<PAGE>
                                                                    Exhibit 10.2

                           PENWEST PHARMACEUTICALS CO.

                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

                            Effective August 1, 1998

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                                TABLE OF CONTENTS

<TABLE>
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                                                                             PAGE
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<S>                                                                          <C>
ARTICLE I--PURPOSE; EFFECTIVE DATE.........................................    1

 1.1 Purpose...............................................................    1
 1.2 Effective Date........................................................    1

ARTICLE II--DEFINITIONS....................................................    1

 2.1 Actuarial Equivalent..................................................    1
 2.2 Beneficiary...........................................................    1
 2.3 Board.................................................................    1
 2.4 Cause.................................................................    1
 2.5 Change in Control.....................................................    2
 2.6 Committee.............................................................    2
 2.7 Compensation..........................................................    2
 2.8 Corporation...........................................................    2
 2.9 Disability............................................................    2
 2.10 Early Retirement Date................................................    3
 2.11 Employer.............................................................    3
 2.12 Final Annual Compensation............................................    3
 2.13 Final Average Compensation...........................................    3
 2.14 Normal Retirement Date...............................................    3
 2.15 Participant..........................................................    3
 2.16 Participation Agreement..............................................    3
 2.17 Plan.................................................................    3
 2.18 Qualified Plan Offset................................................    4
 2.19 Retirement...........................................................    4
 2.20 Supplemental Retirement Benefit......................................    4
 2.21 Target Amount........................................................    4
 2.22 Years of Plan Participation..........................................    4
 2.23 Years of Service.....................................................    4

ARTICLE III--PARTICIPATION AND VESTING.....................................    4

 3.1 Eligibility and Participation.........................................    4
 3.2 Change in Employment Status...........................................    5
 3.3 Vesting...............................................................    5

ARTICLE IV--SURVIVOR BENEFITS..............................................    6

 4.1 Pretermination Survivor Benefit.......................................    6
 4.2 Posttermination Survivor Benefit......................................    6
 4.3 Postretirement Survivor Benefit.......................................    6
</TABLE>

                                                                             (i)

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                                TABLE OF CONTENTS

<TABLE>
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ARTICLE V--SUPPLEMENTAL RETIREMENT BENEFIT..................................     6
 5.1 Normal Retirement Benefit..............................................     6
 5.2 Early Retirement Benefit...............................................     7
 5.3 Change in Control Benefit..............................................     7
 5.4 Disability Retirement Benefit..........................................     7
 5.5 Termination Benefit....................................................     7
 5.6 Form of Benefit Payment................................................     7
 5.7 Commencement of Benefit Payments.......................................     8
 5.8 Accelerated Distribution...............................................     8
 5.9 Withholding; Payroll Taxes.............................................     8
 5.10 Golden Parachute Payments.............................................     9
 5.11 Payment to Guardian...................................................     9

ARTICLE VI--BENEFICIARY DESIGNATION.........................................     9

 6.1 Beneficiary Designation................................................     9
 6.2 Changes to Designation.................................................     9
 6.3 Change in Marital Status...............................................     9
 6.4 No Beneficiary Designation.............................................    10
 6.5 Effect of Payment......................................................    10

ARTICLE VII--ADMINISTRATION.................................................    10

 7.1 Committee; Duties......................................................    10
 7.2 Agents.................................................................    10
 7.3 Binding Effect of Decisions............................................    11
 7.4 Indemnity of Committee.................................................    11

ARTICLE VIII--CLAIMS PROCEDURE..............................................    11

 8.1 Claim..................................................................    11
 8.2 Denial of Claim........................................................    11
 8.3 Review of Claim .......................................................    11
 8.4 Final Decision.........................................................    11

ARTICLE IX--TERMINATION, SUSPENSION OR AMENDMENT............................    12

 9.1 Termination, Suspension or Amendment of Plan...........................    12
</TABLE>

                                                                            (ii)

<PAGE>

                                TABLE OF CONTENTS

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ARTICLE X--MISCELLANEOUS....................................................    12

 10.1 Unfunded Plan.........................................................    12
 10.2 Unsecured General Creditor............................................    12
 10.3 Trust Fund............................................................    12
 10.4 Nonassignability......................................................    13
 10.5 Not a Contract of Employment..........................................    13
 10.6 Protective Provisions.................................................    13
 10.7 Governing Law.........................................................    13
 10.8 Validity..............................................................    13
 10.9 Notice................................................................    13
 10.10 Successors...........................................................    13
</TABLE>

                                                                           (iii)

<PAGE>

                           PENWEST PHARMACEUTICALS CO.

