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Exhibit 10.17
DRAFT - OCTOBER 17, 1997
EMPLOYEE BENEFITS AGREEMENT
This Agreement is made on _________, 1997 (the "Effective Date") between
PENFORD CORPORATION, a Washington corporation (previously known as PENWEST,
LTD.) ("Penford"), and PENWEST PHARMACEUTICALS CO., a Washington corporation
(previously known as Edward Mendell Co., Inc.) ("Penwest").
RECITALS
WHEREAS, the Board of Directors of Penford has determined that it is in the
best interest of Penford and its shareholders to separate the pharmaceutical
division of its business from the food and paper division of its business;
WHEREAS, the current employees of Penwest are participants in Penford's
employee benefit plans and certain employees of Penford are expected to become
employees of Penwest upon the consummation of the public offering of common
stock by Penwest;
WHEREAS, this Agreement sets forth the employment and employee benefit plan
arrangements that will apply to Penwest's current employees, and any other
employees who are hired by Penwest prior to the Distribution Date, as
hereinafter defined (all of such employees being referred to herein as the
"Penwest Employees"); and
WHEREAS, the Agreement is entered into pursuant to the Separation Agreement
dated as of [____________] between Penford and Penwest (the "Separation
Agreement");
NOW THEREFORE, in consideration of the mutual covenants and agreements made
herein, the parties hereto agree as follows:
SECTION 1 - TERMINATION OF COVERAGE OF PENWEST EMPLOYEES UNDER PENFORD PLANS
1.1 TERMINATION OF COVERAGE OF PENWEST EMPLOYEES UNDER CERTAIN PENFORD
PLANS
Effective as of the closing of the initial public offering (the "IPO Date")
by Penwest of shares of its common stock par value $0.001 per share ("Penwest
Common Stock"), Penwest Employees shall cease to be eligible to participate in
the following employee benefit plans offered by Penford:
(a) the Penford supplemental executive retirement plan (the "Penford
SERP");
(b) the Penford Deferred Compensation Plan ; and
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(c) certain Penford welfare plans (consisting of basic life insurance,
accidental death and dismemberment insurance, supplemental life insurance,
long-term disability, supplemental disability, business travel accident
insurance and employee assistance plan, as set forth in EXHIBIT 1 (the "Penford
Welfare Plans")).
1.2 TERMINATION OF COVERAGE OF PENWEST EMPLOYEES UNDER THE PENFORD
RETIREMENT PLAN
(a) Effective as of the IPO Date, Penford shall freeze all benefits accrued
in the retirement plan sponsored by Penford (the "Penford Retirement Plan") for
all Penwest Employees.
(b) Penford will amend the Penford Retirement Plan to permit Penwest
Employees to elect, after the earlier of: 1) the Distribution Date; or 2) such
time as Penwest ceases to be a member of the same controlled group of employers
within the meaning of Internal Revenue Code ("Code") Sections 414(b), and (c )
as Penford, to receive his or her fully vested interest under the Penford
Retirement Plan in the form of a lump sum cash payment or an annuity.
(c) It is contemplated that Penford will amend the Penford Retirement Plan
after the Distribution Date to provide enhanced pension plan benefits to certain
older participants who were Penwest Employees and are identified by the Penford
retirement plan committee ("Retirement Committee"), provided (i) that such
participants shall not be deemed to continue to accrue any benefits under the
Penford Retirement Plan as a result of such pension enhancement and (ii) that
the amount of any such enhancements is to be determined solely in the discretion
of the Retirement Committee.
1.3 TERMINATION OF COVERAGE FOR PENWEST EMPLOYEES UNDER THE PENFORD 401(K)
PLAN
Effective midnight of December 31, 1997, Penwest will cease to be a
participating Employer on the Penford savings and stock ownership plan (the
"Penford 401(k) Plan") and Penwest Employees will cease to accrue any benefits
under such plan.
