-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AR9n8N4CoAMdf4ecsTIzbxviKbBs6+S6vakKB3c88xJE+aiudaS8n7dPSoSU26JT xlLn4vI8PtbgeIpNxXUPZw== 0000891020-98-000013.txt : 19980115 0000891020-98-000013.hdr.sgml : 19980115 ACCESSION NUMBER: 0000891020-98-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971130 FILED AS OF DATE: 19980114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENFORD CORP CENTRAL INDEX KEY: 0000739608 STANDARD INDUSTRIAL CLASSIFICATION: GRAIN MILL PRODUCTS [2040] IRS NUMBER: 911221360 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11488 FILM NUMBER: 98506197 BUSINESS ADDRESS: STREET 1: 777 108TH N E STE 2390 CITY: BELLEVUE STATE: WA ZIP: 98004-5193 BUSINESS PHONE: 4254626000 MAIL ADDRESS: STREET 1: 777 108TH N E STE 2390 CITY: BELLEVUE STATE: WA ZIP: 98009 FORMER COMPANY: FORMER CONFORMED NAME: PENWEST LTD DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 30, 1997 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to _______________________ Commission File No. 0-11488 PENFORD CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Washington 91-1221360 - -------------------------------------------------------------------------------- (State of Incorporation) (I.R.S. Employer Identification No.) 777-108th Avenue N.E., Suite 2390, Bellevue, WA 98004-5193 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (425) 462-6000 Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of January 8, 1998: Class Outstanding ----- ----------- Common stock, par value $1.00 7,299,261 2 PENFORD CORPORATION AND SUBSIDIARIES INDEX
Page No. -------- PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Consolidated Balance Sheets 3 November 30, 1997 and August 31, 1997 Condensed Consolidated Statements of Income 4 Three Months Ended November 30, 1997 and November 30, 1996 Condensed Consolidated Statements of Cash Flow 5 Three Months Ended November 30, 1997 and November 30, 1996 Notes to Condensed Consolidated Financial Statements 6-8 Item 2 - Management's Discussion and Analysis of 9-12 Financial Condition and Results of Operations Item 3 - Quantitative and Qualitative Disclosures About Market Risk PART II - OTHER INFORMATION 13 Item 1 - Legal Proceedings Item 2 - Changes in Securities Item 3 - Defaults Upon Senior Securities Item 4 - Submission of Matters to a Vote of Security Holders Item 5 - Other Information Item 6 - Exhibits and Reports on Form 8-K SIGNATURES 14 INDEX TO EXHIBITS 15-16
2 3 PART I - FINANCIAL INFORMATION Item 1 Financial Statements PENFORD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
November 30, August 31, 1997 1997 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 724 $ 176 Trade accounts receivable 25,777 27,181 Inventories: Raw materials, supplies and other 6,819 6,624 Work in progress 807 886 Finished goods 14,520 14,325 --------- --------- 22,146 21,835 Prepaid expenses and other 6,303 5,179 --------- --------- Total current assets 54,950 54,371 Net property, plant and equipment 131,076 130,374 Deferred income taxes 11,001 11,007 Restricted cash value of life insurance 12,586 12,691 Other assets 7,374 7,486 --------- --------- Total assets $ 216,987 $ 215,929 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 8,468 $ 10,089 Accrued liabilities 8,827 8,157 Current portion of long-term debt 3,697 5,955 --------- --------- Total current liabilities 20,992 24,201 Long-term debt 64,589 61,791 Other postretirement benefits 10,569 10,294 Deferred income taxes 22,040 22,136 Other liabilities 8,660 8,406 Shareholders' equity: Common stock 9,096 9,093 Additional paid-in capital 18,654 18,466 Retained earnings 93,987 93,854 Treasury stock (30,496) (30,604) Note receivable from Savings and Stock Ownership Plan (568) (639) Cumulative translation adjustment (536) (1,069) --------- --------- Total shareholders' equity 90,137 89,101 --------- --------- Total liabilities and shareholders' equity $ 216,987 $ 215,929 ========= =========
See accompanying notes to condensed consolidated financial statements. 3 4 PENFORD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands except per share data)
Three Months Ended November 30 -------------------------- 1997 1996 ----------- ----------- Sales $ 48,523 $ 49,310 Cost of sales 35,634 38,500 ----------- ----------- Gross margin 12,889 10,810 Operating expenses 10,715 8,590 ----------- ----------- Income from operations 2,174 2,220 Other income 1,200 Interest expense, net (1,409) (1,298) ----------- ----------- Income before income taxes 765 2,122 Income taxes 268 715 ----------- ----------- Net income $ 497 $ 1,407 =========== =========== Weighted average common shares and equivalents outstanding 7,530,490 6,993,058 Earnings per common share $ 0.07 $ 0.20 =========== =========== Dividends declared per common share $ 0.05 $ 0.05 =========== ===========
See accompanying notes to condensed consolidated financial statements. 4 5 PENFORD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Dollars in Thousands)
Three Months Ended November 30 -------------------- 1997 1996 -------- -------- Operating Activities: Net income $ 497 $ 1,407 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 3,241 2,926 Deferred income taxes (90) Other 36 Change in operating assets and liabilities: Trade receivables 1,404 3,260 Inventories (311) 1,275 Accounts payable and other (1,796) 1,181 -------- -------- Net cash from operating activities 2,981 10,049 Investing Activities: Additions to property, plant and equipment (3,884) (8,540) Other 1,220 (360) -------- -------- Net cash used by investing activities (2,664) (8,900) Financing Activities: Proceeds from unsecured line of credit 22,573 19,035 Payments on unsecured line of credit (24,565) (22,094) Proceeds from long-term debt 5,000 5,000 Payments on long-term debt (2,468) (318) Exercise of stock options 55 125 Payment of dividends (364) (342) -------- -------- Net cash from financing activities 231 1,406 -------- -------- Net increase in cash and cash equivalents 548 2,555 Cash (bank overdrafts) and cash equivalents at beginning of period 176 (847) -------- -------- Cash and cash equivalents at end of period $ 724 $ 1,708 ======== ========
