PENX (MM)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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Centennial, Colorado

 

December 28, 2007

 

Dear Shareholders:

 

You are cordially invited to attend the Annual Meeting of Shareholders of Penford Corporation to be held on Wednesday, January 30, 2008 at 3:00 p.m. (Mountain Time) at the Inverness Hotel and Conference Center, 200 Inverness Drive West, Englewood, Colorado 80112.

 

In addition to the items set forth in the accompanying Notice of Annual Meeting of Shareholders and Proxy Statement, Company management and the Board of Directors will be available to provide an opportunity to discuss matters of interest to you as a shareholder. The 2007 Annual Report to Shareholders is also enclosed with these materials.

 

Your vote is important. 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,

 

 

Thomas D. Malkoski

President and Chief Executive Officer

 

PENFORD CORPORATION

 

 

 

 

 

TABLE OF CONTENTS

 

PENFORD CORPORATION

7094 South Revere Parkway

Centennial, Colorado 80112

 

The Board has determined that each of the nominees and continuing directors is “independent” under the applicable legal and Nasdaq listing standards, except for Mr. Malkoski who is the current President and Chief Executive Officer of the Company. To enable the Board to make this determination, the Board’s Governance Committee reviewed information provided by each of the directors. None of the directors identified as independent has any material relationship with the Company (other than as a director and a shareholder) or its officers. The Nasdaq independence standards applied by the Board are posted on the Company’s web site, www.penx.com , under the “Investor Relations” heading and “Corporate Governance” sub-heading.

 

Nominees for Election — Term to Expire 2011

 

William E. Buchholz, 65, joined Penford Corporation’s Board of Directors in January 2003. He has been a business consultant and private investor since 2002. From 2001 to 2002, Mr. Buchholz served as Senior Vice President of Finance and Administration, Chief Financial Officer, and Secretary at MessageMedia, a Colorado-based email messaging service and software company. Mr. Buchholz was Senior Vice President and Chief Financial Officer of Nalco Chemical Company, a specialty chemicals company, with responsibilities for all finance functions including audit, tax, financial systems, U.S. and international treasury, and investor relations from 1992 to 1999. Prior to that, he served as Vice President and Chief Financial Officer of Cincinnati Milacron, an industrial equipment supplier. Mr. Buchholz is a certified public accountant and holds an M.B.A., Finance and a B.A., Accounting, both from Michigan State University.

 

John C. Hunter III, 60, has served as a director of the Company since October 1998. From 1999 until his retirement in 2004, Mr. Hunter was the Chairman, President and Chief Executive Officer of Solutia, Inc., an international producer of high-performance, chemical-based materials used to make consumer, household, automotive and industrial products. Mr. Hunter also served as President and Chief Operating Officer of Solutia, Inc. from 1997 to 1999. On December 17, 2003, Solutia, Inc. and its domestic subsidiaries filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York in order to reorganize its business and to obtain relief from certain legacy liabilities which accrued under prior ownership and management. From 1992 to 1997, Mr. Hunter was President, 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 Hercules, Inc. and Energizer Holdings, Inc.

 

James E. Warjone, 64, has served as a director of the Company since January 2001. Mr. Warjone is Chairman and Chief Executive Officer of The Port Blakely Companies, a private company that owns and operates commercial forests in Washington, Oregon and New Zealand and also develops real estate in Washington State. Mr. Warjone has been with Port Blakely since 1978. He earned his B.S. in economics from Claremont Men’s College. Mr. Warjone also serves as a board member of The Joshua Green Corporation, Uwajamaya, the Association of Washington Business, the Greater Seattle Chamber of Commerce, the Washington Roundtable and the Pacific Science Center.

 

The Board of Directors recommends a vote FOR each of the nominees as a director.

 

Continuing Directors — Term Expires 2009

 

R. Randolph Devening, 65, was appointed to the Board of Directors in August 2003. Until his retirement in 2001, Mr. Devening served for seven years as Chairman, President and Chief Executive Officer and as President and Chief Executive Officer of Foodbrands America, Inc., a company that produces, markets and distributes branded and processed food products for the food service and retail markets. Prior to that, he served as Vice Chairman, Chief Financial Officer and Director from 1993 to 1994, and Executive Vice President, Chief Financial Officer and Director from 1989 to 1993 for Fleming Companies, Inc., a wholesale food distributor. Mr. Devening holds an undergraduate degree in International Relations from Stanford University and an MBA in Finance and Marketing from Harvard University Graduate School of Business. Mr. Devening serves as a director of 7 Eleven Inc., Gold Kist Inc., and Safety-Kleen Holdco, Inc., and as an advisor to Hall Brothers Capital Partners.

 

Paul H. Hatfield, 71, has served as a director of the Company since October 1994 and as Chairman of the Board since January 2003. Mr. Hatfield has been Principal of the Hatfield Capital Group, a private investment company, since 1997. 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 lead director for Solutia Inc., and is a director of Bunge Limited and Maritz Inc.

 

Continuing Directors — Term Expires 2010

 

Jeffrey T. Cook, 51, is the President and Chief Operating Officer of Stellar Holdings, Inc. a Seattle based private investment firm. Mr. Cook has been a member of the Board of Directors since 1998. He previously served Penford Corporation as President from January 2002 to January 2003, President and Chief Executive Officer from September 1998 to January 2002, Vice President, Finance and Chief Financial Officer from 1991 to August 1998, and was the Corporate Treasurer prior to that time. He joined the Company in 1983. He is a graduate of Stanford University with a B.A. in Economics. Mr. Cook serves as a board member of Port Blakely Company, a privately held natural resources and real estate development company headquartered in Seattle, Washington; Micro A.B., a retail auto parts publicly traded company based in Sweden; and Powerit Holdings, Inc., a leader in intelligent energy demand management also headquartered in Seattle.

 

Thomas D. Malkoski, 51, joined Penford Corporation as Chief Executive Officer and was appointed to the Board of Directors in January 2002. He was named President of Penford Corporation in January 2003. From 1997 to 2001 he served as President and Chief Executive Officer of Griffith Laboratories, North America, a formulator, manufacturer and marketer of ingredient systems to the food industry. Previously, he served as Vice President/Managing Director of the Asia Pacific and South Pacific regions for Chiquita Brands International. Mr. Malkoski began his career at the Procter and Gamble Company, a marketer of consumer brands, progressing through major product category management responsibilities. Mr. Malkoski serves on the board of Libby Perszyk Kathman, a privately-held brand imaging and strategic positioning company.

