<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from ______ to ______
COMMISSION FILE NO. 33-95318
PORTOLA PACKAGING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-1582719
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
890 FAULSTICH COURT
SAN JOSE, CALIFORNIA 95112
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(408) 453-8840
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. YES X NO .
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference to Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Registrant's voting stock is privately held and the aggregate market value of
the voting stock held by non-affiliates is not calculable.
11,813,062 shares of Registrant's $.001 par value Common Stock, consisting of
2,134,992 shares of nonvoting Class A Common Stock and 9,678,070 shares in
the aggregate of voting Class B Common Stock, Series 1 and 2 combined, were
outstanding at November 4, 1996.
Documents incorporated by reference: None
<PAGE>
PORTOLA PACKAGING, INC.
1996 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I PAGE
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 10
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . 11
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . 13
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . 19
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . 44
PART III
Item 10. Directors and Executive Officers of Registrant . . . . . . . . . 45
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 48
Item 12. Security Ownership of Certain Beneficial Owners and Management. . 52
Item 13. Certain Relationships and Related Transactions . . . . . . . . . 54
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Trademark acknowledgments
Cap Snap-Registered Trademark-, Snap Cap-Registered Trademark-, Cap Snap
Seal-Registered Trademark-, Portola Packaging-Registered Trademark-,
Nepco-Registered Trademark-, Non-Spill-Registered Trademark- and the Portola
logo are registered trademarks of the Company. All other product names of
the Company are trademarks of the Company.
2
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PART I
ITEM 1. BUSINESS
OVERVIEW
Portola Packaging, Inc. (together with its subsidiaries referred to
hereinafter as the "Company" or "Portola") is a leading designer,
manufacturer and marketer of tamper evident plastic closures and related
equipment used for packaging applications in dairy, fruit juice, bottled
water, sports drinks, institutional food products and other non-carbonated
beverage products. The Company's principal closure product lines include (i)
small closures, (ii) five gallon closures, (iii) widemouth closures, (iv)
fitments and (v) push-pull dispensing closures. Portola also designs,
manufactures and supplies high speed capping equipment and complete turnkey
water bottling systems, which are marketed by the Company primarily under the
tradename "PortaPlant". Portola's closure products are primarily manufactured
domestically through a technologically advanced, high speed injection molding
process at ten modern manufacturing facilities strategically located
throughout the United States. Management believes that the Company is a
leader in a majority of the markets it serves and that the Company is the
sole or largest supplier of plastic closures for a majority of its customers.
The Company sells over 9.6 billion closures annually under the names Cap
Snap, Nepco, Portola and other brand names to over 3,000 customers. Most of
the Company's customers have been doing business with the Company for more
than ten years. The Company's products are used to cap such well known
consumer products as Borden milk, Dole juices, Poland Spring bottled water,
Pepsi-Cola fountain syrups and Kraft barbecue sauce. Many features of the
Company's closure products are proprietary, and Portola holds more than 70
patents on the design of container closures and compatible bottle necks.
During the past decade, the plastic closure market has grown faster than
the overall closure market in the United States. This growth is primarily due
to certain advantages that plastic closures have over metal closures,
including greater performance and design flexibility, the growing demand for
tamper evident packaging and the comparatively lower cost and lighter weight
of plastic closures, an important factor in the packaging industry, where
transportation costs are a significant portion of overall product costs.
Demand for plastic closures has also grown with the increased use of plastic
containers and the conversion of paperboard containers to plastic containers.
HISTORY
Portola Packaging, Inc. (originally Cap Snap Seal, Inc.) was
incorporated in California in 1964, and was acquired from the founding family
in 1986 by a group led by Jack L. Watts, the Company's current Chairman of
the Board and Chief Executive Officer. Portola was reincorporated in
Delaware in April 1994. The Company's executive offices are located at 890
Faulstich Court, San Jose, California 95112, and its telephone number is (408)
453-8840.
On June 30, 1994 Portola acquired Northern Engineering & Plastics Corp.
and Northern Engineering & Plastics Corp.-West (collectively "Nepco", or the
"Nepco Acquisition"), a designer, manufacturer and marketer of tamper evident
plastic closures in markets similar to those served by Portola.
On June 16, 1995, the Company completed the acquisition of Alberta
Plastic Industries Ltd., B.C. Plastic Industries Ltd. the remaining 50%
interest of the Company's joint venture, Canada Cap Snap Corporation, and
certain production equipment of Allwest Industries Incorporated (the "Western
Canadian Acquisition"). The three acquired companies were amalgamated in
connection with the closing of the acquisition. The combined operation now
operates under the name "Portola Packaging Canada Ltd." and is engaged in
manufacturing and distributing plastic bottles and small closures in western
Canada.
On September 1, 1995, the Company acquired the remaining 50% interest it
had not previously owned in its United Kingdom joint venture, Cap Snap
(U.K.) Ltd., now known as Portola Packaging Ltd. (the "U.K. Acquisiton")
On September 1, 1996, the Company completed the acquisition of Rapid
Plast J-P. Inc., and amalgamated it with the company formed to acquire its
capital stock. The combined company now operates under the name "Portola
Packaging Ltd." and is engaged in manufacturing and distributing
plastic bottles, primarily in eastern Canada.
3
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BUSINESS STRATEGY
The Company's primary strategy is to increase cash flow by maintaining
and extending its leading position in niche product applications within the
plastic closure and bottling industry. To support this strategy, the Company
focuses on (i) advancing research and development and product engineering,
(ii) providing dedicated customer support and total product solutions for
customers, (iii) continuing to enhance low cost manufacturing capabilities,
(iv) expanding sales in international markets where significant growth
opportunities exist and (v) where appropriate, seeking strategic acquisitions
that will strengthen the Company's competitive position.
EMPHASIZING RESEARCH AND DEVELOPMENT AND PRODUCT ENGINEERING. The Company is
continuing its commitment to research and development, a commitment that has
led to significant product innovations. These innovations include the
original snap cap design and the five gallon closure, the "tear strip"
feature that has become a standard tamper evident mechanism for food and
non-carbonated beverage products and, more recently, an improved recloseable
plastic dispensing fitment for gable-top fruit juice and milk cartons and the
snap-screw cap. The Company also intends to continue its traditional emphasis
on building strong customer loyalty by devoting substantial resources to
product engineering in response to specific customer needs. Portola's staff
of design engineers continually develops and enhances the Company's existing
product lines, offering new features attractive to consumers and improved
designs that enable customers to save costs in the capping process or in
shipping. The Company believes that, by leveraging its design and engineering
expertise and the production techniques it has developed in its traditional
product areas, it will have the opportunity to expand its product lines into
new product applications.
EMPHASIZING CUSTOMER SUPPORT AND TOTAL PRODUCT SOLUTIONS. Portola seeks to
preserve its long-term relationships with customers and attract new customers
by providing superior on-time delivery and technical service and support and
by marketing its products as "total product solutions." The total product
solution approach includes providing plastic closures designed to meet
customer specifications, compatible container necks and neck inserts, capping
and filling equipment and on-going service and support.
CONTINUING TO ENHANCE LOW COST MANUFACTURING CAPABILITIES. The Company's
operations emphasize minimizing production and raw materials purchasing
costs. Portola's domestic manufacturing facilities are strategically located
throughout the country near major customer concentration areas to minimize
transportation costs and are equipped with high speed injection molding
machinery capable of producing approximately 380 plastic closures per minute
with minimal down time. The Company has a continuing productivity improvement
program designed to further automate its production flow, streamline its
workforce and upgrade its molds, equipment and systems. See "Raw materials
and Production " below.
EXPANDING SALES IN INTERNATIONAL MARKETS. The Company expects significant
growth in international markets for plastic closures and capping and filling
equipment, as bottled water and other non-carbonated water companies in
Europe, the Far East, Latin America and elsewhere adopt more advanced
packaging materials and techniques. The Company is seeking to capitalize on
the opportunity for expansion into international markets through the
formation of joint ventures with local bottle manufacturers and distributors,
and by increasing export sales of closures and capping and filling equipment.
SEEKING STRATEGIC ACQUISITIONS. Portola plans to continue its program of
seeking to acquire businesses serving similar customers using proprietary
product and process technology that offer opportunities to improve costs or
extend the Company's product lines. In 1994, the Company acquired Nepco and
in 1995 the Company consummated the Western Canadian Acquisition and the U.K.
Acquisition. In September 1996, the Company acquired a company in eastern
Canada, primarily engaged in bottle manufacturing. See "Notes to
Consolidated Financial Statements".
4
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PRODUCTS
Portola designs, manufactures and markets a wide array of tamper evident
plastic closures for applications in dairy, fruit juice, bottled water,
sports drinks, institutional food products and other non-carbonated beverage
products, as well as plastic bottles. The Company also designs, manufactures
and markets (i) capping equipment for use in high speed bottling, filling and
packaging production lines and (ii) complete turnkey bottling systems which
it markets primarily under the name "PortaPlant".
PLASTIC CLOSURES
The Company's sales of plastic closures represented approximately 89%,
89% and 90% of its total sales for the fiscal years ended August 31, 1994,
1995 and 1996, respectively.
The following table describes the Company's principal plastic closure
product lines:
<TABLE>
<CAPTION>
PRODUCT LINE DESCRIPTION MARKET APPLICATION
- ------------ ----------- ------------------
<S> <C> <C>
Small closures Plastic closures for plastic blowmolded Milk, fruit juices,bottled
bottles water and vinegar
Five gallon closures Plastic closures for glass and plastic Water cooler bottles
returnable water cooler bottles
Widemouth closures Plastic closures for widemouth plastic Institutional foods
containers including condiments,
mayonnaise and salad
dressing
Fitments Recloseable plastic dispensing fitments for Orange juice, lemonade and
polyethylene-coated gable-top paperboard other juice products
cartons
Push-pull dispensing Dual tamper evident closures with push- Bottled water, flavored
closures pull feature water, sports drinks
</TABLE>
Portola competes in the closure portion of the worldwide container
packaging industry, focusing specifically on proprietary tamper evident
plastic closure applications. Container closure devices have various
applications with designs engineered to meet specific use requirements. Major
product applications for container closures include food, beverages,
toiletries and cosmetics, and drugs and pharmaceuticals.
Closure design is a function of the type of container and its contents.
Products which are perishable, highly acidic or susceptible to
tampering all require specialized capping applications. In many instances, it
may be necessary for the container to be resealable, or it may be preferable
for the contents to be dispensed through the closure without the closure
being removed. Subject to these and other packaging requirements, container
closures can be made from either plastic or metal.
Demand for plastic closures has expanded with the increase in demand for
plastic containers. Over the past several years, rigid and flexible plastic
containers have experienced significant growth in market share at the expense
of other materials such as glass and metal. Plastic containers have several
advantages over glass and metal in that they are relatively inexpensive as
well as flexible and light weight - important factors in the
transportation-sensitive packaging industry.
5
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The use of plastic closures has also grown with the trend toward tamper
evident packaging. A tamper evident feature is highly valued by the food and
beverage market and the pharmaceutical market, and tamper evident features
are experiencing growth in most segments of the closure market. While certain
tamper evident devices can be incorporated into metal closures, the most
sophisticated devices have been developed for plastic closures. Portola
innovated the original snap-on cap design as well as the "tear strip" feature
with breakaway bands for plastic closures, which provided the standard tamper
evidency mechanism for the food and non-carbonated beverage industries.
Historically, demand for the Company's products has been a function of
population growth, increasing concerns by the public about the sanitation of
packaged food and beverage products and the continued increase in the use of
plastic containers, as opposed to glass or metal, throughout the packaged
food industry. For juice and bottled water markets, demand is also a function
of seasonal climate variations, warm weather being responsible for increased
consumption. In fiscal 1996, 46% of sales were generated in the first half of
the year (September through February) while 54% of sales were generated in
the second half of the year (March through August). The effect of
seasonality on income from operations is generally more pronounced then on
sales.
CAPPING EQUIPMENT
The Company also designs, manufactures and markets capping equipment for
use in high speed bottling, filling and packaging production lines. A
substantial majority of the Company's plastic closure customers use the
Company's capping equipment.
PORTAPLANTS
In addition to plastic closures and capping equipment, the Company also
designs, manufactures and markets turnkey five gallon water capping and
filling systems. The Company's most comprehensive five gallon water bottling
system is its PortaPlant system. The PortaPlant is a compact bottle washing,
filling, capping and conveying system for glass and plastic water bottles
that can, depending on size, process 150 to 2,000 bottles per hour.
PRODUCT DEVELOPMENT
The Company continues to be committed to product development and
engineering. Its research and development group and engineering staff provide
a range of design and development services, focusing primarily on (i) new
products and product enhancements, (ii) tooling and molds necessary for
manufacturing plastic closures and (iii) capping equipment compatible with
the Company's closures and its customers' containers. Research and
development expenditures for fiscal 1994, 1995 and 1996 were $764,000
$1,682,000 and $2,156,000, respectively.
Traditionally, the Company has built strong customer loyalty by devoting
substantial resources to product engineering, enabling the Company to make
continuing enhancements to the Company's existing product lines that improve
product performance and processing in response to the customers' specific and
changing needs. Portola's design engineers continually develop and enhance
the Company's existing products, offering new features attractive to
customers and improved designs that enable customers to save time and cost in
the capping process or in shipping.
The Company has also made a substantial investment in developing new
product applications for existing markets as well as applications for new
markets. To facilitate the process of enhancing and developing new products
and to ensure ultimate market acceptance of such products, the Company
encourages an on-going exchange of ideas with customers, container
manufacturers, machinery manufacturers and sales and service personnel. This
approach has enabled the Company to identify new product opportunities, such
as the five gallon non-spill closure and the fitment, to design the necessary
tooling for producing such products and to assist with customer presentations
and installations.
6
<PAGE>
RAW MATERIALS AND PRODUCTION
The principal raw material for the Company's plastic closures is
injection molding grade low density polyethylene ("LDPE") LDPE resin, which
comprises a significant portion of the Company's cost of sales. The Company
believes that due to its volume purchases it is able to negotiate attractive
pricing with resin suppliers. The Company has not experienced any significant
difficulties over the past ten years in obtaining sufficient quantities of
LDPE resin, although prices for LDPE resin can fluctuate substantially over
relatively short periods of time, resulting from shortages in supply, changes
in prices in petrochemical products, and other factors. In the past, the
Company has been able to pass substantially all resin price increases on to
its customers on a timely basis. Significant increases in resin prices
coupled with an inability to promptly pass such increases on to customers
would have a material adverse impact on the Company.
In order to produce plastic closures, the resin, which is delivered as
small pebble-size pellets to large storage silos, is conveyed through a
pipeline system to an injection molding machine, where it is melted into a
thick liquid state. Coloring agents are added as appropriate and the mixture
is injected at high pressure into a specially designed, multi-cavity mold.
The principal equipment in the Company's plants includes injection molding
machines, finishing lines to print and label caps and line them with foam or
foil to meet customer requirements, and automated systems for handling and
processing raw materials and finished goods. By automating its manufacturing
operations, the Company is able to limit its direct labor costs while meeting
the strict sanitary requirements necessary for producing food and beverage
packaging products.
In the past, the Company has designed and manufactured many of its own
molds. In recent years, the increasing size and complexity of certain molds
for new products have caused the Company to out-source these mold
construction needs. The Company maintains design control over these molds as
well as the molds it still builds.
BACKLOG
Production and delivery cycles for closures is very short and the Company's
backlog for closures is generally cancelable on short notice. Contracts for
equipment purchases generally include cancellation penalties. There is no
assurance that some portion of the backlog may not be canceled or that the
level of backlog at any particular time is an appropriate indicator of the
future operating performance of the Company. As of November 14, 1996, the
backlog for closures was approximately $7.1 million and backlog for equipment
was approximately $3.5 million.
SALES, MARKETING AND CUSTOMER SERVICE
The Company markets its products through its internal sales department
and through an international network of independent sales representatives.
Calls on customers by these salespersons and representatives, along with
participation at trade shows, are the primary means of customer contact. A
number of the Company's customers are large corporate clients with numerous
production facilities, each of which may make its own separate purchase
decisions. The Company's most significant customers are processors and
packagers of fluid milk, non-carbonated bottled water, chilled juice, other
flavored drinks and condiments for wholesale and institutional use. The
Company's customer base includes over 3,000 accounts. The Company's top ten
customers and buying groups accounted for approximately 35% of the Company's
sales during the fiscal year ended August 31, 1996, and none accounted for
more than 4% of sales during that period. Most of the Company's customers
have been doing business with the Company for more than ten years.
Attention to customer service is a critical component of the Company's
marketing effort. The Company's customers operate high-speed, high-volume
production lines, with many handling perishable products. In order to assure
that the production lines operate efficiently and avoid costly line
stoppages, customers rely on the Company's ability to provide reliable,
on-time delivery of its closure products and to maintain the uniform quality
of those products. The Company also provides technical assistance to its
customers in the form of an in-house service team that can be dispatched on
short notice to solve a bottling line problem throughout the country. Several
of the Company's field service representatives have extensive blowmolding
technical expertise that is especially important in resolving bottle leakage
problems for customers.
7
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EXPORT SALES AND JOINT VENTURES
Although the Company's sales are primarily domestic, the Company expects
significant growth in international sales, particularly in the market for
water cooler bottle closures and water bottle capping and filling equipment.
The United States bottled water industry, in general, uses more sophisticated
packaging materials and processes than bottled water companies use in the
rest of the world. The Company believes that bottled water companies and
other non-carbonated beverage companies in Europe, the Far East, Latin
America and elsewhere are beginning to adopt more advanced packaging
materials and techniques, and that, as they do, they will become potential
customers for the Company's plastic closure products and equipment. For the
fiscal years ended August 31, 1994, 1995 and 1996, export sales to
unaffiliated customers were $8,071,000, $18,658,000 and $17,568,000,
respectively.
In the last several years, the Company has utilized joint ventures with
bottle manufacturers and distributors to gain footholds in international
markets. By offering plastic closures, capping equipment and turnkey bottling
systems, the Company can provide joint venture partners with a complete
solution to their bottling and capping requirements. Until recently, the
Company had three international joint ventures: (i) a 50% interest in Canada
Cap Snap Corporation, a Canadian corporation formed in 1990 and engaged in
manufacturing and distributing 38mm bottle closures in Canada, (ii) a 50%
interest in Cap Snap (U.K.) Ltd., a corporation formed in the United Kingdom
in 1992 with a local bottle manufacturer to manufacture and sell 38mm caps,
and (iii) a 50% interest in Cap Snap Mexico, a joint venture formed in Mexico
in 1993 with a local producer of plastic bottles and closures. In June 1995,
the Company consummated the Western Canadian Acquisition by acquiring the
remaining 50% interest in Canada Cap Snap Corporation, together with a 100%
interest in two affiliated plastic bottle manufacturing companies. In
September 1995, the Company consummated the U.K. Acquisition by acquiring the
remaining 50% interest in Cap Snap (U.K.) Ltd.
COMPETITION
The Company is a leading designer, manufacturer and marketer of tamper
evident plastic closures and related equipment used for packaging
applications in dairy, fruit juice, bottled water, other non-carbonated
beverage products and institutional foods products. The Company believes that
the most important factors in marketing container closures to the food and
beverage industry are price, design, quality, reliability and customer
service. Among the attributes that distinguish the Company from other sellers
of closure systems and provide a competitive advantage are the Company's
proprietary products; the Company's ability to provide its customers with
innovative, low-cost closures and complete capping systems; the Company's
reputation for quality, reliability and service; and the Company's automated
and strategically located production facilities and in-house tool
manufacturing capability.
While no single competitor offers products that compete with all of the
Company's product lines, the Company faces direct competition in each of its
product lines from a number of companies, many of which have financial and
other resources that are substantially greater than those of the Company. As
the Company broadens its product offerings, it can expect to meet increased
competition from additional competitors with entrenched positions in those
product lines. The Company also faces direct competition from bottling
companies and other food and beverage providers that elect to produce their
own closures rather than purchase them from outside sources. In addition, the
packaging industry has numerous well-capitalized competitors, and there is a
risk that these companies will expand their product offerings, either through
internal product development or acquisitions of any of the Company's direct
competitors, to compete in the niche markets that are currently served by the
Company. These competitors, as well as existing competitors, could introduce
products or establish prices for their products in a manner that could
adversely affect the Company's ability to compete. Because of the Company's
product concentration, an increase in competition or any technological
innovations with respect to the Company's specific product applications, such
as the introduction of lower-priced competitive products or products
containing technological improvements over the Company's products, could have
a significant adverse effect on the Company's financial condition and results
of operations.
8
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EMPLOYEES
As of October 31, 1996, the Company had 926 full-time employees, 37 of
whom were engaged in product development, 72 in marketing, sales and customer
support, 762 in manufacturing and 55 in finance and administration. The
Company uses seasonal and part time employees for training, vacation
replacements and other short term requirements. None of the Company's
employees in the United States are represented by any collective bargaining
agreements (approximately 18 of the employees of one of the Company's
Canadian subsidiaries are members of the Teamsters Union), and the Company
has never experienced a work stoppage. The Company believes that its employee
relations are good.
ITEM 2. PROPERTIES
The Company owns or leases ten modern production facilities, located in
the United States, which operate five to seven days a week, 24 hours a day.
In addition, the Company's western Canadian subsidiary leases two production
facilities and the Company's eastern Canadian subsidiary leases two production
facilities. The facilities are highly efficient due to automation and
frequently scheduled maintenance in the plants. The Company believes that
these facilities are well-maintained and in good operating condition and
anticipates that, although substantial capital expenditures will be required
to meet the production requirements for new and developing product lines, the
facilities themselves will be sufficient to meet the Company's needs for the
next several years. In addition, the Company is currently in negotiations to
lease a manufacturing facility in the U.K. during fiscal 1997. There can be
no assurance, however, that unanticipated developments will not occur that
would require the Company to add production facilities sooner than expected.
The following table indicates the locations, functions, square footage and
nature of ownership of the Company's current facilities.
<TABLE>
<CAPTION>
NATURE OF
LOCATION FUNCTIONS SQUARE FEET OWNERSHIP(1)
- -------- --------- ----------- ------------
<S> <C> <C> <C>
San Jose, CA Executive Office/Closure Mfg./Warehouse
Engineering/Research and
Development Facility and
Equipment Division 154,000 owned
Kingsport, TN Closure Mfg./Warehouse 76,000 owned
Clifton Park, NY Closure Mfg./Warehouse 54,000 leased
Batavia, IL Closure Mfg./Warehouse 70,000 leased
New Castle, PA Executive Office/Closure Mfg./Warehouse 46,000 owned
Sumter, SC Closure Mfg./Warehouse 45,000 owned
Chino, CA Closure Mfg./Warehouse 64,000 owned
Gresham, OR Closure Mfg./Warehouse 36,000 owned
Fort Worth, TX Closure Mfg./Warehouse 27,000 owned
Bettendorf, IA Closure Mfg./Warehouse 40,000 owned
Richmond, British Columbia, Canada Bottle & Closure Mfg./Warehouse 49,000 leased
Edmonton, Alberta, Canada Bottle Mfg./Warehouse 43,000 leased
Montreal, Quebec, Canada Bottle Mfg./Warehouse 83,000 leased
Montreal, Quebec, Canada Bottle Mfg./Warehouse 44,000 leased
</TABLE>
(1) The facilities shown as leased in the table above are subject to
long-term leases or lease options that extend for at least five years, except
as follows: the lease of the Clifton Park facility expires in 1998, the
leases for the Richmond and Edmonton facilities expire in 2000, and the lease
for the 82,861 square foot facility in Montreal expires in June 1997.
9
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ITEM 3. LEGAL PROCEEDINGS
Until recently, the Company had been engaged in patent infringement
litigation with Scholle Corporation ("Scholle"), which commenced an action
against the Company in the United States District Court, Northern District of
California in July 1992 alleging that the Company infringed upon certain
patents of Scholle relating to five-gallon non-spill closures. In February
1995, a jury rendered a verdict adverse to the Company and in favor of
Scholle, which verdict was entered by the court on January 2, 1996, making
the Company liable for damages of $0.01 per five-gallon closure unit sold.
In June 1996, the Company entered into a settlement agreement with Scholle,
the terms of which provide for the grant by Scholle of a non-exclusive
license to use certain of its patents and the payment by the Company of a
royalty in the amount of $0.01 per five-gallon non-spill closure unit. The
Company remained liable for damages of $0.01 per closure unit sold prior to
the date of execution and delivery of the settlement agreement, plus interest
at a rate of 10% on all past due amounts. The Company made a payment of $1.7
million to Scholle on July 1, 1996 in settlement of all amounts due,
including interest, through May 31, 1996. Such amount had been previously
accrued in the Company's financial statements.
The Company is engaged in patent litigation with two other parties who
are seeking to have the court declare certain patents owned by the Company
invalid. The Company believes its patents are valid, and intends to
vigorously contest these actions.
The plastic closure industry is characterized by frequent litigation
regarding patent and other intellectual property rights. The Company and its
subsidiaries are party to various claims of this nature. Although the
ultimate outcome of these matters is not presently determinable, management
does not believe the final disposition of these matters will have a
material adverse effect on the financial position, results of
operations, or cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
10
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's equity securities are privately held and no class of voting
securities is registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended. There is no established trading market for any class of
the Company's common equity.
The Company has two classes of common equity, Class A Common Stock and
Class B Common Stock, Series 1 and 2. Shares of Class A Common Stock are not
entitled to vote. The Company's Class B Common Stock, Series 1 and Class B
Common Stock, Series 2 have the same voting rights, each share being entitled to
one vote.
As of November 4, 1996, there were two holders of record of the 2,134,992
outstanding shares of Class A Common Stock. Additionally, there were two
holders of record of immediately exercisable warrants to purchase 2,492,741
shares of Class A Common Stock. As of November 4, 1996, there were
approximately 132 holders of record of the 8,506,640 outstanding shares of Class
B Common Stock, Series 1 and 5 holders of record of the 1,171,430
outstanding shares of Class B Common, Series 2.
The Company has not paid dividends on its Common Stock and presently
intends to continue this policy in order to retain earnings for the development
of the Company's business. Furthermore, certain of the Company's credit
agreements, including the senior notes issued on October 2, 1995 and the senior
revolving credit facility entered into on October 2, 1995, restrict the
Company's ability to pay dividends. In addition, the Canadian loan agreements
prohibit the western Canadian subsidiary from paying dividends to the parent
company.
The following table sets forth information regarding all securities of
the Company (or its predecessors) sold by the Company (or its predecessors)
during the fiscal quarter ended August 31, 1996.
<TABLE>
<CAPTION>
NUMBER AGGREGATE FORM OF
CLASS OF PURCHASERS (1) DATE OF SALE TITLE OF SECURITIES OF SHARES PURCHASE PRICE CONSIDERATION
------------------- ------------ ------------------- --------- -------------- -------------
<S> <C> <C> <C> <C>
Jeffrey Pfeffer, Ph.D. June 18, 1996 Class B Common 15,000 $67,500 Cash
Stock, Series 1
Stock options granted under stock August 27, 1996 Stock Options to 333,000 N/A N/A
option plan to 19 optionees (2)(3) Purchase Class B
Common Stock,
Series 1
</TABLE>
(1) The sales of securities to the individuals identified in the table above
were made in reliance on Section 4(2) of the Securities Act of 1933, as
amended, and/or Regulation D promulgated thereunder. The securities were
sold to a limited number of people with no general solicitation or
advertising. The purchasers were sophisticated investors with access to
all relevant information necessary to evaluate their investments and
represented to the issuer that the securities were being acquired for
investment.
(2) The options were granted to employees and members of the Board of
Directors of the Company under the Company's 1994 Stock Option Plan.
The options generally expire ten years from the date of grant and
become exercisable for 20% of the shares on the first anniversay of
the date of grant, with the balance generally vesting 5% for each
calendar quarter of each individual's employment or membership on the
Board of Directors thereafter. Vesting of options granted to one
employee and to the members of the Board of Directors accelerate
upon a change of control of the Company. The exercise price on the
date of grant was equal to or greater than 100% of the fair market value
as determined by the Board of Directors on the date of grant.
(3) No optionees exercised stock options granted under the stock option
plans of the Company during the fiscal quarter ended August 31, 1996.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL CONDENSED CONSOLIDATED FINANCIAL DATA
The selected historical condensed consolidated statement of operations
and balance sheet data set forth in the table below for, and at the end of,
each of the fiscal years in the five year period ended August 31, 1996 have
been derived from, and are qualified by reference to, the consolidated
financial statements of the Company. The information below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the consolidated financial statements of the
Company and the accompanying notes thereto and other financial information
appearing elsewhere in this report on Form 10-K.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
------------------------------------------------------
1992 1993 1994(a) 1995 1996
---- ---- ------- ---- ----
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales ............................................. $52,152 $58,286 $70,284 $124,650 $159,462
Cost of sales ..................................... 37,676 42,679 51,670 91,972 117,592
------- ------- ------- -------- --------
Gross profit ................................... 14,476 15,607 18,614 32,678 41,870
Selling, general and administrative ............... 6,046 7,207 8,821 16,649 22,035
Research and development .......................... 915 820 764 1,682 2,156
Amortization of intangibles (b) ................... 1,421 1,400 2,025 3,724 5,207
Write-off of intangibles .......................... _ _ _ _ 7,292
------- ------- ------- -------- --------
Income from operations ......................... 6,094 6,180 7,004 10,623 5,180
Other (income) expense, net (c) ................... 632 (62) 477 259 158
Interest expense, net ............................. 3,147 3,044 3,899 8,483 11,842
Amortization of debt financing costs .............. 365 479 433 447 492
------- ------- ------- -------- --------
Income (loss) before extraordinary item,
cumulative effect of change in accounting
principle and income taxes ................... 1,950 2,719 2,195 1,434 (7,312)
Income taxes (d) .................................. 1,287 1,521 1,095 1,294 865
------- ------- ------- -------- --------
Income (loss) before extraordinary item and
cumulative effect of change in accounting
principle .................................... 663 1,198 1,100 140 (8,177)
Extraordinary item, net (e) ....................... _ 889 790 _ 1,265
Cumulative effect of change in accounting
principle (d) ................................... _ _ 85 _ _
------- ------- ------- -------- --------
Net income (loss) ................................. $663 $309 $225 $140 $(9,442)
------- ------- ------- -------- --------
Net income (loss) per common share ................ $0.05 $0.02 $(0.02) $(0.04) $(0.88)
------- ------- ------- -------- --------
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital ................................... $2,920 $7,109 $11,049 $13,747 $21,370
Total assets ...................................... 44,031 50,896 110,820 129,315 152,227
Total debt ........................................ 30,611 38,140 77,467 91,912 117,913
Redeemable warrants (f) ........................... 2,483 2,600 3,055 3,665 4,560
Total shareholders' equity (deficit) .............. 2,719 2,597 5,393 6,694 (3,801)
CASH FLOW DATA:
Net cash provided by operating activities ......... 7,699 6,768 9,351 8,422 18,795
Net cash used in investing activities ............. (8,947) (9,119) (38,418) (24,648) (31,271)
Net cash provided by financing activities ......... 229 3,538 30,099 14,785 19,511
OPERATING AND OTHER DATA:
Closure unit volume (in millions) ................. 3,763 3,980 4,893 8,476 9,606
Closure unit volume growth (g) .................... 11.5% 5.8% 22.9% 73.2% 13.3%
EBITDA (h) ........................................ $11,085 $12,883 $14,728 $23,588 $ 27,783
Depreciation and amortization (i) ................. 5,920 6,845 8,357 12,789 15,961
Capital expenditures .............................. 8,089 9,564 6,159 11,302 27,194
Ratio of earnings to fixed charges (j) ............ 1.4x 1.3x 1.2x 1.2x _
(FOOTNOTES ON FOLLOWING PAGE)
</TABLE>
12
<PAGE>
(a) Includes ten months of operations before the Nepco acquisition on June 30,
1994 and two months of operations after the acquisition.