1.4 TERMINATION OF COVERAGE FOR PENWEST EMPLOYEES UNDER THE PENFORD HEALTH
AND FLEX PLANS
Until midnight on December 31, 1997, Penford shall provide that the Penwest
Employees are covered by the health and cafeteria plans, as set forth in EXHIBIT
2, currently sponsored by Penford for its employees in accordance with the terms
and conditions of such plans and programs (the "Penford Health/Flex Plans").
After December 31, 1997, Penwest Employees shall cease to be covered under the
Penford Health/Flex Plans, and Penford shall have no further obligation to cover
the Penwest Employees under such plans; provided, however, that nothing in this
section 1.4 is intended to abrogate, discontinue or terminate stop loss coverage
under the policy maintained by Penford to the extent that it applies to medical
claims and expenses resulting from injury or illness to Penwest employees
incurred prior to January 1, 1998, but for which no claim is filed until after
January 1, 1998.
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1.5 NOTICE TO ADMINISTRATORS AND INSURERS
To the extent required, Penford agrees to inform, on or prior to the IPO
Date, all relevant third party administrators and insurance carriers of the
continued participation of the Penwest Employees in the Penford Health/Flex
Plans.
1.6 AMENDMENT AND TERMINATION OF PLANS
Nothing in this Agreement, including without limitation the agreement of
Penford and Penwest to maintain employee benefit plans or to make contributions
to such plans for any period, shall be construed as a limitation of the right of
Penford or Penwest to amend or terminate one or more of such plans in accordance
with the terms of this Agreement and applicable law.
1.7 REIMBURSEMENT
Penwest and Penford acknowledge that Penford will incur costs and expenses
related to the continued participation of the Penwest Employees in the Penford
Health/Flex Plan and that all such costs and expenses payable after the closing
of the IPO are the responsibility of Penwest. Accordingly, Penford and Penwest
agree that Penford will invoice Penwest for such costs and expenses monthly and
that Penwest shall make full payment of such invoice within 30 days following
receipt and verification thereof.
SECTION 2 - ESTABLISHMENT OF PENWEST EMPLOYEE BENEFIT PLANS
2.1 ESTABLISHMENT OF PENWEST SAVINGS AND STOCK OWNERSHIP PLAN
(a) Effective as of midnight on December 31, 1997, Penwest will cease to be
a participating Employer under the Penford 401(k) Plan and Penwest Employees
will cease to accrue any benefits under such plan. Effective January 1, 1998,
Penwest will establish a 401(k) retirement plan (the "Penwest 401(k) Plan")
substantially the same in all material features to the Penford 401(k) Plan as of
that date.
(b) As soon as practicable after January 1, 1998, (and the establishment of
the Penwest 401(k) Plan), Penford shall direct the trustee of the Penford 401(k)
Plan to transfer to the trustee of the Penwest 401(k) Plan (which shall accept
such transfer) all assets (including, but not limited to, loans) and liabilities
of the Penford 401(k) Plan relating to the Penwest Employees.
(c) As of January 1, 1997, Penwest and the Penwest 401(k) Plan shall assume
all liabilities for all accrued benefits under the Penford 401(k) Plan for the
Penwest Employees, and the Penford 401(k) Plan shall be relieved of all
liabilities for such benefits.
(d) The Penwest 401(k) Plan shall provide the following:
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1. that Penwest employees shall participate in the Penwest 401(k) Plan
to the extent that they were eligible to participate in the Penford 401(k) Plan
immediately prior to January 1, 1998, and shall receive credit for eligibility,
vesting, and benefit accrual service for all service credited for such purposes
under the Penford 401(k) Plan;
2. that the compensation paid by Penford to the Penwest Employees that
was recognized under the Penford 401(k) Plan shall be credited for all
applicable purposes under the Penwest 401(k) Plan; and
3. that with respect to any amounts transferred from the Penford
401(k) Plan, the Penwest 401(k) Plan will preserve any rights and features
protected under Section 411(d)(6) of the Internal Revenue Code ("Code").