 

Sally G. Narodick, 62, has served as a member of the Board of Directors of the Company since August 1993. Ms. Narodick was an educational technology and e-learning consultant until she retired in March 2004. 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 earned an M.A. in Teaching from Columbia Teachers College and an M.B.A. from New York University. She serves as a board member of Puget Energy, Inc.; Solutia, Inc.; SumTotal Systems, Inc.; and Cray, Inc.

 

INFORMATION ABOUT THE BOARD AND ITS COMMITTEES

 

Board of Directors

 

The Board of Directors provides guidance and strategic oversight to the Company’s management with the objective of optimizing shareholders’ returns on their investment in the Company. The Board is designed to assure that there is independent review and oversight as well as approval of significant strategic and management decisions affecting the Company. Regular meetings of the Board are held five times per year and special meetings are scheduled when required. The Board held five meetings in fiscal 2007. All current directors attended 100% of the meetings of the Board and the Board Committees on which they served.

 

Committees Established by the Board

 

The Board has established the following standing committees, each of which is composed solely of independent directors, to assist in discharging its responsibilities.

 

Audit Committee — The Audit Committee, which met seven times in fiscal 2007, is comprised of William E. Buchholz (Chair), Jeffrey T. Cook, John C. Hunter III and James E. Warjone. Jeffrey T. Cook joined the Audit Committee on October 30, 2007. The committee selects the independent registered public accounting firm; reviews

the proposed scope of the independent audit; reviews the annual financial statements and the report of the independent registered public accounting firm; reviews the independent registered public accounting firm’s recommendations relating to accounting, internal controls and other matters; reviews internal controls and accounting policies with management; and approves policies relating to risk management matters. The Board of Directors has determined that each member of the Audit Committee has sufficient knowledge in financial and auditing matters to serve on the committee. In addition, the Board has determined that Mr. Buchholz is an “audit committee financial expert” as defined by the Securities and Exchange Commission rules. The Audit Committee charter is available on the Company’s web site at www.penx.com ., under the “Investor Relations” heading and “Corporate Governance” sub-heading.

 

Executive Compensation and Development Committee — The Executive Compensation and Development Committee, which met five times in fiscal 2007, is comprised of Sally G. Narodick (Chair), R. Randolph Devening and James E. Warjone. The committee establishes the compensation of executive officers, provided that, as to the salary of the Chief Executive Officer, the committee recommends an appropriate salary to the Board for approval. The committee also monitors the Company’s benefit plans, works with management to set fiscal year incentive compensation goals for recommendation to the Board, determines executive bonus payments, and authorizes awards under the Company’s 2006 Long-Term Incentive Plan. In addition, the committee reviews plans for executive development and succession on a regular basis. The Executive Compensation and Development Committee charter is available on the Company’s web site at www.penx.com ., under the “Investor Relations” heading and “Corporate Governance” sub-heading. For additional information about Executive Compensation and Development Committee policies and procedures, please see the description of this Committee’s activities under the “Executive Compensation” heading below.

 

Executive Committee — The Executive Committee, which did not meet during fiscal 2007, is comprised of Paul H. Hatfield (Chair) and the chairs of the other standing committees (William E. Buchholz, John C. Hunter III and Sally G. Narodick). The committee is authorized to exercise all powers and authority of the Board with certain exceptions.

 

Governance Committee — The Governance Committee, which met two times in fiscal 2007, is comprised of John C. Hunter III (Chair), R. Randolph Devening, and Sally G. Narodick. The committee makes recommendations to the Board for director nominations and the appointment of the Chairman; reports to the Board on corporate governance matters and practices, including the effectiveness of the Board, its committees and individual directors; determines the criteria for qualification of directors; periodically reviews Board compensation for non-employee directors and the processes and policies established by the Board; and approves policies related to environmental, health, and safety matters. The committee recommends to the Board individuals for nomination for election to the Board at the Annual Meeting of Shareholders and committee appointments. The Governance Committee charter is available on the Company’s web site at www.penx.com ., under the “Investor Relations” heading and “Corporate Governance” sub-heading.

 

Board Membership Criteria

 

The Governance Committee is responsible for reviewing the requisite skills and characteristics of new Board candidates in the context of the current composition of the Board. This assessment includes a review of candidates’ experience in corporate governance, industry, finance, administration, operations and/or marketing, and an appropriate level of diversity will be considered. Director candidates should be able to provide insights and practical wisdom based on their experience and expertise. Directors are also expected to have sound judgment, borne of management or policy-making experience that demonstrates an ability to function effectively in an oversight role.

 

The Board has not established minimum qualifications for nominees to the Board. The Governance Committee annually evaluates the performance of the Board, each of the committees and each of the members of the Board. In connection with its annual review, the Governance Committee makes an assessment of the skills and expertise of its members and their adherence to Board membership criteria and other policies of the Board and the Company. It also reviews the size of its Board and whether it would be beneficial to add additional members and/or any new skills or expertise, taking into account the overall operating efficiency of the Board and its committees. If

the Board has a vacancy or the Governance Committee determines that it would be beneficial to add an additional member, the Governance Committee will take into account the factors identified above and all other factors which the Governance Committee in its best judgment deems relevant at such time. The overall composition of the Board shall also comply with the requirements of the Nasdaq corporate governance rules.

 

Each Board member is required to annually complete a standard director and officer questionnaire which solicits information regarding relationships with the Company and other factors relating to independence issues, memberships on other boards of directors and other information required to be disclosed in the Company’s proxy statement. Any new candidate for nomination will be required to provide similar information as well as be available for interviews as the Governance Committee may determine to be appropriate. Directors should not have any interests that would materially impair their ability to (i) exercise independent judgment, or (ii) otherwise discharge the fiduciary duties owed as a director to the Company and its shareholders.

 

Directors are expected to prepare for, attend and participate in Board meetings and meetings of the Board committees on which they serve, to ask questions and require responsive answers, and to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities and duties as directors. Each Board member is expected to ensure that other existing and planned future commitments do not materially interfere with the member’s service as a director. Service on other boards and other commitments will be considered by the Governance Committee and the Board when reviewing Board candidates and in connection with the Board’s annual self-assessment process. The Company’s Bylaws provide that a director is eligible to serve as a director until the annual meeting of shareholders immediately following such director’s 72nd birthday.