                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

                       ARTICLE I--PURPOSE; EFFECTIVE DATE

1.1   PURPOSE

      The purpose of this Supplemental Executive Retirement Plan (the "Plan") is
to provide supplemental retirement benefits for certain key employees of Penwest
Pharmaceuticals Co. It is intended that the Plan will aid in retaining and
attracting individuals of exceptional ability by providing them with these
benefits.

1.2   EFFECTIVE DATE

      This Plan shall be effective as of August 1, 1998.

                            ARTICLE II--DEFINITIONS

      For the purposes of this Plan, the following terms shall have the meanings
indicated, unless the context clearly indicates otherwise:

2.1   ACTUARIAL EQUIVALENT

      "Actuarial Equivalent" means equivalence in value between two (2) or more
forms and/or times of payment based on a determination by an actuary chosen by
the Corporation.

2.2   BENEFICIARY

      "Beneficiary" means the person, persons or entity entitled under Article
VI to receive any Plan benefits payable after a Participant's death.

2.3   BOARD

      "Board" means the Board of Directors of Penwest Pharmaceuticals Co. or any
successor thereto.

2.4   CAUSE

      "Cause" means gross misconduct in connection with the executive's position
as an officer of the Corporation which results in demonstrably material injury
to the Corporation. Bad judgment or negligence shall not constitute gross
misconduct nor shall any act or omission reasonably believed by the executive to
have been in, or not opposed to, the interests of the Corporation.

PAGE 1 - SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

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2.5   CHANGE IN CONTROL

      A Change in Control shall have occurred if:

            (a) Any Person is or becomes the beneficial owner, directly or
      indirectly, of securities of the Corporation representing more than fifty
      percent (50%) of the voting power of the out standing Voting Stock;

            (b) The effective date of a merger, consolidation, reorganization or
      dissolution in which the Corporation is not the surviving entity; or

            (c) During any period of two (2) consecutive years, individuals who
      constitute the Board of Directors of the Corporation at the beginning of
      any such period cease for any reason to constitute at least a majority
      thereof, unless the election, or the nomination for election by the
      Corporation's shareholders, of each new director was approved by a vote of
      at least two-thirds (2/3) of the directors then still in office who were
      directors of the Corporation at the beginning of such period. "Person"
      means an individual, firm, corporation or other entity, together with all
      Affiliates and Associates of such Person, but shall not include the
      Corporation, any subsidiary of the Corporation or any employee benefit
      plan of the Corporation. "Affiliate" and "Associate" shall have the
      respective meanings ascribed to such terms in Rule 12b-2 of the Securities
      Exchange Act of 1934, as amended. "Voting Stock" means the common stock of
      the Corporation and any other shares entitled to vote for the election of
      directors of the Corporation.

2.6   COMMITTEE

      "Committee" means the committee appointed by the Board to administer the
Plan pursuant to Article VII.

2.7   COMPENSATION

      "Compensation" means the salary and bonuses paid to a Participant by
Employer and considered to be "wages" for purposes of federal income tax
withholding. Compensation shall be calculated before reduction for any amounts
deferred by the Participant pursuant to the Corporation's tax qualified plans
which may be maintained under Section 401(k) or Section 125 of the Internal
Revenue Code, or under any nonqualified deferred compensation plan maintained by
the Corporation. Compensation does not include expense reimbursements or any
form of noncash compensation or benefits.

2.8   CORPORATION

      "Corporation" means Penwest Pharmaceuticals Co., a Washington Corporation,
or any successor thereto, and any corporations or other entities affiliated with
or subsidiary to it that may be selected by the Board.

