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Exhibit 10.17
EMPLOYEE BENEFITS AGREEMENT
This Agreement is made on ________________, 1998 (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 Xxxxxx Xxxxxxx 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, to effect the separation of its pharmaceutical division,
Penford intends as of a date certain (the "Distribution Date") to distribute to
its shareholders, in a pro-rata distribution of a dividend (the "Distribution")
all shares of Penwest common stock held by Penford;
WHEREAS, the current employees of Penwest are participants in some of
Penford's employee benefit plans and certain employees of Penford are expected
to become employees of Penwest as of the Distribution Date;
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 (all of such
employees being referred to herein as the "Penwest Employees"); and
WHEREAS, the Agreement is entered into pursuant to the Separation and
Distribution Agreement dated as of [____________] between Penford and Penwest
(the "Separation and Distribution 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 Distribution Date, Penwest Employees shall cease to
be eligible to actively participate in the following employee benefit plans
offered by Penford:
(a) the Penford Corporation Supplemental Executive
Retirement Plan (the "Penford SERP");
(b) the Penford Corporation Deferred Compensation Plan ;
(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");
(d) the Penford Corporation Savings and Stock Ownership
Plan (the "Penford 401(k) Plan");
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1.2 TERMINATION OF COVERAGE FOR PENWEST EMPLOYEES UNDER THE
PENFORD CORPORATION HEALTH AND FLEX PLANS
Pursuant to prior agreement between Penford and Penwest and appropriate
Board action by Penford, effective midnight on December 31, 1997, Penwest
Employees ceased to be covered under the Penford health and cafeteria plans, as
set forth in exhibit 2 ("Penford Health/Flex Plans") and Penford has no further
obligation to cover the Penwest Employees under such plans; provided, however,
that nothing in this section 1.2 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 was filed, or is filed, until after December 31, 1997.
1.3 TERMINATION OF COVERAGE OF PENWEST EMPLOYEES UNDER THE PENFORD
CORPORATION RETIREMENT PLAN
(a) Effective as of the Distribution Date, Penford shall
amend the retirement plan sponsored by Penford (the "Penford Retirement Plan")
to freeze all benefits accrued in the Penford Retirement Plan for all Penwest
Employees and to permit the distribution of the accrued benefits of Penwest
employees. After the Distribution Date and the receipt of approval by the
Internal Revenue Service of such amendments, a Penwest Employee may elect 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.
(b) It is contemplated that Penford will amend the
Penford Retirement Plan to provide enhanced pension plan benefits to certain
older participants who were Penwest Employees and are identified by the Penford
Retirement Plan Administrative Committee ("Administrative 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 Administrative Committee.
1.4 NOTICE TO ADMINISTRATORS AND INSURERS
To the extent required, Penford agrees to inform, on or prior to the
Distribution Date, all relevant third party administrators and insurance
carriers, that coverage of the Penwest Employees in the Penford Welfare Plans
ceases as of the Distribution Date.
1.5 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.
SECTION 2 - ESTABLISHMENT OF PENWEST EMPLOYEE BENEFIT PLANS
2.1 ESTABLISHMENT OF PENWEST SAVINGS AND STOCK OWNERSHIP PLAN
(a) Effective as of the Distribution Date, 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 on the
Distribution Date, 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.
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(b) As soon as practicable following the Distribution
Date 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 in the individual accounts of Penwest
Employees in the Penford 401(k) Plan ("First Transfer of Account Balances").
Accounts in the name of such Penwest Employees will be maintained under the
Penford 401(k) Plan (although these accounts will show a $0 account balance
following the First Transfer of Account Balances) until the allocation of profit
sharing contributions to the accounts of participants in the Penford 401(k) Plan
for the fiscal year ending 8/31/98 ("Profit Sharing Allocation"). Following the
Profit Sharing Allocation, 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 remaining assets and liabilities in the individual
accounts of Penwest Employees in the Penford 401(k) Plan ("Second Transfer of
Account Balances").
