Annual retainer as Chair of all other standing committees... 2,000
Fee for each meeting of the 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 Chair and 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 non-qualified 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 the 1993
Non-Employee Director Restricted Stock Plan. The plan provides that beginning
September 1, 1993 and every three years thereafter, 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 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 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, such as retirement, the director must forfeit
such shares.
In addition, non-employee directors receive stock options under the Stock
Option Plan for Non-Employee Directors. The plan provides that on each September
1, each non-employee director will 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,
1999 each non-employee director was granted an option to purchase 2,689 shares
of common stock. Each non-employee director also may elect to receive during a
fiscal year stock options 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 2000, Messrs. Hatfield, Hunter, Rogers, and Street elected to
receive such options in lieu of director cash compensation. 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.
4
<PAGE> 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information, as of December 8, 2000,
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 including the Company's Chief
Executive Officer; by the three other highest paid executive officers, and by
the directors and named executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP OF
NAME (AND ADDRESS FOR BENEFICIAL OWNERS OVER 5%) COMMON STOCK(1) PERCENT OF CLASS
------------------------------------------------ ----------------------- ----------------
<S> <C> <C>
Wellington Management Company............................. 675,000 9.06 %
75 State Street
Boston, MA 02109
Dimensional Fund Advisors Inc.(2)......................... 420,950 5.65 %
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401-1038
Jeffrey T. Cook........................................... 343,156(3) 4.60 %
Paul H. Hatfield.......................................... 48,300 *
Gregory C. Horn........................................... 65,539 *
John C. Hunter III........................................ 12,650 *
Gregory R. Keeley......................................... 290 *
Wallace H. Kunerth, Ph.D. ................................ 37 *
Sally G. Narodick......................................... 19,672 *
William G. Parzybok, Jr. ................................. 15,093 *
N. Stewart Rogers......................................... 201,651(4) 2.71 %
William K. Street......................................... 54,350(5) *
All directors and executive officers as a group (10
persons)................................................ 760,738 10.21 %
</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, 155,852 and Mr.
Horn, 60,312.
(2) Dimensional Fund Advisors Inc. ("Dimensional"), an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940,
furnishes investment advice to four investment companies registered under
the Investment Company Act of 1940, and serves as investment manager to
certain other investment vehicles, including commingled group trusts. (The
investment companies and investment vehicles are the "Portfolios"). In its
role as investment advisor and investment manager, Dimensional possessed
both voting and investment power over 420,950 shares of Penford Corporation
stock as of September 30, 2000. The Portfolios own all securities reported
in this statement, and Dimensional disclaims beneficial ownership of such
securities.
(3) Includes 78,300 shares held in irrevocable trusts for which Mr. Cook shares
voting and investment power.
(4) Includes 65,246 shares held by a limited partnership and 11,538 shares held
in irrevocable trusts both of which Mr. Rogers has sole voting and
investment power.
(5) Includes 14,028 shares owned by Mr. Street's spouse as to which Mr. Street
disclaims beneficial ownership.
5
<PAGE> 9
EXECUTIVE COMPENSATION
Compensation paid by the Company during fiscal years 2000, 1999 and 1998
for the Chief Executive Officer and the other three most highly compensated
executive officers is set out in the following table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- ------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(1) ($) OPTIONS(#) ($)(2)
------------------ ------ -------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey T. Cook................ 2000 $303,333 $206,700 0 30,000 $11,359
President and Chief 1999 260,000 174,900 0 125,000 12,115
Executive Officer 1998 211,700 113,438 0 0 11,824
Gregory C. Horn................ 2000 191,000 97,000 0 15,000 10,422
Vice President 1999 181,666 131,868 0 50,000 11,394
1998 171,250 126,000 0 0 11,826
Gregory R. Keeley(3)........... 2000 62,700 42,570 0 100,000 0
Vice President
Wallace H. Kunerth, Ph.D.(4)... 2000 45,000 19,080 0 50,000 0
Vice President
</TABLE>
---------------
(1) Reflects bonuses earned during the fiscal year, but paid in the next fiscal
year.