2.2 ESTABLISHMENT OF PENWEST SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AND
PENWEST DEFERRED COMPENSATION PLAN
(a) Effective upon the IPO Date, Penwest shall adopt, or cause to be
adopted, a supplemental executive retirement plan and a deferred compensation
plan (the "Penwest SERP and DC Plans") and establish a related grantor trust
(the "Penwest Rabbi Trust") to provide benefits to Tod R. Hamachek, Ed Belsheim,
and Jack V. Talley, Jr. after they become employees of Penwest (the
"Transferring Executives").
(b) As of the IPO Date, Penwest and the Penwest SERP and DC Plans shall
assume all liabilities for all accrued benefits under the Penford SERP and
Penford Deferred Compensation Plan for the Transferring Executives.
(c) As soon as practicable after receipt by Penford of (1) a copy of the
Penwest SERP and DC Plans and (2) certified resolutions of Penwest's Board of
Directors evidencing adoption of the Penwest SERP and DC Plans and the creation
of a the Penwest Rabbi Trust thereunder, Penford shall direct the trustees of
the Penford SERP and the Penford Deferred Compensation Plan to transfer to the
trustee of the Penwest SERP and DC Plans all accounts in the Penford SERP and
the Penford Deferred Compensation Plan of the Transferring Executives.
(d) Penwest and Penford shall take any and all action necessary to ensure
that participants in the Penwest SERP and DC Plans or the Penford SERP and
Deferred Compensation Plan shall not suffer any adverse federal income tax
consequences as a result of the transfer of liabilities to the Penwest SERP and
DC Plans.
(e) Effective as of the IPO Date, Penwest shall appoint Wells Fargo Bank as
trustee under the Penwest Rabbi Trust and Penford shall transfer, or cause to be
transferred, by a comparable rabbi trust established by Penford to the Penwest
Rabbi Trust any and all trust-owned life insurance policies held on a
Transferring Executive's life, provided that Penwest shall make any
contributions to the Penwest Rabbi Trust necessary under the law to ensure such
insurance policy transfer shall not violate the terms of the Penwest Rabbi Trust
or applicable law or regulations.
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2.3 PENWEST WELFARE PLANS
Effective upon the IPO Date, Penwest shall adopt, or cause to be adopted,
on a fully pooled basis, welfare plans ("Penwest Welfare Plans") substantially
identical in all material features to the corresponding plans offered by Penford
as of the IPO Date to its salaried employees, and set forth on Exhibit 1, as
follows:
(a) basic life insurance;
(b) basic accidental death and dismemberment insurance;
(c) supplemental life insurance;
(d) business travel accident insurance;
(e) employee assistance plan;
(f) long term disability;
(g) supplemental disability
2.4 PENWEST HEALTH/FLEX PLAN
Effective as of January 1, 1998, Penwest shall adopt, or cause to be
adopted, health and cafeteria plans (the "Penwest Health/Flex Plans")
substantially identical in all material features to the corresponding plans
offered by Penford as of January 1, 1998 to its salaried employees which are
listed on Exhibit 2.
2.5 COBRA
As of January 1, 1998, Penwest shall assume any and all liability and
responsibility for providing continuation of health care coverage under the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") to any active
Penwest Employee on or after the IPO Date (and any qualified beneficiaries with
respect to such employee), whether or not such continuation requirements arose
under the Penford Health/Flex Plans, and Penford shall have no further
obligation or liability for any requirements to provide continuation of health
care coverage to any Penwest Employees.
2.6 COOPERATION
Penford and Penwest agree to provide each other with all records and
information necessary or useful to carry out their obligations under this
Agreement, and to cooperate in the filing of documents required by the transfer
of assets and liabilities described herein and to take any other actions
necessary or advisable to meet any statutory, regulatory or contractual
requirements under this Agreement.