2.9   DISABILITY

      "Disability" means a physical or mental condition which has been found to
prevent the Participant from satisfactorily performing his usual duties for the
Corporation. The existence of the Disability shall be determined by the claims
adjudicator of the Penwest Pharmaceuticals Co. Long-Term

PAGE 2 - SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

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Disability Plan. However, the Committee reserves the right to make its own
determination and may rely on advice from a medical examiner, medical reports,
and/or other evidence satisfactory to the Committee.

2.10  EARLY RETIREMENT DATE

      "Early Retirement Date" means the date on which a Participant terminates
employment with Employer, the earlier of the date on or after such Participant's
attainment of age fifty-five (55) and completion of twenty (20) Years of Service
or age sixty-two (62) and completion of ten (10) Years of Service, but prior to
the Participant's Normal Retirement Date.

2.11  EMPLOYER

      "Employer" means the Corporation and any subsidiary or affiliate of the
Corporation designated by the Board.

2.12  FINAL ANNUAL COMPENSATION

      "Final Annual Compensation" means the Participant's Compensation earned
during the twelve (12) consecutive months of employment with Employer prior to
the Participant's death or Disability.

2.13  FINAL AVERAGE COMPENSATION

      "Final Average Compensation" means the average of the annual Compensation
of a Participant during the highest three (3) calendar years out of the last
five (5) calendar years preceding the Participant's termination of employment.
If the Participant has fewer than three (3) years of employment with Employer,
Final Average Compensation shall be determined based on the average compensation
during actual employment. Complete calendar year shall be used; provided,
however, that if using a partial year yields a higher average, then such partial
year shall be used.

2.14  NORMAL RETIREMENT DATE

      "Normal Retirement Date" means the date on which a Participant terminates
employment with Employer on or after such Participant's attainment of age
sixty-five (65).

2.15  PARTICIPANT

      "Participant" means any individual who is participating in or has
participated in this Plan, and who has not yet received full benefits hereunder,
as provided in Article III.

2.16  PARTICIPATION AGREEMENT

      "Participation Agreement" means the agreement filed by a Participant and
approved by the Board pursuant to Article III.

2.17  PLAN

      "Plan" means this Supplemental Executive Retirement Plan as amended from
time to time.

PAGE 3 - SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

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2.18  QUALIFIED PLAN OFFSET

      "Qualified Plan Offset" means the frozen single life annuity benefit which
would be payable at age sixty-five (65) from the PENWEST, LTD. Retirement Plan
effective March 1, 1984. Such offset shall accrue interest from the date the
benefit is frozen to age sixty-five (65) at the rate of seven percent (7%).

2.19  RETIREMENT

      "Retirement" means a Participant's termination from employment with
Employer at the Participant's Early Retirement Date or Normal Retirement Date,
as applicable.

2.20  SUPPLEMENTAL RETIREMENT BENEFIT

      "Supplemental Retirement Benefit" means the benefit determined under
Article V of this Plan.

2.21  TARGET AMOUNT

      "Target Amount" means fifty-five percent (55%) of Final Average
Compensation, multiplied by a fraction (not to exceed one), the numerator of
which is the Participant's Years of Service at the date of calculation and the
denominator of which is fifteen (15).

2.22  YEARS OF PLAN PARTICIPATION

      "Years of Plan Participation" means the number of years elapsed since
Participant has been designated a Plan Participant under Section 3.1(a).

2.23  YEARS OF SERVICE

      "Years of Service" means the number of twelve (12) month periods in which
the Participant has been continuously employed by Employer, including periods
before participation begins.

                     ARTICLE III--PARTICIPATION AND VESTING

3.1   ELIGIBILITY AND PARTICIPATION

            (a) Eligibility. Eligibility to participate in the Plan is limited
      to those key employees of Employer who are designated from time to time by
      the Committee and approved by the Board.