(2) These amounts represent the Company's matching and profit sharing
contributions under the Penford Corporation Savings and Stock Ownership Plan
and premiums paid on behalf of certain named executive officers for
supplemental disability insurance.
(3) Amounts reported for Mr. Keeley reflect partial year salary and bonus based
on his date of hire.
(4) Amounts reported for Dr. Kunerth reflect partial year salary and bonus based
on his date of hire. In addition, Dr. Kunerth has been provided a two-year
cash compensation guarantee that expires June 2002.
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 and Benefits Committee of the Board of
Directors, which determines to whom the options are granted, the number of
shares subject to each option grant, the type of 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.
6
<PAGE> 10
OPTION GRANTS IN FISCAL 2000
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR
OPTIONS EMPLOYEES IN EXERCISE OR OPTION TERMS(1)
GRANTED FISCAL BASE PRICE EXPIRATION -----------------------
NAME (#) YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey T. Cook.............. 30,000 9% $13.625 10/29/09 $ 257,061 $ 651,442
Gregory C. Horn.............. 15,000 5 13.625 10/29/09 128,530 325,721
Gregory R. Keeley............ 100,000 31 17.688 06/22/10 1,112,389 2,819,012
Wallace H. Kunerth, Ph.D..... 50,000 15 17.688 06/22/10 556,194 1,409,506
</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 EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
ACQUIRED ON YEAR-END (#) FISCAL YEAR-END (#)(1)
EXERCISE VALUE --------------------------- ---------------------------
NAME (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey T. Cook............. 10,237 63,104 112,856 222,984 971,240 1,861,577
Gregory C. Horn............. 0 0 35,816 140,361 344,326 1,199,749
Gregory R. Keeley........... 0 0 0 100,000 0 50,000
Wallace H. Kunerth, Ph.D.... 0 0 0 50,000 0 25,000
</TABLE>
---------------
(1) Values are calculated by subtracting the exercise price from the fair market
value of the stock as of the fiscal year end.
RETIREMENT BENEFITS
BENEFITS COMPUTED WITHOUT SALARY MAXIMUMS OR INTERNAL REVENUE CODE SECTION 415
MAXIMUMS
<TABLE>
<CAPTION>
YEARS OF SERVICE
FIVE-YEAR AVERAGE -----------------------------------------
COMPENSATION(1) 15 20 25 30
----------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$200,000 $ 42,368 $ 56,490 $ 70,613 $ 84,735
300,000 64,868 86,490 108,113 129,735
400,000 87,368 116,490 145,613 174,735
500,000 109,868 146,490 183,113 219,735
600,000 132,368 176,490 220,613 264,735
700,000 154,868 206,490 258,113 309,735
800,000 177,368 236,490 295,613 354,735
900,000 199,868 266,490 333,113 399,735
</TABLE>
---------------
(1) Represents the highest average annual earnings during five consecutive years
of service.
7
<PAGE> 11
The Company has a defined benefit retirement plan (the "Retirement Plan").
The table above shows the estimated annual benefits payable at 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. The Retirement Plan's
formula limits years of service to 30 years. With certain exceptions, the
Internal Revenue Code (the "Code") restricts to an aggregate amount of $135,000
(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 $170,000.
The Board of Directors has established supplemental benefits for certain highly
compensated employees to whom this limit applies, so that these employees will
obtain the benefit of the formula that would have applied in the absence of the
limitation. The named executive officers entitled to receive supplemental
benefits as of August 31, 2000 were Messrs. Cook and Horn.
All permanent employees who are not members of the collective bargaining
unit are eligible to participate in the Retirement Plan. Compensation covered by
the Retirement Plan includes salaries and bonuses.
As of August 31, 2000, the approximate years of credited service (rounded
to the nearest year) under the Retirement Plan of the named executive officers
were: Mr. Cook, 19; Mr. Horn, 7; Mr. Keeley, 1; and Dr. Kunerth, 1.