See accompanying notes to condensed consolidated financial statements. 5 6 PENFORD CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation for the interim period presented have been included. Operating results for the three month period ended November 30, 1997 are not necessarily indicative of the results that may be expected for the year ending August 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in Penford Corporation's ("Penford" or the "Company," formerly PENWEST, LTD.) annual report on Form 10-K for the fiscal year ended August 31, 1997. Certain prior year amounts have been reclassified to conform with current year presentation. These reclassifications had no effect on previously reported results of operations. 2. INCOME TAXES The effective tax rate for the quarter ended November 30, 1997 is 35%. The effective rate is higher than the federal statutory rate of 34% due to the effects of state income taxes. 3. EARNINGS PER COMMON SHARE Earnings per common share were computed by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding during the fiscal quarter. Outstanding stock options are considered to be common share equivalents. In February 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 128, Earnings Per Share, which is required to be adopted in the second quarter of fiscal 1998. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. When adopted, the standard will have no effect on primary earnings per share for the fiscal quarter ending November 30, 1997 and will cause a $0.01 per share 6 7 increase to primary earnings per share for the quarter ending November 30, 1996. The impact of Statement No. 128 on the calculation of fully diluted earnings per share is not expected to be material. 4. OTHER INCOME During the quarter ended November 30, 1996, the Company sold certain Southern California air emission credits and recognized a gain of $1.2 million that is shown as other income. 5. PLANNED INITIAL PUBLIC OFFERING AND SPIN-OFF OF PENWEST PHARMACEUTICALS CO. During the first quarter of fiscal 1998, the Company changed its name to Penford Corporation in connection with a two-stage plan designed to foster the growth potential of its pharmaceuticals business, and separately, its specialty starch based paper chemicals and food ingredients businesses. Under the first stage of the plan, the Company's Penwest Pharmaceuticals Co. (Penwest) subsidiary would sell up to 20% of its common stock through an initial public offering. Under the second stage of the plan, Penford Corporation would effect a tax-free spin-off to its shareholders of the remaining ownership of Penwest shares contingent upon satisfying certain conditions. The spin-off was anticipated to occur in the second calendar quarter of 1998. On October 21, 1997, Penwest filed a registration statement with the Securities and Exchange Commission for an initial public offering of 2,500,000 shares of common stock (approximately 15% of its outstanding common stock). The estimated initial public offering price is between $10.00 to $12.00 per share. An option will be granted to the underwriters to purchase up to 375,000 additional shares for the purpose of covering over-allotments, if any. On December 18, 1997, Penford Corporation postponed the initial public offering of Penwest due to market conditions for new issues in general as well as for health care and technology stocks in particular. The Company intends to go forward with the offering as soon as practicable after market conditions improve. This postponement may cause the planned spin-off to be delayed beyond the second calendar quarter of 1998. Costs incurred by Penford Corporation related to the execution of the plan are being deferred and will be charged to expense in the quarter in which the outcome of the plan is reasonably determinable. As of November 30, 1997, such costs approximated $1.6 million. In addition, Penwest is incurring certain costs that will be recorded as a reduction of Penwest's shareholders' equity upon completion of the initial public offering. Changes to the plan could result in some or all of such costs being charged to expense. 7 8 Penwest will retain the proceeds from the planned initial public offering. Penford will forgive intercompany advances as of the closing of the offering. As of November 30, 1997, the intercompany balance approximated $38.1 million. Had the proposed plan been effected as of November 30, 1997, consolidated assets and shareholders' equity of Penford would have reflected a reduction of approximately $35.0 to $40.0 million, representing the net effects of the proposed distribution. Summarized quarterly financial data of Penwest as of November 30, and for the three months then ended is as follows (in 000's):
1997 1996 ---- ---- Sales $ 6,742 $ 6,243 Loss from operations (2,445) (950) Identifiable assets 39,549 36,633