 

Attendance Policy at Annual Meeting of Shareholders

 

Each director is expected to attend the Annual Meeting of Shareholders in the absence of extenuating circumstances. All eight directors attended the 2007 Annual Meeting of Shareholders held on January 24, 2007.

 

Committee Membership

 

The Board appoints committee chairs and members on an annual basis with consideration given to the qualifications and preferences of individual directors. In its deliberations, the Governance Committee is aware that (i) each member of the Audit Committee must be financially literate, as such qualification is interpreted by the Board in its business judgment, (ii) each member of the Governance Committee, the Audit Committee and the Executive Compensation and Development Committee must be independent within the meaning of the Nasdaq corporate governance rules, (iii) each member of the Audit Committee must meet the independence standards set forth in Rule 10A-3 promulgated under the Securities Exchange Act of 1934, and (iv) at least one member of the Audit Committee must be a person who satisfies the definition of an “audit committee financial expert” as set forth in Item 407 of Regulation S-K of the Securities and Exchange Commission.

 

Process for Identifying and Evaluating Nominees

 

The Governance Committee may employ a variety of methods for identifying and evaluating nominees for director. The Governance Committee regularly assesses the size of the Board, the need for particular expertise on the Board, the upcoming election cycle of the Board and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated or arise, the Governance Committee considers potential candidates for director who may come to the Governance Committee’s attention through current Board members, the Company’s executive officers, professional search firms, shareholders or other persons. These candidates will be evaluated at regular or special meetings of the Governance Committee and may be considered at any time during the year.

 

The Governance Committee will consider candidates recommended by shareholders when the nominations are properly submitted, under the criteria summarized below in “Shareholder Nominees.” Included in this discussion is a description of the deadlines and procedures for shareholder submissions of director nominees. Following verification of the shareholder status of persons proposing candidates, the Governance Committee will make an initial analysis of the qualifications of any candidate recommended by shareholders or others pursuant to the criteria summarized above, under the “Board Membership Criteria” heading, to determine whether the

candidate is qualified for service on the Board, before deciding to undertake a complete evaluation of the candidate. If a shareholder or professional search firm provides any materials in connection with the nomination of a director candidate, such materials will be forwarded to the Governance Committee as part of its review. If the Governance Committee determines that additional consideration is warranted, it may request the third-party search firm to gather additional information about the prospective nominee’s background and experience and to report its findings to the Governance Committee. Other than the verification of compliance with procedures and shareholder status, and the initial analysis performed by the Governance Committee, the Governance Committee will treat a potential candidate nominated by a shareholder like any other potential candidate during the review process. In connection with this evaluation, the Governance Committee will determine whether to interview the prospective nominee, and if warranted, one or more members of the Governance Committee, and others as appropriate, will interview prospective nominees in person or by telephone. After completing this evaluation and interview, the Governance Committee will make a recommendation to the full Board as to the persons who should be nominated by the Board, and the Board will determine the nominees after considering the recommendation and report of the Governance Committee.

 

Shareholder Nominees

 

Any shareholder wishing to nominate a candidate should provide the information described below in a letter addressed to the Chairman of the Governance Committee, in care of the Corporate Secretary, no later than 120 days prior to the anniversary of the date on which the Company’s annual proxy statement was mailed in connection with the most recent annual meeting. This means that any shareholder wishing to submit such a nomination for consideration at the Company’s Annual Meeting of Shareholders in 2009 should expect to provide such a letter to the Corporate Secretary not later than August 30, 2008.

 

The letter must include the following information:

 

 

 

 

Additional information may be requested to assist the Governance Committee in determining the eligibility of a proposed candidate to serve as a director. This may include requiring that a prospective nominee complete a director and officer questionnaire and provide any follow-up information requested. In addition, the shareholder and the notice must meet all other applicable requirements contained in Penford’s Bylaws. A copy of Penford’s Bylaws is posted on the Company’s web site at www.penx.com under the under the “Investor Relations” heading and “Corporate Governance” sub-heading.

Shareholder Communications

 

Any shareholder or interested party who wishes to communicate with the Board of Directors or any specific directors, including non-management directors, may write to:

 

Board of Directors
c/o Corporate Secretary
Penford Corporation
7094 South Revere Parkway
Centennial, Colorado 80112-3932

 

The mailing envelope must contain a clear notation indicating that the enclosed letter is a “Shareholder-Board Communication” or “Shareholder-Director Communication.” All such letters must identify the author as a shareholder and clearly state whether the intended recipients are all members of the Board or just certain specified individual directors. The Corporate Secretary will make copies of all such letters and circulate them to the appropriate director or directors. The Company generally will not forward communications that are primarily commercial in nature, relate to a topic other than corporate governance, or that request general information about the Company.

 

RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(Proposal #2)

 

The Audit Committee has chosen Ernst & Young LLP to serve as the independent registered public accounting firm for the Company for the fiscal year ending August 31, 2008. This firm has served as the independent registered public accounting firm for the Company since 1985. Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting of Shareholders, will be given an opportunity to make a statement at the meeting if they desire to do so, and will be available to respond to appropriate questions.

 

Although not required by the Company’s Bylaws or otherwise, the Audit Committee and the Board believe it appropriate, as a matter of good corporate practice, to request that the shareholders ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal year 2008. Assuming that a quorum is present, the selection of Ernst & Young LLP will be deemed to have been ratified if more shares are voted in favor of ratification than are voted against ratification. Abstentions and broker non-votes are counted for purposes of determining the presence of a quorum but will not otherwise have any effect on the outcome of this proposal. If the shareholders should not so ratify, the Audit Committee will reconsider the appointment and may retain Ernst & Young LLP or another firm without re-submitting the matter to the Company’s shareholders. Even if the shareholders vote on an advisory basis in favor of the appointment, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and the shareholders.

 

The Board of Directors recommends a vote FOR the ratification of the appointment of Ernst & Young as the Company’s independent registered public accounting firm for the fiscal year ending August 31, 2008.

 

The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the audited financial statements for fiscal year 2007 with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements.