(b) Includes amortization of patents, goodwill and covenants not to compete.
(c) Other expenses include financing costs and other expenses, net.
(d) The Company adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" in the fiscal year ended August 31, 1994.
(e) Extraordinary item refers to extinguishment of certain debt, net of income
tax benefit.
(f) The redeemable warrants entitle the holders thereof to purchase an
aggregate of 2,492,741 shares of the Company's common stock. If the Company does
not complete an initial public offering of its common stock by June 30, 1999
(for certain warrants) or August 1, 2001 (for other warrants), the holders may
require the Company to repurchase the warrants at the higher of current market
value or an amount computed under the warrant agreement.
(g) These results reflect closure unit volume growth of the Company including
Nepco after June 30, 1994. On a pro forma combined basis, the closure unit
volume growth for Portola and Nepco was 11.6% for the fiscal year ended
August 31, 1994.
(h) EBITDA represents, for any relevant period, income (loss) before income
taxes, extraordinary item, cumulative effect of change in accounting principle,
write-off of intangible assets in connection with the adoption of Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of", depreciation
of property, plant and equipment, interest expense, net, amortization of
intangible assets and non-recurring legal expenses associated with the Company's
litigation with Scholle Corporation through October 2, 1995. See "Item 3 -
Legal Proceedings." The non-recurring legal expenses associated with the
Scholle Corporation litigation for the fiscal years ended August 31, 1993,
1994 and 1995 were $275,000, $277,000 and $882,000, respectively. EBITDA
is not intended to represent and should not be considered more meaningful than,
or an alternative to, net income, cash flow or other measure of performance in
accordance with generally accepted accounting principles. EBITDA data is
included because the Company understands that such information is used by
certain investors as one measure of an issuer's historical ability to service
debt and because certain restrictive covenants in the Indenture will be based on
a term very similar to the Company's EBITDA.
(i) Includes amortization of debt financing costs.
(j) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" represents income before provision for income taxes and fixed
charges. "Fixed charges" consist of interest expense, amortization of debt
financing costs and the portion of lease expense which management believes is
representative of the interest component of lease expense. The ratio of
earnings to fixed charges for the year ended August 31, 1996 resulted in a
deficiency of $9,422,000, primarily as a result of the write-off of intangible
assets of $7.3 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Portola Packaging, Inc. is a major designer, manufacturer and marketer of
tamper evident plastic closures and related equipment used for packaging
applications in dairy, bottled water, fruit juice and other non-carbonated
beverage products. The Company was acquired in 1986 through a leveraged
acquisition led by Jack L. Watts, the Company's current Chairman of the Board
and Chief Executive Officer. Since the acquisition, management has focused
its efforts on four principal areas: (i) continuing growth by converting new
customers to its plastic closures, (ii) developing new products and improving
existing products, (iii) achieving productivity improvements in its
manufacturing and material handling operations and (iv) seeking strategic
acquisitions including the acquisition of Northern Engineering & Plastics
Corp. ("Nepco") and certain companies in Canada and the United Kingdom.
On June 30, 1994, the Company acquired Nepco for a purchase price of $43.7
million. This acquisition has been accounted for as a purchase, and the results
of Nepco's operations have been consolidated with those of the Company
commencing July 1, 1994. On June 16, 1995, the Company consummated the Western
Canadian Acquisition in which the Company purchased for $13.6 million the 50%
interest it had not previously owned in
13
<PAGE>
Canada Cap Snap Corporation, a British Columbia corporation engaged in
manufacturing and distributing small closures in western Canada, together
with all the capital stock of two affiliated plastic bottle manufacturers.
These three companies were amalgamated in connection with the closing of the
acquisition and the combined entity now operates under the name "Portola
Packaging Canada Ltd." This acquisition has been accounted for as a purchase,
and the results of the western Canadian operations have been consolidated
with those of the Company commencing June 16, 1995. On September 1, 1995, the
Company acquired, for approximately $1.5 million, the remaining 50% interest
it had not previously owned in Cap Snap (U.K.) Ltd., now known as "Portola
Packaging Ltd." The U.K. acquisition has been accounted for as a purchase, and
the results of the U.K. operations have been consolidated with those of the
Company commencing September 1, 1995.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED AUGUST 31, 1996 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1995
Sales increased $34.8 million, or 27.9%, from $124.7 million for fiscal
1995 to $159.5 million for fiscal 1996. Of the increase, $8.1 million was
attributable to sales from western Canadian operations acquired by the
Company on June 16, 1995 and $5.7 million was attributable to sales from the
U.K. operations acquired by the Company on September 1, 1995. Equipment sales
increased $3.2 million, primarily due to an increase in sales of fitment
applicator equipment, somewhat offset by a decrease in sales of water and
dairy applicator equipment. The majority of the increase in sales, $18.5
million, was due to increases in closures sales volumes, consisting
principally of $10.3 million in increased sales of small closures, $5.7
million in increases in sales of fitments and $2.5 million in increases in
sales of 5-gallon and widemouth closures.
Gross profit increased $9.2 million, or 28.1%, to $41.9 million for
fiscal 1996, as compared to $32.7 million for fiscal 1995. Gross profit as a
percentage of sales remained constant at 26.2% for fiscal 1996 and 1995. The
absolute increase in gross profit was primarily due to increased sales in
closure products and, to a lesser extent, the June 1995 acquisition of the
western Canadian operations, offset by a loss from the U.K. operations
acquired in September 1995.
Selling, general and administrative expense increased $5.4 million, or
32.4%, to $22.0 million for fiscal 1996, as compared to $16.6 million for
fiscal 1995, and increased as a percentage of sales from 13.4% for fiscal
1995 to 13.8% for fiscal 1996. Of the absolute increase, approximately $1.6
million represented increased commissions and approximately $785,000 was due
to increased advertising, public relations and marketing consulting expenses.
The higher level of sales in fiscal 1996 as compared to fiscal 1995 resulted
in an increase in commission expense. The remaining increases were primarily
due to the increased size of the corporation and resulting infrastructure
increases.
Research and development expenses increased $474,000, or 28.2%, to $2.2
million for fiscal 1996, as compared to $1.7 million for fiscal 1995, and
increased as a percentage of sales from 1.3% in fiscal 1995 to 1.4% in fiscal
1996. The absolute increase in research and development expenses was due
primarily to increased expenditures for new product prototypes and patent
expenses.
Amortization of intangibles (consisting of amortization of patents and
technology licenses, goodwill and covenants not to compete) increased $1.5
million, or 39.8%, to $5.2 million for fiscal 1996, as compared to $3.7
million for fiscal 1995. Of the increase, approximately $600,000 was due to
an increase in amortization of patents and acquired technology, primarily
resulting from the U.K. acquisition and approximately $315,000 resulted from
the increase in amortization of goodwill, primarily resulting from the
Western Canadian and U.K. Acquisitions and approximately $550,000 of the
increase related to amortization of the covenant not to compete relating to
the Western Canadian Acquisition.
The write-off of intangibles of $7.3 million in fiscal 1996 related to
the adoption of Financial Accounting Standards Board Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" (SFAS 121) during fiscal 1996, which requires the Company
to review for impairment long-lived assets, certain identifiable intangibles,
and goodwill related to those assets whenever events or changes in
14
<PAGE>
circumstances indicate that the carrying amount of an asset may not be
recoverable. This statement requires impairment losses to be recognized for
assets that do not have realizable carrying values, and requires valuation of
impairments at the lowest level of identifiable cash flows. Previously, the
Company evaluated long-lived assets on a divisional or group basis using
undiscounted cash flows. Due to changes in market conditions in certain
markets and manufacturing facilities, the Company evaluated portions of its
goodwill recorded in connection with its acquisitions of Nepco and Portola
Packaging Canada Ltd. The Company recorded impairment losses of $421,000 and
$2,332,000 related to goodwill recorded in the acquisition of Nepco and
Portola Packaging Canada Ltd., respectively. The Company also undertook a
detailed study of its patents and began to evaluate cash flows on an
individual product family basis for impairment. Previously, patents were
evaluated on a group basis for impairment. This change in methodology was
implemented to be consistent with SFAS 121's requirement to evaluate cash
flows from intangibles at the lowest identifiable level and resulted in a
write-down of $4,539,000.
Income from operations decreased $5.4 million, or 51.2%, to $5.2 million
for fiscal 1996, as compared to $10.6 million for fiscal 1995, and decreased as
a percentage of sales from 8.5% for fiscal 1995 to 3.2% for fiscal 1996. These
changes were due to the factors summarized above and primarily reflect the
write-off of intangible assets of $7.3 million.
Net interest expense increased $3.3 million to $11.8 million for fiscal
1996, as compared to $8.5 million for fiscal 1995, primarily as a result of
increased borrowings to fund acquisitions, capital expenditures and higher
working capital requirements associated with increased sales levels.
Amortization of debt financing costs increased $45,000 to $492,000 for
fiscal 1996, as compared to $447,000 for fiscal 1995.
Other expense decreased $101,000 to $158,000 in fiscal 1996 as compared to
$259,000 in fiscal 1995.
Income taxes decreased $429,000 to $865,000 for fiscal 1996, as compared
to $1.3 million for fiscal 1995.
Income (loss) before extraordinary item and cumulative effect of change
in accounting principle decreased to a loss of $8.2 million in fiscal 1996
compared to income of $140,000 in fiscal 1995. Net income (loss) decreased
to a loss of $9.4 million in fiscal 1996 as compared to income of $140,000 in
fiscal 1995. In October 1995, the Company refinanced its debt to provide
additional capacity for growth, resulting in an extraordinary charge of $1.3
million, net of taxes, relating to loan fees and other costs relating to the
early extinguishment of debt.
FISCAL YEAR ENDED AUGUST 31, 1995 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1994
Sales increased $54.4 million, or 77.3%, from $70.3 million for fiscal 1994
to $124.7 million for fiscal 1995. Of the increase, $41.1 million was
attributable to sales from "Nepco" operations acquired by the Company on June
30, 1994. Of the remainder, $5.5 million was attributable to an increase in
equipment sales, primarily due to international sales of PortaPlants and
equipment to attach fitments to gabletop paperboard containers, $3.9 million
resulted from closure price increases primarily driven by higher resin costs and
$2.5 million was due to increased unit sales of 5-gallon and widemouth closures.
Gross profit increased $14.1 million or 75.6%, to $32.7 million for fiscal
1995, as compared to $18.6 million for fiscal 1994. Gross profit as a
percentage of sales decreased slightly from 26.5% for fiscal 1994 to 26.2% for
fiscal 1995. The absolute increase in gross profit was primarily due to the
Nepco acquisition and, to a lesser extent, to increased sales in other product
lines. The margin decline was due to increased sales of low-margin fitment
attachment equipment and to increases in resin costs that, although offset by
price increases in approximately the same amounts, had the effect of decreasing
gross profit margins.
15
<PAGE>
Selling, general and administrative expense increased $7.8 million or
88.7%, to $16.6 million for fiscal 1995, as compared to $8.8 million for
fiscal 1994, and increased as a percentage of sales from 12.6% for fiscal
1994 to 13.4% for fiscal 1995. Of the absolute increase, approximately $3.7
million was due to a full year of selling, general and administrative
expenses at Nepco in fiscal 1995, approximately $2.7 million represented
increased general and administrative expenses due primarily to the increased
size of the corporation and resulting infrastructure increases, $835,000
represented increased commissions due to higher sales revenues and $576,000
was due to increased legal expenses primarily associated with the Scholle
patent infringement lawsuit.
Research and development expense increased $918,000, or 120.2%, to $1.7
million for fiscal 1995, as compared to $764,000 for fiscal 1994, and
increased as a percentage of sales from 1.1% in fiscal 1994 to 1.3% in fiscal
1995. Of the absolute increase in research and development expense, $525,000
was due primarily to increased staffing and the balance was the result of
increased expenditures for new product prototypes and patent expenses.
Amortization of intangibles (consisting of amortization of patents,
goodwill and covenants not to compete) increased $1.7 million, or 83.9%, to
$3.7 million for fiscal 1995, as compared to $2.0 million for fiscal 1994.
Of the increase, $938,000 was due to goodwill amortization resulting from the
Nepco acquisition and $729,000 resulted from the amortization of the
covenants not to compete which relate to the acquisition of Nepco.
Income from operations increased $3.6 million, or 51.7%, to $10.6
million for fiscal 1995, as compared to $7.0 million for fiscal 1994, but
decreased as a percentage of sales from 10.0% for fiscal 1994 to 8.5% for
fiscal 1995. These changes were due to the factors summarized above.
Other expense, net declined $218,000 to $259,000 for fiscal 1995, as
compared to $477,000 for fiscal 1994.
Interest expense, net increased $4.6 million to $8.5 million for fiscal
1995, as compared to $3.9 million for fiscal 1994, primarily as a result of
increased borrowings to fund the Nepco acquisition and higher working capital
requirements associated with increased sales levels. Income taxes increased
$199,000 to $1.3 million for fiscal 1995, as compared to $1.1 million for
fiscal 1994.
Amortization of debt financing costs increased $14,000 to $447,000 for
fiscal 1995, as compared to $433,000 for fiscal 1994.
Income before extraordinary item and cumulative effect of change in
accounting principle decreased $960,000 to $140,000 for fiscal 1995, as
compared to $1.1 million for fiscal 1994. Net income decreased $85,000 to
$140,000 for fiscal 1995, as compared to $225,000 for fiscal 1994. An
extraordinary charge of $790,000 net of taxes was recorded for fiscal 1994,
as loan fees and other costs were expensed in connection with an early
extinguishment of debt resulting from the Nepco acquisition. During fiscal
1994, the Company adopted SFAS 109, which resulted in a cumulative charge
against earnings of $85,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has relied primarily upon cash from operations,
borrowings from financial institutions and sales of common stock to finance
its operations, repay long-term indebtedness, and fund capital expenditures
and acquisitions. On October 2, 1995, the Company completed a $110 million
senior notes offering ("Notes Offering") that mature on October 1, 2005 and
bear interest at the rate of 10.75% per annum. The net proceeeds of the
Notes Offering were approximately $106 million, of which $83 million was used
to retire the Company's debt then outstanding under its senior term loans,
revolving facility and senior subordinated notes. Subsequent to the closing
of the Notes Offering, $7.2 million was used to purchase the Company's San
Jose facilities, $11 million was used to purchase machinery and equipment, $3
million was used to make a loan to the Company's 50% joint venture in Mexico,
and $2 million was used for working capital needs. At August 31, 1996,
primarily as a result of
16
<PAGE>
the Notes Offering and cash generated from operations, the Company had cash
and cash equivalents of $7.8 million, an increase of $7.0 million from
August 31, 1995.
Cash provided by operations totaled $18.8 million in fiscal 1996, a
$10.4 million increase from $8.4 million in fiscal 1995. Working capital
increased $7.6 million in fiscal 1996 to $21.4 million, as compared to $13.7
million in fiscal 1995, primarily as a result of an increase in accounts
receivable and inventories, somewhat offset by an increase in accounts
payable and accrued liabilities. These increases reflect the increased sales
and operating levels achieved in fiscal 1996. In addition, working capital
increased due to increases in cash and cash equivalents, partially offset by
a decrease in the current portion of long-term debt and an increase in
accrued interest expense, primarily due to the refinancing completed in
October 1995.
Capital expenditures have been higher than historic levels following the
Nepco and Western Canadian Acquisitions as the Company operated ten plants in
the United States and two in Canada during fiscal 1996, compared to four
before these acquisitions. Capital expenditures were $27.2 million in fiscal
1996, including $7.2 million related to the purchase of the Company's San
Jose facilities, compared with $11.3 million in fiscal 1995. The Company
anticipates that capital expenditures will continue to be high in fiscal 1997
as a result of capital additions for newer products, principally fitments and
push-pull closures, and to support expanded operations through recently
completed acquisitions. In addition, the Company is subject to certain
future obligations regarding noncompete and bonus arrangements as a result of
certain acquisitions. At August 31, 1996 the present value of the covenants
under the Nepco and Western Canada Acquisitions were $2.4 million and $1.3
million, respectively.
Subsequent to year-end, in September 1996 the Company completed the
acquisition of Rapid Plast J-P. Inc., a Canadian federal company
headquartered in Montreal, Quebec, for a total purchase price of
approximately $2.3 million. Rapid Plast was amalgamated with the wholly-owned
subsidiary formed by the Company to make the acquisition and was renamed
Portola Packaging Ltd. ("Portola Canada Ltd."). Portola Canada Ltd. is
engaged in manufacturing and distributing plastic bottles, primarily in
eastern Canada. This transaction has been accounted for as a purchase and
therefore the results of operations subsequent to the acquisition date will
be consolidated with those of the Company.
Until recently, the Company had been the defendant in litigation with
Scholle Corporation ("Scholle") related to alleged patent infringement on
five-gallon non-spill caps. On January 2, 1996, the court denied further
motions and entered the jury's verdict making the Company liable for damages
of $0.01 per closure unit sold. In June 1996, the Company reached a
settlement agreement with Scholle, whereby Scholle granted to the Company a
non-exclusive license to use certain of its patents, and the Company agreed
to pay a royalty to Scholle of $0.01 per five gallon non-spill closure unit
sold. The Company remained liable for damages of $0.01 per closure unit sold
prior to the date of the settlement agreement, plus interest at a rate of 10%
on all past due amounts. The Company made a payment of $1.7 million to
Scholle on July 1, 1996 in settlement of all amounts due, including interest,
through May 31, 1996. Such amounts had been accrued in the Company's
financial statements.
At August 31, 1996, the Company had total indebtedness of $117.9
million. In October 1995 the Company completed an offering of $110 million of
senior notes due in 2005 at a fixed interest rate of 10.75%. In connection
with the offering, the Company repaid all outstanding debt under its senior
term loans, revolving facility and senior subordinated notes. Concurrently
with the offering, the Company entered into a new five-year senior secured
revolving credit facility of up to $35.0 million, subject to a borrowing base
of eligible receivables, inventory and net fixed assets. This credit
facility contains covenants and provisions that restrict, among other things,
the Company's ability to: (i) incur additional indebtedness, (ii) incur
liens on its property, (iii) make investments, (iv) enter into guarantees and
other contingent obligations, (v) merge or consolidate with or acquire
another person or engage in other fundamental changes, (vi) engage in certain
sales of assets, (vii) engage in certain transactions with affiliates and
(viii) make restricted junior payments.
At August 31, 1996 the Company had $7.8 million in cash and cash
equivalents as well as borrowing capacity under the revolving credit facility
which was unused as of the date of this report. Management believes
17
<PAGE>
that these resources, together with anticipated cash flow from operations,
will be adequate to fund the Company's operations, debt service requirements
and capital expenditures through fiscal 1997.
Inflation
Most of the Company's closures are priced based in part on the cost of
the plastic resins from which they are produced. Historically, the Company
has been able to pass on increases in resin prices directly to its customers
on a timely basis. In recent years, the Company has benefited from
relatively stable or declining prices for raw materials other than plastic
resins.
Seasonality
The Company's sales and earnings reflect a seasonal pattern as a result
of greater sales volumes during the summer months. For example, in fiscal
1996, 46% of sales occurred in the first half of the year (September through
February) while 54% of sales were generated in the second half (March through
August). The effect of seasonality on income from operations is usually
somewhat more pronounced, although in fiscal 1996 the Company recorded a loss
from operations in the second half of the year due to the write-down of
intangible assets previously discussed.
Income Taxes
Income tax expense does not bear a normal relationship to income before
income taxes primarily due to nondeductible goodwill arising from the Nepco
acquisition and other acquisitions.
Recent Accounting Pronouncements
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation,"
which establishes a fair value based method of accounting for stock-based
compensation plans. The Company has elected the disclosure provisions in
SFAS 123. This statement will be effective for the Company's fiscal year 1997.
Disclosures Regarding Forward-Looking Statements
This report on Form 10-K includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Act of 1934, as amended. All statements other
than statements of historical facts included in this Form 10-K, including,
without limitation, statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
Company's financing alternatives, financial position, business strategy,
plans and objectives of management of the Company for future operations, and
industry conditions, are forward-looking statements. Although the Company
believes that the expectations reflected in any such forward-looking
statements are reasonable, it can give no assurance that such expectations
will prove to have been correct. Any forward-looking statements herein are
subject to certain risks and uncertainties in the Company's business,
including but not limited to, competition in its markets, and reliance on key
customers, all of which may be beyond the control of the Company. Any one or
more of these factors could cause actual results to differ materially from
those expressed in any forward-looking statement. All subsequent written and
oral forward-looking statements attributable to the Company or any person
acting on its behalf are expressly qualified in their entirety by the
cautionary statements disclosed in this paragraph and elsewhere in this
report.
18
<PAGE>
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page in
Form 10-K
---------
Report of Independent Accountants 20
Consolidated Balance Sheets - August 31, 1995 and 1996 21
Consolidated Statements of Operations - Years Ended
August 31, 1994, 1995, and 1996 22
Consolidated Statements of Cash Flows - Years Ended
August 31, 1994, 1995, and 1996 23
Consolidated Statements of Shareholders' Equity -
Years Ended August 31, 1994, 1995, and 1996 24
Notes to Consolidated Financial Statements 25
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts 64
19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Portola Packaging, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Portola
Packaging, Inc. and Subsidiaries as of August 31, 1995 and 1996, and the
related consolidated statements of operations, shareholders' equity (deficit)
and cash flows for each of the three years in the period ended August 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Portola
Packaging, Inc. and Subsidiaries as of August 31, 1995 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended August 31, 1996 in conformity with generally
accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements in fiscal
1996 the Company adopted a newly established standard for the impairment of
long-lived assets. As discussed in Note 1 to the consolidated financial
statements, effective September 1, 1993, the Company adopted Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes."
San Jose, California COOPERS & LYBRAND L.L.P.
October 22, 1996
20
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
_____
<TABLE>
<CAPTION>
August 31,
-----------------------------
ASSETS 1995 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 763 $ 7,797
Investments 1,000 710
Accounts receivable, net of
allowance for doubtful accounts
of $813 and $817, respectively 20,323 23,835
Inventories 9,833 11,650
Other current assets 2,300 2,061
Deferred income taxes 1,237 1,307
-------- --------
Total current assets 35,456 47,360
Notes receivable 518 256
Property, plant and equipment, net 53,132 69,773
Goodwill, net of accumulated
amortization of $1,314 and $2,697, respectively 21,580 17,564
Patents, net of accumulated
amortization of $10,413 and $11,923, respectively 7,607 2,235
Covenants not to compete, net of accumulated
amortization of $1,393 and $2,996, respectively 5,295 3,699
Debt financing costs, net of accumulated
amortization of $526 and $413, respectively 1,937 3,853
Other assets 3,790 7,487
-------- --------
Total assets $129,315 $152,227
-------- --------
-------- --------
LIABILITIES, REDEEMABLE WARRANTS, COMMON
STOCK AND OTHER SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 5,668 $ 1,805
Accounts payable 7,796 10,029
Accrued liabilities 4,847 6,046
Accrued compensation 2,602 3,111
Accrued interest 796 4,999
-------- --------
Total current liabilities 21,709 25,990
Long-term debt, less current portion 86,244 116,108
Other long term obligations 3,911 2,303
Deferred income taxes 7,092 7,067
-------- --------
Total liabilities 118,956 151,468
-------- --------
Commitments and contingencies (Note 9)
Redeemable warrants to purchase Class A common stock 3,665 4,560
-------- --------
Common stock and other shareholders' equity (deficit):
Class A convertible common stock of $.001 par value:
Authorized: 2,503 shares in 1995 and 5,203
shares in 1996;
Issued and outstanding: none shares in 1995 and 2,135
shares in 1996 2
Class B, Series 1, common stock of $.001 par value:
Authorized: 17,715 shares;
Issued and outstanding: 9,225 shares in 1995
and 8,507 shares in 1996 9 9
Class B, Series 2, convertible common stock of $.001
par value:
Authorized: 2,571 shares;
Issued and outstanding: 2,571 shares in 1995
and 1,171 shares in 1996 3 1
Additional paid-in capital 9205 9,280
Notes receivable from shareholders (362) (425)
Cumulative foreign currency translation adjustments (8) (8)
Unrealized holding losses on marketable securities (170)
Accumulated deficit (2,153) (12,490)
-------- --------
Total common stock and other shareholders'
equity (deficit) 6,694 (3,801)
-------- --------
Total liabilities, redeemable warrants, common
stock other shareholders' equity (deficit) $129,315 $152,227
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
_____
<TABLE>
<CAPTION>
Year Ended August 31,
----------------------------------
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Sales $70,284 $124,650 $159,462
Cost of sales 51,670 91,972 117,592
------- -------- --------
Gross profit 18,614 32,678 41,870
------- -------- --------
Selling, general and administrative 8,821 16,649 22,035
Research and development 764 1,682 2,156
Amortization of intangibles 2,025 3,724 5,207
Write-off of intangibles 7,292
------- -------- --------
11,610 22,055 36,690
------- -------- --------
Income from operations 7,004 10,623 5,180
------- -------- --------
Other (income) expense:
Interest income (97) (175) (1,242)
Interest expense 3,996 8,658 13,084
Amortization of financing costs 433 447 492
Financing costs 625
Other (income) expense, net (148) 259 158
------- -------- --------
4,809 9,189 12,492
------- -------- --------
Income (loss) before extraordinary item,
cumulative effect of change in accounting
principle and income taxes 2,195 1,434 (7,312)
Provision for income taxes 1,095 1,294 865
------- -------- --------
Income (loss) before extraordinary item
and cumulative effect of change in
accounting principle 1,100 140 (8,177)
Extraordinary item-loss on extinguishment of debt,
net of income tax benefit of $539 and $845 (Note 7) 790 1,265
Cumulative effect of change in accounting
principle (Note 13) 85
------- -------- --------
Net income (loss) $ 225 $ 140 $ (9,442)
------- -------- --------
------- -------- --------
Number of shares used in computing per share amounts 11,087 11,393 11,800
Earnings (loss) per common share:
Income (loss) before extraordinary item and
cumulative effect of change in accounting
principle $ 0.06 $ (0.04) $ (0.77)
Cumulative effect of change in accounting
principle $ 0.01
Net income (loss) $ (0.02) $ (0.04) $ (0.88)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
_____
<TABLE>
<CAPTION>
Year Ended August 31,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 225 $ 140 $ (9,442)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Depreciation and amortization 8,357 12,789 15,961
Write-off of intangibles7,292
Extraordinary loss on extinguishment of debt 1,329 1,781
Deferred income taxes (320) (707) 19
Loss (gain) on property and equipment
dispositions 147 171
Provision for doubtful accounts 173 892 450
Provision for excess and obsolete inventories 78 26
Changes in working capital:
Accounts receivable (1,683) (4,425) (3,425)
Inventories (908) (862) (1,810)
Other current assets 600 (269) 451
Accounts payable (712) (585) 1,653
Accrued liabilities 1,987 1,137 1,465
Accrued interest 303 87 4,203
-------- -------- --------
Net cash provided by
operating activities 9,351 8,422 18,795
-------- -------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (6,159) (11,302) (27,194)
Proceeds from sale of property, plant
and equipment 47 162 646
Payments for acquisition of Nepco net of
cash acquired of $173 (30,774)
Payments for Canadian acquisition net of
cash acquired of $232 (11,506)
Payment for UK acquisition (1,463)
Proceeds from short term investments 1,000
Payment for short term investments (994)
Issuance of notes receivable (237)
Repayment of notes receivable 31 262
Increase in other assets (1,563) (1,765) (3,528)
-------- -------- --------
Net cash used in investing activities (38,418) (24,648) (31,271)
-------- -------- --------
Cash flows from financing activities:
Borrowings under long-term debt arrangements 54,214 29,284 115,212
Repayments of long-term debt arrangements (24,619) (15,208) (89,922)
Payment of loan fees (2,472) (4,189)
Sales of common stock 3,025 1,855 75
Repayment of notes receivable from
shareholders 1 15
Increase in other receivable from
shareholders (91) (63)
Payments on covenants not to compete (50) (1,070) (1,602)
-------- -------- --------
Net cash provided by financing
activities 30,099 14,785 19,511
-------- -------- --------
Effect of exchange rate changes on cash (15) (1)
-------- -------- --------
Increase (decrease) in cash and cash
equivalents 1,032 (1,456) 7,034
Cash and cash equivalents at beginning of period 1,187 2,219 763
-------- -------- --------
Cash and cash equivalents at end of period $ 2,219 $ 763 $ 7,797
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(in thousands, except per share data)
----------------
<TABLE>
<CAPTION>
Common Stock
------------------------------------------------------------------
Class A Class B
------------------- -------------------------------------------
Series 1 Series 2
------------------- -------------------
Shares Amount Shares Amount Shares Amount
-------- -------- -------- -------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, August 31, 1993 7,869 $ 542 2,571 $ 3,795
Issuances of Class B common stock at $ 3.75 per share 800 3,000
Exercise of Stock options at $2.50 per share 10 25
Reincorporation into a Delaware corporation (3,559) (3,792)
Payment of note receivable from shareholders
Increase in value of stock purchase warrants
Net income
-------- -------- -------- --------
Balance, August 31, 1994 8,679 8 2,571 3
Exercise of stock option at $0.61, $1.00 and $4.00 per share 96 1
Increase in notes and other receivable from shareholders
Issuance of Class B common stock at $4.00 per share, net of
issuance costs of $23 450
Increase in value of stock purchase warrants
Foreign currency translation adjustment
Net income
-------- -------- -------- --------
Balance, August 31, 1995 9,225 9 2,571 3
Conversion of Class B shares to Class A 2,135 $ 2 (735) (1,400) (2)
Issuance of Class B Common Stock at $4.50 per share 15
Exercise of stock options at $4.50 per share 2
Increase in value of stock purchase warrants
Increase in notes and other receivable from shareholders
Net unrealized loss in securities available for sale
Net loss
-------- -------- -------- -------- -------------------
Balance, August 31, 1996 2,135 $ 2 8,507 $ 9 1,171 $ 1
-------- -------- -------- -------- -------------------
-------- -------- -------- -------- -------------------
Total
Notes and Cumulative Unrealized Common
Other Foreign Holding Stock and
Additional Receivable Currency Losses on Other
Paid-in from Translation Marketable Accumulated Shareholders'
Capital Shareholders Adjustments Securities Deficit Equity(Deficit)
------- ------------ ----------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balances, August 31, 1993 $ (287) $(1,453) $ 2,597
Issuances of Class B common stock at
$3.75 per share 3,000
Exercise of Stock options at $2.50 per share 25
Reincorporation into a Delaware corporation $7,351
Payment of note receivable from shareholders 1 1
Increase in value of stock purchase warrants (455) (455)
Net income 225 225
------- ------------ ----------- ---------- ------- ---------------
Balance, August 31, 1994 7,351 (286) (1,683) 5,393
Exercise of stock option at $0.61, $1.00 and
$4.00 per share 78 79
Increase in notes and other receivable from
shareholders (76) (76)
Issuance of Class B common stock at $4.00 per
share, net of issuance costs of $23 1,776 1,776
Increase in value of stock purchase warrants (610) (610)
Foreign currency translation adjustment $ (8) (8)
Net income 140 140
------- ------------ ----------- ---------- ------- ---------------
Balance, August 31, 1995 9,205 (362) (8) (2,153) 6,694
Conversion of Class B shares to Class A
Issuance of Class B Common Stock at $4.50
per share 67 67
Exercise of stock options at $4.50 per share 8 8
Increase in value of stock purchase warrants (895) (895)
Increase in notes and other receivable from
shareholders (63) (63)
Net unrealized loss in securities available
for sale $ (170) (170)
Net loss (9,442) (9,442)
------- ------------ ----------- ---------- ------- ---------------
Balance, August 31, 1996 $9,280 $ (425) $ (8) $ (170) $(12,490) $(3,801)
------- ------------ ----------- ---------- ------- ---------------
------- ------------ ----------- ---------- ------- ---------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS:
Portola Packaging, Inc. and Subsidiaries (the "Company") designs,
manufactures and markets tamper-evident plastic closures and related
equipment used for packaging applications in dairy, fruit juice, bottled
water, institutional food products and other non-carbonated beverage
products. The Company has production facilities throughout the United
States, Canada, and Mexico (through a joint venture).