8 9 Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RECENT DEVELOPMENTS During the first quarter of fiscal 1998, the Company changed its name to Penford Corporation in connection with a two-stage plan designed to foster the growth potential of its pharmaceuticals business, and separately, its specialty starch based paper chemicals and food ingredients businesses. Under the first stage of the plan, the Company's Penwest Pharmaceuticals Co. (Penwest) subsidiary would sell up to 20% of its common stock through an initial public offering. Under the second stage of the plan, Penford Corporation would effect a tax-free spin-off to its shareholders of the remaining ownership of Penwest shares contingent upon satisfying certain conditions. The spin-off was anticipated to occur in the second calendar quarter of 1998. On October 21, 1997, Penwest filed a registration statement with the Securities and Exchange Commission for an initial public offering of 2,500,000 shares of common stock (approximately 15% of its outstanding common stock). The estimated initial public offering price is between $10.00 to $12.00 per share. An option will be granted to the underwriters to purchase up to 375,000 additional shares for the purpose of covering over-allotments, if any. On December 18, 1997, Penford Corporation postponed the initial public offering of Penwest due to market conditions for new issues in general as well as for health care and technology stocks in particular. The Company intends to go forward with the offering as soon as practicable after market conditions improve. This postponement may cause the planned spin-off to be delayed beyond the second calendar quarter of 1998. Costs incurred by Penford Corporation related to the execution of the plan are being deferred and will be charged to expense in the quarter in which the outcome of the plan is reasonably determinable. As of November 30, 1997, such costs approximated $1.6 million. In addition, Penwest is incurring certain costs that will be recorded as a reduction of Penwest's shareholders' equity upon completion of the initial public offering. Changes to the plan could result in some of all of such costs being charged to expense. RESULTS OF OPERATIONS Net income was $497,000, or $0.07 per share, for the quarter ended November 30, 1997, compared to net income of $1.4 million, or $0.20 per share, for the corresponding period a year ago. The prior year's first quarter included a one-time, pre-tax gain of $1.2 million from the sale of remaining Southern California air emission credits related to Great Western Malting Co. (sold in 1989). The Company, excluding Penwest, earned income from operations of $3.2 million in the first quarter compared with $1.9 million on the same basis in the prior year. Penwest Pharmaceuticals Co. incurred an operating loss in the first fiscal quarter of $2.4 million compared to an operating loss of $950,000 in the same quarter a year ago. Penwest's increased loss is attributed to increased investment in the research and development of novel drug delivery technologies and expenses associated with establishing Penwest as an independent public company. 9 10 Consolidated sales decreased 1.6% in the three months ended November 30, 1997 to $48.5 million from $49.3 million in the corresponding period a year ago. The decrease is primarily due to unusually high corn costs in the first quarter of fiscal 1997, a key component used in pricing Penford's paper chemical products. Penford Products Co. sales volumes increased approximately 11% from the same period in the prior year reflecting core business growth and the effects of sales and marketing initiatives. Penford Food Ingredients Co. starch sales volume improved approximately 18% primarily due to increased sales of starches for french fry coatings. Gross margin for the first quater of fiscal year 1998 was 26.6% compared to 21.9% for the corresponding period a year ago. The increase is primarily due to the effects of record high corn costs in the prior year of which only a portion could be passed on to customers through higher prices, and in the current year, the results of cost containment initiatives and the impact of manufacturing improvements. Operating expenses increased $2.1 million to $10.7 million in the three months ended November 30, 1997, compared to $8.6 million in the corresponding period a year ago. General and administrative costs rose $1.8 million due to expenses associated with building the infrastructure to support anticipated growth for the pharmaceuticals operation and increased sales and marketing efforts principally at Penford Products Co. Research and development costs increased by $316,000, primarily related to the continued development of pharmaceuticals using Penwest's controlled release technology. Net interest expense for the quarter ended November 30, 1997 was $1.4 million compared to $1.3 million for the corresponding period a year ago due to higher average debt levels. The effective tax rate for the first quarter of fiscal 1998 was 35.0% compared to 33.7% in the corresponding period a year ago. The effective tax rate is higher than the prior year primarily due to the absence of certain tax refunds received by the Company in the previous year. LIQUIDITY At November 30, 1997, Penford Corporation had cash and cash equivalents of $724,000, working capital of $34.0 million, an unsecured credit agreement of $35 million under which there was $25.3 million outstanding, and several uncommitted lines of credit aggregating $15.0 million under which there was $4.0 million outstanding. The Company used operating cash flow and debt to finance capital expenditures during the quarter. Cash flow from operations for the three months ended November 30, 1997 was $3.0 million compared to $10.0 million in the corresponding period of the prior year. The change in cash flow is due to the effects of unusually high corn costs on the components of working capital in the prior year and lower net income in the current year. The Company paid a $0.05 per share dividend on December 5, 1997. 