 

The Audit Committee reviewed with Ernst & Young LLP, the Company’s independent registered public accounting firm, who are responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the Audit Committee by the Statement on Auditing Standards No. 61,“Communication with Audit Committees,” as amended. In addition, Ernst & Young LLP has provided the Committee with the written disclosures and the letter required by the Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” and the Committee has discussed with the independent registered public accounting firm the auditors’ independence from management and the Company.

 

The Audit Committee discussed with the Company’s independent registered public accounting firm the overall scope and plans for their respective audits. The Committee meets with the independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting.

 

In reliance on the reviews and discussions referred to above, the Committee recommended that the audited financial statements be included in the Annual Report on Form 10-K for the year ended August 31, 2007 for filing with the Securities and Exchange Commission. The Committee has selected Ernst & Young LLP as the independent auditor for fiscal 2008.

 

 

 

 

The Audit Committee has concluded that the provision of the non-audit services listed above is compatible with maintaining the independence of Ernst & Young LLP. The services described above were approved by the Audit Committee pursuant to the policy described below. The Audit Committee did not rely on any of the exceptions to pre-approval under Rule 2-01(c)(7)(i)(C) under Regulation S-X of the Securities and Exchange Commission.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors

 

The Audit Committee has adopted an Audit and Non-Audit Services Pre-Approval Policy that sets forth the procedures and the conditions pursuant to which services proposed to be performed by the independent registered public accounting firm may be pre-approved. These services may include audit services, audit-related services, tax services and other services. The Audit Committee determines from time to time those permitted services that have the general pre-approval of the Audit Committee, which is generally provided for up to one year. Any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The Audit Committee considers whether such services are consistent with SEC rules on auditor independence, as well as whether the independent registered public accounting firm is best positioned to provide the most effective and efficient service, for reasons such as its familiarity with the Company’s business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance the Company’s ability to manage or control risk or improve audit quality. The independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis.

 

 

 

REPORT OF THE
EXECUTIVE COMPENSATION AND DEVELOPMENT COMMITTEE

 

In connection with the exercise of its duties, the Executive Compensation and Development Committee has reviewed and discussed the “Compensation Discussion and Analysis” set forth below with management. Based upon that review and those discussions, the Executive Compensation and Development Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included by reference in the Company’s annual report to shareholders on Form 10-K and included in this Proxy Statement.

 

Sally G. Narodick, Chair
R. Randolph Devening
James E. Warjone

 

 

 

Committee Practices

 

The Committee establishes total annual compensation for the Chief Executive Officer (subject to full Board approval for base salary) and other executive officers after reviewing each component of such executive’s compensation against surveys and applying the best business judgment of the Committee. The surveys used for comparison reflect compensation levels and practices for persons holding comparably responsible positions at the peer group companies and a broader group of companies of similar size in general industry. However, the Committee has noted that it is not aware of any companies that are truly comparable to the Company and it is also sensitive to the fact that the companies used in these surveys may differ significantly as to size, products and markets. Because of the inherent limitations of survey data, the Committee does not mechanically apply the data but engages in a review and weighs the survey information with other Company and individual performance related factors. A significant part of this review with respect to executive officers other than the Chief Executive Officer is a discussion with the Chief Executive Officer of his recommendations and input regarding compensation for the other executive officers.

 

Benchmarking

 

The Committee’s comprehensive review of executive compensation including its review of benchmarking compensation studies generally occurs during a period around the beginning of the fiscal year. The Committee engaged independent compensation consultant Towers Perrin to prepare these studies, with its most recent study being completed in October 2007. These studies have provided the Committee with relevant market data, trends and alternatives to consider when making compensation decisions, and the Committee has used the study information to ensure that executive officer compensation plans remain competitive and the Committee understands the plans in relation to market-median levels. Towers Perrin is engaged by the Committee and is not engaged by management in any other material capacity.

 

Peer Group

 

As discussed above, the Committee compares total compensation and its components against a peer group of publicly traded companies. The Committee has used the essentially the same peer group for the last few years and, in mid-2007, it asked Towers Perrin to review the appropriate peer group for compensation purposes. The determination of peer group companies included assessing those companies (i) within the same industry classifications (food products, chemicals, and oil and gas and consumable fuels) as the Company, (ii) within the revenue (under $1 billion), total assets (under $1 billion) and market cap (greater than $200 million) scope of the Company, (iii) in multiple business lines, with international operations and with research, product development, manufacturing and marketing organizational expertise and (iv) with 5% or more sales growth. As a result of this peer group review process, in September 2007 the Committee identified a revised peer group to be used during the Company’s fiscal year 2008.

The companies included in the peer group considered as part of the compensation decisions for the Company’s fiscal year 2007 were:

 

 

Based on the review of the peer group, Aventine Renewable Energy Corp., ICO Inc., Kopper’s Holdings, Minerals Technologies and Sensient Technologies Corporation have been added to the peer group for fiscal year 2008 compensation purposes and AMCOL International Corp., Cambrex Corp., Flow International Corp., Gehl Co., Imperial Sugar Co., Nature’s Sunshine Products, and Oil-Dri Corp. of America will no longer be included in the peer group for fiscal year 2008 compensation purposes. In addition, since Pioneer Cos. Inc. has recently been acquired by another company, it will not be included in the 2008 peer group.

 

Targets

 

Taking into account the limitations of the survey data discussed above and the need to be competitive, the Committee targets base salary for executive officers at between the 50 ^th  and 75 ^th  percentile and the cash bonus component at between the 75 ^th  and 100 ^th  percentile. However, the Committee has also concluded that it should exercise discretion and set targets or award compensation in excess of or below these targets after applying its best business judgment. As noted above, the program is intended to be competitive with other high-performing organizations and to enable the Company to attract, reward and retain exceptional talent.

 

Compensation Program Elements

 

The Committee’s policy is that the compensation package for executive officers shall consist of three components: (i) annual base salary; (ii) the potential to earn incentive bonuses, and (iii) long-term incentives, including stock option or other equity based awards designed to align management’s interests with those of shareholders.

 

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 addition to the market data from the peer group and other sources, the Committee considers other factors in arriving at or adjusting each executive officer’s base salary, including: (1) each executive officer’s scope of responsibilities; (2) each executive officer’s qualifications, skills and experience; (3) internal pay equity among senior executives; (4) individual job performance, including both impact on current financial results and contributions to building longer-term shareholder value and (5) with respect to executive officers other than the Chief Executive Officer, the recommendation of the Chief Executive Officer.