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the financial statements
of the Company and its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION:
The Company recognizes revenue upon product shipment.
CASH EQUIVALENTS:
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out method)
or market.
INVESTMENTS:
Investments as of August 31, 1995 and 1996 consisted of a certificate of
deposit and equity securities in one company, respectively. Investments
are generally considered to be available-for-sale and therefore are
carried at fair market value. Unrealized holding gains and losses on such
securities, when material, are reported net of related taxes as a separate
component of common stock and other shareholders' equity. Realized gains
and losses on sales of all such investments are reported in earnings and
computed using the specific cost identification method.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost and depreciated on the
straight-line basis over estimated useful lives, which range from three to
thirty-five years. Leasehold improvements are amortized on a straight-
line basis over their useful lives or the lease term, whichever is shorter
(generally five to ten years). When assets are disposed of, the cost and
related accumulated depreciation are removed from the accounts and the
resulting gains or losses are included in the results of operations.
25
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
JOINT VENTURE:
The Company maintains a joint venture and license arrangement in Mexico.
This investment, which is included in other assets, is accounted for by
the equity method.
INTANGIBLE ASSETS:
Patents and covenants not-to-compete are valued at cost and are amortized
on a straight-line basis over the lesser of their remaining useful or
contractual lives (generally five to thirteen years). Goodwill recorded
in connection with acquisitions of Nepco, Portola Packaging Canada Ltd.
and Portola Packaging (UK) (Note 2) is amortized on a straight-line
basis over 15, 25 and 5 years, respectively.
DEBT FINANCING COSTS:
Debt financing costs are amortized using the interest method over the term
of the related loans.
RESEARCH AND DEVELOPMENT EXPENDITURES:
Research and development expenditures are charged to operations as
incurred.
INCOME TAXES:
Effective September 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "ACCOUNTING FOR INCOME TAXES", which
requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the
financial statement and tax bases of such assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse.
CONCENTRATIONS OF CREDIT RISK AND OTHER RISKS AND UNCERTAINTIES:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents, short term investments and trade receivables. The Company's
cash and cash equivalents and investments are concentrated primarily in
several United States banks. At times, such deposits may be in excess of
insured limits. Management believes that the financial institutions
which hold the Company's investments are financially sound and,
accordingly, minimal credit risk exists with respect to these financial
instruments.
The Company's products are principally sold to entities in the food and
beverage industries in the United States and Canada. Ongoing credit
evaluations of customer financial condition are performed and collateral
is generally not required. The Company maintains reserves for potential
credit losses which, on a historical basis, have not been significant.
The majority of the Company's products are molded from various plastic
resins which comprise a significant portion of the Company's cost of
sales. These resins are subject to substantial price fluctuations,
resulting from shortages in supply, changes in prices in petrochemical
products and
26
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
CONCENTRATIONS OF CREDIT RISK AND OTHER RISKS AND UNCERTAINTIES,
CONTINUED:
other factors. Significant increases in resin prices coupled with an
inability to promptly pass such increases on to customers would have a
material adverse impact on the Company.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
FOREIGN CURRENCY TRANSLATION:
The Company's foreign subsidiaries use the local currency as their
functional currency. Assets and liabilities are translated at year-end
exchange rates. Items of income and expense are translated at average
exchange rates for the relevant year. Translation gains and losses are
not included in determining net income (loss) but are accumulated as a
separate component of stockholders' equity (deficit). Net gains and
losses arising from foreign currency transactions were not material in
fiscal 1994, 1995 and 1996.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARES:
Earnings (loss) per common share and common equivalent share are computed
by dividing income by the weighted average number of shares of common
stock and common stock equivalents outstanding during the period. Except
as discussed below, the number of common shares is increased by the number
of shares issuable on the exercise of options and warrants when the market
price of the common stock exceeds the exercise price of the options and
warrants. This increase in the number of common shares is reduced by the
number of common shares which are assumed to have been purchased with the
proceeds from the exercise of the options and warrants; these purchases
are assumed to have been made at the average price of the common stock
during that part of the period when the market price of the common stock
exceeds the exercise price of the options and warrants.
Since the Company's warrants include a put provision, Emerging Issues Task
Force (EITF) Consensus 88-9 requires computation of earnings (loss) per
share using the lower of the amount computed assuming conversion, as
described above, or the amount computed assuming exercise of the put
option feature of the warrants. Earnings (loss) per share computed using
the put option feature is the more dilutive of the calculations in fiscal
1994, 1995 and 1996. The accretion of the warrants of $455, $610 and $895
for fiscal 1994, 1995 and 1996 respectively, is deducted from earnings to
derive earnings (loss) per share.
27
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
CARRYING VALUE OF LONG-LIVED ASSETS:
The Company performs an evaluation of the carrying value of long-lived
assets when undiscounted operating cash flows are not sufficient to
recover the carrying value of such assets over their remaining estimated
useful lives.
RECENT ACCOUNTING PRONOUNCEMENTS:
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS 123), "ACCOUNTING FOR STOCK-BASED COMPENSATION",
which establishes a fair value based method of accounting for stock-based
compensation plans. The Company has elected the disclosure provisions in
SFAS 123. This statement will be effective for the Company's fiscal year
1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents, accounts payable and other accrued
liabilities approximate fair value due to their short maturities. Based on
borrowing rates currently available to the Company for loans with similar
terms, the carrying value of the long term debt approximates fair value.
RECLASSIFICATIONS:
Certain prior year balances have been reclassified to conform with the
current year financial statement presentation.
2. ACQUISITIONS:
On September 1, 1995 the Company completed the acquisition of the 50%
interest it had not previously owed in Cap Snap (UK) Ltd., now known as
Portola Packaging Ltd. ("Portola Packaging (UK)") for a purchase price of
approximately $1.5 million. Portola Packaging (UK) is a British
corporation engaged in manufacturing and distributing small closures in
the United Kingdom. The transaction has been accounted for as a purchase
and results of operations subsequent to the acquisition date have been
consolidated with the Company.
Portola Packaging (UK) is being operated as an "unrestricted subsidiary".
Accordingly, amounts that may be invested by the Company in Portola
Packaging (UK) are subject to limitations pursuant to the terms of the
Indenture pertaining to the senior notes issued in October 1995
(see Note 7).
28
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
2. ACQUISITIONS, continued:
Consideration for the acquisition was allocated as follows:
Total consideration paid $ 1,463
Fair value of assets acquired 1,294
--------
Goodwill $ 169
--------
--------
Effective June 16, 1995, the Company completed the acquisition of Alberta
Plastic Industries Ltd., B.C. Plastic Industries Ltd., the remaining 50%
interest of the Company's joint venture, Canada Cap Snap Corporation, and
certain production equipment of Allwest Industries Incorporated. The
acquired companies and assets operate in Canada as Portola Packaging
Canada Ltd.
The Canadian acquisition has been accounted for as a purchase and the
results of operations of Portola Packaging Canada Ltd. have been
consolidated with those of the Company commencing June 16, 1995. The
total purchase price, including cash consideration and a noncompete
agreement, amounted to $13,572. Cash consideration paid by the Company was
$11,738. In addition, the Company entered into a noncompete agreement
under which an intangible asset totaling $2,560 was recorded at the
present value of the payments (using a discount rate of 8.75%). A
liability was recorded of $1,834, which represents the net present value
of the payments less the initial payment made upon the closing of the
Canadian acquisition.
Consideration for the acquisition was allocated as follows:
Total consideration paid $ 11,738
Fair value of net assets acquired 5,464
---------
Goodwill $ 6,274
---------
---------
Pro forma financial statements as if the Canadian acquisition had taken
place at the beginning of each period presented are as follows:
Pro Forma Pro Forma
1994 1995
--------- ---------
(UNAUDITED)
Sales $74,853 $132,165
Gross profit 20,286 35,638
Operating income 7,610 11,597
Net income (loss) (214) 400
Net income (loss) per share $ (0.06) $ (0.02)
Effective June 30, 1994, the Company acquired all of the outstanding stock
of Northern Engineering & Plastics Corp. and Northern Engineering and
Plastics Corp. - West (collectively "Nepco"). Concurrent with the
acquisition of Nepco, the Company also purchased, from parties related to
the owners of Nepco, certain real property located in Sumter, South
Carolina.
The acquisition of Nepco has been accounted for as a purchase and the
results ofoperations of Nepco have been consolidated with those of the
Company commencingJuly 1, 1994. The total purchase price, including
cash consideration, repayment of
29
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
2. ACQUISITIONS, CONTINUED:
existing indebtedness and noncompete agreements, amounted to $43,650.
Cash consideration paid by the Company for the acquisition was $30,947. In
addition, the Company assumed, and subsequently repaid, Nepco indebtedness
of $9,058, and entered into a noncompete agreement under which an
intangible asset and a liability totaling$3,645 were recorded at the
present value of the payments (using a discount rate of11%).
The Company financed its payments for the acquisition and Nepco
indebtedness which aggregated $40,005, through a series of term senior and
revolving notes as described in Note 7.
The cash consideration paid by the Company comprised the following:
Cash paid to the former shareholders of Nepco $28,500
Cash paid for the purchase of real property 1,872
Cash paid for certain closing costs 575
-------
$30,947
-------
-------
Cash consideration for the acquisition was allocated as follows:
Total consideration paid $30,947
Fair value of net assets acquired 14,482
-------
Goodwill $16,465
-------
-------
In connection with the acquisition, the Company entered into noncompete
and bonus agreements with the former owners of Nepco. The noncompete and
bonus agreements have a five-year term with annual payments of $800 and
$200, respectively.
Pro forma financial statements as if the acquisition of Nepco had taken
place at the beginning of fiscal year 1994 are as follows:
Pro Forma
1994
---------
(unaudited)
Sales $101,415
Gross profit 22,246
Operating income 5,175
Net income (loss) (2,908)
Net income (loss) per share $ (0.30)
3. WRITE-OFF OF INTANGIBLES:
In the fourth quarter of fiscal 1996, the Company elected early adoption
of the provisions of Statement of Financial Accounting Standards Board
(SFAS) No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
FOR LONG-LIVED ASSETS TO BE DISPOSED OF"(SFAS 121) issued by the Financial
Accounting Standards Board in March 1995. SFAS 121 requires the Company to
review for impairment long-lived assets, certain identifiable intangibles,
and goodwill related to those assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
30
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
3. WRITE-OFF OF INTANGIBLES, continued:
This statement requires impairment losses to be recognized for assets
that do not haverealizable carrying values, and requires valuation of
impairments at the lowest level ofidentifiable cash flows. Previously,
the Company evaluated long-lived assets on adivisional or group basis
using undiscounted cash flows.
Due to changes in market conditions in certain markets and manufacturing
facilities, the Company evaluated portions of its goodwill recorded in
connection with its acquisitions of Nepco and Portola Packaging Canada
Ltd.
The Company recorded impairment losses of $421 and $2,332, related to
goodwill recorded in the acquisition of Nepco and Portola Packaging
Canada Ltd., respectively.
As a result of the adoption of SFAS 121, the Company undertook a
detailed study of its patents and began to evaluate cash flows on an
individual product family basis for impairment. Previously, patents
were evaluated on a group basis for impairment. This change in
methodology was implemented to be consistent with SFAS 121's requirement
to evaluate cash flows from intangibles at the lowest identifiable level
and resulted in a writedown of $4,539.
The effect of adopting SFAS 121 on the financial statements was an
increase in expenses of $7,292. Consistent with the provisions of SFAS
121, the additional expense related to adoption is included in results
of operations. This writedown had no effect on cash flows from
operations or cash available for debt service.
SFAS 121 will require on going evaluations of impairments when the
undiscounted cash flows from intangibles are insufficient to recover the
related assets or an impairment is otherwise indicated. Due to the
uncertainties in predicting future cash flows, it is at least reasonably
possible that future impairments could occur, and those impairments
could create a material effect on the financial position and results of
operations of the Company.
4. SUPPLEMENTAL CASH FLOW DISCLOSURES:
The Company paid $835, $1,688 and $1,684 in income taxes during the
years ended August 31, 1994, 1995 and 1996, respectively.
The Company paid $3,694, $8,571 and $8,881 in interest during the years
ended August 31, 1994, 1995 and 1996, respectively.
31
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
4. SUPPLEMENTAL CASH FLOW DISCLOSURES, continued:
During fiscal year 1994, the Company reincorporated into a Delaware
corporation, which resulted in a reclassification of $7,351 Class B
common stock into additional paid-in capital.
During fiscal year 1994 and 1996, the Company acquired $8 and $346,
respectively, of equipment under capital lease.
During fiscal 1994, the Company adopted SFAS No. 109 under which fixed
assets and patents were grossed up $1,322 and $1,906, respectively,
consistent with the gross-up of the deferred tax liability.
During fiscal 1994, 1995 and 1996, the Company wrote off fully
depreciated property, plant and equipment totaling $3,233, $2,561 and
$3,285, respectively.
5. INVENTORIES:
August 31,
-----------------------
1995 1996
---------- ----------
Raw materials $ 4,850 $ 6,023
Work in process 1,455 858
Finished goods 3,528 4,769
---------- ----------
$ 9,833 $ 11,650
---------- ----------
---------- ----------
6. PROPERTY, PLANT AND EQUIPMENT:
August 31,
-----------------------
1995 1996
---------- ----------
Building and land $ 10,655 $ 19,865
Machinery and equipment 66,628 81,126
Leasehold improvements 3,052 3,132
---------- ----------
80,335 104,123
Less accumulated depreciation and amortization (27,203) (34,350)
---------- ----------
$ 53,132 $ 69,773
---------- ----------
---------- ----------
Depreciation charged to operations was $5,903, $8,619 and $10,261 for
the years endedAugust 31, 1994, 1995 and 1996, respectively.
32
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
7. DEBT:
CURRENT PORTION OF LONG-TERM DEBT:
August 31,
-----------------------
1995 1996
---------- ----------
Term Loan Note A $ 4,000
Equipment Note 63
Development Note 17 $ 16
Canadian Term Loan Note 744 1,460
Canadian Revolver Loan Note 844 233
Capital Lease Obligations 96
---------- ----------
$ 5,668 $ 1,805
---------- ----------
---------- ----------
LONG-TERM DEBT:
August 31,
-----------------------
1995 1996
---------- ----------
Senior Notes $ 110,000
Term Loan Note A $ 23,000
Term Loan Note B 30,000
Senior Subordinated Notes 10,000
Revolving Loan Note 15,711
Canadian Term Loan Note 7,442 5,840
Development Note 91 74
Capital Lease Obligations 194
---------- ----------
$ 86,244 $ 116,108
---------- ----------
---------- ----------
SENIOR NOTES:
On October 2, 1995 the Company completed an offering of $110 million of
senior notes that mature on October 1, 2005 and bear interest at 10.75%.
Interest is payable semi-annually on April 1 and October 1 of each
year, commencing on April 1, 1996.
SENIOR REVOLVING CREDIT FACILITY:
Concurrently with the offering, the Company entered into a new five-year
senior revolving credit facility of up to $35.0 million, subject to a
borrowing base of eligible receivables, inventory, property, plant and
equipment, which serve as collateral for the line. The credit facility,
which expires September 30, 2000, contains covenants and provisions
that restrict, among other things, the Company's ability to: (i) incur
additional indebtedness, (ii) incur liens on its property, (iii) make
investments, (iv) enter into guarantees and other contingent
obligations, (v) merge or consolidate with or acquire another person or
engage in other fundamental changes,
33
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
7. DEBT, continued:
SENIOR REVOLVING CREDIT FACILITY, continued:
(vi) engage in certain sales of assets, (viii) engage in certain
transactions with affiliates and (viii) make restricted junior payments.
At August 31, 1996 no amounts were outstanding under this credit facility
and the full amount was available for draw. An availability fee is payable
on the facility based on the total commitment amount and the balance
outstanding at the rate of 0.375% per annum. In addition, interest is
payable is based on either the Bank Prime Loan rate or the LIBOR loan
rate. The interest rate on the facility based on the Bank Prime Loan
rate was 9.5% at August 31, 1996.
DEVELOPMENT NOTE:
The Company has a Development Note with the Bi-State Regional
Commission. The Development Note bears interest at 4% with the final
monthly payment due in May 2001.
CANADIAN TERM LOAN NOTE:
Principal payments for the term note are due quarterly beginning on
November 30, 1995 in the amount of $183, then increasing every fifth
quarter to $365, $456, $502 and $502 with the final payment on August
31, 2000. Interest is payable monthly based on the Canadian prime rate
loan and/or Bankers Acceptances. At August 31, 1995 and 1996, the
interest rate was 10.0% and 7.5% respectively. The note agreement also
calls for mandatory prepayments after August 31, 1996, based upon
financial calculations including excess cash flow.
CANADIAN REVOLVING LOAN NOTE:
The revolving credit facility is maintained to finance working capital
requirements. The facility provides for borrowings based on eligible
accounts receivable and inventories up to the commitment amount of
$2,190. The principal is payable upon demand. Interest is payable
monthly based on the Canadian prime rate overdraft and/or Bankers
Acceptances. At August 31, 1995 and 1996, the interest rate was 9.25%
and 8.75%, respectively.
34
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
7. DEBT, continued:
REPAYMENT OF PRIOR OBLIGATIONS:
In connection with the October 2, 1995 Senior Notes offering, the
Company repaid amounts outstanding under the Term Loan Note A, Term Loan
Note B, Senior Subordinated Notes and Revolving Loan Note. The final
installment of the Equipment Note was paid in June 1996.
CAPITAL LEASE OBLIGATIONS:
The Company acquired certain machinery and office equipment under
noncancelable capital leases. The balance sheet includes the following
items held under capital lease obligations:
August 31,
-----------------------
1995 1996
---------- ----------
Building $ 438
Land 65
Equipment 64 $ 346
567 346
---------- ----------
Less accumulated amortization (63) (62)
$ 504 $ 284
EXTRAORDINARY ITEMS:
In connection with the Company's early extinguishment of debt in June
1994, certain costs, consisting primarily of loan fees of approximately
$1,329 were written-off. These transactions have been reported as an
extraordinary item in the statement of operations, net of an income tax
benefit of approximately $539.
In connection with the Company's early extinguishment of debt in October
1995, certain costs, consisting primarily of loan fees of approximately
$2,110 were written-off. These transactions have been reported as an
extraordinary item in the statement of operations, net of an income tax
benefit of approximately $845.
FINANCING COSTS:
In connection with a debt offering which was commenced but not
completed, the Company expensed costs amounting to $625 in fiscal 1994.
35
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
7. DEBT, continued:
AGGREGATE MATURITIES OF LONG-TERM DEBT:
The aggregate maturities of long-term debt as of August 31, 1996 are as
follows:
Fiscal
Years End Total
--------- --------
1997 $ 1,805
1998 1,939
1999 2,089
2000 2,053
2001 27
Thereafter 110,000
--------
$117,913
--------
--------
8. OTHER LONG-TERM OBLIGATIONS:
The Company has incurred certain liabilities in connection with
agreements entered into with former owners, which include provisions for
guaranteed bonuses and covenants not-to-compete, as follows:
<TABLE>
<CAPTION>
August 31,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
Covenants under the acquisition of Nepco $ 3,068 $ 2,358
Covenants under the purchase of Portola Packaging Canada Ltd. 2,125 1,283
Other covenants 50
---------- ----------
Total obligations 5,243 3,641
Current portion (included in accrued liabilities) 1,332 1,338
---------- ----------
$ 3,911 $ 2,303
---------- ----------
---------- ----------
</TABLE>
9. COMMITMENTS AND CONTINGENCIES:
The Company leases certain office, production and warehouse facilities
under operating lease agreements expiring on various dates through 2007.
Under the terms of the facilities' leases, the Company is responsible
for common area maintenance expenses which include taxes, insurance,
repairs and other operating costs.
At August 31, 1996 future minimum rental commitments under agreements with
terms in excess of twelve months were as follows:
36
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
9. COMMITMENTS AND CONTINGENCIES, continued:
Fiscal Years Ended August 31,
-----------------------------
1997 $ 1,287
1998 1,091
1999 864
2000 767
2001 450
Thereafter 3,151
--------
$ 7,610
--------
--------
Base rent expense for the years ended August 31, 1994, 1995 and 1996
totaled $1,395, $1,381 and $1,793, respectively, of which $696, $720 and
$291, was paid to Three Sisters (Note 15) for the years ended August 31,
1994, 1995 and 1996, respectively.
The Company has been engaged in patent litigation with Scholle
Corporation ("Scholle"), which commenced an action against the Company
in the United States District Court, Northern District of California in
July 1992 alleging that the Company infringed upon certain patents of
Scholle relating to five-gallon non-spill closures. In February 1995, a
jury rendered a verdict adverse to the Company and in favor of Scholle,
which verdict was entered by the court on January 2, 1996, making the
Company liable for damages of $0.01 per closure unit sold. In June
1996, the Company entered into a settlement agreement with Scholle, the
terms of which provide for the grant by Scholle of a non-exclusive
license to use certain of its patents and the payment by the Company of
a royalty in the amount of $0.01 per five gallon non-spill closure unit.
The Company remained liable for damages of $0.01 per closure unit sold
prior to the date of execution and delivery of the settlement agreement,
plus interest at a rate of 10% on all past due amounts. The Company
made a payment of $1.7 million to Scholle on July 1, 1996 in settlement
of all amounts due, including interest, through May 31, 1996. Such
amount had been previously accrued in the Company's financial
statements.
The Company is engaged in patent litigation with two other parties who
are seeking to have the court declare certain patents owned by the
Company invalid. The Company believes its patents are valid, and
intends to vigorously contest these actions. However, there can be no
assurance that the Company will be successful in its defense.
The Company is also a party to a number of other lawsuits and claims
arising out of the normal course of business. Management does not
believe the final disposition of these matters will have a material
adverse affect on the financial position, results of operations or cash
flows of the Company.
37
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
10. REDEEMABLE WARRANTS:
The Company has outstanding two warrants to purchase an aggregate
of 2,493 shares of its Class A common stock which are held by certain of
the Company's shareholders. A warrant to purchase 2,053 shares of
common stock is exercisable, in whole or in part, through June 30, 2004
at sixty and two-third cents per share, subject to certain antidilution
provisions. After June 30, 1999, if the Company has not completed an
initial public offering of its common stock, the warrant holder may
require the Company to purchase the warrant at a price equal to the
higher of the current fair value per share of the Company's common stock
or an amount computed under an earnings formula in the warrant
agreement. The purchase obligation may be suspended under certain
circumstances including restrictions on such payments as specified in
the senior credit agreements. After December 31, 2001, the Company has
the right to repurchase the warrant at a price equal to the higher of
the fair value per share of the Company's common stock or an amount
computed under an earnings formula in the warrant agreement. The
earnings formula is based on income before interest, taxes and debt
outstanding to calculate an estimated value per share. At August 31,
1994, 1995 and 1996 the accretion was determined using the fair market
value of the common stock.
A second warrant to purchase 440 shares of Class A common stock may be
exercised at any time at $2.50 per share, until its expiration on June
30, 2004. After August 1, 2001, if the Company has not completed an
initial public offering of its common stock, the holder may require the
Company to purchase its warrant at a price equal to the higher of the
current fair value price per share of the Company's common stock or the
net book value price per share of the Company's common stock or the net
book value per share as computed under a valuation formula set forth in
the warrant. The purchase obligation may be suspended under certain
circumstances including restriction on such payments as specified in the
senior credit agreements. On or after August 1, 2003, the Company has
the right to repurchase the warrant at a price equal to the higher of
the current fair value per share of the Company's common stock or the
net book value per share. The earnings formula is based on earnings
before interest and taxes and debt outstanding to calculate a estimated
value per share. At August 31, 1994, 1995 and 1996, the accretion was
determined using the fair value of the common stock.
Generally accepted accounting principles require that an adjustment of
the warrant from the value assigned at the date of issuance to the
highest redemption price of the warrant be accreted over the period of
the warrant. At August 31, 1996, the estimated redemption value of the
warrants exceeded their carrying value. The difference is being charged
to accumulated deficit over the period from the date of issuance to the
earliest put date of the warrants. Charges to accumulated deficit
related to the warrants amounted to $455, $610 and $895 during the years
ended August 31, 1994, 1995 and 1996, respectively.
11. SHAREHOLDERS' EQUITY:
REINCORPORATION:
In April 1994, the Company was reincorporated from California to
Delaware, at which time the Company's outstanding common stock was
exchanged on a one share of the California corporation common stock for
one share of the Delaware corporation common stock basis.
38
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
11. SHAREHOLDERS' EQUITY, continued:
CLASS A AND B COMMON STOCK:
The Company has authorized 5,203 shares of Class A common stock, of
which 2,493 shares are reserved for the warrants described in Note 10.
Class A common shareholders are not entitled to elect members of the
Board of Directors. In the event of an aggregate public offering
exceeding $10,000, the Class A and Class B, Series 2 common stock is
automatically converted into Class B, Series 1 common stock, based on
the appropriate conversion formula. The Class B common shareholders
have the right to elect members of the Board of Directors, with the
holders of Series 1 having one vote per share, and the holders of Series
2 having a number of votes equal to the number of shares into which the
Series 2 shares are convertible into Series 1 shares.
In the event of liquidation or dissolution in which the value of the
Company is less than $1.75 per share of common stock, the holders of
Class B, Series 2 will receive 60% of the proceeds until they have
received $1.75 per share. All other amounts available for distribution
shall be distributed to the Class B, Series 1 and Series 2 holders pro
rata based on the number of shares outstanding. If the value of the
Company is greater than or equal to $1.75 per share, the holders of all
classes of common stock are entitled to a pro rata distribution based on
the number of shares outstanding.
The Company is required to reserve shares of Class B, Series 1 stock for
the conversion of Class A and Class B, Series 2 into Class B, Series 1
common stock.
DIRECTORS' AGREEMENTS:
The Company entered into Directors' Agreements dated September 1989 and
amended in January 1990 and August 1991, with certain directors who are
also shareholders of the Company. The agreements provided that the
Company is to pay up to $22 per year to each individual for serving as a
director, and granted each director the right to purchase up to 22
shares per year of Class B, Series 1 common stock at $1.00 per share
through fiscal 1992. In October 1990, the Company entered into a
Director's Agreement with another director, who is also a shareholder of
the Company. The agreement provided that the Company pay up to $22 per
year for services as a director. In January 1996, the Company began
paying an additional $4 per year to directors who serve as members and
alternates of committees. The Board of Directors currently has two
committees, the audit committee and the compensation committee. In May
1996, the Company entered into a Director's Agreement with another
director, who is also a shareholder of the Company. During the years
ended August 31, 1994, 1995 and 1996, the Company paid $82, $64 and $96,
respectively, in director fees and related expenses.
STOCK OPTION PLAN:
The Company has reserved 2,866 and 1,000 shares of Class B, Series 1
common stock for issuance under the Company's 1988 and 1994 stock option
plans, respectively. Under both plans, stock options are granted by the
Board of Directors at prices not less than 85% of fair market value of
the Company's stock at the date of grant for non-qualified options and
not less than 100% of the fair market value of the Company's stock at the
date of grant for incentive options.
39
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
11. SHAREHOLDERS' EQUITY, continued:
Option Price Available Outstanding
Stock Options Per Share for Grant Shares Amount
------------- ----------- --------- ------ --------
(NOT THOUSANDS)
August 31, 1993 $0.61-$2.50 140 1,212 $ 1,513
Granted $2.50 (70) 70 175
Exercised $2.50 (10) (25)
Canceled $1.75 25 (25) (44)
------- ----- -------
August 31, 1994 $0.61-$2.50 95 1,247 1,619
Reservation of shares 1,000
Granted $3.75-$4.00 (370) 370 1,456
Exercised $0.61-$4.00 (96) (78)
Canceled $4.00 9 (9) (36)
------- ----- -------
August 31, 1995 $0.61-$4.00 734 1,512 2,961
Granted $4.50-$5.00 (622) 622 2,862
Exercised $4.50 (2) (8)
Canceled $4.00- $4.50 48 (48) (207)
------- ----- -------
August 31, 1996 $0.61-$5.00 160 2,084 $ 5,608
------- ----- -------
------- ----- -------
At August 31, 1996, approximately 1,124 options were exercisable at an
average exercise price of $1.43 per share.
12. EMPLOYEE BENEFIT PLANS:
On December 31, 1994, the Company merged its Profit Sharing Plan and its
Retirement and Savings Plan with those of a subsidiary company,
establishing a single defined contribution plan (The "Employee Benefits
Plan"). The Employee Benefits Plan covers all full time employees of
the Company who are age twenty one or older, have completed one year of
service and are not covered by a collective bargaining agreement.
Profit sharing contributions are at the discretion of the Board of
Directors and amounted to $493 and $596 for the year ended August
31, 1995 and 1996. Administrative expense in connection with the
Plan amounted to $23 and $47 for the years ended August 31, 1995
and 1996. The Company incurred expense related to prior employee
benefit plans of $360 for the year ended August 31, 1994.
The Board of Directors has approved, subject to stockholder approval, an
Employee Stock Purchase Plan (the ESPP) under which 750,000 shares of
Class B common stock have been reserved for issuance to employees
meeting minimum employment criteria. Employees may participate through
payroll deductions in amounts related to their base compensation. The
fair value of shares made available to any employee for purchase under
the ESPP may not exceed $25,000 in any calendar year. The participant's
purchase price is 85% of the lower of the fair market value at the
beginning or the end of the offering period, as determined by the Board
of Directors. The Plan, once approved by the shareholders, shall continue
until terminated by the Board, until all of the shares reserved for
issuance under the Plan have been issued or until January 1, 2007,
whichever shall first occur.
40
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
13. INCOME TAXES:
The provision for income taxes, excluding extraordinary items, for the
three years ended August 31, 1996 consists of the following:
August 31,
--------------------------
1994 1995 1996
------ ------ ------
Current:
Federal $1,013 $1,677 $ 747
State 344 300 187
Foreign (29) 26
------ ------ ------
1,357 1,948 960
------ ------ ------
Deferred:
Federal (176) (605) (392)
State (86) (86) 260
Foreign 37 37
------ ------ ------
(262) (654) (95)
------ ------ ------
$1,095 $1,294 $ 865
------ ------ ------
------ ------ ------
As discussed in Note 1, Summary of Significant Accounting Policies, the
Company adopted SFAS No. 109 effective September 1, 1993. Prior years'
financial statements have not been restated to apply the provisions of
SFAS No. 109; however, prior year business combinations have been
restated as of September 1, 1993 under SFAS No. 109.