10 11 CAPITAL RESOURCES Additions to property, plant and equipment during the three months ended November 30, 1997 were $3.9 million. The additions were primarily for improvements to the Penford Products Co. manufacturing facility in Cedar Rapids, Iowa and a capacity expansion project for the Penford Food Ingredients Co. facility in Richland, Washington. Penwest intends to begin construction of laboratory and manufacturing facilities in Patterson, New York in the second quarter of fiscal 1998 at an estimated total cost of approximately $15 million. Before completion of Penwest's initial public offering, the Company intends to fund costs incurred on the project from its cash resources and available credit lines. It is presently anticipated that amounts paid by the Company would be reimbursed from the proceeds of the initial public offering. Capital expenditures for the Company's specialty paper chemicals and food ingredients businesses for the remainder of fiscal 1998 are expected to be consistent with the first quarter. The timing of Penwest's initial public offering could affect the amount and timing of capital expenditures. FORWARD-LOOKING STATEMENTS The above discussion contains forward-looking statements concerning the proposed public offering and spin-off of Penwest, estimated capital expenditures, and the anticipated activities and results of the Company and Penwest. There are a variety of factors which could cause actual events to differ materially from those projected in the forward-looking statements, including without limitation, the risks that the public offering or the spin-off may not be completed as the result of future developments in the Company's or Penwest's business or conditions in the securities markets, failure to obtain necessary government rulings or approvals or third party consents or agreements; construction delays, cost overruns, nonperformance by contractors, or changes in capital improvement project requirements or specifications; competition; the possibility of interruption of business activities due to accidents, strikes, weather or other factors; product development risk; patents and intellectual property matters (including patent infringement litigation, including the patent infringement suit brought by Bayer AG and Pfizer Inc. against Mylan Laboratories Inc. as described in the Company's Form 10-K for the fiscal year ended August 31, 1997 on file with the Securities and Exchange Commission); dependence on collaborators; regulatory and manufacturing issues including the difficulties of obtaining FDA or other regulatory approvals; changes in raw material prices; changes in general economic conditions or developments with respect to specific industries or customers affecting demand for the Company's products; or other unforeseen developments in the industries in which the Company operates. Accordingly, there can be no assurance that the public offering or spin-off will be completed, or that future activities or results as described will be as anticipated. 11 12 The registration statement filed by Penwest with the Securities and Exchange Commission has not yet become effective. The securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. The discussion included herein shall not constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of these securities in any state or jurisdiction, in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction. Additional information which could affect the Company's financial results is included in the Company's 1997 Annual Report to Shareholders and its Form 10-K for the fiscal year ended August 31, 1997 on file with the Securities and Exchange Commission. Penford assumes no obligation to update any forward-looking statements should circumstances change. 12 13 Item 3 Quantitative and Qualitative Disclosures About Market Risk Not applicable PART II - OTHER INFORMATION Item 1 Legal Proceedings The registrant is unaware of any material developments in the legal proceedings referred to in the Registrant's Report on Form 10-K for the year ended August 31, 1997. In November, 1997, the Company was notified that a nearby resident had complained about health problems allegedly caused by starch emissions from the Company's Idaho Falls facility. Subsequently, the Idaho Department of Environmental Quality contacted the Company with regard to possible exceedences of the Company's air quality permit limits. In December, 1997, a group of nearby residents filed a Notice of Intent to Bring Suit with the Idaho Department of Environmental Quality and the U.S. Environmental Protection Agency pursuant to the Clean Air Act, the Comprehensive Environmental Response, Compensation and Liability Act, and the Emergency Planning and Community Right-to-Know Act. The Company is investigating these issues; however, the Company is unable at this time to determine whether any claim or action will be commenced or to estimate the Company's potential exposure, if any. Item 2 Changes in Securities Not applicable Item 3 Defaults Upon Senior Securities Not applicable Item 4 Submission of Matters to a Vote of Security Holders Not applicable Item 5 Other Information Not applicable Item 6 Exhibits and Reports on Form 8-K (a) Exhibits: 10.12 Second Amendment to Credit Agreement dated as of November 28, 1997 among Penford Corporation and its subsidiaries, Bank of America National Trust and Savings Association, ABN-AMRO Bank, N.V., The Bank of Nova Scotia, and Seattle-First National Bank 11 Statement re: Computation of Earnings Per Share 27 Financial Data Schedule (b) There were no filings on Form 8-K in the quarter ended November 30, 1997. A Form 8-K was filed on December 18, 1997 reporting under Item 5 Registrant's postponement of the initial public offering of Penwest Pharmaceuticals Co., a wholly owned subsidiary. Also filed as an exhibit was a copy of a press release dated December 18, 1997 relating to such postponement. 13 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PENFORD CORPORATION ------------------- (Registrant) January 12, 1998 /s/ Tod R. Hamachek - ---------------- ------------------------------------- Date Tod R. Hamachek President and Chief Executive Officer (Principal Executive Officer) January 12, 1998 /s/ Jeffrey T. Cook - ---------------- ------------------------------------- Date Jeffrey T. Cook Vice President, Finance and Chief Financial Officer (Principal Financial Officer) 14 15 INDEX TO EXHIBITS Exhibits identified in parentheses below, on file with the Securities and Exchange Commission, are incorporated by reference.