 

For the Company’s fiscal year 2007, executive officers’ base salaries were generally compared against the range of the 50 ^th  and 75 ^th  percentile of of base salary levels of similarly positioned executives at peer group companies and in general industry. There were variances among executives based on the Committee’s assessment of factors as described above.

Annual Bonus Incentive Compensation

 

The executive bonus plan (the “Bonus Plan”) is designed to drive Company and operating unit performance consistent with its objectives.

 

Near the start of each fiscal year, the Committee selects participants in the Bonus Plan, sets target percentages and objective quantitative and qualitative performance goals, and approves individual performance goals for the current year. For fiscal year 2007, the Committee determined that achievement of quantitative metrics would constitute 70% of target attainment and achievement of individual qualitative goals would constitute 30% of target attainment.

 

The Chief Executive Officer recommends performance goals. After review and discussion of the Chief Executive Officer’s recommendations, the Committee determines both the types of, and the targets for, the corporate and operating business as well as individual performance goals and the percentage of bonus payout to be tied to each of the performance goals. Performance goals are generally tied to the Company’s Board-approved budget and operating plans, as well as the Company’s long-term strategic objectives.

 

Individual qualitative performance metrics are tailored to each executive officer and include such metrics as identifying opportunities and successfully implementing programs. Individual objectives for fiscal 2007 included objectives relating to the ethanol initiative, Company finances, organizational development, strategic projects, cost containment, and growth.

 

Target bonus amounts, payable in cash, are expressed as a percentage of base salary. Bonus targets for executive officers range from 40% to 100% of base salary depending on position and overall responsibility:

 

 

Actual bonus payments are increased above the target bonus levels for results that exceed the performance goals and are decreased below the target bonus levels, and may be reduced to zero, for results that do not fully meet the goals, with the amount of the increase or decrease based on a sliding scale determined by the Committee. No bonus on the quantitative portion is payable unless a minimum threshold is attained and the overall payouts may not exceed 200% of target bonus.

 

For each quantitative performance measure, the Committee establishes a threshold, target and maximum goal. The following table lists the quantitative performance measures for the 2007 fiscal year for its headquarters’ executive officers, the percentage of target attainment that measure represented, the target for the measure, the actual result and the achievement represented by the actual result in comparison to the target:

 

 

EBIT is calculated as the Company’s net income plus interest expense less interest income plus income tax expense. ROIC is calculated as the ratio (expressed as a percentage) of EBIT for the fiscal year divided by the sum of average debt and average equity.

 

Additional goals based upon operating unit performance were established for two named executive officers assigned to operating units. 20% of target attainment for these officers was dependent upon overall corporate performance, a goal established to encourage operating units to support the Company’s objective of achieving cross-unit cooperation, sales and support.

Because disclosure of specific quantitative goals for operating units (other than as described above) would signal where the Company is shifting its focus, give competitors insight into areas where the Company is changing its approach, and impair the Company’s ability to leverage these actions for competitive advantage, the Company is not disclosing some of these confidential operating unit targets. Knowledge of these targets could be used by competitors to take advantage of the Company. The targets are set at aggressive levels each year to motivate high business performance and support the attainment of longer-term objectives. These targets, individually or together, are designed to be challenging to attain. For the three fiscal years preceding fiscal year 2007, the level of target attainment for the Industrial Ingredients business has ranged between approximately 42% and 79% and for the Food Ingredients between approximately 84% and 119%.

 

For fiscal year 2007, the Chief Executive Officer’s bonus payment was based upon the attainment of the above noted quantitative objectives relating to EBIT, ROIC and EPS. The Chief Executive Officer’s qualitative objectives related to organizational development, the ethanol initiative, and strategic projects intended to enhance shareholder value. After a review of all of the factors described above, and taking into account the Company’s excellent financial performance and significantly increased market capitalization during the year, the Committee determined that the Chief Executive Officer’s bonus for fiscal year 2007 would be $980,000 under the Bonus Plan.

 

In total, named executives earned between 166% and 200% of their 2007 targeted bonuses as established by the 2007 Bonus Plan. This payout range was significantly higher than in recent prior years due largely to the Company’s substantial increase in EBIT and EPS as a result of the superior performance of its Industrial Ingredients and Food Ingredients businesses.

 

Long-Term Incentives

 

The Company’s 2006 Long-Term Incentive Plan (the “LTIP”) is administered by the Committee, which determines to whom stock option or other awards are granted, the number of shares subject to each grant, the vesting schedule and exercise price. The LTIP provides that all stock options to executive officers and others must be granted at no less than 100% of fair market value on the date of the grant.

 

The LTIP allows the Company to grant stock options, restricted shares, and other equity-based awards. These types of awards typically reward service and performance over a longer period of time than other methods of compensation and focus on the Company’s long-term strategic goals.

 

The Committee believes that including a significant level of equity-based awards helps align the financial interests of management with those of our shareholders since the ultimate value of equity-based awards is tied to the value of the Company’s stock and these awards provide executives with a further equity stake in the Company. In making LTIP awards, the Committee considers the Company’s financial performance, executives’ levels of responsibilities, the need to retain executive talent, the long-term incentive compensation practices for similar positions at peer group and other comparable companies, and the advice of the Committee’s consultant. The Committee has not adopted specific targets for long term incentive compensation. In addition, prior to making an LTIP grant, the Committee considers the Company’s share price, the volatility of the share price and potential dilution. Options and restricted stock generally vest ratably over four years.

 

In fiscal year 2007, the Company provided LTIP equity incentive compensation in the form of stock options to two of the named executive officers. These stock option awards were granted at the October 2006 meeting of the Committee. Apart from these awards, no LTIP awards were made in fiscal year 2007.

 

Looking forward, the Committee generally expects to consider LTIP awards for executives each fall, following the conclusion of the Company’s fiscal year. However, the Committee may in the future, applying its best judgment at the time, make LTIP awards at additional or different times.

 

For fiscal year 2008, the Committee decided in October 2007 to grant restricted stock awards as long-term incentive compensation for the Company’s named executive officers. The Committee’s determination to award restricted stock rather than options is consistent with trends in long term compensation reported to the Committee by its independent consultant. In addition, because executives will receive benefit from restricted stock if they remain employed by the Company throughout the period of restriction, the Committee believes restricted stock grants can be an effective retention tool for key executives. Finally, the switch from issuing options to restricted

stock awards was due in part to recent accounting rule changes making options less efficient for the Company by requiring that stock options (like restricted stock awards) be expensed when granted whether or not the options are ever exercised by the executive.