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SECTION 3 - INDEMNIFICATION
3.1 INDEMNIFICATION
(a) Penwest agrees to indemnify and hold harmless Penford and its
affiliates, their officers, directors, employees, agents, and fiduciaries from
and against any and all costs, damages, losses, expenses (including reasonable
attorneys fees and costs) and other liabilities arising out of or related to the
Penford Welfare Plans, the Penford SERP, the Penford Deferred Compensation Plan,
the Penford 401(k) Plan, and the Penford Health/Flex Plans (collectively
referred to as the "Penford Benefit Plans") (other than the determination of the
amount, if any, of claims and accrued benefits payable from such plans) with
respect to the Penwest Employees and from any liability relating to any
applicable taxes or penalties arising from the failure of the Penwest 401(k)
Plan, to be qualified under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code") at the time of the asset transfer other than any failure
attributable to the terms or operation of the Penford 401(k) Plan prior to the
asset transfer.
(b) Penford agrees to indemnify and hold harmless Penwest and its
affiliates, their officers, directors, employees, agents, and fiduciaries from
and against any and all costs, damages, losses, expenses (including reasonable
attorneys fees and costs) and other liabilities arising out of or related to the
Penford Benefit Plans which are attributable to the determination of the amount
of any claims payable to Penwest Employees from the welfare plans carried by
Penford; the determination of the accrued benefits to be transferred to the
Penwest 401(k) Plan; the determination of book reserves or salary deduction
liabilities with respect to the Penwest Employees under and from the Penford
Plans; any claims under the Penford Plans which are not attributable to Penwest
Employees and assumed by Penwest under this Agreement; and any liability
relating to the applicable taxes or penalties arising from the failure of the
Penwest 401(k) Plan to be qualified under Section 401(a) of the Code due to the
terms or operation of the Penford 401(k) Plan prior to the date the assets are
transferred.
3.2 HEALTH AND WELFARE BENEFIT CLAIMS
Except as provided in Section 3.1, Penwest agrees that it shall assume and
be solely responsible for the following:
(a) all liabilities and obligations of Penford in connection with the
claims for benefits brought by or on behalf of Penwest Employees under the
Penford Welfare Plans and the Penford Health/Flex Plans, as well as applicable
workers' compensation and unemployment compensation benefits available to the
Penwest Employees, and Penford shall cease to have any such liabilities or
obligation related to such claims; and
(b) all liabilities and obligations of Penford in connection with claims
for post-employment health and welfare benefits (including but not limited to,
medical, dental, and vision benefits, severance pay, disability and life
insurance) made on or on behalf of Penwest Employees who retire or otherwise
terminate employment with Penwest after the Effective Date or after their date
of hire with Penwest if later.
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SECTION 4 - MISCELLANEOUS
4.1 NOTICES
Notices hereunder shall be effective if given in writing and delivered or
mailed, postage prepaid, by registered or certified mail to:
Penford Corporation
777 - 108th Avenue NE
Suite 2390
Bellevue, WA 98004-5193
Attention: Sue Iverson
or to:
Penwest Pharmaceuticals Co.
2981 Route 22
Patterson, NY 12563-9970
Attention: Edmund O. Belsheim
4.2 AMENDMENTS; WAIVERS
This Agreement may be amended or modified only in writing executed on
behalf of Penford and Penwest. No waiver shall operate to waive any further or
future act and no failure to object or forbearance shall operate as a waiver.
4.3 NO THIRD PARTY BENEFICIARY
This Agreement is solely between Penford and Penwest, and nothing herein,
whether expressed or implied, shall confer any rights or remedies on any
employee of Penford or Penwest, any former employee of Penford, or any other
person.
4.4 ENTIRE AGREEMENT
This Agreement constitutes the sole and entire agreement and understanding
between the parties with respect to the matters covered hereby. Any amendment,
modification, or termination of this Agreement must be in writing and must be
signed by both parties.
4.5 GOVERNING LAW
This Agreement shall be governed by the laws of the State of Washington,
except to the extent preempted by the Employee Retirement Income Security Act of
1974, as amended.
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4.6 SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns, provided that this
Agreement and the rights and obligations contained herein or in any exhibit or
schedule hereto shall not be assignable, in whole or in part, without the prior
written consent of the parties hereto and any attempt to effect any such
assignment without such consent shall be void.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their authorized representatives as of the Effective Date.
PENFORD CORPORATION
By:
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Title:
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PENWEST PHARMACEUTICALS CO.
By:
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Title:
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