COMPENSATION AND BENEFITS COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Board of Directors of the Company has a Compensation and Benefits
Committee (the "Committee") comprised of four independent directors. The
Committee is broadly charged by the Board of Directors to establish compensation
and incentive programs for key employees, and to direct and monitor the
Company's benefit plans 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.
Total Compensation
The Committee believes that executive officer compensation should be
closely aligned with the performance of the Company on both a short-term and
long-term basis, and that such compensation should assist the Company in
attracting and retaining key executives critical to its long-term success. To
that end, the Committee's policy is that the compensation package for executive
officers should consist of three components: (i) an annual base salary; (ii) the
potential to earn incentive bonuses, the amount of which is dependent upon both
Company and individual performance during the prior fiscal year; and (iii) stock
option awards designed to align management's interests with those of
shareholders by providing long-term incentives for the Company's key employees.
The Committee establishes total annual compensation for the chief executive
officer and other senior executive officers after reviewing each component of
such executive's compensation against executive compensation surveys prepared by
outside consultants. The surveys used for comparison reflect compensation levels
and practices for persons holding comparably responsible positions at targeted
peer group companies. In addition to reviewing senior executive officers'
compensation against the comparator group, the Committee also solicits
appropriate input from the Company's president and chief executive officer
regarding total compensation for those executives who report directly to him.
8
<PAGE> 12
For fiscal 2000, the Committee determined that total compensation for
executive officers (the sum of base salary, incentive bonus, and long-term
compensation delivered through stock option awards) should be targeted between
the 50th and the 75th percentile of selected peer group companies. The Committee
may, at its discretion, award compensation in excess of the target. The program
is intended to be competitive with other high-performing organizations and to
enable the Company to attract, reward and retain exceptional talent.
Base Salary
Base salaries for executive officers are reviewed on an annual basis and at
the time of promotion or other increase in responsibilities. Increases in salary
are based on evaluation of such factors as the levels of responsibility,
individual performance, experience, current pay, and Company peer group pay
levels. In fiscal 2000, Mr. Cook's base salary was $325,000 which was determined
in accordance with the factors above.
Incentive Compensation
The Committee selects plan participants, sets bonus target percentages,
approves individual performance factors, and determines level of achievement to
objective performance measures. Target bonus amounts are expressed as a
percentage of base salary and are established according to the overall intended
peer group companies. For fiscal 2000, the bonus targets for participating
employees ranged from 20% to 60% of base salary depending on position. Mr.
Cook's target was 60%. After the end of the performance period, the extent to
which the performance goals were achieved and the amount of the award that is
payable is determined by the Committee.
This program is an annual cash payout dependent on achieving predetermined
profit and cash flow goals, as well as certain qualitative objectives. Penford's
Board of Directors believes strongly that a balanced combination of targets
requiring the achievement of short-term operating goals and longer-term
strategic objectives translates directly into increasing the long-term value of
Penford stock. Individual incentive compensation target awards are also subject
to an adjustment based on individual performance. Payouts can exceed targets
when quantitative and qualitative targets are exceeded.
Stock Based Incentive Programs
The Board of Directors strongly encourages all executive officers of
Penford to build a significant ownership position in Penford common stock. All
stock options to executive officers have been granted at market price on the
date of the grant. The incentive stock options generally vest over five years at
the rate of 20% each year and expire 10 years from the date of grant. The
non-qualified stock options generally vest over four years at the rate of 25%
each year and expire 10 years and 10 days from date of grant.
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 to existing
shareholders and existing open market stock buyback programs are taken into
account.
Supplemental Benefit Plans
Supplemental benefit plans for executive officers and certain other key
personnel include a supplemental retirement plan, a deferred compensation plan,
and a supplemental disability plan. These plans are designed to be competitive
with other plans for comparably sized companies and to attract and retain highly
qualified management.