            (b) Participation. An employee's participation in the Plan shall be
      effective upon notification to the employee by the Committee of
      eligibility to participate, completion of a Participation Agreement and
      acceptance of the Participation Agreement by the Committee. Subject to
      Section 3.2, participation in the Plan shall continue until such time as
      the Participant terminates employment with Employer and as long thereafter
      as the Participant is eligible to receive benefits under this Plan.

PAGE 4 - SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

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3.2   CHANGE IN EMPLOYMENT STATUS

      If the Board determines that a Participant's employment status is no
longer at a level that deserves reward through participation in this Plan, but
does not terminate the Participant's employment with Employer, participation
herein and eligibility to receive benefits hereunder shall be limited to the
Participant's vested interest in such benefits as of the date designated by the
Board ("Participation Termination Date"). Such benefits shall be based solely on
the Participant's Years of Service and Compensation as of the Participation
Termination Date. Notwithstanding any other provision, this Section 3.2 shall
not apply to Participants who terminate employment with Employer within
twenty-four (24) months following a Change in Control.

3.3   VESTING

      A Participant shall become vested in benefits under this Plan as follows:

            (a) Requirement. A Participant shall be vested in the accrued Normal
      Retirement Benefit upon the earlier of:

                  (i) Twenty (20) Years of Service; or

                  (ii) Pursuant to the following schedule:

<TABLE>
<CAPTION>
      1
YEARS OF PLAN                       2
PARTICIPATION                  PERCENTAGE
-------------                  ----------
<S>                            <C>
     0-4                            0%
      5                            50
      6                            60
      7                            70
      8                            80
      9                            90
     10                           100
    ====                          ===
</TABLE>

                  For purposes of determining vesting under Section 3,3(a)(ii),
            "Years of Plan Participation" shall mean the number of twelve (12)
            month periods a Participant has completed as a Participant in this
            Supplemental Executive Retirement Plan measured from the date said
            Participant was designated as a Participant.

            (b) Additional Service. A Participant may, at the option of the
      Employer, be credited in the Participation Agreement with additional Years
      of Service or Years of Plan Participation. Such additional Years of
      Service or Plan Participation may be used for vesting under this Section
      3.3(a) or used as the numerator to calculate benefits under Article V and
      may be in different amounts for each purpose.

            (c) Forfeiture. A Participant who is terminated for Cause shall
      forfeit any right to receive benefits under the Plan.

PAGE 5 - SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

<PAGE>

            (d) Change in Control. Notwithstanding any other provision in the
      Plan, a Participant shall be one hundred percent (100%) vested in the
      Normal Retirement Benefit immediately upon a Change in Control.

                         ARTICLE IV--SURVIVOR BENEFITS

4.1   PRETERMINATION SURVIVOR BENEFIT

      If a Participant dies while employed by Employer, Employer shall pay a
survivor benefit to the Participant's Beneficiary as follows:

            (a) Amount. The amount of the survivor benefit shall be the
      Actuarial Equivalent lump sum present value of the Participant's
      Supplemental Retirement Benefit determined under the section of Article V
      which gives the Beneficiary the most valuable accrued benefit the
      Participant would have been entitled to as of the date of death. Such
      benefit shall be based on the Participant's Final Annual Compensation.

            (b) Time and Form of Payment. The survivor benefit shall be paid to
      the Beneficiary as soon as practicable after the death of the Participant
      in the form of a lump sum payment.

4.2   POSTTERMINATION SURVIVOR BENEFIT

      If a Participant dies following termination of employment with Employer
and prior to the commencement of benefits hereunder, Employer shall pay a
survivor benefit to the Participant's Beneficiary as follows:

            (a) Amount. The amount of the survivor benefit shall be equal to the
      Actuarial Equivalent lump sum present value of the Participant's
      Supplemental Retirement Benefit determined under Section 5.5, calculated
      as of the date of death.

            (b) Time and Form of Payment. The benefit shall be paid to the
      Beneficiary as soon as practicable after the death of the Participant in
      the form of a lump sum payment.

4.3   POSTRETIREMENT SURVIVOR BENEFIT

      Payment of the Supplemental Retirement Benefit shall be made to the
designated Beneficiary based on the form of payment elected by the Participant.
In the event a single life annuity has been elected, no survivor benefit shall
be payable.