(c) As of the date of the First Transfer of Account
Balances, 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, except for claims relating to account balances resulting from the
Profit Sharing Allocation. As of the date of the Second Transfer of Account
Balances, Penwest and the Penwest 401(k) Plan shall assume all liabilities for
accrued benefits under the Penford 401(k) Plan for the Penwest Employees,
including claims relating to account balances resulting from the Profit Sharing
Allocation, and the Penford 401(k) Plan shall be relieved of all such
liabilities.
(d) The Penwest 401(k) Plan shall provide the following:
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 the Distribution Date, 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 Distribution 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 Xxx X.
Xxxxxxxx, after he becomes an employee of Penwest, and to Xxxx X. Xxxxxx, Xx.
(the "Transferring Executives").
(b) As of the Distribution Date, Penwest and the Penwest
SERP and DC Plans shall assume all liabilities for all accrued benefits under
the Penford SERP and Penford Corporation 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 Corporation Deferred
Compensation Plan to transfer to the trustee of the Penwest SERP and DC Plans
all accounts in the Penford SERP and the Penford Corporation Deferred
Compensation Plan of the Transferring Executives.
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(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 Penford Corporation 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 or before the Distribution Date,
Penwest shall appoint Xxxxx 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, life insurance
policies sufficient to cover the accrued benefits (as of the date of transfer)
of the Transferring Executives under the Penford SERP and to cover the account
balances of the Transferring Executives in the Penford Corporation Deferred
Compensation Plan ("Transferred Policies"). Penwest will be responsible for any
premium payments with respect to the Transferred Policies which become due after
the date of transfer of the Transferred Policies.
2.3 PENWEST WELFARE PLANS
Effective upon the Distribution 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 Distribution 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 adopted the Penwest
Health/Flex Plans substantially identical in all material features to the
Penford Health/Flex Plans, which plans are listed on Exhibit 2. As of the
Distribution Date, Xxx Xxxxxxxx will be covered under the Penwest Health/Flex
Plans, and will cease to be covered by the Penford Health/Flex Plans.
2.5 COBRA
Pursuant to prior agreement between Penford and Penwest, acknowledged
and ratified herein, effective January 1, 1998, Penwest assumed 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 (and any qualified beneficiaries with respect to
such employee), whether or not such continuation requirements arose under the
Penford Health/Flex Plans, and Penford has no further obligation or liability
for any requirements to provide continuation of health care coverage to any
Penwest Employees.
2.6 COOPERATION
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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.
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
Penford Welfare Plans; 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 benefit plans; any claims under the Penford benefit 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, 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 by or on behalf of Penwest Employees
who retire or otherwise terminate employment with Penwest after January 1, 1998.
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:
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Penford Corporation
000 - 000xx Xxxxxx XX
Xxxxx 0000
Xxxxxxxx, XX 00000-0000
Attention: Xxxxx X. Xxxxxxx
or to:
Penwest Pharmaceuticals Co.
0000 Xxxxx 00
Xxxxxxxxx, XX 00000-0000
Attention: Xxxxxxxx X. Good
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.
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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EXHIBIT 1
PENFORD WELFARE PLANS
UNUM INSURANCE COMPANY OF AMERICA
I. Group Life (Basic Life Insurance) and Accidental Death and
Dismemberment Insurance Plan
II. Supplemental Life Plan
III. Long-Term Disability Income Plan
IV. Group Travel Accident Insurance Plan
MANAGED HEALTH NETWORK
V. Employee Assistance Program
MCG NORTHWEST
VI. Supplemental Disability Plan
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EXHIBIT 2
PENFORD HEALTH/FLEX PLANS
BLUE CROSS BLUE SHIELD OF IOWA
VII. Medical Plan for Salaried Employees
ADVANCE PARADIGM
VIII. Prescription Drug Plan
DELTA DENTAL - USA
IX. Dental Plan for Salaried Employees
VISION SERVICE PLAN
X. Vision Plan for Salaried Employees
PENCHOICE FLEXIBLE BENEFITS PROGRAM
Pre-tax health plan premiums, medical reimbursement flexible spending account,
dependent care flexible spending
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