9
<PAGE> 13
CEO Compensation
Mr. Jeffrey T. Cook was appointed President and Chief Executive Officer
effective September 1, 1998. As discussed above, Penford's executive cash
compensation program includes a base salary and a Company performance-based
incentive compensation program. Mr. Cook participates in the same incentive
program applicable to the other named executive officers. The Committee's
objective is to correlate the CEO's remuneration with the performance of the
Company. Mr. Cook's entire performance-related pay for fiscal years 2000, 1999
and 1998 was paid under the incentive program. Such pay is adjusted to reflect
the level of target achievement for that particular fiscal year. Base salary is
reviewed on an annual basis for executives in an effort to maintain market
competitiveness. Mr. Cook's last base salary increase was in January 2000. In
addition, Mr. Cook is a large shareholder in the Company, and to the extent his
performance as President and Chief Executive Officer translates into an increase
in the value of the Company's common stock, all shareholders, including him,
share the benefits.
William G. Parzybok, Jr., Chair
Paul H. Hatfield
Sally G. Narodick
William K. Street
AUDIT AND ENVIRONMENTAL, HEALTH, AND SAFETY COMMITTEE REPORT
The committee has reviewed and discussed the audited financial statements
for fiscal year 2000 with management. The committee has discussed with Ernst &
Young, LLP, the independent auditors of the Company, the matters required to be
discussed with the committee by SAS 61, as may be modified or supplemented. In
addition, the committee has discussed with the independent accountants the
independent accountants' independence. The committee has received the written
disclosures and the letter from the independent accountants required by
Independence Standards Board Standard No. 1, as may be modified or supplemented
and considered the compatibility of non-audit services with the auditors'
independence.
At the Board meeting held October 17, 2000, based upon the review and
discussions set forth above, the committee recommended to the Board that the
most recent years's audited financial statements be included in the Company's
Form 10-K Annual Report filed with the Securities and Exchange Commission on
November 22, 2000.
William K. Street Chair
N. Stewart Rogers
Sally G. Narodick
John C. Hunter III
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP, upon the recommendation of the audit committee, will
serve as the independent auditors for the Company for the fiscal year ending
August 31, 2001. This firm has served as the independent auditors for the
Company since 1985. Representatives of the firm are expected to be present at
the Annual Meeting of Shareholders to respond to shareholders' questions and to
have the opportunity to make any statements they consider appropriate.
10
<PAGE> 14
PERFORMANCE GRAPH
The following graph compares the Company's cumulative total shareholder
return on its common stock for a five-year period (August 31, 1995 to August 31,
2000) with the cumulative total return of the Nasdaq Market Index and all
companies traded on the Nasdaq Stock Market(R) ("Nasdaq") with a market
capitalization of $100 -- $200 million, excluding financial institutions. The
graph assumes that $100 was invested on August 31, 1995 in the Company's common
stock and in the stated indices. The comparison assumes that all dividends are
reinvested.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG PENFORD CORPORATION,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
[PERFORMANCE GRAPH]
ASSUMES $100 INVESTED ON AUGUST 31, 1995
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING AUGUST 31, 2000
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PENFORD CORPORATION 100.00 73.02 131.77 109.67 132.08 165.05
NASDAQ MARKET INDEX 100.00 112.29 155.42 150.95 277.21 434.13
NASDAQ MARKET CAP
($100 -- 200M) 100.00 97.92 106.21 70.39 81.34 68.19
--------------------------------------------------------------------------------
</TABLE>
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 sells products based on specialty carbohydrate chemistry
to several distinct markets, 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.
11
<PAGE> 15
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The federal securities laws require the Company's directors and executive
officers, and persons who own more than ten percent of the Company's common
stock, to file with the Securities and Exchange Commission initial reports of
ownership and reports of changes in ownership of any securities of the Company.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended August 31, 2000, all of the
Company's directors, executive officers and greater-than-ten percent beneficial
owners made all required filings.