Exhibit No. Item - ----------- ---- (3.1) Restated Articles of Incorporation of Registrant (filed as an Exhibit to Registrant's Form 10-K for fiscal year ended August 31, 1995) (3.2) Articles of Amendment to Restated Articles of Incorporation of Registrant (filed as an exhibit to Registrant's Form 10-K for fiscal year ended August 31, 1997) (3.3) Bylaws of Registrant as amended and restated as of October 20, 1997 (filed as an exhibit to Registrant's Form 10-K for fiscal year ended August 31, 1997) (4.1) Amended and Restated Rights Agreement dated as of April 30, 1997 (filed as an Exhibit to Registrant's Amendment to Registration Statement on Form 8-A/A dated May 5, 1997) (10.1) Senior Note Agreement among Penford Corporation as Borrower and Mutual of Omaha and Affiliates as lenders, dated November 1, 1992 (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1993) (10.2) Loan Agreement among Penford Corporation as Borrower and Seattle-First National Bank as Lender, dated December 1, 1989 (Registrant agrees to furnish a copy of this instrument to the Commission on request) (10.3) Penford Corporation Supplemental Executive Retirement Plan, dated March 19, 1990 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991) (10.4) Penford Corporation Supplemental Survivor Benefit Plan, dated January 15, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991) (10.5) Penford Corporation Deferred Compensation Plan, dated January 15, 1991 (filed as an Exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1991)
15 16 (10.6) Change of Control Agreements with Messrs. Hamachek, Cook, Widmaier, Talley, Horn, Rydzewski and Belsheim (a representative copy of these agreements is filed as an exhibit to Registrant's Form 10-K for the fiscal year ended August 31, 1995) (10.7) Penford Corporation 1993 Non-Employee Director Restricted Stock Plan (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended November 30, 1993) (10.8) Note Agreement dated as of October 1, 1994 among Penford Corporation, Principal Mutual Life Insurance Company and TMG Life Insurance Company (filed as an Exhibit to Registrant's Form 10-Q for the quarter ended February 28, 1995) (10.9) Penford Corporation 1994 Stock Option Plan as amended and restated as of January 21, 1997 (filed on Form S-8 dated March 17, 1997) (10.10) Credit Agreement dated as of December 22, 1995 among Penford Corporation, and its subsidiaries, Bank of America National Trust and Savings Association, ABN-AMRO Bank, N.V., The Bank of Nova Scotia, and Seattle-First National Bank (filed as an exhibit to Registrant's Form 10-Q for the quarter ended February 29, 1996) (10.11) Amendment to Credit Agreement dated as of May 7, 1997 among Penford Corporation and its subsidiaries, Bank of America National Trust and Savings Association, ABN-AMRO Bank, N.V., the Bank of Nova Scotia, and Seattle-First National Bank (filed as an exhibit to the Registrant's Form 10-Q for the quarter ended May 31, 1997) 10.12 Second Amendment to Credit Agreement dated as of November 28, 1997 among Penford Corporation and its subsidiaries, Bank of America National Trust and Savings Association, ABN-AMRO Bank, N.V., The Bank of Nova Scotia, and Seattle-First National Bank (10.13) Penford Corporation Stock Option Plan for Non-Employee Directors (filed as an exhibit to the Registrant's Form 10-Q for the quarter ended May 31, 1996) (10.14) Separation Agreement dated as of November 10, 1997 between Registrant and Penwest Pharmaceuticals Co. (filed as an exhibit to Registrant's Form 10-K for fiscal year ended August 31, 1997) 11 Statement Regarding Computation of Per-Share Earnings 27 Financial Data Schedule
16 EX-10.12 2 SECOND AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10.12 SECOND AMENDMENT TO CREDIT AGREEMENT AND WAIVER THIS SECOND AMENDMENT TO CREDIT AGREEMENT AND WAIVER (this "Amendment and Waiver"), dated as of November 28, 1997, is entered into by and among PENFORD CORPORATION, formerly known as Penwest, Ltd. ("Penwest"), PENFORD PRODUCTS CO. ("Penford") and PENWEST PHARMACEUTICALS CO., formerly known as Edward Mendell Co., Inc. ("Penwest Pharmaceuticals") (each a "Borrower" and together the "Borrowers"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent for itself and the Banks (in such capacity, the "Agent"), and the several financial institutions party to the Credit Agreement (collectively, the "Banks"). RECITALS A. The Borrowers, the Banks, and the Agent are parties to a Credit Agreement dated as of December 22, 1995, as amended by a First Amendment to Credit Agreement dated as of May 7, 1997 (as so amended, the "Credit Agreement"), pursuant to which the Agent and the Banks have extended a revolving credit facility to the Borrowers. B. The Borrowers have requested that the Banks amend and/or waive certain provisions of the Credit Agreement in order to permit Penwest to spin-off to the public its pharmaceuticals business, which is presently carried on principally in Penwest Pharmaceuticals. C. The Banks are willing to so amend and/or waive certain provisions of the Credit Agreement, subject to the terms and conditions of this Amendment and Waiver. NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the meanings, if any, assigned to them in the Credit Agreement. 2. Amendments to Credit Agreement. (a) The Preamble to the Credit Agreement is hereby amended to reflect the change in name of Penwest, Ltd. to "Penford Corporation" and Edward Mendell Co., Inc. to "Penwest Pharmaceuticals Co." (b) The Preamble to the Credit Agreement shall be amended by deleting therefrom each reference to Penwest Pharmaceuticals, and, subject to the terms and conditions hereof, from and after the Effective Date, Penwest Pharmaceuticals shall cease to be a "Company" and shall cease to be included in the definition of the "Companies" under and for purposes of the Credit Agreement and other Loan Documents. (c) Section 1.01 of the Credit Agreement shall be amended as follows: 1 2 (i) The definition of "Arranger" shall be amended and restated as follows: ""Arranger" means BancAmerica Robertson Stephens." (ii) The definition of "EBITDA" shall be amended and restated as follows: ""EBITDA" of a Person means such Person's earnings before interest expense, taxes, depreciation, results of discontinued operations and amortization, computed on a consolidated basis and measured on a four-quarter trailing basis." (iii) The definition of "Restricted