A reconciliation setting forth the differences between the effective tax
rate of the Company and the U.S. federal statutory tax rate is as follows:
Year Ended August 31,
--------------------------
1994 1995 1996
------ ------ ------
Federal statutory rate (benefit) 34.0% 34.0% (34.0)%
State taxes 6.6 14.9 (5.1)
Nondeductible amortization and depreciation 7.4 26.0 46.2
Nondeductible permanent items 7.0 0.7
Other 1.9 8.3 4.0
------ ------ ------
Effective income tax rate 49.9% 90.2% 11.8%
------ ------ ------
------ ------ ------
41
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
13. INCOME TAXES, continued:
The components of the net deferred tax liabilities:
August 31,
----------------
1995 1996
------ ------
Deferred tax assets:
Federal credits $ 651 $ 404
State tax credits 360 7
Accounts receivable 313 317
Other liabilities 924 990
------ ------
Total assets 2,248 1,718
------ ------
Deferred tax liabilities:
Property, plant and equipment 7,354 7,977
Intangible assets 712 (574)
Foreign taxes, net 37 75
------ ------
Total liabilities 8,103 7,478
------ ------
Net deferred tax liabilities $5,855 $5,760
------ ------
------ ------
14. EXPORT SALES AND GEOGRAPHICAL INFORMATION:
Export sales to unaffiliated customers were $8,071, $18,658 and $17,568
for the years ended August 31, 1994, 1995 and 1996, respectively. Export
sales are predominantly to North America, Europe, the Middle East and the
Pacific Rim. During fiscal 1996, export sales to North America, Europe,
the Middle East and the Pacific Rim accounted for 24%, 33%, 12%, and 6%
of total export sales, respectively.
Summarized data by geographic area for fiscal 1996 is as follows:
United States Canada Europe Eliminations Total
------------- ------- ------- ------------ --------
Sales $145,614 $10,303 $ 5,695 $(2,150) $159,462
Income (loss)
from
operations 8,301 (1,476) (1,645) 5,180
Identifiable
assets $142,084 $11,040 $ 4,648 $(5,545) $152,227
42
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
15. RELATED PARTY TRANSACTIONS:
In fiscal 1996, the Company deposited $3,000 in a U.S. Bank to secure a
loan to its 50% joint venture in Mexico.
The Company paid $162 and $5 for the years ended August 31, 1994 and
1995, respectively, to a company for prototype mold development and mold
engineering work. A director and officer of the aforementioned company is
also a director of the Company.
The Company paid $420, $333 and $618 for the years ended August 31, 1994,
1995 and 1996, respectively, to a law firm for legal services rendered. A
general partner of the aforementioned firm is also a director of the
Company.
The Company paid $42 for the years ended August 31, 1994, 1995 and 1996
to a corporation for management fees. A shareholder of the aforementioned
corporation is also a director and significant shareholder of the Company.
The Company had debt outstanding with a financial institution of $10,000
at August 31, 1994 and 1995, which was repaid by the Company in October
1995 along with a debt prepayment penalty of approximately $149. The
Company paid interest of approximately $1,350, $1,350 and $113 for each
of the three years, respectively. The Company also paid $258 for the year
ended August 31, 1994 to the same financial institution for ongoing
corporate advice and in connection with the refinancing in fiscal year
1994. An officer of the financial institution is a director of the
Company.
The Company has amounts receivable from non-consolidated affiliated
companies which amounted to $421, $736 and $358 as of August 31, 1994,
1995 and 1996, respectively.
The Company leased certain office, production and warehouse facilities
from Three Sisters Ranch Enterprises (Three Sisters). Certain general
partners in Three Sisters are also minority shareholders in the Company
(less than 5%). The Company owed $15 at August 31, 1994 in the form of
unsecured notes due to Three Sisters. The notes were repaid in fiscal
1995. The Company purchased these facilities for $7.2 million in fiscal
1996.
16. SUBSEQUENT EVENT:
On September 1, 1996 the Company completed the acquisition of Rapid Plast
J-P. Inc., a Canadian federal corporation, for a purchase price of
approximately $2.3 million. Rapid Plast was amalgamated with the company
formed to acquire the capital stock of Rapid Plast, and now operates
under the name Portola Packaging Ltd. Portola Packaging Ltd. is engaged
in manufacturing and distributing plastic bottles, primarily in eastern
Canada. This transaction has been accounted for as a purchase and
therefore the results of operations subsequent to the acquisition will be
consolidated with the Company.
43
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
44
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The current directors and executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
YEARS WITH
NAME AGE COMPANY POSITION
- ---- --- ---------- --------
<S> <C> <C> <C>
Jack L. Watts 48 10 Chairman of the Board and Chief Executive Officer
Laurie D. Bassin 47 10 Vice President - Corporate Development
Douglas L. Cullum 42 10 President - Packaging Division
Dannie K. Martz 44 1 President - Closures Division and Portola Sales and Service Division
E. Scott Merritt 41 1 Vice President - Manufacturing Technology
Rodger A. Moody 43 21 Vice President, Managing Director - International Division
Robert Plummer 37 2 President - Dispensing Closure Products Division and U.S. Closure Manufacturing
Division
Robert R. Strickland 52 5 Vice President - Finance, CFO and Assistant Secretary
Patricia A. Voll 38 0 Vice President - Finance and Accounting
Christopher C. Behrens 35 2 Director
Martin R. Imbler (2) 48 7 Director
Jeffrey Pfeffer, Ph.D. (1) 50 0 Director
Timothy Tomlinson (1)(2) 46 10 Secretary and Director
Larry C. Williams (1)(2) 47 7 Director
</TABLE>
___________
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee. Mr. Tomlinson serves as an alternate
member of the Audit Committee.
Mr. Watts has been Chairman of the Board and Chief Executive Officer of
the Company since January 1986. From 1982 to 1985, he was Chairman of the
Board of Faraday Electronics, a supplier of integrated circuits and board
level microprocessors.
Ms. Bassin has been Vice President - Corporate Development of the
Company since February 1993. From August 1986 to February 1993, she was
Director of Marketing of the Company. Prior to that time, she was employed in
the Consumer Service and Marketing Department of Collagen Corporation, a
biomedical company.
Mr. Cullum has been President - Packaging Division since April
1996. He was Vice President - Manufacturing Technology of the Company from
November 1994 to April 1996. He joined the Company in 1986 and became Vice
President - Operations of the Cap Snap Division in April 1987.
Mr. Martz has been President - Closures Division and Portola Sales and
Service Division since August 29, 1996. From September 1995, when he joined
the Company, through August 29, 1996, he was President - Cap Snap Division.
From March 1995 to September 1995, he was Senior Vice President of Cymer
Laser Technologies, a laser manufacturer. From January 1992 to March 1995, he
was Vice President and General Manager of the Varian - TEL Products Division
of Varian Associates, Inc., a manufacturer of semiconductor equipment,
electrical devices, instruments and other electronics products, and from
October 1986 to January 1992, he was employed by KLA Instruments Corporation,
a company involved in the factory automation, manufacturing, photonics, and
test and measurement industries, most recently as Vice President and General
Manager, Automated Test Systems Division.
45
<PAGE>
Mr. Merritt has been Vice President - Manufacturing Technology since
April 1996. He was President and General Manager -Fitment Equipment from
February 1995 until April 1996. From August 1992 to February 1995, he was an
Advisor, General Assembly for New United Motor Manufacturing, Inc., an
automobile manufacturing joint venture between General Motors and Toyota.
From 1978 to August 1992, he was employed by General Motors of Canada, Ltd.,
where he held various positions, most recently as Manufacturing
Superintendent - Components Plant.
Mr. Moody has been Vice President - Managing Director - International
Division of the Company since October 1994. He has been with the Company
since 1975 and has worked in a variety of functional areas, including
production, administration, marketing/sales, equipment and general management.
Mr. Plummer has been President - Dispensing Closure Products and U.S.
Closure Manufacturing Division since August 29, 1996. From May 1994 to April
1996, he was Vice President and General Manager - Equipment Division of the
Company. In addition, he assumed responsibilities as President - Nepco
Division in September 1995, a position he held through August 1996. From May
1989 to May 1994 he was employed by General Motors Corporation; as an
Assembly Advisor for New United Motor Manufacturing, Inc., an automobile
manufacturing joint venture between General Motors and Toyota from February
1993 to May 1994 and as Product Manager of the Harrison Division of General
Motors Corporation, which produces automotive engine cooling and heating,
ventilating, and air conditioning systems, from May 1989 to February 1993.
Mr. Strickland has been Vice President - Finance and Chief Financial
Officer of the Company since July 1991. From September 1990 to July 1991, he
served as Senior Vice President and Chief Financial Officer at Personics
Corporation, a company that manufactured a system of producing audio cassette
tapes in retail record stores. From February 1988 to June 1990, he was
employed by Lucky Stores, Inc., a supermarket chain, most recently as Vice
President Finance and Administration.
Ms. Voll joined the Company in April 1996 as Vice President, Finance and
Accounting. From February 1993 to September 1995, she was employed by Trinzic
Corporation, a software company, most recently as Vice President, Finance,
Chief Financial Officer, Treasurer and Secretary. From June 1991 to January
1993, she was employed by Pyramid Technology, Inc., a computer hardware
manufacturer, as Director of Accounting. From 1986 to 1991, she was employed
by Ingres Corporation, a software company, where she held various management
positions, most recently as Corporate Controller.
Mr. Behrens has been a director of the Company since June 1994. He has
been an officer of The Chase Manhattan Bank, N.A. since 1986 and an officer
of Chase Capital Partners since 1990. Mr. Behrens is a director of The
Pantry, Inc. and numerous private companies.
Mr. Imbler has been a director of the Company since March 1989. He has
been President, Chief Executive Officer and a director of Berry Plastics
Corporation ("Berry"), a manufacturer of plastic packaging, since January
1991. He has also served as a director of BPC Holding Corporation, an entity
affiliated with Berry, since 1991.
Dr. Pfeffer has been a director of the Company since May 1996. He has
been a professor in the Graduate School of Business at Stanford University
since 1979, except for the 1981 - 1982 academic year, when he served as the
Thomas Henry Carroll-Ford Foundation Visiting Professor of Business
Administration at the Harvard Business School, and currently holds the Thomas
D. Dee Professor of Organizational Behavior chair.
Mr. Tomlinson has been Secretary and a director of the Company since
January 1986. He also serves as a director of Oak Technology, Inc., a
designer and marketer of multimedia semiconductors and related software, and
as a director of several private companies as well. He has been a partner in
the law firm of Tomlinson Zisko Morosoli & Maser LLP since 1983.
46
<PAGE>
Mr. Williams has been a director of the Company since January 1989. He co-
founded The Breckenridge Group, Inc., an investment banking firm in Atlanta,
Georgia, in April 1987 and is one of its principals.
Each director listed above, except Dr. Pfeffer, was elected at the
Company's Annual Meeting of Shareholders held in January 1996 and will serve
until his successor has been elected and qualified or until his earlier
resignation or removal. Dr. Pfeffer was elected by Unanimous Written Consent
of the Board of Directors of the Company effective May 19, 1996 and will
serve until his successor has been elected or qualified or until his earlier
resignation or removal. Executive officers are chosen by, and serve at the
discretion of, the Board.
COMPLIANCE UNDER SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The Company does not have a class of equity securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Accordingly, no persons are presently required to file
reports with the Commission pursuant to Section 16(a) of the Exchange Act.
47
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table summarizes all compensation awarded to, earned by or
paid for services rendered to the Company in all capacities during the fiscal
years ended August 31, 1996, 1995 and 1994 by the Company's Chief Executive
Officer and the Company's five other most highly compensated executive
officers during fiscal 1996 (together, the "Named Officers"). The table
includes one executive officer who has resigned.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
--------------------------
ANNUAL COMPENSATION OTHER ANNUAL SECURITIES ALL OTHER
------------------- COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) (2) OPTIONS (3)
- --------------------------- ---- -------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jack L. Watts 1996 $269,348 $ 37,500 $50,493 100,000 $3,600
Chairman of the Board and 1995 232,280 62,502 50,251 -- 3,015
Chief Executive Officer 1994 201,093 150,000 50,373 -- 6,999
Douglas L. Cullum 1996 149,093 7,500 -- 20,000 3,600
President- 1995 143,042 9,940 -- -- 3,015
Packaging Division 1994 136,839 16,300 -- -- 2,404
Howard R. Girbach (4) 1996 162,323 11,250 7,200 -- 3,600
Corporate Vice-President 1995 162,011 2,040 7,200 -- 3,015
1994 149,261 29,300 7,200 -- 2,404
Dannie K. Martz (5) 1996 155,481 11,250 6,600 72,000 --
President - Closures 1995 -- -- -- -- --
Division and Portola Sales
and Service Division 1994 -- -- -- -- --
Robert Plummer (6) 1996 152,137 8,750 -- 10,500 3,600
President-Dispensing 1995 133,850 13,900 28,721 54,000 2,260
Closure Products Division 1994 36,346 5,700 -- 50,000 --
and U.S. Closure
Manufacturing Division
Robert R. Strickland 1996 156,770 10,000 3,600
Vice President-Finance and 1995 150,974 2,040 3,015
Chief Financial Officer 1994 133,443 57,500 2,404
</TABLE>
___________
(1) With respect to fiscal 1996, includes bonuses paid during fiscal 1996 for
services rendered during fiscal 1996, but not bonuses paid during fiscal
1997 for services rendered during fiscal 1996. With respect to fiscal
1995, includes bonuses paid during fiscal 1996 for services rendered
during fiscal 1995, but not bonuses paid during fiscal 1995 for services
rendered during fiscal 1994. With respect to fiscal 1994, includes
bonuses paid during fiscal 1995 for services rendered during fiscal 1994,
but not bonuses paid during fiscal 1994 for services rendered during
fiscal 1993.
(2) Includes automobile and gas allowances with respect to Mr. Watts,
Mr. Girbach and Mr. Martz. In
48
<PAGE>
addition, includes $41,800 in consulting fees with respect to Mr. Watts
paid to PPI Management Inc., a corporation of which Mr. Watts is the sole
shareholder and employee. Also includes relocation payments with respect
to Mr. Plummer for fiscal 1995.
(3) Represents insurance premiums on term life insurance of $4,595 for
Mr. Watts for fiscal 1994. In addition, represents a Company
profit-sharing contribution of $2,304, $2,100 and $2,100 for fiscal 1994,
1995 and 1996, respectively, and a Company 401(k) matching contribution
of $100 in fiscal 1994, a Company 401(k) matching contribution of up to
1% of salary, depending on the employee's contribution to the plan for
fiscal 1995, and a Company 401(k) matching contribution of $1,500 for
fiscal 1996, for the officers who participate in the plan.
(4) Mr. Girbach resigned as President of the Packaging Division in April 1996
and resigned all other officer positions in late October 1996.
(5) Mr. Martz joined the Company in September 1995.
(6) Mr. Plummer joined the Company in May 1994.
The following table sets forth information concerning individual grants
of stock options made during fiscal year 1996 to the Named Officers.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS EXERCISE OF STOCK PRICE
UNDERLYING GRANTED TO OR BASE APPRECIATION FOR OPTION
OPTIONS EMPLOYEES IN PRICE EXPIRATION TERM
NAME GRANTED (1) FISCAL YEAR (2) ($/SH) (3) DATE 5%($) 10%($) (4)
- ---- ----------- --------------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jack L. Watts 100,000 17.2% $4.95 08/27/2006 $238,005 $672,165
Douglas L. Cullum 20,000 3.4% $4.50 08/27/2006 $ 56,601 $143,433
Dannie K. Martz 72,000 12.4% $4.50 11/08/2005 $203,764 $516,359
Robert Plummer 10,500 1.8% $4.50 08/27/2006 $ 29,715 $ 75,303
</TABLE>
___________
(1) All options were granted under the Company's 1994 Stock Option Plan. The
options become exercisable for 20% of the shares on the first anniversary
of the date of grant and the balance vests 5% for each calendar quarter
of each individual's employment thereafter. Vesting of Mr. Watts' options
accelerates upon a change in control. See "Employment and Change in
Control Arrangements" below. All individuals identified in the table
received incentive stock options.
(2) Calculated by excluding as part of total options granted in fiscal 1996
any options granted to non-employee directors during fiscal 1996 under
the Company's 1994 Stock Option Plan.
49
<PAGE>
(3) The exercise price on the date of grant was equal to 100% of the fair
market value as determined by the Board of Directors on the date of
grant, except with respect to the exercise price of the options granted
to Mr. Watts on the date of grant which was equal to $0.45 above the fair
market value determined by the Board of Directors.
(4) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price.
The following table sets forth certain information regarding option
exercises during fiscal year 1996 and the number of shares covered by both
exercisable and unexercisable stock options as of August 31, 1996 for each
of the Named Officers.
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT AUGUST 31, 1996 AUGUST 31, 1996 (1)
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack L. Watts -- -- -- 100,000 $ -- $ --
Douglas L. Cullum -- -- 55,000 20,000 213,950 --
Howard R. Girbach (2) -- -- 64,000 76,000 128,000 152,000
Dannie K. Martz -- -- -- 72,000 -- --
Robert Plummer -- -- 28,800 75,700 41,400 65,600
Robert R. Strickland -- -- 80,000 -- 220,000 --
</TABLE>
___________
(1) The value of an "in-the-money" option represents the difference between
the estimated fair market value of the underlying securities at
August 31, 1996 of $4.50 per share, as determined by the Company's Board
of Directors, minus the exercise price of the option.
(2) Mr. Girbach resigned as President of the Packaging Division in April 1996
and resigned all otherofficer positions in late October 1996.
DIRECTOR COMPENSATION
Each of Dr. Pfeffer and Messrs. Imbler, Tomlinson and Williams receives
as compensation for his services as a director $2,500 per quarter, and $2,000
for each meeting of the Board attended, and is reimbursed for his reasonable
expenses in attending Board meetings. None of the other Board members is
compensated as such. Each of Messrs. Imbler and Williams receives an annual
retainer for his services as a member of the Audit Committee of the Board in
the amount of $4,000 paid on a quarterly basis. Mr. Tomlinson receives an
annual retainer for his services as an alternate member of the Audit
Committee of $4,000 paid on a quarterly basis. Each of Dr. Pfeffer and
Messrs. Tomlinson and Williams receives an annual retainer for his services
as a member of the Compensation Committee of the Board of Directors in the
amount of $4,000 paid on a quarterly basis.
50
<PAGE>
On August 27, 1996, the Compensation Committee of the Board of Directors
approved the grant to certain Directors of the Company of non-qualified stock
options pursuant to the terms of the 1994 Stock Option Plan (the "1994
Plan"). Options may be granted under the 1994 Plan to officers, key
employees, directors and independent contractors of the Company, or any
subsidiary of the Company. Each of Dr. Pfeffer and Messrs. Imbler, Williams
and Tomlinson received options to purchase 10,000 shares of Class B Common
Stock, Series 1 of the Company, with an exercise price of Five Dollars
($5.00) per share. The non-qualified stock options granted to such directors
will expire ten (10) years from the date of grant and will vest twenty
percent (20%) one year after the vesting start date of August 27, 1996 and
five percent (5%) for each calendar quarter that such individual continues to
serve as a member of the Board of Directors or is employed by the Company.
Mr. Tomlinson has assigned his options to TZM Investment Fund, of which
Mr. Tomlinson is a general partner.
EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
In April 1996, Mr. Girbach resigned from his position as
President-Packaging Division of the Company and assumed the title of
Corporate Vice President working on special projects for Mr. Watts.
Effective as of October 28, 1996, Mr. Girbach resigned his position as an
officer of the Company and entered into a Resignation Agreement providing for
severance payments in connection with such resignation. Under the terms of
such arrangement, Mr. Girbach will remain as an employee of the Company until
August 31, 1997. The Company will continue to pay to Mr. Girbach an amount
generally equal to his current monthly salary through the period ending
August 31, 1997. Mr. Girbach generally will remain eligible to receive
various employee benefits and, until expiration of his period of employment,
will retain his rights under the stock option agreements relating to the
stock options previously granted to him.
Certain of the stock option agreements entered into pursuant to the 1994
Plan provide for acceleration of vesting of options governed thereby in the
event of a "change of control," as defined in such stock option agreements.
In this regard, the options granted to Dr. Pfeffer and each of Messrs. Watts,
Imbler, Williams and Tomlinson on August 27, 1996 provide for acceleration of
vesting upon a change of control of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Company's Board of
Directors are Timothy Tomlinson, Larry C. Williams and Jeffrey Pfeffer, Ph.D.
Mr. Tomlinson is also the Company's Secretary.
For a description of transactions between the Company and members of the
Compensation Committee and entities affiliated with such members, please see
"Certain Relationships and Related Transactions under Item 13 of this report
on Form 10-K. For a description of the options recently granted to Dr.
Pfeffer and Messrs. Williams and Tomlinson, please see the heading above
entitled "Director Compensation."
51
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of each class of the Company's voting securities as of
November 4, 1996 by (i) each person known by the Company to be the
beneficial owner of more than 5% of such class, (ii) each director, (iii)
each Named Officer and (iv) all executive officers and directors as a
group. The Company's equity securities are privately-held and no class of
voting securities of the Company is registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended.
<TABLE>
TITLE OF CLASS (1) NAME AND ADDRESS OF BENEFICIAL AMOUNT AND NATURE PERCENT OF
------------------ ------------------------------
OWNER OF BENEFICIAL CLASS (2)
----- ---------
OWNERSHIP (2)
-------------
<S> <C> <C> <C>
Class B Common Stock, Series 1 Jack L. Watts (3) 3,898,021 40.3%
Class B Common Stock, Series 1 Christopher C. Behrens (4) 1,552,333 16.0%
Class B Common Stock, Series 1 Chase Manhattan Capital 1,552,333 16.0%
Corporation (5)
Class B Common Stock, Series 2 Christopher C. Behrens (4) 815,715 8.4%
Class B Common Stock, Series 2 Chase Manhattan Capital 815,715 8.4%
Corporation (5)
Class B Common Stock, Series 1 Gary L. Barry (6) 607,965 6.3%
Class B Common Stock, Series 1 Timothy Tomlinson (7) 245,984 2.5%
Class B Common Stock, Series 1 Howard Girbach (8) 128,000 1.3%
Class B Common Stock, Series 1 Robert R. Strickland (9) 100,000 1.0%
Class B Common Stock, Series 1 Douglas L. Cullum (10) 70,000 *
Class B Common Stock, Series 1 Larry C. Williams (11) 66,371 *
Class B Common Stock, Series 1 Robert Plummer (12) 46,200 *
Class B Common Stock, Series 1 Martin R. Imbler (13) 20,000 *
Class B Common Stock, Series 1 Jeffrey Pfeffer, Ph.D. (14) 15,000 *
Class B Common Stock, Series 1 Dannie K. Martz (15) 14,400 *
Class B Common Stock, Series 1 All executive officers and 7,168,586 71.0%
and Series 2 directors as a group (14
persons) (16)
</TABLE>
-----------
* Less than one percent.
(1) The Company's Class B Common Stock, Series 1 and Class B Common
Stock, Series 2 have the same voting rights, each share being entitled
to one vote. The Class B Common Stock, Series 2 has a liquidation
preference equal to $0.60 on each distributed dollar in the event that
the value of the Company's assets available for distribution is less
than $1.75 per share. Each share of Class B Common Stock, Series 2 is
convertible at any time at the option of the holder into one share of
Class B Common Stock, Series 1 and will be automatically converted into
one such share (i) in the event that shares of Class B Common Stock,
Series 1 shall be sold in a firm commitment public offering in which the
aggregate public offering price is not less than $10,000,000 or (ii)
immediately prior to the effectiveness of a merger or consolidation in
which the Company is not the surviving entity and in which the value of
the property to be received by the stockholders shall be not less than
$1.75 per share. As of November 4, 1996, there were 9,678,070 shares of
Class B Common Stock issued and outstanding, consisting of 8,506,640
shares of Class B Common Stock, Series 1 and 1,171,430 shares of Class B
Common Stock, Series 2. As of November 4, 1996, there were 2,134,992
shares of Class A Common Stock issued and outstanding. Additionally,
immediately exercisable warrants to purchase 2,492,741 shares of Class A
Common Stock were outstanding. Chase Capital holds 2,052,526 of
52
<PAGE>
such warrants and Heller Financial, Inc. holds 440,215 of such warrants. The
Class A Common Stock is non-voting and each share of Class A Common Stock may
be converted into one share of Class B Common Stock, Series 1 in the event
that shares of Class B Common Stock, Series 1 shall be sold in a firm
commitment public offering in which the aggregate public offering price is
not less than $10,000,000 or there is a capital reorganization or
reclassification of the capital stock of the Company.
(2) In accordance with the rules of the Securities and Exchange Commission,
shares are beneficially owned by the person who has or shares voting or
investment power with respect to such shares. Unless otherwise indicated
below, the persons and entities named in the table have sole voting and sole
investment power with respect to all shares beneficially owned, subject to
community property laws where applicable. Shares of Common Stock subject to
options that are exercisable within 60 days of November 4, 1996 are deemed to
be outstanding and to be beneficially owned by the person holding such option
for the purpose of computing the percentage ownership of such person but are
not treated as outstanding for the purpose of computing the percentage
ownership of any other person. Percent of Class computation reflects
percentage ownership of Class B Common Stock, Series 1 and Class B Common
Stock, Series 2 combined.
(3) Includes 529,712 shares held by LJL Cordovan Partners, L.P., of which
Mr. Watts is the general partner, and 52,132 shares held by trusts for the
benefit of Mr. Watts' children. Mr. Watt's address is 890 Faulstich Court,
San Jose, California 95112.
(4) Mr. Behrens is a principal of Chase Capital Partners, an affiliate of
Chase Manhattan Capital Corporation. Does not include warrants held by Chase
Manhattan Capital Corporation to purchase 2,052,526 shares of Class A Common
Stock at $0.60667 per share, which shares are non-voting. Mr. Behrens
disclaims beneficial ownership of the 1,552,333 shares of Class B Common
Stock, Series 1 and the 815,715 shares of Class B Common Stock, Series 2
owned by Chase Manhattan Capital Corporation and affiliates. The address of
this shareholder is Chase Capital Partners, 380 Madison Avenue, New York, New
York 10017.
(5) With respect to Class B Common Stock, Series 1, includes 149,047 shares
held by Archery Partners and 99,800 shares held by Baseball Partners,
affiliates of Chase Manhattan Capital Corporation. With respect to Class B
Common Stock, Series 2, includes 39,620 shares held by Archery Partners and
50,000 shares held by Baseball Partners. Does not include warrants held by
Chase Manhattan Capital Corporation to purchase 2,052,526 shares of Class A
Common Stock at $0.60667 per share, which shares are non-voting. The address
of this shareholder is Chase Capital Partners, 380 Madison Avenue, New York,
New York 10017.
(6) Mr. Barry's address is 640 Menlo Avenue, Suite 5, Menlo Park, California
95025.
(7) Includes 36,000 shares held by First TZMM Investment Partnership, of
which Mr. Tomlinson is a general partner, 66,000 shares held by TZM
Investment Fund of which Mr. Tomlinson is a general partner, 4,000 shares
held by trusts for the benefit of Mr. Tomlinson's children and 119,984 shares
subject to options held by TZM Investment Fund that are exercisable within 60
days of November 4, 1996. Mr. Tomlinson's address is 200 Page Mill Road,
Second Floor, Palo Alto, California 94306.
(8) Includes 68,000 shares subject to options exercisable within 60 days of
November 4, 1996. Mr. Girbach's address is 18115 Mountfield Drive, Houston,
Texas 77084.
(9) Includes 80,000 shares subject to options exercisable within 60 days of
November 4, 1996. Mr. Strickland's address is 890 Faulstich Court, San Jose,
California 95112.
(10) Includes 55,000 shares subject to options exercisable within 60 days of
November 4, 1996. Mr. Cullum's address is 890 Faulstich Court, San Jose,
California 95112.
(11) Includes 16,050 shares subject to options exercisable within 60 days of
November 4, 1996. Does not include (i) 123,756 shares and (ii) 41,976 shares
subject to options exercisable within 60 days of November 4,
53
<PAGE>
1996, held in the individual names of four other principals of The Breckenridge
Group, Inc. Mr. Williams' address is Resurgens Plaza, Suite 2100, 945 E. Paces
Ferry Road, Atlanta, Georgia 30326.
(12) Includes 36,200 shares subject to options exercisable within 60 days of
November 4, 1996. Mr. Plummer's address is 890 Faulstich Court, San Jose,
California 95112.
(13) Mr. Imbler's address is 101 Oakley Street, Evansville, Indiana 47706.
(14) Dr. Pfeffer's address is Graduate School of Business, Stanford
University, Stanford, California 94305.
(15) Includes 14,400 shares subject to options exercisable within 60 days of
November 4, 1996. Mr. Martz's address is 890 Faulstich Court, San Jose,
California 95112.
(16) Includes all of the shares shown as included in footnotes (3), (4), and
(7) through (15).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
LOANS TO EMPLOYEES
During fiscal 1996, the Board of Directors of the Company agreed to
extend until January 1997 the due date of all principal and accrued interest
owing to the Company by Jack L. Watts, Chairman of the Board and Chief
Executive Officer, under the terms of that certain loan made by the Company
to Mr. Watts in January 1992 in the original principal amount of $250,000.
The loan is secured by a pledge of certain shares of Class B Common Stock,
Series 1 owned by Mr. Watts. Interest accrues at a rate equal to 2% above
the Company's borrowing rate on its revolving credit facility. Principal
plus accrued interest outstanding at August 31, 1996 was approximately
$404,000. The note plus accrued interest was originally due in January 1993.
In September 1992, the Company loaned Howard R. Girbach, formerly
President - Packaging Division, $75,000 towards the purchase of a home. The
loan was represented by a nonrecourse promissory note secured by a deed of
trust. The note provided for prepayment in full in one or more installments
on or before the sixth anniversary of the date of the note. Prepayment was
to have included accrued interest at the rate of 6.0%. If the note was not
prepaid, satisfaction of the note was limited to proceeds from the sale of
the home in accordance with a formula outlined in the loan agreement. In
July 1996, Mr. Girbach sold his home and prepaid the note, to the extent of
the proceeds received from the sale. The Company received a payment of
principal in the amount of $75,000, and agreed to discharge Mr. Girbach's
remaining obligations under the note.
TRANSACTIONS WITH DIRECTORS
Jeffrey Pfeffer, Ph.D., a director of the Company, purchased 15,000
shares of Class B Common Stock, Series 1 on June 18, 1996, at a price per
share of $4.50. For a description of the options granted to directors during
fiscal 1996, please see "Director Compensation" under Item 11 of this report
on Form 10-K.
TRANSACTIONS WITH ENTITIES AFFILIATED WITH DIRECTORS
Since June, 1988, Chase Manhattan Bank, N.A. ("Chase Bank") had held
certain Senior Subordinated Notes payable by the Company in the principal
amount of $10,000,000 that were due June 30, 2002. On October 2, 1995, the
Company completed an offering of $110,000,000 of unsecured Senior Notes due
2005 (the "Notes"), at which time the Senior Subordinated Notes held by Chase
Bank were repaid in full with the net proceeds of the offering of the Notes.
Such payment included $10,000,000 of
54
<PAGE>
principal, $7,500 of interest, a pre-payment premium of $147,008 and $1,500
of other fees and expenses. Chase Bank is an affiliate of Chase
Securities Inc., Chase Capital Partners and Chase Manhattan Capital
Corporation ("Chase Capital"), which together with other related parties,
owns approximately 24.5% of the Company's outstanding voting Stock. Chase
Securities Inc. was one of the underwriters in the offering of the Notes, and
currently makes a market in the Notes. Chase Securities Inc. received
underwriting discounts and commissions in connection with the offering of the
Notes. It is not compensated by the Company for making a market in the
Notes. Christopher C. Behrens, a Director of the Company, is also a Vice
President of Chase Bank and Chase Capital Partners.