CHANGE-OF-CONTROL ARRANGEMENTS
The Company has change-of-control agreements with the following executive
officers as of December 8, 2000: Messrs. Jeffrey T. Cook, Gregory C. Horn,
Gregory R. Keeley and Wallace H. Kunerth, Ph.D. Each agreement provides that the
executive will receive compensation for 30 months if his employment is
terminated by the Company upon a change of control 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. Cook, $1,300,000; Mr. Horn, $727,500; Mr. Keeley,
$806,250; and Dr. Kunerth, $630,000. 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
Shareholder proposals that are to be (a) intended for inclusion in next
year's proxy statement, or (b) presented at next year's Annual Meeting of
Shareholders without inclusion in the Company's proxy materials, must be
directed to the Corporate Secretary at Penford Corporation, P.O. Box 1688,
Bellevue, Washington 98009-1688, and must be received by August 18, 2001. Any
shareholder proposal for next year's Annual Meeting submitted after August 18,
2001 will not be considered filed on a timely basis with the Company. For
proposals that are timely filed, the Company retains discretion to vote proxies
it receives provided (1) the Company includes in its proxy statement advice on
the nature of the proposal and how it intends to exercise its voting discretion
and (2) the proponent does not issue a proxy statement.
12
<PAGE> 16
SOLICITATION OF PROXIES
The proxy card 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. Representatives of Mellon Investor Services LLC (f/k/a
ChaseMellon Shareholder Services, LLC) also may solicit proxies as a part of the
services it provides for the Company. 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.
VOTING TABULATION
Votes Required
Under the Washington Business Corporation Act, the election of the
Company's Directors requires a plurality of the votes represented in person or
by proxy at the meeting. Votes cast by proxy or in person at the meeting will be
tabulated by Mellon Investor Services LLC, (f/k/a ChaseMellon Shareholder
Services, LLC), the stock transfer agent designated by the Company. A majority
of the shares eligible to vote must be present in person or represented by proxy
to provide a quorum.
Effect of an Abstention and Broker Non-Votes
A shareholder who abstains from voting on any or all proposals will be
included in the number of shareholders present at the meeting for the purpose of
determining the presence of a quorum. Abstentions will not be counted either in
favor of or against the election of the nominees or other proposals. Under the
rules of the National Association of Securities Dealers, brokers holding stock
for the accounts of their clients who have not been given specific voting
instructions as to a matter by their clients may vote their client's proxies in
their own discretion.
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 20, 2000
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR 2000,
CONTAINING INFORMATION ON OPERATIONS, FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, IS ACCESSIBLE ON THE COMPANY'S WEBSITE AT WWW.PENX.COM OR IS
AVAILABLE UPON WRITTEN REQUEST. PLEASE WRITE TO: INVESTOR RELATIONS, PENFORD
CORPORATION, P.O. BOX 1688, BELLEVUE, WASHINGTON 98009-1688.
13
<PAGE> 17
APPENDIX A
PENFORD CORPORATION
AUDIT AND ENVIRONMENTAL, HEALTH, AND SAFETY
COMMITTEE CHARTER
ORGANIZATION
The Committee shall consist of at least three Directors including a
Chairperson. The Committee shall include only independent Directors as defined
by the relevant listing authority. Each member of the Committee shall be
financially literate or must become financially literate within a reasonable
period of time after his or her appointment to the Committee, and at least one
member of the Committee must have accounting or related financial management
expertise as the foregoing qualifications are interpreted by the Board of
Directors ("Board") in its business judgement.
STATEMENT OF POLICY
The Committee shall, through regular or special meetings with management
and the Company's independent auditor, provide oversight on matters relating to
accounting, financial reporting, internal control, auditing, and regulatory
compliance activities and other matters as the Board or the Committee
Chairperson deems appropriate.
RESPONSIBILITIES
The Committee shall have the responsibility for recommending to the Board
the appointment of the Company's independent auditor; reviewing the audit
process and independence of the independent auditor; and recommending approval
of material accounting policies.
The Committee shall resolve issues of conflict of interest, provided,
however, that when any member of the Committee is also an officer, director or
an interested party of or in such corporation or other entity with which a
conflict arises, such member shall not participate in the deliberations or vote
on any matter involving such corporation or other entity.
The Committee shall perform the specific functions specified below.
INDEPENDENT AUDITOR. The Committee shall communicate to the independent
auditor that the auditor is ultimately accountable to the Board and the
Committee. The Committee shall have the authority and responsibility to
recommend to the Board the selection, evaluation and, where appropriate,
replacement of the independent auditor.