 

The Board of Directors encourages executive officers to build an ownership position in Company common stock, but the Board has not felt it necessary or advisable to date to establish formal executive officer stock ownership requirements.

 

Employment Related Agreements

 

Except with respect to the change in control agreements described in more detail below, the Company does not have employment agreements that provide for continued employment for any period of time or guarantee severance benefits upon termination.

 

The Company entered into revised change in control agreements with each of its executive officers in 2006 to provide for continuity of management in the event of a change in control of the Company. Pursuant to each agreement, the Company agrees to provide certain payments and benefits to the participants if they are terminated within 24 months after a “Change in Control,” as defined in the agreements. Participants will not be considered “terminated” for purposes of these agreements if they die, become disabled or are terminated for cause. They will, however, be considered “terminated” if they voluntarily leave the Company’s employ for certain good reasons (defined as “Good Reason” in the agreements), and, in the case of Mr. Malkoski and Mr. Cordier, if they voluntarily terminate employment during the 30-day period beginning on the first anniversary of a Change in Control. A description of the payments and benefits under these agreements is set forth in the “Change-in-Control Arrangements” section below.

 

Benefits and Perquisites

 

The Company’s executive officers participate in the broad-based benefits plans that are available to other employees and can elect to have a portion of their compensation deferred as described in the Deferred Compensation Plan section. With the exception of a car program and tax preparation assistance for the Chief Executive Officer and the Chief Financial Officer, the Company does not provide additional material perquisites for its executive officers.

 

Tax and Accounting Considerations

 

The Committee considers the tax and accounting implications of its compensatory programs. As described above, one of its several motivations for recently changing equity incentives from options to restricted stock was the change in the required accounting treatment of options.

 

Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended, generally disallows a tax deduction to public companies for compensation in excess of $1 million paid to the CEO or any of the three other most highly compensated officers (other than the CEO and CFO). Performance-based compensation arrangements may qualify for an exemption from the deduction limit if they satisfy various requirements under Section 162(m). Although the Company considers the impact of this rule as well as other tax consequences (such as non-deductibility of certain change in control payments) when developing and implementing the Company’s executive compensation programs, the Company has not adopted a policy that all compensation must qualify as deductible.

 

 

 

Grants of Plan-Based Awards

 

The following table summarizes plan-based awards granted to the Company’s named executive officers during the fiscal year ended August 31, 2007.

 

 

 

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table provides information on each named executive officer’s stock option grants outstanding as of August 31, 2007.

 

 

 

 

Options Exercised

 

The following table provides information with respect to option exercises during the last fiscal year for each of the named executive officers.

 

 

 

 

Retirement Plan

 

The Company has a defined benefit retirement plan (the “Retirement Plan”) for salaried employees. Prior to January 1, 2005, all North American-based active employees who were not members of the collective bargaining unit were eligible to participate in the Retirement Plan. The Retirement Plan was closed to new entrants as of January 1, 2005.

 

Under the Retirement Plan, the normal retirement age is 65; however, participants may continue to work beyond age 65. Retirement benefits are calculated based on actual years of service up to a maximum of 30 years and actual earnings to the date of retirement. The retirement benefit is calculated as follows: (1) the sum of (a) 1% of the “Final Average Monthly Earnings,” defined as the average monthly earnings during the five consecutive calendar years in which an employee’s compensation was the highest, plus (b) 0.5% of the Final Average Monthly Earnings in excess of the monthly Social Security Covered Compensation, defined as the maximum salary on which social security taxes are paid during a year, (2) multiplied by an employee’s years of credited service up to 30 years. Employees may retire at age 55 if they have completed 20 years of service. The early retirement benefit is computed in the same manner as the normal retirement calculation described above except that the employee would receive a percentage of the normal retirement benefit ranging from 56% at age 55 to 98% at age 64.

 

Compensation covered by the Retirement Plan includes salaries and bonuses as set forth in the Summary Compensation Table, subject to the Internal Revenue Code limitations. The following table shows the years of credited service and the present value of accumulated benefits for each of the named executive officers.

 

 

 

 

Deferred Compensation

 

The Company maintains the Penford Corporation Deferred Compensation Plan, which is a nonqualified, unfunded deferred compensation plan that provides the Company’s directors, officers and certain key employees with the opportunity to defer a portion of their fees, salaries and bonuses on a tax-deferred basis. All of the named executive officers are eligible to participate in the plan. Interest is credited and compounded monthly based on the monthly equivalent of the annual yield on Moody’s Average Corporate Long-Term Bond Yield Index. The Company has established a so-called “rabbi trust” by entering into a trust agreement with a trustee in order to assist the Company in meeting its obligations to make deferred compensation payments to plan participants.

The following table provides information regarding executive contributions, earnings and account balances for each of the named executive officers in the Deferred Compensation Plan. No executive officer made any withdrawals or received any distributions during fiscal 2007.

 

2007 Nonqualified deferred Compensation Table

 

 

 

 

Change-in-Control Arrangements

 

The Company has change of control agreements with each of the named executive officers. These agreements are intended to provide for continuity of management in the event of a change of control of the Company. Pursuant to each agreement, Penford agrees to provide certain benefits to the participants if they are terminated in connection with a “Change in Control,” as defined in the agreements and summarized below. Each of these agreements continues until Penford terminates the agreement upon twelve months prior written notice, provided that if a Change in Control occurs prior to the termination date of the agreement, the agreement will remain in effect with respect to all rights accruing as a result of the occurrence of the Change in Control.

 

To receive the payments and benefits for a termination in connection with a Change in Control under an agreement, participants must execute a waiver and release in favor of Penford. Participants must also agree to noncompetition and nonsolicitation provisions for a period extending beyond their termination of employment, as well as to nondisparagement and confidentiality provisions.

 

Under these agreements, participants, regardless of whether their employment is terminated in connection with a Change in Control, are entitled to vesting immediately prior to a Change in Control of all options and other equity-based rights and interests outstanding immediately prior to the Change in Control.