Subsidiary" shall be amended by inserting immediately before the period at the end of such definition the following: ", and in any event shall include Penwest Pharmaceuticals at all times prior to the Spin-Off Date" (iv) The definition of "Subsidiary" shall be amended by adding the following new sentence at the end of such definition: "Notwithstanding the foregoing, Penwest Pharmaceuticals shall not be considered a Subsidiary of Penwest for all purposes of this Agreement other than for purposes of determining Penwest's compliance with Sections 6.10, 7.11, 7.12 and 7.13 hereof; provided, however, that if on December 31, 1998, the Spin-Off Date has not occurred, then this sentence shall be of no further force or effect." (v) the following new definitions shall be inserted therein in proper alphabetical order as follows: ""Penwest Pharmaceuticals" means Penwest Pharmaceuticals Co. (formerly known as Edward Mendell Co., Inc.) and any successor thereto." ""IPO" means the sale of shares of the common stock of Penwest Pharmaceuticals to the public pursuant to an initial public offering of such shares." ""Pharmaceuticals Business" means the business of, and assets used in connection with, the manufacture and supply of pharmaceutical excipients and the development of controlled release technology for pharmaceuticals and shall include, but is not limited to, the business and assets of the Mendell and TIMERx Technologies divisions of Penwest Pharmaceuticals." 2 3 ""Spin-Off" means the distribution to the holders of the common stock of Penwest of the shares of common stock of Penwest Pharmaceuticals then held by Penwest." ""Spin-Off Date" means the date on which the Spin-Off occurs." (d) Schedule 5.16 to the Credit Agreement shall be amended and restated in the form of Attachment A hereto. (e) Section 6.14 of the Credit Agreement shall be amended and restated as follows: "6.14. Maintain Ownership and Control. Preferred Products Co. shall at all times remain a Wholly-Owned Subsidiary of Penwest." (f) Section 7.01(a) of the Credit Agreement shall be amended by redesignating clause (iv) thereof as clause (v), re-designating clause (iii) thereof as clause (iv), and re-designating clause (ii) thereof as clause (iii), and by inserting a new clause (ii) therein as follows: "(ii) sales, transfers or other dispositions of assets constituting the Pharmaceuticals Business (A) by Penwest to Penwest Pharmaceuticals, (B) as a result of the sale of shares of common stock of Penwest Pharmaceuticals to the public pursuant to the IPO, or (C) as a result of the Spin-Off, provided that the reduction in the net book value of Penwest associated with the IPO and the Spin-Off shall not exceed $45,000,000," (g) Section 7.02 of the Credit Agreement shall be amended as follows: (i) Subsection 7.02(a)(3)(A) shall be amended and restated as follows: "(A) Consolidated Total Debt shall not exceed (i) 62% of Total Capitalization during the period from the Spin-Off Date to the date which is six months thereafter, (ii) 60% of Total Capitalization during the period from the date which is six months after the Spin-Off Date to the date which is one year after the Spin-Off Date and (iii) 55% of Total Capitalization at any other time." (ii) Subsection 7.02(a)(4) shall be amended and restated as follows: "(4) unsecured Current Debt of Penwest; provided that Consolidated Total Debt shall not exceed (i) 62% of Total Capitalization during the period from the Spin-Off date to the date which is six months thereafter, (ii) 60% of Total Capitalization during the period from the date which is six months after the Spin-Off Date to the date which is one year after the Spin-Off Date and (iii) 55% of Total Capitalization at any other time." (h) Schedule 7.05 to the Credit Agreement shall be amended and restated in the form of Attachment B hereto. 3 4 (i) Section 7.10 of the Credit Agreement shall be amended by deleting the word "and" at the end of subsection (c) thereof, replacing the period at the end of subsection (d) thereof with "; and", and adding a new subsection (e) as follows: "(e) declare and make to the holders of the common stock of Penwest a distribution consisting of the shares of common stock of Penwest Pharmaceuticals then held by Penwest to effect the Spin-Off." (j) Section 7.11 of the Credit Agreement shall be amended by deleting the period at the end of such Section and adding a new clause (iv) thereto as follows: ", plus (iv) up to $45,000,000 of charges to net book value recorded by Penwest in connection with the IPO and the Spin-Off." (k) Section 7.12 of the Credit Agreement shall be amended and restated as follows: "7.12 Maximum Leverage Ratio. Penwest shall not permit its ratio of (i) Consolidated Total Debt to (ii) Total Capitalization to exceed 0.60 to 1.00 during the period from the Spin-Off Date to the date which is one year thereafter and 0.55 to 1.00 at any other time." (l) Section 7.13 of the Credit Agreement shall be amended and restated as follows: "7.13 Minimum Fixed Charge Coverage Ratio. Penwest shall not permit at any time its ratio of (i) the sum of EBITDA plus rental expense to (ii) the sum of interest expense plus rental expense, to be less than 3.00 to 1.00. All computations under this Section shall be on a consolidated basis and measured on a four quarter trailing basis. Rental expense shall be computed in accordance with GAAP as set forth in Section 1.03." 3. Defaults and Waiver. (a) Subject to and upon the terms and conditions hereof, the Majority Banks hereby waive the Event of Default, if any, existing or arising under Section 8.01(c) of the Credit Agreement solely as a consequence of one or more of the following: (i) a breach of subsection 6.02(d) of the Credit Agreement solely as a result of sales, transfers or other dispositions of assets constituting the Pharmaceuticals Business by Penwest to Penwest Pharmaceuticals; (ii) a breach of Section 7.07 of the Credit Agreement solely as a result of transactions between Penwest and Penwest Pharmaceuticals in respect of: (A) the provision of certain corporate and administrative services by Penwest to Penwest Pharmaceuticals after the Spin-Off, (B) the provision by Penwest after the Spin-Off of certain materials to Penwest Pharmaceuticals necessary for the manufacture of certain 4 5 of Penwest Pharmaceuticals' products, (C) the provision of coverage by Penwest for Penwest Pharmaceuticals' employees