                   ARTICLE V--SUPPLEMENTAL RETIREMENT BENEFIT

5.1   NORMAL RETIREMENT BENEFIT

      If a Participant retires at a Normal Retirement Date, Employer shall pay
to the Participant a monthly Supplemental Retirement Benefit equal to the Target
Amount, less the Qualified Plan Offset.

PAGE 6 - SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

<PAGE>

5.2   EARLY RETIREMENT BENEFIT

      If a Participant retires at an Early Retirement Date, Employer shall pay
to the Participant a monthly Supplemental Retirement Benefit calculated under
Section 5.1, except the Target Amount shall be reduced by five-twelfths of one
percent (5/12%) for each full month by which the commencement of payment under
this section precedes the date of the Participant's sixty-second (62nd)
birthday.

5.3   CHANGE IN CONTROL BENEFIT

            (a) If the Participant's termination of employment occurs within
      twenty-four (24) months following a Change in Control, Employer shall pay
      to the Participant the monthly Supplemental Retirement Benefit as
      determined under Section 5.1 using the greater of Final Annual
      Compensation or Final Average Compensation. For purposes of this
      provision, the Participant shall be granted three (3) additional Years of
      Service.

            (b) This Section 5.3 shall not apply to a Participant who has had a
      change in employment status described in Section 3.2.

5.4   DISABILITY RETIREMENT BENEFIT

      If a Participant terminates employment prior to Retirement as a result of
Disability, Employer shall pay to the Participant upon Retirement the monthly
Supplemental Retirement Benefit calculated under Section 5.1 or 5.2, whichever
is applicable, except that Years of Plan Participation and Years of Service
shall continue to accrue during the period of Disability up to the date of
actual Retirement, to a maximum of ten (10) years.

5.5   TERMINATION BENEFIT

      Except as provided in Sections 5.3 and 5.4 above, if a Participant
terminates employment with Employer for any reason prior to Retirement or death,
Employer shall pay to the Participant a Supplemental Retirement Benefit
calculated under Section 5.1.

5.6   FORM OF BENEFIT PAYMENT

      The Supplemental Retirement Benefit shall be paid in the form elected by
the Participant at the time the Participation Agreement is filed with the
Committee. The following options shall be available:

            (a) If the Participant is unmarried at the time benefit payments
      commence, the benefit may be paid as:

                  (i) a single life annuity; or

                  (ii) a single sum.

            (b) If the Participant is married at the time benefit payments
      commence, the benefit may be paid as:

                  (i) a one hundred percent (100%) joint and survivor annuity;
                  or

PAGE 7 - SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

<PAGE>

                  (ii) a fifty percent (50%) joint and survivor annuity; or

                  (iii) a ten (10) year certain and life; or

                  (iv) a fifteen (15) year certain and life; or

                  (v) a single life annuity; or

                  (vi) a single sum.

      Benefits paid in a form other than a single life annuity will be
calculated on an Actuarial Equivalent basis. In the event an election is not on
file at the time benefit payments commence, benefits shall be paid as a single
life annuity if the Participant is unmarried or a fifty percent (50%) joint and
survivor annuity if the Participant is married.

5.7   COMMENCEMENT OF BENEFIT PAYMENTS

      Benefits payable to a Participant under Sections 5.1 and 5.2 as a result
of Normal or Early Retirement shall commence as soon as practicable after the
appropriate application for benefits has been made but not later than sixty (60)
days following the end of the month in which the Participant reaches Retirement.
Benefits payable to a Participant under Section 5.3 as a result of a Change in
Control shall commence within sixty (60) days following the end of the month in
which the Participant attains age fifty-five (55) or the Participant's actual
age, if later. Benefits payable to a Participant under Section 5.5 as a result
of termination shall commence within sixty (60) days following the end of the
month in which the Participant attains age sixty-five (65). All payments shall
be made as of the first day of the month.