 

Under these agreements, participants are entitled to certain benefits if they are terminated within 24 months after a Change in Control. Participants will not be considered “terminated” for purposes of these agreements if they die, become disabled or are terminated for cause. They will, however, be considered “terminated” if they voluntarily leave Penford’s employ for certain good reasons (defined as “Good Reason” in the agreements and summarized below) and, in the case of Mr. Malkoski and Mr. Cordier, if they voluntarily terminate employment during the 30-day period beginning on the first anniversary of a Change in Control.

 

Upon a termination in connection with a Change in Control, participants will be eligible to receive 50% of the compensation payable to them under the agreement (referred to as the “CIC Amount”) within 30 days after their termination of employment and 50% in equal monthly installments over the compensation period, which for Messrs Malkoski, Cordier and Randall is 30 months and for Messrs. Kortemeyer and Lawlor is 24 months. The CIC Amount is the product of (a) base salary plus the participant’s Average Target Attainment Bonus (as defined in the agreements) over a specified period, times (b) 2.5 for Messrs. Malkoski, Cordier and Randall and 2.0 for Messrs

Kortemeyer and Lawlor. In addition, participants receive a prorated target bonus for the year of termination and Penford will pay the cost of outplacement services for a period, which in the case of Mr. Malkoski and Mr. Cordier would be 12 months and for the other participants would be 6 months. Participants will also be entitled to continuation of certain medical, life and other benefits during the compensation period. Mr. Malkoski and Mr. Cordier are also entitled to an additional payment, if necessary, to make them whole as a result of excise and related taxes imposed by the Internal Revenue Code on change of control benefits. If such excise taxes would otherwise be applicable to other participants, such other participants would have the payments under the agreement reduced such that the aggregate present value of the payments under the agreement would not exceed one hundred dollars less than three times the participant’s base amount (generally average compensation from Penford for the preceding five years) under the Internal Revenue Code.

 

A general summary of certain definitions used in the agreements follows:

 

“Change of Control” generally means any of the following events: (i) The Company is merged, consolidated or reorganized (“Reorganization”) with another entity and as a result of which less than 50% of the outstanding voting interests or securities of the surviving or resulting entity immediately after the Reorganization are owned in the aggregate by the former shareholders of the Company, in substantially the same proportions as their ownership before such Reorganization; (ii) The Company sells all or substantially all of the Company’s assets to another entity; (iii) Any person acquires more than 40% of the outstanding voting securities of the Company; or (iv) During any 24 month period, individuals who constitute the Board of Directors of the Company at the beginning of such period cease to constitute at least a majority thereof, unless the election, or nomination for election by the Company’s shareholders, of each new director was approved (other than in connection with an actual or threatened solicitation of proxies or consents by another) by the vote of at least two-thirds of the directors then still in office who were directors of the Company at the beginning of such period.

 

“Good Reason” generally exists (if, after written notice by the executive to the Company and a thirty (30) day opportunity by the Company to cure during which the Company does not cure the condition): (i) The executive’s most significant duties, responsibilities or authority are reduced or diminished in other than an immaterial manner; (ii) Either (A) the executive’s base salary or target bonus are reduced by the Company, or (B) the executive’s benefits are denied or modified in a manner different than changes applicable to other executive officers, and (C) the aggregate effect of all such reductions, denials and modifications (including any increases in compensation, bonuses, or benefits) represents more than an immaterial reduction to the executive’s overall compensation package; (iii) The Company violates the material terms of the agreement; (iv) The executive is required to relocate his principal place of employment more than 50 miles from both his principal place of employment and his principal residence; or (v) There is a liquidation, dissolution, consolidation or merger of the Company or transfer or sale of all or a substantially all of its assets, unless a successor (by merger, consolidation or otherwise) to which all or substantially all of its assets have been transferred or sold has assumed all duties and obligations of the Company under the agreement.

The following table quantifies the payments and benefits that each named executive officer would receive under the Company’s compensation programs upon various scenarios for termination of employment or a change-in-control of the Company.

 

 

 

 

 

As reflected in the 2007 Director Compensation Table above, non-employee directors received compensation during the Company’s fiscal year 2007 according to the following schedule:

 

 

In September 2007, the Company’s Governance Committee retained a consultant, Towers Perrin, to perform a competitive analysis of compensation for the services of the Company’s non-employee directors. Subsequently, the Governance Committee, following its review of the Towers Perrin analysis, recommended to the Board of Directors changes to the compensation schedule for non-employee directors. In October 2007, the Board approved the following revised director compensation schedule effective with fiscal year 2008:

 

 

 

 

Equity Compensation

 

An annual restricted stock grant valued at $20,000 is to be made on January 1 of each year, commencing on January 1, 2008, based on the last reported sale price of the Company’s stock on the last preceding trading day, in accordance with the Company’s 2006 Long-Term Incentive Plan. Restrictions lapse on the first anniversary date of the award.

 

The Board terminated the 1993 Non-Employee Director Restricted Stock Plan at the time that it approved the new compensation schedule.

 

The independent members of the Board have concluded that there may be instances where it will be in the best interest of the Company to ask individual directors to perform Board or Board committee services which exceed the normal expectation of service generally expected of directors and committee members. The Board has concluded that in such instances that it will be equitable and in the best interests of the Company to compensate a director at the same per diem rate then payable to directors for participation in a meeting of the Board of Directors. It is specifically intended that such compensation shall not represent any consulting, advisory, or other fee and is only intended as payment for extraordinary Board service. Accordingly, payments shall be made for such service only under the following conditions: (i) the director who is asked to perform such services does not publicly hold himself out as a consultant or advisor in the area of service being requested or regularly perform such services for compensation for entities that he or she is not affiliated with as an officer, director or owner; (ii) the special assignment relates to a matter that is under review by the Board or a committee or if pursued will require such review; (iii) the special assignment shall not involve the preparation of financial statements or work directly related

to such preparation other than the review and oversight normally undertaken by the Audit Committee and the Board of Directors; (iv) the total fees paid for such services shall not exceed $60,000 in any fiscal year; and (v) the special assignment must be approved by a majority of the independent members of the Board of Directors who shall affirmatively determine that the assignment will not adversely affect the director’s independence. Any special assignment shall be reviewed no less often than annually by the Governance Committee, provided that any member of that committee shall recuse himself or herself from any review of a special assignment in which they are engaged.