under certain of Penwest's employee benefit plans, or (D) the allocation of certain consolidated federal or state income tax liability or credits between Penwest and Penwest Pharmaceuticals; (iii) a breach of Section 7.10 of the Credit Agreement solely as a result of the issuance by Penwest Pharmaceuticals, at the time of the IPO, of options to acquire shares of stock of Penwest Pharmaceuticals; (iv) a breach of Section 7.16 of the Credit Agreement solely as a result of the discontinued operations effected by the IPO and the Spin-Off; or (v) a breach of Section 7.17 of the Credit agreement solely as a result of the change of Penwest Pharmaceuticals' fiscal year-end from August 31 to December 31. (b) Subject to and upon the terms and conditions hereof, the Majority Banks hereby waive the Event of Default, if any, existing or arising under Section 8.01(k) of the Credit Agreement solely as a consequence of (i) the reconstitution of the board of directors of Penwest Pharmaceuticals, (ii) the sale by Penwest to the public of shares of common stock of Penwest Pharmaceuticals in connection with the IPO, and (iii) the subsequent distribution of the balance of such shares to the holders of the common stock of Penwest in the Spin-Off. (c) Nothing contained herein shall be deemed a waiver (or otherwise affect the Agent's or the Bank's ability to enforce) any other default or Event of Default, including without limitation any default or Event of Default as may now or hereafter exist. 4. Assumption of Indebtedness of Penwest Pharmaceuticals; Release of Penwest Pharmaceuticals. (a) On the Effective Date, Penwest and Penford each hereby assume, jointly and severally, the indebtedness and other obligations of Penwest Pharmaceuticals under the Credit Agreement and the other Loan Documents (such indebtedness and other obligations, the "Penwest Pharmaceuticals Obligations"). Penwest and Penford each hereby represents and warrants to the Agent and the Banks that the Penwest Pharmaceuticals Obligations are the legal, valid and binding obligations of Penwest Pharmaceuticals enforceable against Penwest Pharmaceuticals in accordance with their respective terms, and that on and after the Effective Date the Penwest Pharmaceuticals Obligations shall be the legal, valid and binding obligations of Penwest and Penford enforceable against Penwest and Penford in accordance with their respective terms, in each case, without defense, offset or counterclaim. (b) On the Effective Date, the Banks hereby release Penwest Pharmaceuticals from the Penwest Pharmaceuticals Obligations. 5. Representations and Warranties. Penwest and Penford each hereby represents and warrants to the Agent and the Banks as follows: 5 6 (a) Other than the Events of Default which are the subject of the waivers set forth in Section 3 hereof, no Default or Event of Default has occurred and is continuing or will result from the execution, delivery and performance of this Amendment and Waiver or the transactions contemplated herein. (b) The execution, delivery and performance by the Borrowers of this Amendment and Waiver have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable. The Credit Agreement and the other Loan Documents constitute the legal, valid and binding obligations of Penwest, Penford and Penwest Pharmaceuticals, enforceable against them in accordance with their respective terms, and on and after the Effective Date, the Credit Agreement and the other Loan Documents as amended by this Amendment and Waiver shall be the legal, valid and binding obligations of Penwest and Penford, enforceable against them in accordance with their respective terms, in each case, without defense, counterclaim or offset. (c) All representations and warranties of the Borrowers contained in the Credit Agreement are true and correct. (d) The Borrowers are entering into this Amendment and Waiver on the basis of their own investigation and for their own reasons, without reliance upon the Agent and the Banks or any other Person. 6. Effective Date. This Amendment and Waiver will become effective on the date (the "Effective Date") on which each of the following conditions precedent is and remains satisfied: (a) The Agent has received from each Borrower and the Majority Banks a duly executed original (or, if elected by the Agent, an executed facsimile copy) of this Amendment and Waiver. (b) The Agent has received from each Borrower a copy of a resolution passed by the board of directors of such corporation, certified by the Secretary or an Assistant Secretary of such corporation as being in full force and effect on the Effective Date, authorizing the execution, delivery and performance of this Amendment and Waiver. (c) All representations and warranties contained herein are true and correct as of the Effective Date. (d) The Agent has received from the Borrowers for the ratable benefit of the Banks the amount of $43,750, representing payment in full of a non-refundable amendment and waiver fee. (e) The Agent shall have received a legal opinion from Borrowers' counsel in form and substance satisfactory to the Agent and the Majority Banks and covering such matters as the Agent and the Majority Banks shall reasonably request. 6 7 (f) The IPO shall have been completed. 7. Reservation of Rights. Each Borrower acknowledges and agrees that neither the Agent's nor the Banks' forbearance in exercising their rights and remedies in connection with any Default or Event of Default, nor the execution and delivery by the Agent and the Majority Banks of this Amendment and Waiver, shall be deemed (i) to create a course of dealing or otherwise obligate the Agent or the Banks to forbear or execute similar amendments or waivers under the same or similar circumstances in the future, or (ii) to waive, relinquish or impair any right of the Agent or the Banks to receive any indemnity or similar payment from any Person or entity as a result of any matters arising from or relating to any Default or Event of Default. 