In June 1994, Chase Capital purchased shares of Class B Common Stock,
Series 1 from the Company and certain insiders of Company, and shares of
Class B Common Stock, Series 2 from Robert Fleming Nominees, Ltd. ("RFNL").
In connection with these purchases, Chase Capital, RFNL and Heller Financial,
Inc., the lender under a credit facility entered into with the Company,
received certain demand and piggyback registration rights. In addition,
Chase Capital became a participant in an earlier agreement between the
Company and RFNL under which (i) the Company has the right of first offer to
purchase any shares of the Company's capital stock that either shareholder
proposes to sell to any nonrelated party and (ii) each shareholder has a
right of first offer to purchase any Class B Common Stock, Series 1 that the
Company proposes to sell. Chase Capital is also a party to certain
shareholders agreements providing for certain rights of first refusal as
described below under the heading "Shareholders Agreements." In addition,
the parties to these shareholders agreements have granted to Chase Capital
certain co-sale rights to participate in the sale by any such shareholders of
more than 25% of the outstanding shares of the Company's common stock. One
of the shareholders agreements also provides that the Company is prohibited
from (i) entering into any merger, consolidation or repurchase of capital
stock, (ii) making certain amendments to its Bylaws or Certificate of
Incorporation or (iii) entering into certain other significant transactions,
without the approval of Chase Capital. Pursuant to that agreement, Jack L.
Watts, RFNL and their permitted transferees have agreed to vote their shares
in favor of a nominee of Chase Capital as a director of the Company.
Mr. Behrens is Chase Capital's current nominee.
In fiscal 1996, Breckenridge Securities Corporation ("Breckenridge") an
affiliate of The Breckenridge Group, Inc. an investment banking firm of which
Larry C. Williams is a principal, acted as finder in connection with the sale
of Common Stock of the Company held by certain insiders of the Company.
Breckenridge received $495,865 from the proceeds of the sale. Mr. Williams
is a director of the Company and a member of the Compensation Committee.
The Company retains as its general counsel the law firm of Tomlinson
Zisko Morosoli & Maser LLP, of which Timothy Tomlinson is a general
partner. For legal services rendered during fiscal 1996, the Company paid
Mr. Tomlinson's law firm fees and expenses in the amount of approximately
$618,000. Mr. Tomlinson is a director of the Company and a member of the
Compensation Committee.
SHAREHOLDERS AGREEMENTS
A majority of the Company's shares, including shares held by Jack L.
Watts, are subject to shareholders agreements under which the Company has a
right of first refusal in the event of a proposed transfer of such shares of
the Company's common stock to a transferee not related to the shareholder.
In the event the Company does not exercise its right of first refusal, the
other shareholders that are parties to the agreements have similar first
refusal rights.
55
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following financial statements of Portola Packaging, Inc. and the
Report of Independent Accountants are filed herewith:
PAGE IN
FORM 10-K
---------
Report of Independent Accountants 20
Consolidated Balance Sheets - August 31, 1996 and 1995 21
Consolidated Statements of Operations - Years Ended
August 31, 1996, 1995 and 1994 22
Consolidated Statements of Cash Flows - Years Ended
August 31, 1996, 1995 and 1994 23
Consolidated Statements of Shareholders' Equity -
Years Ended August 31, 1996, 1995 and 1994 24
Notes to Consolidated Financial Statements 25
(a)(2) FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedules are filed herewith and should be read in conjunction with the
consolidated financial statements:
PAGE IN
FORM 10-K
---------
Schedule II - Valuation and Qualifying Accounts 64
Report of Independent Accountants on Financial Statement
Schedule 65
All other schedules are omitted because they are not applicable or the
required information is shown on the consolidated financial statements
or notes thereto.
(a)(3) EXHIBITS. The following exhibits are filed as part of, or
incorporated by reference into, this Form 10-K:
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
3.01 Certificate of Incorporation (filed with Secretary of State of
Delaware on April 29, 1994, as amended and filed with Secretary
of State of Delaware on October 4, 1995)(1)
3.02 Bylaws(2)
4.01 Indenture, dated as of October 2, 1995, by and between the
Registrant and American Bank National Association, as trustee
(including form of Note)(1)
10.01 Underwriting Agreement(3)
10.02 Shareholders Agreement, dated as of June 23, 1988, by and among
the Registrant, Chase Manhattan Investment Holdings, Inc. and
certain shareholders and warrant-holders, amended by Amendment to
Shareholders Agreement, dated as of May 23,
56
<PAGE>
1989, further amended by Second Amendment to Shareholders
Agreement, dated November 29,1989, and further amended by
Amendment to Shareholders Agreement, dated as of June 30, 1994(2)
10.03 Shareholders Agreement, dated as of June 30, 1994, by and among
the Registrant, Chase Manhattan Capital Corporation, and certain
shareholders and warrantholders(2)
10.04 Stock Purchase Agreement, dated as of March 19, 1994, by and
among the Registrant, Nepco, Robert Crisci and Harry Crisci(4)
10.05 Share Purchase Agreement, dated June 16, 1995, by and among
3154823 Canada Inc. and Shareholders of B.C. Plastic
Industries Ltd., Alberta Plastic Industries Ltd. and Canada Cap
Snap Corporation(5)
10.06 Amalgamation Agreement, dated June 16, 1995, by and among 3154823
Canada Inc., B.C. Plastic Industries Ltd., Alberta Plastic
Industries Ltd. and Canada Cap Snap Corporation(6)
10.07 First Offer Agreement, dated as of October 17,1990, by and among
the Registrant, Chase Manhattan Investment Holdings, Inc., Chase
Manhattan Capital Corporation and Robert Fleming Nominees, Ltd.,
as amended by Amendment to First Offer Agreement, dated as of
June 30, 1994(2)
10.08 $109,000 Non-Recourse Promissory Note, dated November 13, 1991,
made by Daniel Luch and Mary Jeanne Luch in favor of the
Registrant(2)
10.09 $75,000 Non-Recourse Promissory Note, dated September 28, 1992,
made by Howard R. Girbach and Beverly Girbach in favor of the
Registrant(2)
10.10 $250,000 Secured Promissory Note, dated January 17, 1992 made by
Jack L. Watts in favor of the Registrant(2)
10.11 $100,000 Non-Recourse Promissory Note, dated May 28, 1996, made
by Joseph F. Jahn and Nancy L. Jahn in favor of the Registrant
10.12 Director's Agreement, dated October 5, 1990, by and between the
Registrant and Martin Imbler(2)
10.13 Director's Agreement, dated September 1, 1989, by and between the
Registrant and Larry C. Williams, as amended by Amendment to
Director's Agreement, dated January 16, 1990 and Amendment
Number Two to Director's Agreement, dated August 31, 1991(2)
10.14 Director's Agreement, dated as of September 1, 1989, by and
between the Registrant and Timothy Tomlinson, as amended by
Amendment to Director's Agreement, dated January 16, 1990 and
Amendment Number Two to Director's Agreement, dated August 31,
1991(2)
10.15 Stock Purchase Agreement, dated October 17, 1990, by and among
the Registrant Robert Fleming Nominees, Ltd., Jack Watts, John
Lemons and LJL Cordovan Partners(2)
10.16 Stock Purchase Agreement, dated as of June 16, 1995, by and among
the Registrant, Jack L. Watts, LJL Cordovan Partners, Robert
Fleming Nominess, Ltd., Chase
57
<PAGE>
Manhattan Capital Corporation, and certain other selling
shareholders (2)
10.17 Credit Agreement, dated as of June 16, 1995, by and between
3154823 Canada Inc. as borrower (subsequently amalgamated into
Portola Packaging Canada Ltd.) and Canadian Imperial Bank of
Commerce as lender and agent(2)
10.18 Limited Recourse Guarantee, dated as of June 16, 1995, between
the Registrant as guarantor and Canadian Imperial Bank of
Commerce(2)
10.19 Master Supply Agreement, dated March 29, 1995, by and between the
Registrant and Tetra Rex Packaging Systems, Inc.(2)
10.20 Form of Subscription Agreement by and between the Registrant and
the related director or officer (said form being substantially
identical to the Form of Subscription Agreement utilized by
the Registrant for certain officers and directors of the
Registrant)(2)
10.21 Form of Indemnification Agreement by and between the Registrant
and the related director or officer (said form being
substantially similar to the Form of Indemnification Agreement
utilized by the Registrant for certain officers and directors of
the Registrant)(2)
10.22 Stock Purchase Agreement, dated as of June 9, 1995, by and among
the Registrant, Oakley T. Hayden, Chase Manhattan Capital
Corporation and Heller Financial, Inc.(7)
10.23 Second Amended and Restated Registration Rights Agreement, dated
as of June 9, 1995, by and among the Registrant, Heller
Financial, Inc., Chase Manhattan Capital Corporation and Robert
Fleming Nominees Limited(7)
10.24 Second Amended and Restated Credit and Security Agreement, dated
as of October 2, 1995, by and between the Registrant and Heller
Financial, Inc.(1)
10.25 Stock Purchase Agreement, dated October 10, 1995, by and among
the Registrant, Jack L. Watts, John L. Lemons, Mary Ann Lemons,
LJL Cordovan Partners, L.P., Robert Fleming Nominees Limited,
Suez Equity Investors, L.P. and SEI Associates.(1)
10.26 Amendment to Investors' Rights Agreements, dated as of
October 10, 1995, by and among the Registrant, Jack L. Watts,
John L. Lemons, Mary Ann Lemons, LJL Cordovan Partners, L.P,
Robert Fleming Nominees Limited, Suez Equity Investors, L.P.
SEI Associates and Chase Manhattan Capital Corporation.(1)
10.27 Third Amended and Restated Registration Rights Agreement, dated
as of October 10, 1995, by and among the Registrant , Heller
Financial, Inc., Chase Manhattan Capital Corporation, Robert
Fleming Nomimees Limited, Suez Equity Investors, L.P. and SEI
Associates.(1)
10.28 1988 Stock Option Plan and related documents(1)
10.29 1994 Stock Option Plan and related documents(1)
10.30 1996 Special Management Bonus Plan(1)
10.31 1996 Management Bonus Plan(1)
10.32 Description of provisions of 1996 Senior Executive Bonus Plans(1)
10.33 Faulstich Court Property Agreement of Purchase and Sale, dated as
of January 17, 1996 by and between the Registrant and Three
Sisters Ranch Enterprises(8)
58
<PAGE>
10.34 Settlement Agreement, dated June 1996, by and between the
Registrant and Scholle Corporation(9)
10.35 Resignation Agreement, dated October 28, 1996, by and between
the Registrant and Howard R. Girbach.
10.36 Director's Agreement, dated as of May 20, 1996, by and between
the Registrant and Jeffrey Pfeffer.
10.37 Form of Indemnification Agreement by and between the Registrant
and the related director or officer.
10.38 Form of Amendment to Indemnification Agreement by and between
the Registrant and certain directors and officers of the
Registrant.
10.39 Forms of Stock Option Agreements available for use in
connection with the Registrant's 1994 Stock Option Plan (1994
Stock Option Plan and certain related documents filed as
Exhibit 10.29 to this report on Form 10-K).
11.01 Computation of Net Income (Loss) Per Share
12.01 Computation of Ratio of Earnings to Fixed Charges
21.01 Subsidiaries of the Registrant
23.01 Consent of Coopers & Lybrand L.L.P.
24.01 Power of Attorney (included as part of the signature page to this
report)
27.01 Financial Data Schedule
---
(1) Incorporated herein by reference to the exhibit with the same
number included in the Company's Quarterly Report on Form 10-Q
for the period ended November 30, 1995, as filed with the
Securities and Exchange Commission on January 16, 1996.
(2) Incorporated herein by reference to the exhibit with the same
number included in the Registration Statement on Form S-1, as
filed with the Securities and Exchange Commission on August 1,
1995.
(3) Incorporated herein by reference to exhibit 1.01 included in pre-
effective Amendment No. 2 to the Registration Statement on
Form S-1, as filed with the Securities and Exchange Commission on
September 25, 1995.
(4) Incorporated herein by reference to exhibit 2.01 included in the
Registration Statement on Form S-1, as filed with the Securities
and Exchange Commission on August 1, 1995.
(5) Incorporated herein by reference to exhibit 2.02 included in the
Registration Statement on Form S-1, as filed with the Securities
and Exchange Commission on August 1, 1995.
(6) Incorporated herein by reference to exhibit 2.03 included in the
Registration Statement on Form S-1, as filed with the Securities
and Exchange Commission on August 1, 1995.
(7) Incorporated herein by reference to the exhibit with the same
number included in pre-effective Amendment No. 2 to the
Registration Statement on Form S-1, as filed with the Securities
and Exchange Commission on September 25, 1995.
(8) Incorporated herein by reference to the exhibit with the same
number included in the Registrant's Quarterly Report on
Form 10-Q for the period ended February 29, 1996, as filed with
the Securities and Exchange Commission on April 15, 1996.
(9) Incorporated herein by reference to the exhibit with the same
number included in the Registrant's Quarterly Report on
Form 10-Q for the period ended May 31, 1996, as filed with the
Securities and Exchange Commission on July 11, 1996.
59
<PAGE>
(b) REPORTS ON FORM 8-K. No report on Form 8-K was filed during the
last quarter of the period covered by this report.
(c) EXHIBITS - See (a)(3) above.
(d) FINANCIAL STATEMENT SCHEDULES - See (a)(2) above.
60
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PORTOLA PACKAGING, INC
November 20, 1996 By: /s/ Jack L. Watts
----------------------------
Jack L. Watts
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jack L. Watts, Robert R. Strickland,
Patricia Voll and Timothy Tomlinson, and each of them, his true and lawful
attorneys-in-fact, each with full power of substitution, for him in any and
all capacities, to sign any amendments to this report on Form 10-K and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact or their substitute or
substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
PRINCIPAL EXECUTIVE OFFICER:
/s/ Jack L. Watts November 20, 1996
- ----------------------------
Jack L. Watts
Chief Executive Officer,
Chairman of the Board and
a Director
PRINCIPAL FINANCIAL OFFICER:
/s/ Robert R. Strickland November 20, 1996
- ----------------------------
Robert R. Strickland
Vice President - Finance and
Chief Financial Officer
PRINCIPAL ACCOUNTING OFFICER:
/s/ Patricia Voll November 20, 1996
- ----------------------------
Patricia Voll
Vice President - Finance and Accounting
61
<PAGE>
DIRECTORS:
/s/ Christopher C. Behrens November 20, 1996
- ----------------------------
Christopher C. Behrens
/s/ Martin R. Imbler November 20, 1996
- ----------------------------
Martin R. Imbler
November __ 1996
- ----------------------------
Jeffrey Pfeffer, Ph.D.
/s/ Timothy Tomlinson November 20, 1996
- ----------------------------
Timothy Tomlinson
/s/ Larry C. Williams November 20, 1996
- ----------------------------
Larry C. Williams
62
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT
No annual report for the Registrant's last fiscal year or proxy
material has been sent to security holders of the Registrant. If any such
report or proxy material is sent to Registrant's security holders subsequent
to the filing of this report on Form 10-K, the Registrant shall
supplementally furnish copies of any such material to the Commission when it
is sent to security holders. Any such material shall not be deemed to be
"filed" with the Commission or otherwise subject to the liabilities of
Section 18 of the Securities Exchange Act of 1934, as amended.
63
<PAGE>
PORTOLA PACKAGING, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BEGINNING ADDITIONS/ ENDING
BALANCE EXPENSE OTHER DEDUCTIONS(2) BALANCE
------- ------- ----- ------------- -------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
August 31, 1994 $ 206 $ 173 $(167)(1) $ 157 $ 389
August 31, 1995 389 892 468 813
August 31, 1996 813 450 446 817
</TABLE>
(1) Amount of valuation allowance established as part of the acquisition of
NEPCO
(2) Write-off of Bad Debts
64
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders
Portola Packaging, Inc. and Subsidiaries:
Our report on the consolidated financial statements of Portola Packaging,
Inc. and Subsidiaries is included on page 20 of this Form 10-K. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule on page 64 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
San Jose, California
October 22, 1996
65
<PAGE>
Exhibit
Number Exhibit Title
- ------- -------------
3.01 Certificate of Incorporation (filed with Secretary of State of
Delaware on April 29, 1994, as amended and filed with Secretary
of State of Delaware on October 4, 1995)(1)
3.02 Bylaws(2)
4.01 Indenture, dated as of October 2, 1995, by and between the
Registrant and American Bank National Association, as trustee
(including form of Note)(1)
10.01 Underwriting Agreement(3)
10.02 Shareholders Agreement, dated as of June 23, 1988, by and among
the Registrant, Chase Manhattan Investment Holdings, Inc. and
certain shareholders and warrant-holders, amended by Amendment to
Shareholders Agreement, dated as of May 23, 1989, further amended
by Second Amendment to Shareholders Agreement, dated November 29,
1989, and further amended by Amendment to Shareholders Agreement,
dated as of June 30, 1994(2)
10.03 Shareholders Agreement, dated as of June 30, 1994, by and among
the Registrant, Chase Manhattan Capital Corporation, and certain
shareholders and warrantholders(2)
10.04 Stock Purchase Agreement, dated as of March 19, 1994, by and among
the Registrant, Nepco, Robert Crisci and Harry Crisci(4)
10.05 Share Purchase Agreement, dated June 16, 1995, by and among
3154823 Canada Inc. and Shareholders of B.C. Plastic Industries
Ltd., Alberta Plastic Industries Ltd. and Canada Cap Snap
Corporation(5)
10.06 Amalgamation Agreement, dated June 16, 1995, by and among 3154823
Canada Inc., B.C. Plastic Industries Ltd., Alberta Plastic
Industries Ltd. and Canada Cap Snap Corporation(6)
10.07 First Offer Agreement, dated as of October 17,1990, by and among
the Registrant, Chase Manhattan Investment Holdings, Inc., Chase
Manhattan Capital Corporation and Robert Fleming Nominees, Ltd.,
as amended by Amendment to First Offer Agreement, dated as of
June 30, 1994(2)
10.08 $109,000 Non-Recourse Promissory Note, dated November 13, 1991,
made by Daniel Luch and Mary Jeanne Luch in favor of the Registrant(2)
10.09 $75,000 Non-Recourse Promissory Note, dated September 28, 1992, made
by Howard R. Girbach and Beverly Girbach in favor of the Registrant(2)
10.10 $250,000 Secured Promissory Note, dated January 17, 1992 made by
Jack L. Watts in favor of the Registrant(2)
10.11 $100,000 Non-Recourse Promissory Note, dated May 28, 1996, made by
Joseph F. Jahn and Nancy L. Jahn in favor of the Registrant
10.12 Director's Agreement, dated October 5, 1990, by and between the
Registrant and Martin Imbler(2)
66
<PAGE>
10.13 Director's Agreement, dated September 1, 1989, by and between the
Registrant and Larry C. Williams, as amended by Amendment to
Director's Agreement, dated January 16, 1990 and Amendment Number
Two to Director's Agreement, dated August 31, 1991(2)
10.14 Director's Agreement, dated as of September 1, 1989, by and
between the Registrant and Timothy Tomlinson, as amended by
Amendment to Director's Agreement, dated January 16, 1990 and
Amendment Number Two to Director's Agreement, dated August 31, 1991(2)
10.15 Stock Purchase Agreement, dated October 17, 1990, by and among
the Registrant Robert Fleming Nominees, Ltd., Jack Watts, John
Lemons and LJL Cordovan Partners(2)
10.16 Stock Purchase Agreement, dated as of June 16, 1995, by and among
the Registrant, Jack L. Watts, LJL Cordovan Partners, Robert
Fleming Nominess, Ltd., Chase Manhattan Capital Corporation, and
certain other selling shareholders(2)
10.17 Credit Agreement, dated as of June 16, 1995, by and between
3154823 Canada Inc. as borrower (subsequently amalgamated into
Portola Packaging Canada Ltd.) and Canadian Imperial Bank of
Commerce as lender and agent(2)
10.18 Limited Recourse Guarantee, dated as of June 16, 1995, between
the Registrant as guarantor and Canadian Imperial Bank of Commerce(2)
10.19 Master Supply Agreement, dated March 29, 1995, by and between the
Registrant and Tetra Rex Packaging Systems, Inc.(2)
10.20 Form of Subscription Agreement by and between the Registrant and the
related director or officer (said form being substantially
identical to the Form of Subscription Agreement utilized by the
Registrant for certain officers and directors of the Registrant)(2)
10.21 Form of Indemnification Agreement by and between the Registrant and
the related director or officer (said form being substantially
similar to the Form of Indemnification Agreement utilized by the
Registrant for certain officers and directors of the Registrant)(2)
10.22 Stock Purchase Agreement, dated as of June 9, 1995, by and among the
Registrant, Oakley T. Hayden, Chase Manhattan Capital Corporation and
Heller Financial, Inc.(7)
10.23 Second Amended and Restated Registration Rights Agreement, dated as of
June 9, 1995, by and among the Registrant, Heller Financial, Inc.,
Chase Manhattan Capital Corporation and Robert Fleming Nominees
Limited(7)
10.24 Second Amended and Restated Credit and Security Agreement, dated as of
October 2, 1995, by and between the Registrant and Heller
Financial, Inc.(1)
10.25 Stock Purchase Agreement, dated October 10, 1995, by and among the
Registrant, Jack L. Watts, John L. Lemons, Mary Ann Lemons,
LJL Cordovan Partners, L.P., Robert Fleming Nominees Limited,
Suez Equity Investors, L.P. and SEI Associates.(1)
10.26 Amendment to Investors' Rights Agreements, dated as of October 10,
1995, by and among the Registrant, Jack L. Watts, John L. Lemons,
Mary Ann Lemons, LJL Cordovan Partners, L.P, Robert Fleming Nominees
Limited, Suez Equity Investors, L.P. SEI Associates and
Chase Manhattan Capital Corporation.(1)
67
<PAGE>
10.27 Third Amended and Restated Registration Rights Agreement, dated as of
October 10, 1995, by and among the Registrant , Heller Financial,
Inc., Chase Manhattan Capital Corporation, Robert Fleming Nomimees
Limited, Suez Equity Investors, L.P. and SEI Associates.(1)
10.28 1988 Stock Option Plan and related documents(1)
10.29 1994 Stock Option Plan and related documents(1)
10.30 1996 Special Management Bonus Plan(1)
10.31 1996 Management Bonus Plan(1)
10.32 Description of provisions of 1996 Senior Executive Bonus Plans(1)
10.33 Faulstich Court Property Agreement of Purchase and Sale, dated as of
January 17, 1996 by and between the Registrant and Three Sisters
Ranch Enterprises(8)
10.34 Settlement Agreement, dated June 1996, by and between the Registrant
and Scholle Corporation(9)
10.35 Resignation Agreement, dated October 28, 1996, by and between the
Registrant and Howard R. Girbach
10.36 Director's Agreement, dated as of May 20, 1996, by and between the
Registrant and Jeffrey Pfeffer
10.37 Form of Indemnification Agreement by and between the Registrant and
the related director or officer.
10.38 Form of Amendment to Indemnification Agreement by and between the
Registrant and certain directors and officers of the Registrant.
10.39 Forms of Stock Option Agreements available for use in connection
with the Registrant's 1994 Stock Option Plan (1994 Stock Option Plan
and certain related documents filed as Exhibit 10.29 to this report
on Form 10-K.
11.01 Computation of Net Income Per Share
12.01 Computation of Ratio of Earnings to Fixed Charges
21.01 Subsidiaries of the Registrant
23.01 Consent of Coopers & Lybrand L.L.P.
24.01 Power of Attorney (included as part of the signature page to this
report)
27.01 Financial Data Schedule
- ------
(1) Incorporated herein by reference to the exhibit with the same number
included in the Company's Quarterly Report on Form 10-Q for the
period ended November 30, 1995, as filed with the Securities and
Exchange Commission on January 16, 1996.
(2) Incorporated herein by reference to the exhibit with the same number
included in the Registration Statement on Form S-1, as filed with the
Securities and Exchange Commission on August 1, 1995.
(3) Incorporated herein by reference to exhibit 1.01 included in
pre-effective Amendment No. 2 to the Registration Statement on
Form S-1, as filed with the Securities and Exchange Commission on
September 25, 1995.
(4) Incorporated herein by reference to exhibit 2.01 included in the
Registration Statement on Form S-1, as filed with the Securities and
Exchange Commission on August 1, 1995.
(5) Incorporated herein by reference to exhibit 2.02 included in the
Registration Statement on Form S-1, as filed with the Securities and
Exchange Commission on August 1, 1995.
(6) Incorporated herein by reference to exhibit 2.03 included in the
Registration Statement on Form S-1, as filed with the Securities and
Exchange Commission on August 1, 1995.
(7) Incorporated herein by reference to the exhibit with the same number
included in the pre-effective Amendment No. 2 to the Registration
Statement on Form S-1, as filed with the Securities and Exchange
Commission on September 25, 1995.
(8) Incorporated herein by reference to the exhibit with the same number
included in the Registrant's Quarterly Report on Form 10-Q for the
period ended February 29, 1996, as filed with the Securities and
Exchange Commission on April 15, 1996.
(9) Incorporated herein by reference to the exhibit with the same number
included in the Registrant's Quarterly Report on Form 10-Q for the
period ended May 31, 1996, as filed with the Securities and Exchange
Commission on July 11, 1996.
68
<PAGE>
EXHIBIT 10.11
NON-RECOURSE PROMISSORY NOTE
$100,000.00 San Jose, California
May 28, 1996
JOSEPH F JAHN AND NANCY L JAHN (each a "Maker", and collectively the "Makers"),
for value received, hereby jointly and severally promise to pay to Portola
Packaging, Inc., dba Cap Snap Co., a California corporation (the "Company" or
the "Beneficiary"), or order (the Company and any subsequent holder of this Note
being together referenced as the "Holder"), the sum of One Hundred Thousand
Dollars ($100,000.00) at the Company's executive offices in California, or at
such other place as Holder may from time to time designate in writing.
Satisfaction of this Note is limited to proceeds from the sale of the Property
hereinafter defined (i.e., payment resulting from enforcement of the rights of
the Holder under the Deed of Trust referenced in Section 3 below ("Deed of
Trust") relating to the parcel of real property described therein (the
"Property") and the Non-Recourse Loan Agreement of even date herewith between
the Makers and the Company ("Loan Agreement")), and neither Maker shall have any
personal liability under this Note.
1. INTEREST. Interest on this Note shall be computed and paid as
specified upon sale of the Property in accordance with the provisions of
Section 8.2.6 of the Loan Agreement, unless this Note is prepaid in accordance
with Section 5 below.
2. AMOUNTS DUE. Unless prepaid in accordance with Section 5 below, upon
payment of this Note the Company shall be entitled to payment of the full
principal amount hereof, to the extent of available funds, as provided in
Section 8.2.4 of the Loan Agreement.
3. DATE NOTE IS DUE. This Note shall be due and payable on the earliest
to occur of the following: (i) the sale of the Property; (ii) six (6) months
following the date JOSEPH F. JAHN ceases to be an employee of the Company for
any reason, including death, disability or retirement; (iii) JOSEPH F. JAHN
ceases to occupy the Property as his primary residence; or (iv) the sixth
anniversary of the date of this Note; provided, however, that if JOSEPH F. JAHN
should die or become disabled while he was employed by the Company, and while he
was occupying the Property as his primary residence, and prior to the sixth
anniversary of the date of this Note, this Note shall not be due and payable
until two years after such death or disability or until NANCY L. JAHN ceases to
occupy the Property as her primary residence, whichever first occurs.
<PAGE>
NON-RECOURSE PROMISSORY NOTE
Page 2
4. METHOD AND TIME OF PAYMENT. This Note shall be paid at the time of
sale of the Property whether as a result of foreclosure under the Deed of Trust,
or as a result of a voluntary sale by Makers. At such date of sale, the Company
shall be entitled to receive the amounts set forth in the Loan Agreement. The
fact that this Note is due and payable on a date is intended to signify that the
Company may foreclose upon the Property under the Deed of Trust and cause it to
be sold, and upon such foreclosure sale to receive amounts set forth in the Loan
Agreement. Prior to the sixth anniversary of the date of this Note, Makers may
prepay this Note as set forth in Section 5 below; otherwise, this Note may only
be paid upon sale of the Property pursuant to the Deed of Trust or as a result
of a voluntary sale by Makers.
5. PREPAYMENT. This Note may be prepaid in full in one or more
installments on or before the sixth anniversary of the date of the Loan
Agreement and upon such payment the Holder shall not be entitled to receive the
amounts described in Sections 8.2.4 and 8.2.6 of the Loan Agreement. To prepay
the principal balance and interest of this Note, Makers shall make a payment
calculated in accordance with the following schedule:
Time period during Aggregate Principal
Which prepayment shall occur: and Interest:
- ----------------------------- -------------------
First year after the date of this Note 106% of the principal balance
Second year after the date of this Note 112.4% of the principal balance
Third year after the date of this Note 119.1% of the principal balance
Fourth year after the date of this Note 126.2% of the principal balance
Fifth year after the date of this Note 133.8% of the principal
balance
Sixth year after the date of this Note 141.8% of the principal balance
In order to exercise this prepayment option, Makers shall also be obliged to pay
concurrently herewith any amounts due to Holder under Section 9.1 of the Loan
Agreement.
<PAGE>
NON-RECOURSE PROMISSORY NOTE
Page 3
6. SECURITY; ACCELERATION PROVISION. This Note is secured by a Deed of
Trust of even date herewith executed by the Makers as Trustor to Stewart Title
of California, a California corporation, as Trustee. Such Deed of Trust
contains, among other things, a provision, which is hereby incorporated in this
Note that if the Trustor shall sell, convey, or alienate said property, or any
part thereof, or any interest therein, or shall be divested of his title or any
interest therein in any manner or way, whether voluntarily or involuntarily,
without the written consent of the Beneficiary being first had and obtained,
Beneficiary shall have the right, at its option, except as prohibited by law, to
declare any indebtedness or obligations secured by the Deed of Trust,
irrespective of the maturity date specified in any note evidencing the same,
immediately due and payable.
7. EVENTS OF DEFAULT. The occurrence of any of the following shall be an
event of default ("Event of Default") hereunder:
7.1 The occurrence of a material breach by the Makers, or either of
them, under this Note or the Loan Agreement.
7.2 The occurrence of a default under the Deed of Trust.
8. REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default
hereunder, the whole sum of principal and interest shall become immediately due
and payable at the option of the Holder.
9. GOVERNING LAWS. It is the intention of the parties hereto that the
internal laws of the State of California (irrespective of its choice of law
principles) shall govern the validity of this Note, the construction of its
terms, and the interpretation and enforcement of the rights and duties of the
parties hereto. The parties hereby agree that any suit to enforce any provision
of this Note arising out of or based upon this Note shall be brought in the
United States District Court for the Northern District of California or the
Superior or Municipal Court for the County of Santa Clara, California. Each
party hereby agrees that such courts shall have in personam jurisdiction with
respect to such party, and each party hereby submits to the in personam
jurisdiction of such courts.
10. ATTORNEYS' FEES. Should suit be brought to enforce or interpret any
part of this Note, the prevailing party shall be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including, without limitation, costs, expenses and fees
on any appeal). The prevailing party shall be the party entitled to recover its
costs of suit, regardless of whether such suit proceeds to final judgment. A
party not entitled to recover its
<PAGE>
NON-RECOURSE PROMISSORY NOTE
Page 4
costs shall not be entitled to recover attorneys' fees. No sum for
attorneys' fees shall be counted in calculating the amount of the judgment
for purposes of determining if a party is entitled to recover costs or
attorneys' fees.