5.8   ACCELERATED DISTRIBUTION

            (a) Notwithstanding any other provision of the Plan, within
      twenty-four (24) months following a Change in Control or at any time
      following termination of employment a Participant shall be entitled to
      receive, upon written request to the Committee, a lump sum distribution
      equal to ninety percent (90%) of the actuarial equivalent vested accrued
      benefit as of the end of the month immediately preceding the date on which
      the Committee receives the written request. The remaining balance of ten
      percent (10%) shall be forfeited by the Participant.

            (b) The amount payable under this Section shall be paid in a lump
      sum within sixty-five (65) days following the receipt of the notice by
      the Committee from the Participant.

            (c) In the event a Participant requests and obtains an accelerated
      distribution under this Section 5.8 and remains employed by the Company,
      participation will cease and there will be no future benefit accruals
      under this Plan. Following the death of the Participant, the designated
      beneficiary may, at any time, request an accelerated distribution under
      this Section.

5.9   WITHHOLDING; PAYROLL TAXES

      Employer shall withhold from payments hereunder any taxes required to be
withheld from such payments under federal, state or local law. A Beneficiary,
however, may elect not to have with-

PAGE 8 - SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

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holding of federal income tax pursuant to Section 3405(a)(2) of the Internal
Revenue Code, or any successor provision thereto.

5.10  GOLDEN PARACHUTE PAYMENTS

      If any benefit payable under this Plan would constitute an excess
parachute payment under Section 280G of the Internal Revenue Code of 1986, or
any successor provision, the amount payable shall be increased to the extent
necessary to result in the Participant's receiving the same net amount after all
applicable taxes have been paid as the net after-tax amount the Participant
would have received if the benefit had not been subject to additional taxes due
to being treated as an excess parachute payment.

5.11  PAYMENT TO GUARDIAN

      If a Plan benefit is payable to a minor or a person declared incompetent
or to a person incapable of handling the disposition of property, the Committee
may direct payment of such Plan benefit to the guardian, legal representative or
person having the care and custody of such minor, incompetent or person. The
Committee may require proof of incompetency, minority, incapacity or
guardianship as it may deem appropriate prior to distribution. Such distribution
shall completely discharge the Committee and the Corporation from all liability
with respect to such benefit.

                      ARTICLE VI--BENEFICIARY DESIGNATION

6.1   BENEFICIARY DESIGNATION

      Each Participant shall have the right, at any time, to designate one or
more persons or an entity as Beneficiary or Beneficiaries (both primary as well
as secondary) to whom benefits under this Plan shall be paid in the event of a
Participant's death prior to complete distribution to the Participant of the
benefits due under the Plan. Each Beneficiary designation shall be in a written
form prescribed by the Committee and will be effective only when filed with the
Committee during the Participant's lifetime. Designation by a married
Participant of a Beneficiary other than the Participant's spouse shall not be
effective without spousal execution of a written consent acknowledging the
effect of the designation, unless such consent cannot be obtained because the
spouse cannot be located.

6.2   CHANGES TO DESIGNATION

      Any Beneficiary designation may be changed by the Participant without the
consent of the previously named Beneficiary by the filing of a new designation
with the Committee subject to the spousal consent required in Section 7.1 above.
The filing of a new Beneficiary designation shall cancel all designations
previously filed.

6.3   CHANGE IN MARITAL STATUS

      If the Participant's marital status changes after the Participant has
designated a Beneficiary, the following shall apply:

            (a) If the Participant is married at death but was unmarried when
      the designation was made, the designation shall be void unless the spouse
      has consented to it in the manner prescribed above.

PAGE 9 - SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

<PAGE>

            (b) If the Participant is unmarried at death but was married when
      the designation was made:

                  (i) The designation shall be void if the spouse was named as
                  Beneficiary.

                  (ii) The designation shall remain valid if a nonspouse
                  Beneficiary was named.

            (c) If the Participant was married when the designation was made and
      is married to a different spouse at death, the designation shall be void
      unless the new spouse has consented to it in the manner prescribed above.