8. Miscellaneous. (a) Except as herein expressly amended, all terms, covenants and provisions of the Credit Agreement are and shall remain in full force and effect and all references therein to such Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment and Waiver. This Amendment and Waiver shall be deemed incorporated into, and part of, the Credit Agreement. (b) This Amendment and Waiver shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment and Waiver. (c) This Amendment and Waiver shall be governed by and construed in accordance with the law of the State of California. (d) This Amendment and Waiver may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by the Agent of a facsimile transmitted document purportedly bearing the signature of a Bank or a Borrower shall bind such Bank or such Borrower, respectively, with the same force and effect as the delivery of a hard copy original. Any failure by the Agent to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the party whose hard copy page was not received by the Agent. (c) This Amendment and Waiver, together with the Credit Agreement, contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein and therein. This Amendment and Waiver supersedes all prior drafts and communications with respect thereto. This Amendment and Waiver may not be amended except in accordance with the provisions of Section 10.01 of the Credit Agreement. (f) If any term or provision of this Amendment and Waiver shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without 7 8 affecting the remaining provisions of this Amendment and Waiver or the Credit Agreement, respectively. (g) The Borrowers covenant to pay to or reimburse the Agent and the Banks, upon demand, for all costs and expenses (including allocated costs of in-house counsel) incurred in connection with the development, preparation, negotiation, execution and delivery of this Amendment and Waiver. [Signature pages follow.] 8 9 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment and Waiver as of the date first above written. PENFORD CORPORATION By: [SIG] ----------------------------------- Title: -------------------------------- PENFORD PRODUCTS CO. By: [SIG] ----------------------------------- Title: -------------------------------- PENWEST PHARMACEUTICALS CO. By: [SIG] ----------------------------------- Title: Senior Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: ___________________________________ Title: Managing Director BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By: ___________________________________ Title: ________________________________ ABN-AMRO BANK N.V., Seattle Branch By: ___________________________________ Title: ________________________________ 9 10 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment and Waiver as of the date first above written. PENFORD CORPORATION By: ___________________________________ Title: ________________________________ PENFORD PRODUCTS CO. By: ___________________________________ Title: ________________________________ PENWEST PHARMACEUTICALS CO. By: ___________________________________ Title: Senior Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: [SIG] ------------------------------------ Title: Managing Director BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By: [SIG] ------------------------------------ Title: Managing Director ABN-AMRO BANK N.V., Seattle Branch By: ___________________________________ Title: ________________________________ 10 11 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment and Waiver as of the date first above written. PENFORD CORPORATION By: ___________________________________ Title: ________________________________ PENFORD PRODUCTS CO. By: ___________________________________ Title: ________________________________ PENWEST PHARMACEUTICALS CO. By: ___________________________________ Title: ________________________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: ___________________________________ Title: Managing Director BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By: ------------------------------------ Title: Vice President ABN-AMRO BANK N.V., Seattle Branch By: [SIG] ----------------------------------- Title: Vice President 11 12 THE BANK OF NOVA SCOTIA By: [SIG] ----------------------------------- Title: Officer SEATTLE-FIRST NATIONAL BANK By: ___________________________________ Title: ________________________________ 11 13 THE BANK OF NOVA SCOTIA By: ___________________________________ Title: ________________________________ SEATTLE-FIRST NATIONAL BANK By: [SIG] ----------------------------------- Title: Senior Vice President 12 14 ATTACHMENT A SCHEDULE 5.16 SUBSIDIARIES (a) Penford Products Co. Penford Export Corporation (b) None 15 ATTACHMENT B SCHEDULE 7.05 LIENS
UCC UCC Debtor Location Filed File No. Secured Party Description of Security Interest ------ -------- ----- -------- ------------- -------------------------------- Penford Products Co. IA-SOS 12/4/89 K066087 Norwest Leasing Panasonic EP-2220 Copier and other (Assignee of Tall Corn Panasonic Equipment Leasing (Automated Office Systems Penford Products Co. Linn Co.-1A 03/04/91 G80486 2 Canon FAX 770's Penford Products Co. Linn Co.-1A 04/00/92 G82524 Canon Fax L770 S/N UBJ13975 Penwest Foods Co. WA-SOS 02/24/94 84-055-0125 Western Paper One Leneteo "Q" Series Model 400 Company Semi-Automatic stretch wrapping system. Serial No. Q-0898
EX-11 3 STATEMENT RE: COMPUTATION OF PER-SHARE EARNINGS 1 EXHIBIT 11 PENFORD CORPORATION AND SUBSIDIARIES COMPUTATION OF PER SHARE EARNINGS
Quarter Ended November 30 ----------------------------- 1997 1996 ----------- ----------- PRIMARY: Net income $ 497,000 $1,407,000 ========== ========== Weighted average number of shares outstanding 7,268,036 6,851,257 Net effect of dilutive stock options 262,454 141,801 ----------- ----------- Adjusted shares outstanding 7,530,490 6,993,058 =========== =========== Earnings per share $ 0.07 $ 0.20 =========== =========== FULLY DILUTED: Net income $ 497,000 $1,407,000 ========== ========== Weighted average number of shares outstanding 7,268,036 6,851,257 Net effect of dilutive stock options 266,514 141,801 ----------- ----------- Adjusted shares outstanding 7,534,550 6,993,058 =========== =========== Earnings per share $ 0.07 $ 0.20 =========== ===========
EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT NOVEMBER 30, 1997, THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME AT NOVEMBER 30, 1997, AND THE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW AT NOVEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS AUG-31-1998 SEP-01-1997 NOV-30-1997 0 724 25,777 0 22,146 54,950 131,076 0 216,987 20,992 0 0 0 9,096 81,041 216,987 48,523 48,523 35,634 35,634 10,715 0 1,409 765 268 497 0 0 0 497 0.07 0.07
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