DATED: May 28, 1996 /s/ Joseph F. Jahn
-----------------------
Joseph F. Jahn
DATED: May 28, 1996 /s/ Nancy L. Jahn
-----------------------
Nancy L. Jahn
/s/ Joseph F. Jahn
-----------------------
By: Joseph F. Jahn
Attorney-in-Fact
<PAGE>
EXHIBIT 10.35
RESIGNATION AGREEMENT
THIS RESIGNATION AGREEMENT is made the 28th day of October, 1996 between
Howard R. Girbach ("EMPLOYEE") and Portola Packaging, Inc. ("COMPANY").
R E C I T A L S
A. Employee is the Corporate Vice President of Company.
B. Company and Employee are parties to a stock option agreement dated
November 17, 1992, for 80,000 shares of the common stock of Company, and a stock
option agreement also dated November 17, 1992, for 60,000 shares with vesting
based on certain "Put Value" thresholds (collectively "STOCK OPTIONS").
C. Company and Employee wish to terminate Employee's employment with
Company and to set forth their agreement regarding the same.
NOW THEREFORE, Employee and Company agree as follows:
1. RESIGNATION DATE. Employee resigns his position as an officer of
Company upon signing this Agreement, and as an employee of Company effective
August 31, 1997 ("RESIGNATION DATE"). Employee has previously resigned as a
Director, Chief Executive Officer and Vice Chairman of Portola Packaging Canada,
Ltd.
2. SALARY CONTINUATION PAYMENTS. Until December 31, 1996, and regardless
of whether Employee has obtained other employment, Company will continue to pay
Employee monthly an amount equal to his current monthly salary less applicable
state and federal withholdings. Payment will be made at Company's normal salary
payment dates. Salary Continuation will not in any event commence before the
expiration of eight (8) days after Employee signs this Agreement unless Employee
revokes this Agreement within seven days after he signs this Agreement as
provided in Paragraph 14.
If Employee has not obtained other employment by January 1, 1997, then
starting on that date and continuing until Employee obtains other employment or
August 31, 1997, whichever first occurs, Company will pay Employee monthly an
amount equal to his current monthly salary less applicable state and federal
withholdings, provided, that if Employee obtains other employment prior to
August 31, 1997, Company will pay to Employee a lump sum equal to Employee's
current base salary from the date of other employment or January 1, 1997,
whichever last occurs, to August 31, 1997, or Seventy Five Thousand Dollars
($75,000), whichever is the lesser amount.
<PAGE>
Girbach Resignation Agreement
Page 2
Salary Continuation Payments will be made to Employee in the State of
Texas.
Employee will be permitted to use an office and to make reasonable use
of Company's communication and secretarial services until Employee obtains other
employment or August 31, 1997, whichever first occurs. Employee agrees to make
himself available to consult exclusively with the President of Company at his
request on corporate matters within the scope of Employee's previous
responsibilities.
3. COMPANY PROPERTY. Within ten (10) days after signing this Agreement,
Employee will return to Company his office keys, security card, Company credit
card(s) and all other Company property in his possession. Employee agrees that
he will deliver to Company and not keep or deliver to anyone else, any and all
records, documents, notes, memoranda, specifications, devices, and in general
any and all material relating to Company's business.
4. STOCK OPTIONS. Shares under the Stock Options will continue to vest
under the terms of the Options until, but not after, Employee's Resignation Date
(August 31, 1997), provided, Employee may exercise one of the following choices
with respect to said Options:
(a) Elect to purchase some or all vested shares for the cash exercise price
and within the time set forth in the Options, or allow the rights to expire.
(b) In lieu of cash, Employee may pay the exercise price by delivery of
shares of Company's Class B Common Stock, Series 1, otherwise held by Employee
for not less than six (6) months prior to the date of exercise, subject to the
withholding or reduction of the number of shares issued upon exercise of the
Option sufficient to generate payment by Employee of withholding taxes incurred
on any such exercise, and the delivery of shares otherwise held by Employee to
satisfy income taxes of Employee in excess of withholding requirements, and
provided further, that Employee may exercise this payment choice only if there
will be no charge to the financial statement earnings of the Company, and the
Company obtains the consent of its secured lenders.
5. OUTPLACEMENT SERVICES. Company will provide Employee with
outplacement services until Employee obtains other employment or August 31,
1997, whichever first occurs, at no cost or expense to Employee.
6. CONFIDENTIAL INFORMATION. Employee agrees to hold in strictest
confidence and not to disclose to any person, firm, or corporation or to use to
compete with Company, without the express written authorization of Company,any
confidential or proprietary information relating to Company's business.
Confidential or Proprietary Information includes, but is not limited to: trade
secrets, processes, formulas, computer
<PAGE>
Girbach Resignation Agreement
Page 3
programs, data, know-how, inventions, improvements, techniques, marketing
plans, forecasts, discounts, and customer and supplier lists.
7. NON-SOLICITATION OF EMPLOYEES. Employee agrees that for a period of
one year after the execution of this Agreement, he will not attempt to induce or
assist employees of Company either to cease employment with Company or to accept
employment with any competitor of Company.
8. CONTINUATION OF BENEFITS. Employee will continue to be covered by
Company's medical plans and group insurance in which Employee is currently
enrolled until Employee obtains other employment or August 31, 1997, whichever
first occurs. Upon the termination of Employee's medical coverage, Employee
will be entitled to elect his COBRA right to extend coverage at his own cost and
expense and Company will provide Employee with the necessary forms to make his
election. Employee's automobile allowance will continue to be paid until
December 31, 1996.
9. PARTICIPATION IN BONUS PLAN. Employee will be paid a bonus by Company
for the fiscal year ending August 31, 1996 to the extent Employee has earned the
same under the terms of Company's 1996 Bonus Plan. Payment will be made on
January 2, 1997. Employee recognizes that pursuant to said Plan, amounts
awarded are at the absolute discretion of Company and also subject to certain
covenants in Company's loan agreements.
Employee will not be entitled to a bonus for the fiscal year ending
August 31, 1997.
10. RELEASE. In consideration of the Salary Continuation and the other
consideration received hereunder, Employee hereby releases and discharges
Company (and its directors, officers, shareholders, agents, employees and
attorneys) from any and all debts, demands, actions, causes of action, suits,
claims or liabilities of any kind, both at law and in equity, which Employee or
his successors in interest now have, ever have had or may have in the future,
known or unknown, suspected or unsuspected, against Company arising from or in
any manner related to Employee's employment with Company or the termination of
such employment. This release includes any claim for wrongful discharge, breach
of the covenant of good faith and fair dealing, defamation, interference, fraud
or misrepresentation, benefits, vacation pay, severance or other compensation of
any sort, harassment or discrimination on the basis of race, color, national
origin, religion, age, sex, sexual orientation, disability or marital status,
and/or violation of any and all statutes, rules, regulations or ordinances
whether state, federal or local, including without limitation the Fair
Employment and Housing Act, as amended, Title VII of the Civil Rights Act, as
amended, the Age Discrimination in Employment Act of 1967, as amended ("ADEA"),
and the Americans with Disabilities Act. As used in this paragraph, the term
"employment" shall mean employment with Company that has occurred prior to the
Resignation Date.
<PAGE>
Girbach Resignation Agreement
Page 4
11. ACKNOWLEDGEMENTS. Employee acknowledges that he is waiving and
releasing any rights he may have against Company and that this waiver and
release is knowing and voluntary. Employee and Company agree that this waiver
and release does not apply to any rights or claims that may arise from events
occurring after the date Employee signs this Agreement. Employee acknowledges
that the consideration given for this waiver and release is in addition to
anything of value to which he was already entitled.
12. FREE NEGOTIATION OF AGREEMENT. Employee and Company acknowledge that
this Agreement was freely entered into and negotiated and that both parties had
the opportunity to make proposals, counter proposals and to exchange information
and that neither party took a fixed position in regard to reaching this
Agreement.
13. LEGAL AND FINANCIAL ADVICE. Employee further acknowledges that he has
been advised to consult an attorney and a financial advisor for advice regarding
the effect of this Agreement prior to signing it. Employee also acknowledges
that he was offered and was advised to take at least twenty-one (21) days to
consider this Agreement before signing it. Employee understands that he has the
right to revoke this Agreement for seven (7) days after signing and that this
Agreement shall not be effective until the revocation period has expired.
Employee acknowledges his understanding that if he revokes this Agreement within
seven (7) days after he signs this Agreement, Employee shall not receive the
Salary Continuation, the Option Amendment, the Continuation of Benefits, and the
other benefits provided for in the preceding paragraphs of this Agreement.
Employee acknowledges that the only promises made to him about this Agreement
are contained in this Agreement.
14. WAIVER. Employee has read and fully understands the statutory
language of Section 1542 of the Civil Code of the State of California and,
having been so apprised, and except as provided herein, agrees nevertheless to
waive any and all rights or benefits which he may now have, or in the future may
have, under the terms of Section 1542 of the California Civil Code which states:
"SECTION 1542. GENERAL RELEASE; EXTENT. A general release
does not extend to claims which the creditor does not know
or suspect to exist in his favor at the time of executing
the Release, which if known by him must have materially
affected his settlement with the debtor."
15. FULL AGREEMENT. This Agreement supersedes any prior written or verbal
adjustment of the termination of Employee's employment and constitutes a
complete resolution of all claims against Company. There may be no modification
of this Agreement except in writing signed by the party to be bound. If any of
the above provisions are found null, void, or inoperative for any reason, the
remaining provisions will remain in full force and effect.
<PAGE>
Girbach Resignation Agreement
Page 5
16. NON-ADMISSION. This Agreement constitutes the compromise and
settlement of disputed claims. Nothing contained in this Agreement shall
constitute, be construed as, or be deemed to be an admission of fault, liability
or wrongdoing on the part of any party. Company and Employee expressly deny any
fault, liability or wrongdoing on behalf of themselves and on behalf of each
other.
17. FULL UNDERSTANDING. Employee and Company acknowledge that they have
read the above paragraphs and full understand the terms, nature, and effect of
this Resignation Agreement, which they voluntarily execute in good faith and
deem to be a fair and equitable settlement of this matter.
IN WITNESS WHEREOF, the parties have executed this Resignation Agreement as
of the date set forth above.
PORTOLA PACKAGING, INC. EMPLOYEE
By: /s/ Jack L. Watts /s/ Howard R. Girbach
------------------------ ---------------------
Jack L. Watts, President Howard R. Girbach
<PAGE>
EXHIBIT 10.36
DIRECTOR'S AGREEMENT
This Directors' Agreement ("Agreement") is made as of May 20, 1996 by and
between Portola Packaging, Inc., a Delaware corporation ("PPI") and Jeffrey
Pfeffer, a director of PPI ("Director").
R E C I T A L S
A. PPI desires to retain Director as a member of PPI's Board of Directors
and Director desires to be so retained by PPI.
B. PPI desires to retain Director as a member of PPI's Compensation
Committee and Director desires to be so retained by PPI.
C. PPI and Director wish to memorialize the monetary compensation to be
provided by PPI to Director in exchange for his service as a director of PPI and
as a member of PPI's Compensation Committee.
A G R E E M E N T
NOW, THEREFORE, the parties mutually agree as follows:
1. RETENTION AS DIRECTOR AND MEMBER OF COMPENSATION COMMITTEE. Upon the
terms and conditions set forth in this Agreement, PPI retains Director as a
member of its Board of
<PAGE>
Director's Agreement
Portola Packaging, Inc. / Jeffrey Pfeffer
Page 2
Directors and as a member of the Compensation Committee on an independent
contractor basis and Director hereby accepts such retention. Subject to
compliance with the terms and provisions of the Delaware General Corporation
Law, either Director or PPI may terminate Director's retention as a director
and as a member of the Compensation Committee of PPI hereunder at any time.
Director acknowledges and understands that his retention as a director and a
member of the Compensation Committee of PPI is at the sole and absolute
discretion and election of the Board of Directors and stockholders of PPI and
that there is no commitment on the part of PPI to retain Director hereunder
for any fixed period of time.
2. COMPENSATION.
2.1 So long as Director remains a director of PPI, PPI agrees to
compensate Director by the payment of an annual retainer of Ten Thousand Dollars
($10,000) per fiscal year commencing May 1, 1996. This fee shall be payable in
four (4) equal quarterly installments of Two Thousand Five Hundred Dollars
($2,500) each in arrears commencing with the fiscal quarter ending May 31, 1996
and on the expiration of each fiscal quarter thereafter as long as Director
remains a director of PPI on the expiration of each such fiscal quarter. The
retainer for the quarter ending May 31, 1996 shall be pro rated. In the event
Director ceases to be a director of PPI at any time, Director shall no longer be
entitled to any further payments from PPI but
<PAGE>
Director's Agreement
Portola Packaging, Inc. / Jeffrey Pfeffer
Page 3
shall receive a final retainer payment prorated to the date Director ceases
to be a director. In addition to such annual retainer, PPI agrees to further
compensate Director by the payment of a director's fee equal to Two Thousand
Dollars ($2,000) for each meeting of PPI's Board of Directors actually
attended by Director. Director shall be considered to have attended a Board
of Director's meeting if Director is present at such meeting either in
person or by conference telephone. PPI shall also reimburse Director for any
and all reasonable out-of-pocket expenses incurred by Director in serving as
a director hereunder including all reasonable out-of-pocket expenses incurred
in attending meetings of PPI's Board of Directors. The maximum compensation
payable to Director shall be Twenty-Two Thousand Dollars ($22,000) per
fiscal year of PPI. In the event PPI holds less than six (6) Board of
Directors' meetings in a fiscal year, Director shall be compensated for the
Board of Directors' meetings he has attended in an aggregate amount equal to
Twelve Thousand Dollars ($12,000) less Two Thousand Dollars ($2,000) for each
Board of Directors meeting not attended by the Director in such fiscal year.
Any of such amount not paid during the fiscal year shall be due thirty (30)
days after the end of such fiscal year. If PPI has more than six (6) Board
of Directors' meetings in a year, Director shall not be compensated for
attending more than six (6) of such meetings at the rate of Two Thousand
Dollars ($2,000) per meeting. Provided that Director has attended six (6)
such meetings, he shall be entitled
<PAGE>
Director's Agreement
Portola Packaging, Inc. / Jeffrey Pfeffer
Page 4
to compensation of Twenty-Two Thousand Dollars ($22,000) for such fiscal
year. All monetary compensation due by PPI to Director hereunder shall be
paid as may be directed by Director from time to time.
2.2 So long as Director remains a member of the Compensation Committee of
PPI, PPI agrees to compensate Director by the payment of an annual retainer of
Four Thousand Dollars ($4,000) per fiscal year commencing May 1, 1996. This fee
shall be payable in four (4) equal quarterly installments of One Thousand
Dollars ($1,000) each in arrears commencing with the fiscal quarter ending
May 31, 1996 and on the expiration of each fiscal quarter thereafter as long as
Director remains a member of the Compensation Committee of PPI on the expiration
of each such fiscal quarter. The retainer for the quarter ending May 31, 1996
shall be pro rated. In the event Director ceases to be a member of the
Compensation Committee of PPI at any time, Director shall no longer be entitled
to any further payments from PPI but shall receive a final retainer payment
prorated to the date Director ceases to be a member of the Compensation
Committee. PPI shall also reimburse Director for any and all reasonable out-of-
pocket expenses incurred by Director in serving as a member of the Compensation
Committee hereunder including all reasonable out-of-pocket expenses incurred in
attending meetings of PPI's Compensation Committee. All monetary compensation
due by PPI to Director hereunder shall be paid as may be directed by Director
from time to time.
<PAGE>
Director's Agreement
Portola Packaging, Inc. / Jeffrey Pfeffer
Page 5
3. NATURE OF RETENTION. Director is retained by PPI on an independent
contractor basis. Nothing contained in this Agreement shall be construed to
appoint Director as an agent or employee of PPI in any capacity or to authorize
Director to represent or bind PPI in any way whatsoever. PPI and Director agree
that director's duties pursuant to this Agreement shall be limited to acting as
a Director of PPI and such duties as are incident or related thereto. Director
agrees to advise any and all third parties that Director does not have any
authority to represent or bind PPI in any way whatsoever. Director shall cause
the timely payment of all federal, state and local income or similar taxes due
as the result of any compensation paid to Director hereunder and shall indemnify
and hold PPI harmless from and against any liability therefor.
4. MISCELLANEOUS.
4.1 GOVERNING LAWS. IT IS THE INTENTION OF THE PARTIES HERETO THAT
THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A. (IRRESPECTIVE OF ITS CHOICE
OF LAW PRINCIPALS) SHALL GOVERN THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION
OF ITS TERMS AND THE INTERPRETATION OF THE RIGHTS AND DUTIES OF THE PARTIES.
4.2 BINDING UPON SUCCESSORS. Each and all the covenants, terms,
provisions and agreements contained in this Agreement
<PAGE>
Director's Agreement
Portola Packaging, Inc. / Jeffrey Pfeffer
Page 6
shall be binding upon and shall inure to the benefit of the permitted
successors and assigns of the parties hereto.
4.3 ENTIRE AGREEMENT. This Agreement constitutes the entire understanding
and agreement of the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous agreements or understandings.
4.4 NOTICES. Whenever any party desires or is required to give any notice
with respect to this Agreement, each such communication shall be in writing and
shall be effective only if it is delivered by personal service, facsimile
transmission (followed immediately by written notice in accordance with this
Section) or sent postage prepaid by overnight courier or similar service
addressed as follows:
PPI: Portola Packaging, Inc.
890 Faulstich Court
San Jose, CA 95112
Attn: Chief Executive Officer
DIRECTOR: Mr. Jeffrey Pfeffer
Graduate School of Business
Stanford University
Stanford,CA 94305-5015
Such communications shall be effective when they are received by the
addressee, but if sent by courier service in the manner set forth above, they
shall be effective two (2) days after being delivered to such courier. Any
party may change its
<PAGE>
Director's Agreement
Portola Packaging, Inc. / Jeffrey Pfeffer
Page 7
address for such communication by giving an appropriate notice to the other
party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first hereinabove written.
DIRECTOR:
/s/ Jeffrey Pfeffer
------------------------------
Jeffrey Pfeffer
PORTOLA PACKAGING, INC.
By: /s/ Jack L. Watts
-------------------------
Jack L. Watts,
Chief Executive Officer
<PAGE>
EXHIBIT 10.37
INDEMNIFICATION AGREEMENT
This Agreement made and entered as of this 20th day of May, 1996
("AGREEMENT"), by and between Portola Packaging, Inc., a Delaware corporation
(the "COMPANY"), and Jeffrey Pfeffer ("INDEMNITEE"):
WHEREAS, it is essential to the Company that it be able to retain and
attract as directors and officers the most capable persons available;
WHEREAS, the substantial increase in corporate litigation that may subject
directors and officers to litigation costs and risks and the recent limitations
on the availability of directors and officers liability insurance have made and
will make it increasingly difficult for the Company to attract and retain such
persons;
WHEREAS, the Bylaws of the Company require the Company to indemnify and
advance expenses to its directors and officers to the fullest extent permitted
by law and authorize the Company to enter into agreements providing for such
indemnification; and
WHEREAS, in recognition of the fact that the Indemnitee has agreed to serve
as a director of the Company in part in reliance on the Company's Bylaws and the
fact of Indemnitee's need for written assurance that the substantial protection
promised by such Bylaws will be available to Indemnitee (regardless, among other
things, of any amendment to or revocation of such Bylaws or any change in the
composition of the Company's Board of Directors or any acquisition transaction
relating to the Company), and due to the potential inadequacy of the Company's
directors and officers liability insurance coverage or the unavailability of
such coverage, the Company wishes to provide in this Agreement for the
indemnification of, and the advancing of expenses to, Indemnitee to the fullest
extent (whether partial or complete) permitted by law and as set forth in this
Agreement, and, to the extent insurance is obtained, for the continued coverage
of Indemnitee under the Company's directors and officers liability insurance
policies;
NOW, THEREFORE; in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. DEFINITIONS. For purposes of this Agreement:
(a) "CHANGE OF CONTROL" shall mean the occurrence of any of the
following events:
(1) any Person who is not now the beneficial owner, directly or
indirectly, of twenty percent (20%) or more of
<PAGE>
Portola Packaging, Inc. / Jeffrey Pfeffer
Indemnification Agreement
Page 2
the Company's Common Stock, becomes the beneficial owner, directly or
indirectly, of twenty percent (20%) or more of the Company's Common Stock
and thereafter individuals who were not directors of the Company prior to
the date such Person became a twenty percent (20%) owner are elected as
directors pursuant to an arrangement or understanding with, or upon the
request of or nomination by, such Person and constitute at least one-third
(1/3) of the Company's Board of Directors; or
(2) there occurs a change of control of the Company of a nature
that would be required to be reported in response to Item 6(e) of
Schedule 14A promulgated under the Securities Exchange Act of 1934 (the
"EXCHANGE ACT"), in a Form 8-K filed under the Exchange Act or in any other
filing by the Company with the Securities and Exchange Commission (the
"COMMISSION"); or
(3) there occurs any solicitation of proxies by or on behalf of
any Person other than the Company's Board of Directors and thereafter
individuals who were not directors of the Company prior to the commencement
of such solicitation are elected as directors pursuant to an arrangement or
understanding with, or upon the request of or nomination by, such Person
and constitute at least one-third (1/3) of the Company's Board of
Directors; or
(4) the Company executes an agreement of acquisition, merger or
consolidation which contemplates that (i) after the effective date provided
for in the agreement, all or substantially all of the business and/or
assets of the Company shall be owned, leased or otherwise controlled by
another corporation or other entity and (ii) individuals who are directors
of the Company when such agreement is executed shall not constitute a
majority of the Board of Directors of the survivor or successor company
immediately after the effective date provided for in such agreement;
provided, however, for purposes of this paragraph (4) that if such
agreement requires as a condition precedent approval by the Company's
stockholders of the agreement or transaction, a change of control shall not
be deemed to have taken place unless and until such approval is secured.
(b) "COMMON STOCK" shall mean the then outstanding Common Stock of
the Company plus, for purposes of determining the stock ownership of any Person,
the number of unissued shares of Common Stock which such Person has the right to
acquire (whether such right is exercisable immediately or only after the passage
of time) upon the exercise of conversion rights, exchange rights, warrants or
options or otherwise.
<PAGE>
Portola Packaging, Inc. / Jeffrey Pfeffer
Indemnification Agreement
Page 3
(c) "CORPORATE STATUS" describes the status of a person who is or was
or has agreed to become a director of the Company, or is or was or has agreed to
become an officer or fiduciary of the Company or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise for
which such person is or was serving or has agreed to serve at the request of the
Company.
(d) "DISINTERESTED DIRECTOR" means a director of the Company who is
not and was not a party to the Proceeding in respect of which indemnification is
sought by Indemnitee.
(e) "EXPENSES" shall include all reasonable attorney's fees,
retainers, court costs, transcript costs, fees of experts, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend or investigating a Proceeding, but shall not include the
amount of judgments, fines or penalties against Indemnitee or amounts paid in
settlement of a Proceeding in respect of which indemnification is sought by
Indemnitee.
(f) "INDEPENDENT COUNSEL" means a law firm of one hundred (100) or
more lawyers that is experienced in matters of Delaware corporation law and
neither presently is, nor in the past five (5) years has been, retained to
represent: (i) the Company or Indemnitee in any matter material to either such
party, or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person, who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement.
(g) "PERSON" shall have the meaning used in Section 13(d) of the
Exchange Act.
(h) "PROCEEDING" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, administrative hearing, appeal, or any other proceeding, whether
civil, criminal, administrative or investigative, arising on or after the date
of this Agreement (and regardless of when the Indemnitee's act or failure to act
occurred), except one initiated by an Indemnitee pursuant to Section 10 of this
Agreement to enforce his rights under this Agreement.
2. SERVICES BY INDEMNITEE. Indemnitee agrees to serve or continue to
serve as a director and/or officer of the Company. This
<PAGE>
Portola Packaging, Inc. / Jeffrey Pfeffer
Indemnification Agreement
Page 4
Agreement shall not impose any obligation on Indemnitee or the Company to
continue Indemnitee's position with the Company beyond any period otherwise
applicable.
3. GENERAL. The parties agree and acknowledge that it is their intent
that the Company shall indemnify Indemnitee to the fullest extent permitted by
law and, therefore, that this Agreement shall be construed and enforced to
effectuate such intent. To the extent that a change in Delaware law (whether by
statute or judicial decision) permits greater indemnification by agreement than
would be afforded currently under the Bylaws of the Company and this Agreement,
it is the further intent of parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits so afforded by such change. Consequently, to the
extent Delaware law shall permit broader contractual indemnification, this
Agreement shall be deemed amended to incorporate such broader indemnification.
The rights of Indemnitee hereunder shall be in addition to any other rights
Indemnitee may have under the Bylaws of the Company, Delaware law or otherwise.
4. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY.
Indemnitee shall be entitled to the rights of indemnification provided in this
Section 4 if, by reason of his Corporate Status, he was, is, or is threatened to
be made, a party to any Proceeding other than a Proceeding by or in the right of
the Company. Pursuant to this Section 4, Indemnitee shall be indemnified
against Expenses, judgments, penalties and fines (including excise taxes
assessed to Indemnitee with respect to an employee benefit plan) and amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with such Proceeding or any claim, issue or matter therein if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
5. PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. Indemnitee shall be
entitled to the rights of indemnification provided in this Section 5 if, by
reason of his Corporate Status, he was, is, or is threatened to be made, a party
to any Proceeding brought by or in the right of the Company to procure a
judgment in its favor. Pursuant to this Section 5, Indemnitee shall be
indemnified against Expenses and, to the extent permitted by applicable law,
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company. Notwithstanding the foregoing, no indemnification against such
Expenses shall be made in respect of any claim, issue or matter as to which
Indemnitee shall have been adjudged to be liable to the Company; provided
however, that indemnification against Expenses shall nevertheless be made by the
Company in such event to the extent that the Court of Chancery of the State of
Delaware, or the court in
<PAGE>
Portola Packaging, Inc. / Jeffrey Pfeffer
Indemnification Agreement
Page 5
which such Proceeding shall have been brought or is pending, shall determine.
6. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR PARTIALLY
SUCCESSFUL. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section and without limitation, the
termination of any Proceeding or any claim, issue or matter in any Proceeding by
dismissal or withdrawal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter.
7. ADVANCE OF EXPENSES. The Company shall advance all reasonable
Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding within twenty (20) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred or
to be incurred by Indemnitee and shall include or be preceded or accompanied by
an undertaking by or on behalf of Indemnitee to repay any Expenses advanced to
the extent it shall ultimately be determined that Indemnitee is not entitled to
be indemnified against any such Expenses.
8. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant
to Section 8(a) hereof, a determination, if required by applicable law, with
respect to Indemnitee's entitlement thereto under Delaware law shall be made in
the specific case: (i) if a Change of Control shall have occurred, by
Independent Counsel (unless Indemnitee shall request that such determination be
made by the Board of Directors or the stockholders, in which case the
<PAGE>
Portola Packaging, Inc. / Jeffrey Pfeffer
Indemnification Agreement
Page 6
determination shall be made in the manner provided below in clauses (ii) or
(iii)) in a written opinion to the Board of Directors, a copy of which shall be
delivered to Indemnitee; (ii) if a Change of Control shall not have occurred,
(A) by the Board of Directors by a majority vote of the Disinterested Directors,
even though less than a quorum, or (B) if there are no Disinterested Directors,
or if the Disinterested Directors so direct, by Independent Counsel in a written
opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee or (C) by the stockholders of the Company; or (iii) as provided in
Section 9(b) of this Agreement; and, if it is so determined that Indemnitee is
entitled to indemnification, payment to Indemnitee shall be made within ten (10)
days after such determination. Indemnitee shall cooperate with the person,
persons or entity making such determination with respect to Indemnitee's
entitlement to indemnification, including providing to such person, persons or
entity upon reasonable advance request any documentation or information which is
not privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys fees and disbursements) incurred by
Indemnitee in so cooperating shall be borne by the Company (irrespective of the
determination as to Indemnitee's entitlement to indemnification) and the Company
hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 8(b) of this Agreement,
the Independent Counsel shall be selected as provided in this Section 8(c). If
a Change of Control shall not have occurred, the Independent Counsel shall be
selected by the Board of Directors, and the Company shall give written notice to
Indemnitee advising him of the identity of the Independent Counsel so selected.
If a Change of Control shall have occurred, the Independent Counsel shall be
selected by Indemnitee (unless Indemnitee shall request that such selection be
made by the Board of Directors, in which event the preceding sentence shall
apply), and Indemnitee shall give written notice to the Company advising it of
the identity of the Independent Counsel so selected. In either event,
Indemnitee or the Company, as the case may be, may, within seven (7) days after
such written notice of selection shall have been given, deliver to the Company
or to Indemnitee, as the case may be, a written objection to such selection.
Such objection may be asserted only on the ground that the Independent Counsel
so selected does not meet the requirements of "Independent Counsel" as defined
in Section 1 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. If such written objection is
made, the Independent Counsel so selected may not serve as Independent Counsel
unless and until a court, pursuant to the provisions of the following sentence,
has determined that such objection is without merit. If, within twenty (20)
days after submission by Indemnitee of
<PAGE>
Portola Packaging, Inc. / Jeffrey Pfeffer
Indemnification Agreement
Page 7
a written request for indemnification pursuant to Section 8(a) hereof, no
Independent Counsel shall have been selected or if selected, shall have been
objected to, in accordance with this Section 8(c), either the Company or
Indemnitee may petition the Court of Chancery of the State of Delaware or
other court of competent jurisdiction for resolution of any objection which
shall have been made by the Company or Indemnitee to the other's selection of
Independent Counsel and/or for the appointment as Independent Counsel of a
person selected by the Court or by such other person as the Court shall
designate, and the person with respect to whom an objection is favorably
resolved or the person so appointed shall act as Independent Counsel under
Section 8(b) hereof. The Company shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 8(b) hereof, and the Company shall
pay all reasonable fees and expenses incident to the procedures of this
Section 8(c), regardless of the manner in which such Independent Counsel was
selected or appointed.
9. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(a) In making a determination with respect to entitlement to
indemnification hereunder, the person, persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 8(a) of this Agreement, and the Company shall have the
burden of proof to overcome that presumption in connection with the making by
any person, persons or entity of any determination contrary to that presumption.
(b) If the person, persons or entity empowered or selected under
Section 8 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made such determination within sixty (60) days
after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such sixty
(60)-day period may be extended for a reasonable time, not to exceed an
additional thirty (30) days, if the person or entity making the determination
with respect to entitlement to indemnification in good faith requires such
additional time for the obtaining or evaluation of documentation and/or
information relating thereto; and provided, further, that the foregoing
provisions of this Section 9(b) shall not apply if the determination of
entitlement to indemnification is to be made by the stockholders pursuant to
Section 8(b) of this Agreement and if (A) within fifteen (15) days after
<PAGE>
Portola Packaging, Inc. / Jeffrey Pfeffer
Indemnification Agreement
Page 8
receipt by the Company of the request for such determination the Board of
Directors has resolved to submit such determination to the stockholders for
their consideration at a meeting thereof to be held within seventy-five (75)
days after such receipt and such determination is made thereat, or (B) a
special meeting of stockholders is called within fifteen (15) days after such
receipt for the purpose of making such determination, such meeting is held
for such purpose within sixty (60) days after having been so called and such
determination is made thereat.