6.4   NO BENEFICIARY DESIGNATION

      If any Participant fails to designate a Beneficiary in the manner provided
above, if the designation is void, or if the Beneficiary designated by a
deceased Participant dies before the Participant or before complete distribution
of the Participant's benefits, the Participant's Beneficiary shall be the person
in the first of the following classes in which there is a survivor:

            (a) The Participant's surviving spouse;

            (b) The Participant's children in equal shares, except that if any
      of the children predeceases the Participant but leave issue surviving,
      then such issue shall take by right of representation the share the
      parent would have taken if living;

            (c) The Participant's estate.

6.5   EFFECT OF PAYMENT

      Payment to the Beneficiary shall completely discharge the Employer's
obligations under this Plan.

                          ARTICLE VII--ADMINISTRATION

7.1   COMMITTEE; DUTIES

      The Plan shall be administered by a Committee consisting of three persons.
The Committee shall have the authority to make, amend, interpret, and enforce
all appropriate rules and regulations for the administration of the Plan and
decide or resolve any and all questions, including interpretations of the Plan,
as may arise in such administration. Members of the Committee may be
Participants under the Plan.

7.2   AGENTS

      The Committee may, from time to time, employ agents and delegate to them
such administrative duties as it sees fit, and may from time to time consult
with counsel who may be counsel to the Corporation.

PAGE 10 - SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

<PAGE>

7.3   BINDING EFFECT OF DECISIONS

      The decision or action of the Committee with respect to any question
arising out of or in connection with the administration, interpretation and
application of the Plan and the rules and regulations promulgated hereunder
shall be final, conclusive and binding upon all persons having any interest in
the Plan.

7.4   INDEMNITY OF COMMITTEE

      To the extent permitted by applicable law, the Corporation shall
indemnify, hold harmless, and defend the members of the Committee against any
and all claims, loss, damage, expense or liability arising from any action or
failure to act with respect to the Plan on account of such member's service on
the Committee, except in the case of gross negligence or willful misconduct.

                         ARTICLE VIII--CLAIMS PROCEDURE

8.1   CLAIM

      Any person claiming a benefit, requesting an interpretation or ruling
under the Plan, or requesting information under the Plan shall present the
request in writing to the Committee, which shall respond in writing as soon as
practicable.

8.2   DENIAL OF CLAIM

      If the claim or request is denied, the written notice of denial shall
      state:

            (a) The reason for denial, with specific reference to the Plan
      provisions on which the denial is based,

            (b) A description of any additional material or information required
      and an explanation of why it is necessary, and

            (c) An explanation of the Plan's claims review procedure.

8.3   REVIEW OF CLAIM

      Any person whose claim or request is denied or who has not received a
response within thirty (30) days may request a review by notice given in writing
to the Committee. The claim or request shall be reviewed by the Committee which
may, but shall not be required to, grant the claimant a hearing. On review, the
claimant may have representation, examine pertinent documents, and submit issues
and comments in writing.

8.4   FINAL DECISION

      The decision on review shall normally be made within sixty (60) days. If
an extension of time is required for a hearing or other special circumstances,
the claimant shall be notified and the time shall be one hundred twenty (120)
days. The decision shall be in writing and shall state the reason and the
relevant Plan provisions. All decisions on review shall be final and bind all
parties concerned.

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                ARTICLE IX--TERMINATION, SUSPENSION OR AMENDMENT

9.1   TERMINATION, SUSPENSION OR AMENDMENT OF PLAN

      The Board may, in its sole discretion, terminate or suspend the Plan at
any time, in whole or in part. The Board may amend the Plan at any time. Any
amendment may provide different benefits or amounts of benefits from those
herein set forth. However, no such termination, suspension or amendment shall
adversely affect the benefits of Participants which have accrued prior to such
action, the benefits of any Participant who has previously retired, or the
benefits of any Beneficiary of a Participant who has previously died, except as
otherwise determined by the Board under Section 11.1 with respect to any
Participant.

                            ARTICLE X--MISCELLANEOUS

10.1  UNFUNDED PLAN

      This Plan is an unfunded plan maintained primarily to provide deferred
compensation benefits for a select group of "management or highly-compensated
employees" within the meaning of Sections 201, 301, and 401 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and therefore is
exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA. The Board
may terminate the Plan and make no further benefit payments or remove certain
employees as Participants if it is determined by the United States Department of
Labor, a court of competent jurisdiction, or an opinion of counsel that the Plan
constitutes an employee pension benefit plan within the meaning of Section 3(2)
of ERISA (as currently in effect or hereafter amended) which is not so exempt.