 

TRANSACTIONS WITH RELATED PERSONS

 

Pursuant to its charter, the Company’s Audit Committee reviews all transactions with related persons (as defined in Item 404 of Regulation S-K as promulgated by the Securities and Exchange Commission) and resolves issues of conflict of interest. If any member of the Audit Committee is also an officer, director or an interested party of or in a corporation or other entity with which a conflict arises, that member will not participate in the deliberations or vote on any matter involving that corporation or other entity. The Audit Committee reviews each related person transaction that comes to its attention on a case-by-case basis, either in advance or when the Audit Committee becomes aware of a related person transaction that was not reviewed and approved in advance.

 

The Company’s written Code of Business Conduct and Ethics provides that directors and employees are expected to avoid situations and relationships that involve actual or potential conflicts of interest and to fully disclose to the Company those conflicts of interest that cannot be avoided. The Code of Business Conduct and Ethics notes that a “conflict of interest” exists when private interest interferes in any way with the interests of the Company or makes it difficult for the director or employee to perform work for the Company objectively and effectively. Directors and employees are required to avoid any personal activity, investment or association with the Company’s competitors, customers, suppliers and other third parties that could appear to interfere with the director’s or employee’s judgment concerning the Company’s best interests and they must never exploit their position or relationship with the Company for personal gain.

 

The Company has not adopted a separate written policy or procedures governing its approval of transactions with related persons, beyond that which is set forth in the Audit Committee charter and the Code of Business Conduct and Ethics.

 

The Company is not aware of any transaction since the beginning of the Company’s last fiscal year, or any currently proposed transaction, in which the Company was or is to be a participant and the amount involved exceeds $120,000, and in which any of the Company’s officers, directors or nominees or any holder of 5% of the Company’s common stock or their immediate family members had or will have a direct or indirect material interest.

 

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 (10%) 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.

 

Based solely on its review of copies of such reports received by it and written representations from certain persons that no other reports were required for those persons, the Company believes that all filing requirements applicable to its officers, directors and greater than 10% shareholders were complied with for the fiscal year ended August 31, 2007.

 

advice on the nature of the proposal and how it intends to exercise its voting discretion; and (2) the proponent does not deliver a proxy statement and form of proxy to the Company’s shareholders pursuant to the procedures specified under the applicable rules and regulations.

 

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 also may solicit proxies as a part of the services they provide for the Company and the Company is paying approximately $6,000 for these solicitation services. 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 Company’s directors are elected by a plurality of the votes represented in person or by proxy at the meeting. The candidates for directors who are elected are those candidates receiving the largest number of affirmative (for) votes cast by the shares entitled to vote in the election, up to the number of directors to be elected. The proposal to ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm will be approved if it receives the affirmative (for) vote of a majority of the total votes cast on the proposal. Votes cast by proxy or in person at the meeting will be tabulated by Mellon Investor Services LLC, the stock transfer agent designated by the Company. A majority of the shares eligible to vote must be present in person at the Annual Meeting of Shareholders or represented by proxy to provide a quorum so that action may be taken.

 

Effect of an Abstention and Broker Non-Votes

 

A shareholder who returns a proxy but abstains from voting on any or all proposals and broker non-votes (shares held by brokers or nominees that are represented at a meeting, but with respect to which the broker or nominee is not empowered to vote on a particular proposal) will be included in the number of shareholders present at the meeting for the purpose of determining the presence of a quorum. Abstentions and broker non-votes will not be counted either in favor of or against the election of the nominees.

 

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 certain routine matters, such as the election of directors and the ratification of the selection of the independent registered public accounting firm, by their clients may vote their client’s shares in their own discretion. Banks and brokers that have not received voting instructions from their clients cannot vote on their clients’ behalf on non-routine proposals. In the event that a broker, bank, custodian, nominee or other record holder of Penford Corporation common stock indicates on a proxy that it does not have discretionary authority to vote certain shares on a particular matter, referred to as a “broker non-vote,” then those shares will not be voted with respect to that matter.

 

exhibits. Requests should be directed to the Corporate Secretary at Penford Corporation, 7094 South Revere Parkway, Centennial, CO 80112.

 

HOUSEHOLDING

 

Intermediaries such as brokers are permitted to satisfy delivery requirements for proxy materials with respect to multiple shareholders that share the same last name and address by delivering a single proxy statement addressed to those shareholders. This process is known as “householding.” Shareholders who do not wish to participate in householding and would prefer to receive separate proxy material, or shareholders who receive multiple copies of the proxy material and wish to receive only one, should notify their broker. The Company does not household proxy material for shareholders of record. If a shareholder of record wishes to participate in householding, contact Investor Relations, Penford Corporation, 7094 S. Revere Parkway, Centennial, CO 80112.

 

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PLEASE SEE REVERSE SIDE

The Board of Directors Recommends a Vote FOR all Nominees listed in Item 1 and FOR Item 2.

1.

Election of Directors

				Vote FOR		Vote WITHHELD
				all nominees		from all
		Nominees:				nominees
		01 William E. Buchholz 02 John C. Hunter III 03 James E. Warjone		o		o

To withhold authority to vote for any indicated nominee, write the name of the nominee on the line below

 

				FOR		AGAINST		ABSTAIN
2.		Proposal to ratify the appointment of Ernst & Young LLP as the company’s independent registered public accounting firm.		o		o		o
3.		In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting or any adjournment thereof.

 

The undersigned acknowledges receipt of the Notice of said Annual Meeting and the accompanying Proxy Statement and Annual Report.

Signature				Signature				Date

Please sign exactly as name(s) appears on Proxy. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing a proxy

 

5 FOLD AND DETACH HERE 5

WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING,
BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK.

Internet and Telephone voting is available through 11:59 PM Eastern Time
the day prior to annual meeting day.

Your Internet or Telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.

	INTERNET http://www.proxyvoting.com/penx Use the internet to vote your proxy. Have your proxy card in hand when you access the web site.		OR		TELEPHONE 1-866-540-5760 Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call.

     If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card.
To vote by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid envelope.

Choose MLink ^SM for fast, easy and secure 24/7 online access to your future proxy materials, investment plan statements, tax documents and more. Simply log on to Investor ServiceDirect ^® at www.bnymellon.com/shareowner/isd where step-by-step instructions will prompt you through enrollment.

 

You can view the Annual Report and Proxy Statement
on the internet at www.penx.com/investor

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