(c) The termination of any Proceeding or of any claim, issue or
matter therein by judgment, order, settlement (whether with or without court
approval), conviction, or upon a plea of NOLO CONTENDERE or its equivalent,
shall not (except as otherwise expressly provided in this Agreement) of itself
adversely affect the right of Indemnitee to indemnification or create a
presumption that Indemnitee did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the Company
or, with respect to any criminal Proceeding, that Indemnitee had reasonable
cause to believe that his conduct was unlawful or that a court has determined
that indemnification is not permitted by applicable law.
10. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made pursuant to
Section 8 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 7 of this Agreement, (iii) payment of indemnification is not made
pursuant to Section 6 of this Agreement within ten (10) days after receipt by
the Company of a written request therefor, or (iv) payment of indemnification is
not made within ten (10) days after a determination has been made that
Indemnitee is entitled to indemnification or such determination is deemed to
have been made pursuant to Section 9(b) of this Agreement, Indemnitee shall be
entitled to an adjudication in an appropriate court of the State of Delaware, or
in any other court of competent jurisdiction, of his entitlement to such
indemnification or advancement of Expenses. Alternatively, Indemnitee, at his
option, may seek an award in arbitration to be conducted by a single arbitrator
pursuant to the rules of the American Arbitration Association. The Company
shall not oppose Indemnitee's right to seek any such adjudication or award in
arbitration.
(b) In the event that a determination shall have been made pursuant
to Section 8 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial Proceeding or arbitration commenced pursuant to
this Section 10 shall be conducted in all respects as a DE NOVO trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. In any judicial Proceeding or arbitration commenced
<PAGE>
Portola Packaging, Inc. / Jeffrey Pfeffer
Indemnification Agreement
Page 9
pursuant to this Section 10, the Company shall have the burden of proving that
Indemnitee is not entitled to indemnification or advancement of Expenses, as the
case may be.
(c) If a determination shall have been made or deemed to have been
made pursuant to Section 8 or 9 of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 10, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial
Proceeding or arbitration commenced pursuant to this Section 10 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
11. LIABILITY INSURANCE. To the extent the Company maintains an insurance
policy or policies providing directors and officers liability insurance,
Indemnitee shall be covered by such policy or policies, in accordance with its
or their terms, to the maximum extent of the coverage available for any director
or officer of the Company.
12. NON-EXCLUSIVITY; DURATION OF AGREEMENT; SUBROGATION.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Company's certificate of incorporation or Bylaws, any other agreement,
a vote of stockholders or a resolution of directors, or otherwise. This
Agreement shall continue as to Indemnitee even though he may have ceased to have
his Corporate Status and shall inure to the benefit of Indemnitee and his heirs,
personal representatives, executors and administrators. This Agreement shall be
binding upon the Company and its successors (including any direct or indirect
successor by merger or consolidation or the acquisition, however effected, of
all or a substantial portion of the business and/or assets of the Company) and
assigns. The Company shall require and cause any such successor or assign, by
written agreement in form and substance satisfactory to Indemnitee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession or
assignment had occurred.
(b) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all
<PAGE>
Portola Packaging, Inc. / Jeffrey Pfeffer
Indemnification Agreement
Page 10
of the rights of recovery of Indemnitee, who shall execute all papers
required and take all action necessary to secure such rights, including
execution of such documents as are necessary to enable the Company to bring
suit to enforce such rights.
(c) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
13. SECURITY. To the extent requested by Indemnitee and approved by the
Board, the Company may at any time and from time to time provide security to
Indemnitee for the Company's obligations hereunder through an irrevocable bank
line of credit, funded trust or other collateral. Any such security, once
provided to Indemnitee, may not be revoked or released without the prior written
consent of Indemnitee. Nothing in this Section 13 shall relieve the Company of
any of its obligations under this Agreement.
14. FEES AND EXPENSES OF ENFORCEMENT. In the event that the Company fails
to comply with any of its obligations under this Agreement or in the event that
the Company or any other person takes any action to declare this Agreement void
or unenforceable, or institutes any action, suit or Proceeding to deny or to
recover from Indemnitee the benefits intended to be provided to Indemnitee
hereunder, and Indemnitee prevails in any Proceeding to enforce Indemnitee's
rights hereunder, the Company shall pay and be solely responsible for any and
all costs, charges, and expenses, including, without limitation, fees and
expenses of attorneys and others, reasonably incurred by Indemnitee in
connection therewith.
15. SEVERABILITY. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever: (a)
the validity, legality and enforceability of the remaining provisions of this
Agreement (including, without limitation, each portion of any Section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
16. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF EXPENSES.
Notwithstanding any other provision of this Agreement, prior to a Change of
Control, Indemnitee shall not be entitled to
<PAGE>
Portola Packaging, Inc. / Jeffrey Pfeffer
Indemnification Agreement
Page 11
indemnification or advancement of Expenses under this Agreement with respect
to any Proceeding, or any claim therein, brought or made by him against the
Company or any director or officer of the Company unless the Company has
joined in or consented to the initiation thereof; provided, however, that
this Section 16 shall in no way impair or otherwise adversely affect
Indemnitee's rights under Section 14.
17. HEADINGS. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
18. MODIFICATION AND WAIVER. This Agreement shall be amended to reflect
any changes in Delaware law (whether statutory or judicial) which broaden the
right of Indemnitee to receive indemnification from the Company and may be
amended from time to time for other reasons. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto, except that no writing shall be required for an amendment
in accordance with Section 3. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
19. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder; provided, however, that the failure to give any such notice
shall not disqualify Indemnitee from indemnification hereunder.
20. SPECIFIC PERFORMANCE. The parties recognize that if any provision of
this Agreement is violated by the Company, Indemnitee may be without an adequate
remedy at law. Accordingly, in the event of any such violation, Indemnitee
shall be entitled, if Indemnitee so elects, to institute proceedings, either in
law or at equity, to obtain damages, to enforce specific performance, to enjoin
such violation, or to obtain any relief or any combination of the foregoing as
Indemnitee may elect to pursue.
21. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third (3rd) business day after the
date on which it is so mailed:
<PAGE>
Portola Packaging, Inc. / Jeffrey Pfeffer
Indemnification Agreement
Page 12
If to Indemnitee, to: Address set forth on the signature page hereto.
If to the Company to: Portola Packaging, Inc.
890 Faulstich Court
San Jose, CA 95112
Attn: Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
22. GOVERNING LAW. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware applicable to contracts made and to be performed entirely in
such state without giving effect to the provisions thereof relating to conflicts
of law.
23. AGREEMENT GOVERNS. In the event of any conflict between any provision
of this Agreement and any provision of the Company's Bylaws, this Agreement
shall govern to the extent that the provision of this Agreement is legally
enforceable.
24. GENDER. Any masculine pronoun used in this Agreement shall be deemed
to include the feminine, where applicable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
PORTOLA PACKAGING, INC.,
a Delaware corporation
By:
--------------------------------------------
Title:
-----------------------------------------
INDEMNITEE:
-------------------------------------------------
Jeffrey Pfeffer
INDEMNITEE'S ADDRESS:
-----------------------------
-----------------------------
-----------------------------
<PAGE>
EXHIBIT 10.38
PORTOLA PACKAGING, INC.
FIRST AMENDMENT TO INDEMNIFICATION AGREEMENT
THIS FIRST AMENDMENT ("FIRST AMENDMENT"), by and between PORTOLA PACKAGING,
INC., a Delaware corporation (the "COMPANY"), and ________ (the "INDEMNITEE"),
is made as of the 20th day of May, 1996.
R E C I T A L S
A. The Company has previously entered into an Indemnification Agreement
with Indemnitee ("PRIOR AGREEMENT") dated _____, 199_.
B. The Company and Indemnitee now deem it advisable and in their best
interests to amend the Prior Agreement to comply with recent amendments to the
Delaware General Corporation Law.
A G R E E M E N T
NOW, THEREFORE, in reliance on the foregoing Recitals and in consideration
of the mutual covenants hereinafter set forth, the parties hereby agree that
Sections 8(b)(ii)(A) and (B), 16 and 18 of the Prior Agreement are amended to
read as follows:
8(b)(ii) (A) by the Board of Directors by a majority vote of Disinterested
Directors, even though less than a quorum, or (B) if there are no Disinterested
Directors, or if the Disinterested Directors so direct, by Independent Counsel
in a written opinion to the Board of Directors, a copy of which shall be
delivered to Indemnitee.
16. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF EXPENSES.
Notwithstanding any other provision of this Agreement, prior to a Change of
Control, Indemnitee shall not be entitled to indemnification or advancement
of Expenses under this Agreement with respect to any Proceeding, or any claim
therein, brought or made by him against the Company or any director or
officer of the Company unless the Company has joined in or consented to the
initiation thereof; provided, however, that this Section 16 shall in no way
impair or otherwise adversely affect Indemnitee's rights under Section 14.
18. MODIFICATION AND WAIVER. This Agreement shall be amended to
reflect any changes in Delaware law (whether statutory or judicial) which
broaden the right of Indemnitee to receive indemnification from the Company
and may be amended from time to time for other reasons. No supplement,
modification or amendment of this Agreement shall be binding unless executed
in writing by both of the parties hereto, except that no writing shall be
required for an amendment in accordance with Section 3. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
<PAGE>
First Amendment to
Indemnification Agreement
Portola Packaging, Inc.
Page 2
All other terms and provisions of the Prior Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date first hereinabove written.
COMPANY: INDEMNITEE:
PORTOLA PACKAGING, INC. -------------------------
(signature)
By:
------------------------------- -------------------------
Title: (name printed)
----------------------------
Address: 890 Faulstich Court Address:
San Jose, CA 95112
-------------------------
-------------------------
<PAGE>
EXHIBIT 10.39
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
THE SECURITY REPRESENTED BY THIS AGREEMENT HAS BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION
WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR
DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.
PORTOLA PACKAGING, INC.
DIRECTOR NON-QUALIFIED STOCK OPTION AGREEMENT
THIS DIRECTOR NON-QUALIFIED STOCK OPTION AGREEMENT ("AGREEMENT") by and
between Portola Packaging, Inc., a Delaware corporation (the "COMPANY"), and
______________________ (the "OPTIONEE"), is made as of the _________ day of
______________________, 199________ (such date being sometimes referred to
herein as the date of "grant").
R E C I T A L S
A. The Company has adopted and implemented its 1994 Stock Option Plan (the
"PLAN") permitting the grant of stock options to employees and consultants
(including members of the Company's Board of Directors who are not employees of
the Company) of the Company and its subsidiary corporations (as defined in the
Plan), some of which are intended to be non-qualified stock options in that they
do not qualify as incentive stock options within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "INTERNAL REVENUE CODE"), to
purchase shares of the authorized but unissued Class B Common Stock, Series 1 or
treasury shares of the Company ("COMMON STOCK").
B. _____________________ ("DIRECTOR") is a director of the Company and a
beneficial owner or employee of the Optionee.
C. The Board of Directors (or a duly authorized Committee thereof) of the
Company (in either case, referred to herein as the "BOARD") has authorized the
granting of a non-qualified stock option to the Optionee, thereby allowing the
Director, or Director's employer to acquire an ownership interest (or increase
its, his or her ownership interest) in the Company and has permitted a one-time
assignment of such non-qualified stock option from the Director to the Optionee.
A G R E E M E N T
NOW, THEREFORE, in reliance on the foregoing Recitals and in consideration
of the mutual covenants hereinafter set forth, the parties hereby agree as
follows:
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Director Non-Qualified Stock Option Agreement
Portola Packaging, Inc./_____________________
Page 2
1. GRANT OF STOCK OPTION. The Company hereby grants to the Optionee a
non-transferable and non-assignable option to purchase an aggregate of up to
__________________ (____________) shares of the Company's Common Stock, par
value $0.001, with a per share exercise price of ________________ ($_________)
per share, upon the terms and conditions set forth herein. (Such purchase right
being sometimes referred to herein as "THE OPTION" or "THIS OPTION").
2. TERM AND TYPE OF OPTION. Unless earlier terminated in accordance with
Sections 6 or 7.2 hereof, the Option and all rights of the Optionee to purchase
Common Stock hereunder shall expire with respect to all of the shares then
subject to this Agreement at 5:00 p.m. Pacific time on
_________________________, _________. This Option is a non-qualified stock
option in that it is not intended to qualify as an incentive stock option within
the meaning of Section 422 of the Internal Revenue Code. Accordingly, the
Optionee understands that under current law it will recognize ordinary income
for federal income tax purposes in connection with exercise of this Option in an
amount equal to the excess (if any) of the fair market value of the shares of
Common Stock so purchased (determined as of the date of such exercise) over the
exercise price paid for such shares.
3. EXERCISE SCHEDULE. Subject to the remaining provisions of this
Agreement, this Option shall be exercisable as follows:
3.1 FIRST INSTALLMENT. Subject to Sections 3.4 and 7.2, commencing
upon), _________________________, 199_____ (the "INITIAL EXERCISE DATE"), the
Optionee may exercise this option for up to twenty percent (20%) of the shares
covered hereby.
3.2 SUBSEQUENT INSTALLMENTS. Upon the first day of each
_____________, _____________, _____________ and _____________ following the
Commencement Date, and continuing thereafter on the first day of each subsequent
calendar quarter, the Director may exercise this Option for up to an additional
____________ percent (__%) of the shares covered hereby (rounded up to the
nearest whole number of shares), so that this Option shall become fully
exercisable as of ___________, 19__. Subject to Section 7, in no event shall
the Option be exercisable for more shares than the number of shares set forth in
Section 1.
3.3 CUMULATIVE NATURE OF EXERCISE SCHEDULE. The exercise dates
specified above refer to the earliest dates on which the Option may be exercised
with respect to the stated percentages of the Common Stock covered by this
Option and this Option may be exercised with respect to all or any part of any
such percentage of the total shares at any time on or after such dates (until
the expiration date specified in Section 2 above or any earlier termination of
this Option pursuant to Section 6 or 7.2 of this Agreement). Except as
permitted in Section 6, the Director must be and remain a director or employee
of the Company, or of any parent or subsidiary corporation of the Company (as
defined in Internal Revenue Code Sections 424(e) and (f)), during the entire
period commencing with the date of grant of this Option and ending with each of
the periods appearing in the above schedule in order to exercise this Option
with respect to the shares applicable to any such period. Any references in
this Agreement to the Director serving as a member of the Board or employee of
the Company shall be deemed to also refer to the Director serving as a member of
the Board or employee of any parent or subsidiary of the Company, as applicable.
3.4 EXERCISABILITY; OVERRIDING LIMITATION ON TIME FOR EXERCISE.
Subject to the remaining provisions of this Agreement, the Option shall be
exercisable at a rate of at least twenty percent (20%) of the number of shares
subject to the Option for each year after the date of grant (i.e., at a rate so
as to become fully exercisable at the end of five (5) years). Notwithstanding
any other provisions of this Agreement, the Option may not be exercised after
the expiration of ten (10) years from the date of grant.
<PAGE>
Director Non-Qualified Stock Option Agreement
Portola Packaging, Inc./_____________________
Page 3
4. RIGHT OF FIRST REFUSAL. The Optionee shall not sell, assign, pledge
or in any manner transfer any of the shares of the Common Stock purchased
hereunder, or any right or interest therein, whether voluntarily or by operation
of law, or by gift or otherwise, except for a transfer which meets the
requirements hereinafter set forth.
4.1 NOTICE OF PROPOSED SALE. If the Optionee desires to sell or
otherwise transfer any of its shares of Common Stock, the Optionee shall first
give written notice thereof to the Company. The notice shall name the proposed
transferee and state the number of shares to be transferred, the proposed
consideration and all other material terms and conditions of the proposed
transfer.
4.2 OPTION OF COMPANY TO PURCHASE. For thirty (30) days following
receipt of such notice, the Company (and its assignees as provided in
Section 4.3 below) shall have the option to elect to purchase all of the shares
specified in the notice at the price and upon the terms set forth in such
notice; provided that if the terms of payment set forth in the Optionee's notice
were other than cash against delivery, the Company (and its assignees) shall pay
cash for said shares equal to the fair market value thereof as determined in
good faith by the Board (with the Director abstaining from such determination),
except that to the extent such consideration is composed, in whole or in part,
of promissory notes, the Company (and its assignees) shall have the option of
similarly issuing promissory notes of like form, tenor and effect.
(Notwithstanding the foregoing, in the event that the Optionee disagrees with
the determination of fair market value made by the Board, the Optionee shall
have the right to have such fair market value determined by arbitration in
accordance with the commercial rules of the American Arbitration Association.
The arbitration shall be held in San Jose, California or Menlo Park, California.
The cost of the arbitration shall be borne in equal shares by the Company and
the Optionee.) In the event the Company (and its assignees) elects to purchase
all of such shares, it shall give written notice to the Optionee of its election
and settlement for such purchase of shares shall be made as provided below in
Section 4.4.
4.3 ASSIGNABILITY OF COMPANY'S RIGHTS HEREUNDER. The Company may at
any time transfer and assign its rights and delegate its obligations under this
Section 4 to any other person, corporation, firm or entity, including its
officers, other directors or stockholders, with or without consideration.
4.4 CLOSING OF COMPANY PURCHASE. In the event the Company (and its
assignees) elects to acquire all of those shares of the Optionee as specified in
the Optionee's notice, the Secretary of the Company shall so notify the Optionee
within thirty (30) days after receipt of the Optionee's notice, and settlement
thereof shall be made in cash or as otherwise set forth above within thirty (30)
days after the date the Secretary of the Company gives the Optionee notice of
the Company's election.
4.5 TRANSFERRED SHARES REMAIN SUBJECT TO RESTRICTIONS. In the event
the Company (and its assignees) do not elect to acquire all of the shares
specified in the Optionee's notice, the Optionee may, within the sixty (60) day
period following the expiration of the thirty (30) day period for electing to
exercise the purchase rights granted to the Company (and its assignees) in
Section 4.2, transfer the shares in the manner specified in its notice. In that
event, the transferee, assignee or other recipient shall, as a condition of the
transfer of ownership, receive and hold such shares subject to the provisions of
this Section 4 (and also subject to any other applicable provisions hereof) and
shall execute such documentation as may be requested by the Company, including,
but not limited to, an investment representation letter containing provisions
similar to those set forth in the Notice of Exercise and Investment
Representation Statement attached as Exhibit A hereto.
4.6 EXCEPTIONS TO FIRST REFUSAL RIGHTS. Anything to the contrary
contained herein notwithstanding, the following transactions shall be exempt
from the provisions of this Section 4 (provided that the transferee shall first
agree in writing, satisfactory to the Company, to be bound by the terms and
provisions of Sections 4, 5, 11 and 13-21 hereof):
<PAGE>
Director Non-Qualified Stock Option Agreement
Portola Packaging, Inc./_____________________
Page 4
4.6.1 TRANSFER TO FAMILY MEMBER. The Optionee's transfer of any
or all shares held subject to this Agreement to such Optionee's beneficial
owners or any of their respective immediate family or to any custodian or
trustee for the account of the beneficial owner or his or her immediate family.
"Immediate family" as used herein shall mean spouse, lineal descendants, father,
mother, or brother or sister of the beneficial owner.
4.6.2 AS SECURITY FOR CERTAIN LOANS. The Optionee's bona fide
pledge or mortgage of any shares with a commercial lending institution.
4.7 WAIVERS BY THE COMPANY. The provisions of this Section 4 may be
waived by the Company with respect to any transfer proposed by the Optionee only
by duly authorized action of its Board or a Committee thereof.
4.8 UNAUTHORIZED TRANSFERS VOID. Any sale or transfer, or purported
sale or transfer, of the Common Stock subject to this Agreement shall be null
and void unless the terms, conditions and provisions of this Section 4 are
strictly complied with.
4.9 TERMINATION OF FIRST REFUSAL RIGHT. The foregoing right of first
refusal shall terminate upon the earlier of:
4.9.1 PUBLIC OFFERING. The date securities of the Company are
first offered and sold to the public pursuant to a registration statement filed
with, and declared effective by, the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"SECURITIES ACT"); or
4.9.2 ACQUISITION OF THE COMPANY. Immediately prior to the
acquisition of substantially all of the business and assets of the Company by an
unaffiliated third party (as determined by the Board), whether by merger, sale
of outstanding stock or of the Company's assets, or otherwise, where no express
provision is made for the assignment and continuation of the Company's rights
hereunder by a new or successor corporation.
5. AGREEMENT TO LOCK-UP IN THE EVENT OF PUBLIC OFFERING. In the event of
a public offering of the Company's Common Stock pursuant to a registration
statement declared effective with the SEC, if requested by the Company or by its
underwriters, the Optionee agrees not to sell, sell short, grant any option to
buy or otherwise dispose of the shares of Common Stock purchased pursuant to
this Agreement (except for any such shares which may be included in the
registration) for a period of up to one hundred eighty (180) days following the
effective date of such registration statement. The Company may impose
stop-transfer instructions with respect to the shares of the Common Stock
subject to the foregoing restriction until the end of said period. The Optionee
shall be subject to this Section 5 provided and only if the officers and
directors of the Company are also subject to similar arrangements.
6. RIGHTS ON CESSATION OF SERVICE AS A DIRECTOR. An Option may be
exercised by the Optionee after the date (the "TERMINATION DATE") on which the
Director ceases to be a member of the Board or employee of the Company or its
parent or subsidiary corporations (referred to as ceasing to be an "ELIGIBLE
DIRECTOR") only as set forth below and subject to the limitation provided in
Section 3.4:
6.1 DEATH. Upon the death of the Director, the Optionee may, for a
period of twelve (12) months following the Termination Date, exercise the Option
to the extent it was exercisable by the Optionee on the Termination Date.
<PAGE>
Director Non-Qualified Stock Option Agreement
Portola Packaging, Inc./_____________________
Page 5
6.2 DISABILITY. If the Director ceases to be an Eligible Director
because of a disability, the Optionee may, within twelve (12) months following
the Termination Date, exercise the Option to the extent it was exercisable by
the Optionee on the Termination Date unless the Director dies prior thereto, in
which event the Optionee shall be treated as though the Director's death
occurred on the date the Director ceased to be an Eligible Director due to a
disability and the provisions of Section 6.1 above shall apply.
6.3 OTHER TERMINATION. If the Director ceases to be an Eligible
Director for any reason other than provided in Sections 6.1 or 6.2 above, the
Optionee may, within three (3) months after the Termination Date exercise the
Option to the extent it was exercisable by the Optionee on the Termination Date.
7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR CHANGE OF CONTROL.
7.1 STOCK SPLITS AND SIMILAR EVENTS. Subject to any required action
by the Company's Board and stockholders, the number of shares of Common Stock
covered by the Option and the exercise price thereof shall be proportionately
adjusted for any increase or decrease in the number of issued and outstanding
shares of Common Stock resulting from a subdivision or combination of such
shares or the payment of a stock dividend (but only on the Common Stock) or any
other increase or decrease in the number of such outstanding shares of Common
Stock effected without the receipt of consideration by the Company; provided,
however, that the conversion of any convertible securities of the Company shall
not be deemed to have been "effected without receipt of consideration."
7.2 MERGERS AND ACQUISITIONS. Subject to any required action by the
Company's Board and stockholders, if the Company shall be a constituent
corporation in any merger or consolidation, provided the option is not
terminated as set forth below in Section 7.3 upon consummation of such merger or
consolidation, the Options shall pertain and apply to the securities or other
property to which a holder of the number of shares subject to the unexercised
portion of this Option would have been entitled upon such consummation.
7.3 CHANGE OF CONTROL. In the event of a Change of Control (as
defined below), this Option shall become immediately exercisable in full as of
the date thirty (30) days prior to the consummation of such Change of Control.
The exercise or vesting that was permissible solely by reason of this Section
shall be conditioned upon the consummation of the Change in Control.
Furthermore, the Board, in its sole discretion, may arrange with the surviving,
continuing, successor, or purchasing corporation or parent corporation thereof,
as the case may be (the "ACQUIRING CORPORATION"), for the Acquiring Corporation
to assume the Company's rights and obligations under outstanding Options (which,
for purposes of this Section 7.3, shall include Options that have become
immediately exercisable and fully vested as provided above) not exercised by the
Optionee prior to the consummation of the Change of Control or substitute
options for the Acquiring Corporation's stock for such outstanding Options. Any
Options which are neither assumed nor substituted for by the Acquiring
Corporation in connection with the Change of Control nor exercised prior to the
consummation of the Change of Control shall terminate and cease to be
outstanding as of the effective date of the Change of Control. A "CHANGE OF
CONTROL" shall be deemed to have occurred in the event any of the following
occurs with respect to the Company:
7.3.1 the direct or indirect sale or exchange by the
stockholders of the Company of all or substantially all of the stock of the
Company where the stockholders of the Company before such sale or exchange do
not retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the Company after such sale or exchange.
7.3.2 a merger or consolidation in which the Company is not
the surviving corporation, other than (i) a merger in which the stockholders of
the Company before such merger or consolidation retain directly or indirectly,
at least a majority of the voting stock of the surviving corporation or the
parent
<PAGE>
Director Non-Qualified Stock Option Agreement
Portola Packaging, Inc./_____________________
Page 6
corporation of the surviving corporation and the options are assumed or
substituted by the surviving corporation which assumption or substitution
shall be binding on the Optionee, or (ii) a merger or consolidation with a
wholly-owned subsidiary, a reincorporation of the Company in a different
jurisdiction, or other transaction in which there is no substantial change in
the stockholders of the Company and the Options are assumed or substituted by
the Acquiring Corporation, which assumption or substitution shall be binding
on the Optionee.
7.3.3 a merger or consolidation in which the Company is the
surviving corporation where the stockholders of the Company before such merger
or consolidation do not retain, directly or indirectly, at least a majority of
the voting stock of the Company after such merger or consolidation.
7.3.4 the sale, exchange, or transfer of all or substantially
all of the assets of the Company other than a sale, exchange, or transfer to one
(1) or more subsidiaries of the Company.
7.3.5 a liquidation or dissolution of the Company.
7.3.6 any other transaction which qualifies as a "corporate
transaction" under Section 424 of the Code wherein the stockholders of the
Company give up all of their equity interest in the Company (EXCEPT for the
acquisition, sale or transfer of all or substantially all of the outstanding
shares of the Company).
7.4 BOARD'S DETERMINATION FINAL AND BINDING UPON OPTIONEE. To the
extent that the foregoing adjustments in this Section 7 relate to stock or
securities of the Company, such adjustments shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. The
Company agrees to give notice of any such adjustment to the Optionee; provided,
however, that any such adjustment shall be effective and binding for all
purposes hereof whether or not such notice is given or received.
7.5 NO RIGHTS EXCEPT AS EXPRESSLY STATED. Except as hereinabove
expressly provided in this Section 7, no additional rights shall accrue to the
Optionee by reason of any subdivision or combination of shares of the capital
stock of any class or the payment of any stock dividend or any other increase or
decrease in the number of shares of any class or by reason of any dissolution,
liquidation, merger or consolidation or spin-off of assets or of stock of
another corporation, and any issue by the Company of shares of stock of any
class or of securities convertible into shares of stock of any class shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number or exercise price of shares subject to the Option. Neither the Optionee
nor any person claiming under or through the Optionee shall be, or have any of
the rights or privileges of, a stockholder of the Company in respect of any of
the shares issuable upon the exercise of this Option, unless and until this
Option is properly and lawfully exercised and a certificate representing the
shares so purchased is duly issued and delivered to the Optionee.
7.6 NO LIMITATIONS ON COMPANY'S DISCRETION. The grant of the Option
hereby shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge or consolidate or to dissolve, liquidate, sell or
transfer all or any part of its business or assets.
8. MANNER OF EXERCISE. The Option shall be exercised by the Optionee by
completing, executing and delivering to the Company the Notice of Exercise and
Investment Representation Statement ("NOTICE OF EXERCISE"), in substantially the
form attached hereto as Exhibit A, which Notice of Exercise shall specify the
number of shares of Common Stock which the Optionee elects to purchase. The
Company's obligation to deliver shares upon the exercise of this Option shall be
subject to the Optionee's satisfaction of all applicable federal, state, local
and
<PAGE>
Director Non-Qualified Stock Option Agreement
Portola Packaging, Inc./_____________________
Page 7
foreign income and employment tax withholding requirements, if any. Upon
receipt of such Notice of Exercise and of payment of the purchase price (and
payment of applicable taxes as provided above), the Company shall, as soon as
reasonably possible and subject to all other provisions hereof, deliver
certificates for the shares of Common Stock so purchased, registered in the
Optionee's name or in the name of its legal representative (if applicable).
Payment of the purchase price upon any exercise of the Option shall be made
as set forth in Section 9 below.
9. MEDIUM AND TIME OF PAYMENT.
9.1 The option price (and any and all federal, state and local taxes
payable by Optionee by reason of the exercise of this option as set forth in
section 9.4) shall be payable upon the exercise of an option in legal tender of
the United States (in cash or by certified check), shares of the Common Stock,
"Same Day Sales Proceeds" (as defined in Section 9.3) or any combination of such
legal tender, shares and Same Day Sales Proceeds.
9.2 For purposes of calculating payment of the option price and
taxes, each share of the Common Stock surrendered in payment of such price shall
be valued at its fair market value on the date the option is exercised. Fair
market value shall mean (i) the average of the closing bid and asked prices of
the Common Stock quoted in the Over-The-Counter Market Summary or the closing
price quoted on any exchange on which the Common Stock is listed, whichever is
applicable, as published in the Western Edition of THE WALL STREET JOURNAL for
the date an option is exercised or, if no report is available for such date, for
the next preceding date for which such a report is available or (ii) if the
Common Stock is not traded Over-The-Counter or on an exchange or is not so
quoted by THE WALL STREET JOURNAL, the amount determined in good faith by the
Chief Executive Officer of the Company on the date an option is exercised by
applying the rules and principles of valuation set forth in Treasury Regulation
Section 20.2031-2 relating to the valuation of stock for purposes of Section
2031 of the Code. Notwithstanding the foregoing, an option may not be exercised
by tender to the Company of shares of Common Stock to the extent such tender of
stock would constitute a violation of the provisions of any law, regulation or
agreement restricting the redemption of the Company's Common Stock. Unless
otherwise provided by the Board, an option may not be exercised by tender to the
Company of shares of Common Stock unless such shares of Common Stock either have
been owned by the Optionee (or its beneficial owners) for more than six (6)
months or were not acquired, directly or indirectly, from the Company.
9.3 "Same Day Sales Proceeds" shall mean the assignment of the
proceeds of a sale of some or all of the shares being acquired upon the exercise
of an option (including, without limitation, through an exercise complying with
the provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
decline to approve or terminate any program or procedures for the exercise of
options by means of an assignment of the proceeds of a sale of some or all of
the shares of Common Stock to be acquired upon such exercise.
9.4 It is the intent of the parties that, at the election of the
Optionee, Optionee may deliver shares of Common Stock as set forth in and
subject to the limitations imposed by Section 9.2 in payment of taxes payable by
Optionee in connection with the exercise of this Option. Such taxes shall
include both state and federal income taxes on all ordinary income realized by
Optionee as a result of the exercise of this Option. The Shares so delivered by
Optionee shall be valued at their fair market value in accordance with Section
9.2 and the Company shall treat such shares as taxes withheld. The Company
shall pay over to the Internal Revenue Service in cash the fair market value of
shares so delivered and shall report to the Internal Revenue Service and the
Optionee on Form 1099-MISC or any other appropriate form such withholding taxes.