10.2  UNSECURED GENERAL CREDITOR

      Participants and their Beneficiaries, heirs, successors, and assigns shall
have no secured legal or equitable rights, interest or claims in any property or
assets of Employer, nor shall they be Beneficiaries of, or have any rights,
claims or interests in any life insurance policies, annuity contracts or the
proceeds therefrom owned or which may be acquired by Employer. Except as
provided in Section 11.3, such policies, annuity contracts or other assets of
Employer shall not be held under any trust for the benefit of Participants,
their Beneficiaries, heirs, successors or assigns, or held in any way as
collateral security for the fulfilling of the obligations of Employer under this
Plan. Any and all of Employer's assets and policies shall be, and remain, the
general, unpledged, unrestricted assets of Employer. Employer's obligation under
the Plan shall be that of an unfunded and unsecured promise to pay money in the
future.

10.3  TRUST FUND

      Employer shall be responsible for the payment of all benefits provided
under the Plan. At its discretion, Employer may establish one or more trusts,
with such trustees as the Board may approve, for the purpose of providing for
the payment of such benefits. Although such trust or trusts may be irrevocable,
the assets thereof shall be subject to the claims of all Employer's general
creditors in the event of insolvency. To the extent any benefits provided under
the Plan are paid from any such trust, Employer shall have no further obligation
with respect thereto, but to the extent not so paid, such benefits shall remain
the obligation of, and shall be paid by, the Employer.

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10.4  NONASSIGNABILITY

      Neither a Participant nor any other person shall have any right to
commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise
encumber, transfer, hypothecate or convey in advance of actual receipt the
amounts, if any, payable hereunder, or any part thereof, which are, and all
rights to which are, expressly declared to be unassignable and nontransferable.
No part of the amounts payable shall, prior to actual payment, be subject to
seizure or sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by a Participant or any other person, nor be
transferable by operation of law in the event of a Participant's or any other
person's bankruptcy or insolvency.

10.5  NOT A CONTRACT OF EMPLOYMENT

      This Plan shall not constitute a contract of employment between Employer
and the Participant. Nothing in this Plan shall give a Participant the right to
be retained in the service of Employer or to interfere with the right of
Employer to discipline or discharge a Participant at any time.

10.6  PROTECTIVE PROVISIONS

      A Participant shall cooperate with Employer by furnishing any and all
information requested by Employer in order to facilitate the payment of benefits
hereunder, and by taking such physical examinations as Employer may deem
necessary and by taking such other action as may be requested by Employer.

10.7  GOVERNING LAW

      The provisions of this Plan shall be construed and interpreted according
to the laws of the State of New York, except as preempted by federal law.

10.8  VALIDITY

      If any provision of this Plan shall be held illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining parts
hereof, but this Plan shall be construed and enforced as if such illegal and
invalid provision had never been inserted herein.

10.9  NOTICE

      Any notice or filing required or permitted to be given to the Committee
under the Plan shall be sufficient if in writing and hand delivered or sent by
registered or certified mail to any member of the Committee of the Secretary of
the Corporation. Such notice shall be deemed given as of the date of delivery
or, if delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification. Mailed notice to the Committee shall
be directed to the Corporation's address. Mailed notice to a Participant or
Beneficiary shall be directed to the individual's last known address in
Employer's records.

10.10 SUCCESSORS

      The provisions of this Plan shall bind and inure to the benefit of
Employer and its successors and assigns. The term successors as used herein
shall include any corporate or other business entity which shall, whether by
merger, consolidation, purchase or otherwise acquire all or substantially all

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                                                 PENWEST PHARMACEUTICALS CO.

                                             By: /s/ Tod. R. Hamachek
                                                 ------------------------
                                                 Chairman and CEO

                                             Dated: 06-20-02

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