The Committee shall:
(1) require the independent auditor to provide annually to the
Committee a formal written statement delineating all relationships between
the independent auditor and the Company;
(2) actively engage in a dialogue with the independent auditor with
respect to any disclosed relationships or services that may impact the
objectivity and independence of the independent auditor;
(3) recommend that the Board take appropriate action in response to
the independent auditor's report to satisfy itself of the independent
auditor's independence;
(4) review the annual audit plans of the independent auditor;
A-1
<PAGE> 18
(5) review the results of the independent auditors' activities,
including major conclusions, findings and recommendations, and related
management responses;
(6) review with the independent auditors material litigation involving
the Company, its officers and directors; and
(7) review with the independent auditors significant business,
accounting, tax, legal and other developments that could be material to the
Company's financial statements.
ACCOUNTING POLICIES. The Committee shall review with management and the
independent auditor and approve (or reject) adoption of or changes to major
accounting policies.
INTERNAL ACCOUNTING CONTROLS AND AUDITS. The Committee shall review in
connection with the annual audit and from time to time as necessary the
Company's internal accounting controls and results of internal audits (where
material), including compliance and the Company's policies with respect to the
Foreign Corrupt Practices Act.
COMMUNICATIONS. The Committee shall have separate direct lines of
communication between itself and the independent auditor, and with regard to
litigation and legal and regulatory compliance, the Company's general counsel.
The Committee shall meet privately (without members of management present) and
separately with the independent auditor at least once each year and, if/when
requested, with the Company's legal counsel. A special meeting may be called by
executive management or the independent auditors.
HEALTH AND SAFETY. The Committee shall approve policies relating to
environmental health and safety matters. The Committee may engage consultants
expert in such matters to assist management in installing and maintaining
operational safeguards.
ANNUAL FINANCIAL STATEMENTS. With regard to the SEC Form 10-K, prior to its
filing, the Committee shall review and discuss the audited financial statements
with management, and discuss with the independent auditors the matters required
to be discussed by relevant auditing standards, including the quality, not just
the acceptability, of the accounting principles and underlying estimates used in
the audited financial statements. The Committee shall report to the Board and to
the shareholders (via Company's annual proxy statement) whether, based on such
reviews and discussions, it recommends to the Board that the most recent year's
audited financial statements be included in the Company's SEC Form 10-K to be
filed with the SEC.
REPORTS. The Committee shall receive periodic reports from management, the
Company's general counsel, and the independent auditor on matters relating to
accounting, financial reporting, internal control, auditing, litigation and
compliance with legal business policies and regulatory requirements. The
Committee shall receive these reports pursuant to a schedule that the Committee
Chair develops in consultation with management.
AUTHORITY TO INVESTIGATE. The Committee may cause an investigation to be
made into any matter within the scope of its responsibility. The Committee may
engage independent resources to assist in its investigations as it deems
necessary. The Committee may undertake such other matters as the Board or the
Committee considers appropriate.
ADEQUACY OF CHARTER. The Committee shall review the continued adequacy of
this Audit Committee Charter on an annual basis.
REPORTS TO BOARD. The Committee Chair shall make regular reports to the
Board on the Committee's activities.
A-2
<PAGE> 19
PROXY
FOR THE ANNUAL MEETING OF THE SHAREHOLDERS OF
PENFORD CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jeffrey T. Cook and Susan M. Iverson, 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 Janaury 30, 2001 and at any time adjournment thereof.
(Continued and to be signed on the reverse side)
- FOLD AND DETACH HERE -
<PAGE> 20
Please mark
your votes as [X]
indicated in
this example
FOR WITHHOLD AUTHORITY
1. Election of Directors
Jeffrey T. Cook and Sally G. Narodick [ ] [ ]
Except vote withheld from the following nominee(s)
listed in the space at right _______________________
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
I plan to attend the meeting. [ ]
This proxy, when properly signed will be voted in the manner directed herein by
the by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSAL 1.
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________2000, 2001
- FOLD AND DETACH HERE -