<PAGE>
Director Non-Qualified Stock Option Agreement
Portola Packaging, Inc./_____________________
Page 8
10. NON-TRANSFERABLE. The Option shall be exercisable only by the
Optionee and shall not be transferable or assignable by the Optionee in whole or
in part. If the Optionee shall make any such purported transfer or assignment
of the Option, such assignment shall be null and void and of no force or effect
whatsoever.
11. COMPLIANCE WITH SECURITIES AND OTHER LAWS. This Option may not be
exercised and the Company shall not be obligated to deliver any certificates
evidencing shares of Common Stock hereunder if the issuance of shares upon such
exercise would constitute a violation of any applicable requirements of:
(i) the Securities Act, (ii) the Securities Exchange Act of 1934, as amended,
(iii) applicable state securities laws, (iv) any applicable listing requirement
of any stock exchange on which the Company's Common Stock is then listed, and
(v) any other law or regulation applicable to the issuance of such shares.
Nothing herein shall be construed to require the Company to register or qualify
any securities under applicable federal or state securities laws, or take any
action to secure an exemption from such registration and qualification for the
issuance of any securities upon the exercise of this Option. Shares of Common
Stock issued upon exercise of this option shall include the following legends
and such other legends as in the opinion of the Company's counsel may be
required by applicable federal, state and foreign securities laws:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES.
A copy of Section 260.141.11 of the Rules of the Commissioner of Corporations of
the State of California is set forth in Exhibit C attached hereto.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND OTHER AGREEMENTS CONTAINED IN A STOCK
OPTION AGREEMENT, DATED ________________, 199_____, A COPY OF WHICH IS
ON FILE WITH THE COMPANY.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE
SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR
THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH
SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
12. NO RIGHT TO CONTINUE AS A DIRECTOR. Nothing contained in this
Agreement shall confer upon the Director any right to continue to serve as a
director or employee of the Company or any parent or subsidiary corporation of
the Company. The Board in its sole discretion shall determine whether any leave
of absence or interruption in service (including an interruption during military
service) shall be deemed to result in the Director ceasing to be an Eligible
Director for purposes of this Agreement.
13. COMMITTEE OF THE BOARD. In the event that the Plan is administered by
a committee of the Board (the "COMMITTEE"), all references herein to the Board
shall be construed to mean the Committee for the period(s) during which the
Committee administers the Plan.
<PAGE>
Director Non-Qualified Stock Option Agreement
Portola Packaging, Inc./_____________________
Page 9
14. OPTION SUBJECT TO TERMS OF PLAN. In addition to the provisions
hereof, this Agreement and the Option are governed by, and subject to the terms
and conditions of, the Plan. The Optionee acknowledges receipt of a copy of the
Plan (a copy of which is attached hereto as Exhibit B) and Section 260.141.11 of
the Rules of the Commissioner of Corporations of the State of California
regarding restrictions on transfer (a copy of which is attached hereto as
Exhibit C). The Optionee represents that it is familiar with the terms and
conditions of the Plan, and hereby accepts the Option subject to all of the
terms and conditions thereof, which terms and conditions shall control to the
extent inconsistent in any respect with the provisions of this Agreement. The
Optionee hereby agrees to accept as binding, conclusive and final all decisions
and interpretations of the Board as to any questions arising under the Plan or
under this Agreement.
15. NOTICES. All notices and other communications of any kind which
either party to this Agreement may be required or may desire to serve on the
other party hereto in connection with this Agreement shall be in writing and may
be delivered by personal service or by registered or certified mail, return
receipt requested, deposited in the United States mail with postage thereon
fully prepaid, addressed to the other party at the addresses indicated on the
signature page hereof or as otherwise provided below. Service of any such
notice or other communication so made by mail shall be deemed complete on the
date of actual delivery as shown by the addressee's registry or certification
receipt or at the expiration of the third (3rd) business day after the date of
mailing, whichever is earlier in time. Either party may from time to time, by
notice in writing served upon the other as aforesaid, designate a different
mailing address or a different person to which such notices or other
communications are thereafter to be addressed or delivered.
16. FURTHER ASSURANCES. The Optionee shall, upon request of the Company,
take all actions and execute all documents requested by the Company which the
Company deems to be reasonably necessary to effectuate the terms and intent of
this Agreement and, when required by any provision of this Agreement to transfer
all or any portion of the Common Stock purchased hereunder to the Company (and
its assignees), the Optionee shall deliver such Common Stock endorsed in blank
or accompanied by Stock Assignments Separate from Certificate endorsed in blank,
so that title thereto will pass by delivery alone. Any sale or transfer by the
Optionee of the Common Stock to the Company (and its assignees) shall be made
free of any and all claims, encumbrances, liens and restrictions of every kind,
other than those imposed by this Agreement.
17. SUCCESSORS. Except to the extent the same is specifically limited by
the terms and provisions of this Agreement, this Agreement is binding upon the
Optionee and the Optionee's successors, heirs and personal representatives, and
upon the Company, its successors and assigns.
18. TERMINATION OR AMENDMENT. Subject to the terms and conditions of the
Plan, the Board may terminate or amend the Plan and/or the Option at any time;
provided, however, that no such termination or amendment may adversely affect
the Option or any unexercised portion hereof without the consent of the
Optionee.
19. INTEGRATED AGREEMENT. This Agreement and the Plan constitute the
entire understanding and agreement of the Optionee and the Company with respect
to the subject matter contained herein, and there are no agreements,
understandings, restrictions, representations, or warranties between the
Optionee and the Company other than those set forth or provided for herein. To
the extent contemplated herein, the provisions of this Agreement shall survive
any exercise of the Option and shall remain in full force and effect.
20. OTHER MISCELLANEOUS TERMS. Titles and captions contained in this
Agreement are inserted only as a matter of convenience and for reference, and in
no way define, limit, extend or describe the scope of this Agreement or the
intent of any provision hereof. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, irrespective
of its choice of law principles.
<PAGE>
Director Non-Qualified Stock Option Agreement
Portola Packaging, Inc./_____________________
Page 10
21. INDEPENDENT TAX ADVICE. The Optionee agrees that it has obtained or
will obtain the advice of independent tax counsel (or has determined not to
obtain such advice, having had adequate opportunity to do so) regarding the
federal and state income tax consequences of the receipt and exercise of the
Option and of the disposition of Common Stock acquired upon exercise hereof.
The Optionee acknowledges that it has not relied and will not rely upon any
advice or representation by the Company or by its employees or representatives
with respect to the tax treatment of the Option.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first hereinabove written.
COMPANY: OPTIONEE:
PORTOLA PACKAGING, INC., _______________________________________
a Delaware corporation
By: ___________________________________
Title: ________________________________
By:______________________________
Jack L. Watts,
Chief Executive Officer
Address: ____________________________
Address: Portola Packaging, Inc. ____________________________
890 Faulstich Court ____________________________
San Jose, CA 95112 ____________________________
<PAGE>
SCHEDULE OF EXHIBITS
EXHIBIT A: Form of Notice of Exercise and Investment
Representation Statement for Portola Packaging, Inc.
Director Non-Qualified Stock Option Agreement
EXHIBIT B: 1994 Stock Option Plan
EXHIBIT C: Section 260.141.11 of the Rules of the Commissioner of
Corporations of the State of California.
<PAGE>
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES.
THE SECURITY REPRESENTED BY THIS AGREEMENT HAS BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
PORTOLA PACKAGING, INC.
EMPLOYEE INCENTIVE STOCK OPTION AGREEMENT
THIS EMPLOYEE INCENTIVE STOCK OPTION AGREEMENT ("AGREEMENT") by and between
Portola Packaging, Inc., a Delaware corporation (the "COMPANY"), and __________
(the "EMPLOYEE"), is made as of the __________ day of ___________, _______ (such
date being sometimes referred to herein as the date of "grant").
R E C I T A L S
A. The Company has adopted and implemented its 1994 Stock Option Plan (the
"PLAN") permitting the grant of stock options to employees and consultants of
the Company and its subsidiary corporations (as defined in the Plan), some of
which are intended to be incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "INTERNAL
REVENUE CODE"), to purchase shares of the authorized but unissued Common Stock
or treasury shares of the Company ("COMMON STOCK").
B. The Board of Directors (or a duly authorized Committee thereof) of the
Company (in either case, referred to herein as the "BOARD") has authorized the
granting of a stock option to the Employee, thereby allowing the Employee to
acquire or increase his or her ownership interest in the Company.
A G R E E M E N T
NOW, THEREFORE, in reliance on the foregoing Recitals and in consideration
of the mutual covenants hereinafter set forth, the parties hereby agree as
follows:
1. GRANT OF STOCK OPTION. The Company hereby grants to the Employee a
non-transferable and non-assignable option to purchase an aggregate of up
to __________________________ (_________) shares of the Company's Common Stock,
par value $0.001, at the exercise price of ________________________ ($_______)
per share, upon the terms and
<PAGE>
Employee Incentive Stock Option Agreement
Portola Packaging, Inc. / _______________
______________________
Page 2
conditions set forth herein (such purchase right being sometimes referred to
herein as "THE OPTION" or "THIS OPTION").
2. TERM AND TYPE OF OPTION. Unless earlier terminated in accordance with
Sections 6 or 7.2 hereof, this Option and all rights of the Employee to purchase
Common Stock hereunder shall expire with respect to all of the shares then
subject hereto at 5:00 p.m. Pacific time on __________________. This Option is
intended to qualify as an incentive stock Option within the meaning of
Section 422 of the Internal Revenue Code but the Company does not represent or
warrant that this Option qualifies as such. Accordingly, the Employee
understands that in order to obtain the benefits of incentive stock option
treatment under Section 421 of the Internal Revenue Code, no sale or other
disposition may be made of any shares acquired upon exercise of this Option for
at least one (1) year after the date of the issuance of such shares upon
exercise hereunder AND for at least two (2) years after the date of grant of
this Option. The Employee shall promptly notify the Company in writing in the
event that the Employee sells or otherwise disposes of any shares acquired upon
exercise of this Option before the expiration of such periods. (NOTE: If the
aggregate exercise price of the Option (that is, the exercise price set forth in
Section 1 multiplied by the number of shares subject to the Option set forth in
Section 1) plus the aggregate exercise price of any other incentive stock
options held by the Employee (whether granted pursuant to the Plan or any other
stock option plan of the Company) is greater than One Hundred Thousand Dollars
($100,000), the Employee should contact the Chief Financial Officer of the
Company to ascertain whether the entire Option qualifies as an incentive stock
option).
3. EXERCISE SCHEDULE. Subject to the remaining provisions of this
Agreement, this Option shall be exercisable as follows:
3.1 FIRST INSTALLMENT. The Employee may not exercise this Option
until __________________ (the "COMMENCEMENT DATE"). As of the Commencement
Date, the Employee may exercise this Option for up to twenty percent (20%) of
the shares covered hereby (rounded up to the nearest whole number of shares).
3.2 SUBSEQUENT INSTALLMENTS. Upon the _______________ (_____) day of
each ________________________________ following the Commencement Date, and
continuing thereafter on the _________________ (______) day of each subsequent
__________________________, the Employee may exercise this Option for up to
an additional_____ percent (___) of the shares covered hereby (rounded up to the
nearest whole number of shares), so that this Option shall become fully
exercisable as of __________________. In no event shall the Option be
exercisable for more shares than the number of shares set forth in Section 1.
<PAGE>
Employee Incentive Stock Option Agreement
Portola Packaging, Inc. / _______________
______________________
Page 3
3.3 CUMULATIVE NATURE OF EXERCISE SCHEDULE. The exercise dates
specified above refer to the earliest dates on which this Option may be
exercised with respect to the stated percentages of the Common Stock covered by
this Option and the Option may be exercised with respect to all or any part of
any such percentage of the total shares at any time on or after such dates
(until the expiration date specified in Section 2 above or any earlier
termination of this Option pursuant to Section 6 or 7.2 of this Agreement).
Except as permitted in Section 6, the Employee must be and remain in the employ
of the Company, or of any parent or subsidiary corporation of the Company (as
defined in Internal Revenue Code Sections 424(e) and (f)), during the entire
period commencing with the date of grant of this Option and ending with each of
the periods appearing in the above schedule in order to exercise this Option
with respect to the shares applicable to any such period. Any references in
this Agreement to the Employee's employment with the Company shall be deemed to
also refer to the Employee's employment with any parent or subsidiary of the
Company, as applicable.
3.4 OVERRIDING LIMITATION ON TIME FOR EXERCISE. Notwithstanding any
other provisions of this Agreement, the Option may not be exercised after the
expiration of ten (10) years from the date of grant.
4. RIGHT OF FIRST REFUSAL. The Employee shall not sell, assign, pledge
or in any manner transfer any of the shares of the Common Stock purchased
hereunder, or any right or interest therein, whether voluntarily or by operation
of law, or by gift or otherwise, except for a transfer which meets the
requirements hereinafter set forth.
4.1 NOTICE OF PROPOSED SALE. If the Employee desires to sell or
otherwise transfer any of his or her shares of Common Stock, the Employee shall
first give written notice thereof to the Company. The notice shall name the
proposed transferee and state the number of shares to be transferred, the
proposed consideration and all other material terms and conditions of the
proposed transfer.
4.2 OPTION OF COMPANY TO PURCHASE. For thirty (30) days following
receipt of such notice, the Company (and its assignees as provided in
Section 4.3 below) shall have the Option to elect to purchase all of the shares
specified in the notice at the price and upon the terms set forth in such
notice; provided that if the terms of payment set forth in the Employee's notice
were other than cash against delivery, the Company (and its assignees) shall pay
cash for said shares equal to the fair market value thereof as determined in
good faith by the Board, except that to the extent such consideration is
composed, in whole or in part, of promissory notes, the Company (and its
assignees) shall have the Option of similarly issuing
<PAGE>
Employee Incentive Stock Option Agreement
Portola Packaging, Inc. / _______________
______________________
Page 4
promissory notes of like form, tenor and effect. (Notwithstanding the
foregoing, in the event that the Employee disagrees with the determination of
fair market value made by the Board, the Employee shall have the right to
have such fair market value determined by arbitration in accordance with the
rules of the American Arbitration Association. The arbitration shall be held
in San Francisco, California or San Jose, California. The cost of the
arbitration shall be borne in equal shares by the Company and the Employee.)
In the event the Company (and its assignees) elects to purchase all of such
shares, it shall give written notice to the Employee of its election and
settlement for such purchase of shares shall be made as provided below in
Section 4.4.
4.3 ASSIGNABILITY OF COMPANY'S RIGHTS HEREUNDER. The Company may at
any time transfer and assign its rights and delegate its obligations under this
Section 4 to any other person, corporation, firm or entity, including its
officers, directors or stockholders, with or without consideration.
4.4 CLOSING OF COMPANY PURCHASE. In the event the Company (and its
assignees) elects to acquire all of those shares of the Employee as specified in
the Employee's notice, the Secretary of the Company shall so notify the Employee
within thirty (30) days after receipt of the Employee's notice, and settlement
thereof shall be made in cash or as otherwise set forth above within thirty (30)
days after the date the Secretary of the Company gives the Employee notice of
the Company's election.
4.5 TRANSFERRED SHARES REMAIN SUBJECT TO RESTRICTIONS. In the event
the Company (and its assignees) do not elect to acquire all of the shares
specified in the Employee's notice, the Employee may, within the sixty (60) day
period following the expiration of the thirty (30) day period for electing to
exercise the purchase rights granted to the Company (and its assignees) in
Section 4.2, transfer the shares in the manner specified in his or her notice.
In that event, the transferee, assignee or other recipient shall, as a condition
of the transfer of ownership, receive and hold such shares subject to the
provisions of this Section 4 (and also subject to any other applicable
provisions hereof) and shall execute such documentation as may be requested by
the Company, including, but not limited to, an investment representation letter
containing provisions similar to those set forth in the Notice of Exercise and
Investment Representation Statement attached as Exhibit A hereto.
4.6 EXCEPTIONS TO FIRST REFUSAL RIGHTS. Anything to the contrary
contained herein notwithstanding, the following transactions shall be exempt
from the provisions of this Section 4 (provided that the transferee shall first
agree in writing,
<PAGE>
Employee Incentive Stock Option Agreement
Portola Packaging, Inc. / _______________
______________________
Page 5
satisfactory to the Company, to be bound by the terms and provisions of
Sections 4, 5, 10 and 12-20 hereof).
4.6.1 TRANSFER TO FAMILY MEMBER. The Employee's transfer of any
or all shares held subject to this Agreement (either during the Employee's
lifetime or on death by will or intestacy) to such Employee's immediate family
or to any custodian or trustee for the account of the Employee or his or her
immediate family. "Immediate family" as used herein shall mean spouse, lineal
descendants, father, mother, or brother or sister of the Employee.
4.6.2 AS SECURITY FOR CERTAIN LOANS. The Employee's bona fide
pledge or mortgage of any shares with a commercial lending institution.
4.7 WAIVERS BY THE COMPANY. The provisions of this Section 4 may be
waived by the Company with respect to any transfer proposed by the Employee only
by duly authorized action of its Board.
4.8 UNAUTHORIZED TRANSFERS VOID. Any sale or transfer, or purported
sale or transfer, of the Common Stock subject to this Agreement shall be null
and void unless the terms, conditions and provisions of this Section 4 are
strictly complied with.
4.9 TERMINATION OF FIRST REFUSAL RIGHT. The foregoing right of first
refusal shall terminate upon the earlier of:
4.9.1 PUBLIC OFFERING. The date securities of the Company are
first offered and sold to the public pursuant to a registration statement filed
with, and declared effective by, the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"SECURITIES ACT"); or
4.9.2 ACQUISITION OF THE COMPANY. Immediately prior to the
acquisition of substantially all of the business and assets of the Company by an
unaffiliated third party (as determined by the Board), whether by merger, sale
of outstanding stock or of the Company's assets, or otherwise, where no express
provision is made for the assignment and continuation of the Company's rights
hereunder by a new or successor corporation.
5. AGREEMENT TO LOCK-UP IN THE EVENT OF PUBLIC OFFERING. In the event of
a public offering of the Company's Common Stock pursuant to a registration
statement declared effective with the SEC, if requested by the Company or by its
underwriters, the Employee agrees not to sell, sell short, grant any option to
buy or otherwise dispose of the shares of Common Stock purchased pursuant to
this Agreement (except for any such shares which may be included in the
registration) for a period of up to two hundred seventy (270) days following the
<PAGE>
Employee Incentive Stock Option Agreement
Portola Packaging, Inc. / _______________
______________________
Page 6
effective date of such registration statement. The Company may impose
stop-transfer instructions with respect to the shares of the Common Stock
subject to the foregoing restriction until the end of said period. The Employee
shall be subject to this Section 5 provided and only if the officers and
directors of the Company are also subject to similar arrangements.
6. RIGHTS ON TERMINATION OF EMPLOYMENT. Upon the termination of the
Employee's employment with the Company (and with any parent or subsidiary
corporation of the Company), the Employee's right to exercise this Option shall
be limited in the manner set forth in this Section 6 (and this Option shall
terminate in the event not so exercised), and subject to the limitation provided
in Section 3.4.
6.1 DEATH. If the Employee's employment is terminated by death, the
Employee's estate may, for a period of twelve (12) months following the date of
the Employee's death, exercise the Option to the extent it was exercisable by
the Employee on the date of death in accordance with Section 8.2. The
Employee's estate shall mean the Employee's legal representative upon death or
any person who acquires the right to exercise the Option by reason of such death
under the Employee's will or the laws of intestate succession.
6.2 RETIREMENT. If the Employee's employment is terminated by
voluntary retirement at or after reaching sixty-five (65) years of age, the
Employee may, within the twelve (12) month period following such termination and
subject to the proviso set forth below in this Section 6.2, exercise the Option
to the extent it was exercisable by the Employee on the date of such termination
unless the Employee dies prior thereto, in which event the Employee shall be
treated as though the Employee had died on the date of retirement and the
provisions of Section 6.1 above shall apply. The Employee hereby acknowledges
that the favorable tax treatment provided under Section 422 of the Internal
Revenue Code may be inapplicable in the event the Option is not exercised within
three (3) months after the date the Employee's employment is terminated by
voluntary retirement.
6.3 DISABILITY. If the Employee's employment is terminated because
of a permanent and total disability, the Employee may, within twelve (12) months
following such termination, exercise the Option to the extent it was exercisable
by the Employee on the date of such termination unless the Employee dies prior
to the expiration of such period, in which event the Employee shall be treated
as though his or her death occurred on the date of termination due to such
disability and the provisions of Section 6.1 shall apply. The Employee hereby
acknowledges that the favorable tax treatment provided under Section 422 of the
Internal Revenue Code may be inapplicable in the event the Option is not
exercised within three (3) months after the date of the Employee's termination
due to a partial,
<PAGE>
Employee Incentive Stock Option Agreement
Portola Packaging, Inc. / _______________
______________________
Page 7
temporary or other disability not meeting the requirements of Internal
Revenue Code Section 22(e)(3).
6.4 OTHER TERMINATION. If the Employee's employment is terminated
for any reason other than provided in Sections 6.1, 6.2 and 6.3 above, the
Employee or the Employee's estate may, within three (3) months after the date of
the Employee's termination exercise the Option to the extent it was exercisable
by the Employee on the date of such termination.
6.5 TRANSFER OF EMPLOYMENT TO RELATED CORPORATION. In the event the
Employee leaves the employ of the Company to become an employee of any parent or
subsidiary corporation of the Company or if the Employee leaves the employ of
any such parent or subsidiary corporation to become an employee of the Company
or of another parent or subsidiary corporation, the Employee shall be deemed to
continue as an employee of the Company for all purposes of this Agreement.
6.6 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of an Option within the applicable time periods set
forth above is prevented because the issuance of shares upon such exercise would
constitute a violation of any applicable federal, state or foreign securities
law or other law or regulation, the Option shall remain exercisable until three
(3) months after the date the Employee is notified by the Company that the
Option is exercisable, but in any event no later than the expiration of ten (10)
years from the date of grant. The Company makes no representation as to the tax
consequences of any such delayed exercise. The Employee should consult with the
Employee's own tax advisor as to the tax consequences to the Employee of any
such delayed exercise.
7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
7.1 STOCK SPLITS AND SIMILAR EVENTS. Subject to any required action
by the Company's Board and stockholders, the number of shares of Common Stock
covered by the Option and the exercise price thereof shall be proportionately
adjusted for any increase or decrease in the number of issued and outstanding
shares of Common Stock resulting from a subdivision or combination of such
shares or the payment of a stock dividend (but only on the Common Stock) or any
other increase or decrease in the number of such outstanding shares of Common
Stock effected without the receipt of consideration by the Company; provided,
however, that the conversion of any convertible securities of the Company shall
not be deemed to have been "effected without receipt of consideration."
<PAGE>
Employee Incentive Stock Option Agreement
Portola Packaging, Inc. / _______________
______________________
Page 8
7.2 CHANGE OF CONTROL. In the event of a Change of Control (as
defined below), these Options shall become immediately exercisable in full as of
the date thirty (30) days prior to the consummation of such Change of Control.
The exercise or vesting that was permissible solely by reason of this Section
shall be conditioned upon the consummation of the Change in Control.
Furthermore, the Board, in its sole discretion, may arrange with the surviving,
continuing, successor, or purchasing corporation or parent corporation thereof,
as the case may be (the "ACQUIRING CORPORATION"), for the Acquiring Corporation
to assume the Company's rights and obligations under outstanding Options (which,
for purposes of this Section 7.2, shall include Options that have become
immediately exercisable and fully vested as provided above) not exercised by the
Employee prior to the consummation of the Change of Control or substitute
options for the Acquiring Corporation's stock for such outstanding Options. Any
Options which are neither assumed nor substituted for by the Acquiring
Corporation in connection with the Change of Control nor exercised prior to the
consummation of the Change of Control shall terminate and cease to be
outstanding as of the effective date of the Change of Control. A "CHANGE OF
CONTROL" shall be deemed to have occurred in the event any of the following
occurs with respect to the Company:
7.2.1 the direct or indirect sale or exchange by the
stockholders of the Company of all or substantially all of the stock of the
Company where the stockholders of the Company before such sale or exchange do
not retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the Company after such sale or exchange.
7.2.2 a merger or consolidation in which the Company is not
the surviving corporation, other than (i) a merger in which the Stockholders of
the Company before such merger or consolidation retain directly or indirectly,
at least a majority of the voting stock of the surviving corporation or the
parent corporation of the surviving corporation and the options are assumed or
substituted by the surviving corporation which assumption or substitution shall
be binding on the Employee, or (ii) a merger or consolidation with a wholly-
owned Subsidiary, a reincorporation of the Company in a different jurisdiction,
or other transaction in which there is no substantial change in the Stockholders
of the Company and the Options are assumed or substituted by the Acquiring
Corporation, which assumption or substitution shall be binding on the Employee.
7.2.3 a merger or consolidation in which the Company is the
surviving corporation where the Stockholders of the Company before such merger
or consolidation do not retain, directly or indirectly, at least a majority of
the voting stock of the Company after such merger or consolidation.
<PAGE>
Employee Incentive Stock Option Agreement
Portola Packaging, Inc. / _______________
______________________
Page 9
7.2.4 the sale, exchange, or transfer of all or substantially
all of the assets of the Company other than a sale, exchange, or transfer to one
(1) or more Subsidiaries of the Company.
7.2.5 a liquidation or dissolution of the Company.
7.2.6 any other transaction which qualifies as a "corporate
transaction" under Section 424 of the Code wherein the stockholders of the
Company give up all of their equity interest in the Company (EXCEPT for the
acquisition, sale or transfer of all or substantially all of the outstanding
shares of the Company).
7.3 BOARD'S DETERMINATION FINAL AND BINDING UPON THE EMPLOYEE. To
the extent that the foregoing adjustments in this Section 7 relate to stock or
securities of the Company, such adjustments shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. The
Company agrees to give notice of any such adjustment to the Employee; provided,
however, that any such adjustment shall be effective and binding for all
purposes hereof whether or not such notice is given or received.
7.4 NO RIGHTS EXCEPT AS EXPRESSLY STATED. Except as hereinabove
expressly provided in this Section 7, no additional rights shall accrue to the
Employee by reason of any subdivision or combination of shares of the capital
stock of any class or the payment of any stock dividend or any other increase or
decrease in the number of shares of any class or by reason of any dissolution,
liquidation, merger or consolidation or spin-off of assets or of stock of
another corporation, and any issue by the Company of shares of stock of any
class or of securities convertible into shares of stock of any class shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number or exercise price of shares subject to the Option. Neither the Employee
nor any person claiming under or through the Employee shall be, or have any of
the rights or privileges of, a stockholder of the Company in respect of any of
the shares issuable upon the exercise of this Option, unless and until this
Option is properly and lawfully exercised and a certificate representing the
shares so purchased is duly issued and delivered to the Employee or to his or
her estate.
7.5 NO LIMITATIONS ON COMPANY'S DISCRETION. The grant of the Option
hereby shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge or consolidate or to dissolve, liquidate, sell or
transfer all or any part of its business or assets.
<PAGE>
Employee Incentive Stock Option Agreement
Portola Packaging, Inc. / _______________
______________________
Page 10
8. MANNER OF EXERCISE.
8.1 GENERAL INSTRUCTIONS FOR EXERCISE. The Option shall be exercised
by the Employee by completing, executing and delivering to the Company the
Notice of Exercise and Investment Representation Statement ("NOTICE OF
EXERCISE"), in substantially the form attached hereto as Exhibit A, which Notice
of Exercise shall specify the number of shares of Common Stock which the
Employee elects to purchase. Upon receipt of such Notice of Exercise and of
payment of the purchase price, the Company shall, as soon as reasonably possible
and subject to all other provisions hereof, deliver certificates for the shares
of Common Stock so purchased, registered in the Employee's name or in the name
of his or her legal representative (if applicable). Payment of the purchase
price upon any exercise of the Option shall be made by check acceptable to the
Company or in cash; provided, however, that the Board may, in its sole and
absolute discretion, accept any other legal consideration to the extent
permitted under applicable laws and the Plan.
8.2 EXERCISE PROCEDURE AFTER DEATH. To the extent exercisable after
the Employee's death, this Option shall be exercised only by the Employee's
executor(s) or administrator(s) or the person or persons to whom this Option is
transferred under the Employee's will or, if the Employee shall fail to make
testamentary disposition of this Option, under the applicable laws of descent
and distribution. Any such transferee exercising this Option must furnish the
Company with (1) written Notice of Exercise and relevant information as to his
or her status, (2) evidence satisfactory to the Company to establish the
validity of the transfer of this Option and compliance with any laws or
regulations pertaining to said transfer, and (3) written acceptance of the terms
and conditions of this Option as contained in this Agreement.
9. NON-TRANSFERABLE. The Option shall, during the lifetime of the
Employee, be exercisable only by the Employee and shall not be transferable or
assignable by the Employee in whole or in part other than by will or the laws of
descent and distribution. If the Employee shall make any such purported
transfer or assignment of the Option, such assignment shall be null and void and
of no force or effect whatsoever.
10. COMPLIANCE WITH SECURITIES AND OTHER LAWS. The Option may not be
exercised and the Company shall not be obligated to deliver any certificates
evidencing shares of Common Stock hereunder if the issuance of shares upon such
exercise would constitute a violation of any applicable requirements of:
(i) the Securities Act, (ii) the Securities Exchange Act of 1934, as amended,
(iii) applicable state securities laws, (iv) any applicable listing requirement
of any stock exchange on which the Company's Common Stock is then listed, and
<PAGE>
Employee Incentive Stock Option Agreement
Portola Packaging, Inc. / _______________
______________________
Page 11
(v) any other law or regulation applicable to the issuance of such shares.
Nothing herein shall be construed to require the Company to register or qualify
any securities under applicable federal or state securities laws, or take any
action to secure an exemption from such registration and qualification for the
issuance of any securities upon the exercise of the Option. Shares of Common
Stock issued upon exercise of this Option shall include the following legends
and such other legends as in the opinion of the Company's counsel may be
required by the securities laws of any state in which the Employee resides:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES.
A copy of Section 260.141.11 of the Rules of the Commissioner of Corporations of
the State of California is set forth in EXHIBIT C attached hereto.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND OTHER AGREEMENTS CONTAINED IN A STOCK
OPTION AGREEMENT, DATED , A COPY OF WHICH IS ON FILE
WITH THE COMPANY.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE
SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR
THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH
SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
11. NO RIGHT TO CONTINUED EMPLOYMENT. Nothing contained in this Agreement
shall: (i) confer upon the Employee any right with respect to the continuance
of employment by the Company, or by any parent or subsidiary corporation of the
Company, or (ii) limit in any way the right of the Company, or of any parent or
subsidiary corporation, to terminate the Employee's employment at any time.
Except to the extent the Company and the Employee shall have otherwise agreed in
writing, the Employee's employment shall be terminable by the Company (or by a
parent or subsidiary, if applicable) at will. Subject to Section 12, the Board
in its sole discretion shall determine whether any leave of absence or
interruption in service
<PAGE>
Employee Incentive Stock Option Agreement
Portola Packaging, Inc. / _______________
______________________
Page 12
(including an interruption during military service) shall be deemed a
termination of employment for the purposes of this Agreement.
12. LEAVE OF ABSENCE. For purposes hereof, the Employee's employment
shall not be deemed to terminate if the Employee takes any military leave, sick
leave, or other bona fide leave of absence approved by the Company of ninety
(90) days or less. In the event of a leave in excess of ninety (90) days, the
Employee's employment shall be deemed to terminate on the ninety-first (91st)
day of the leave unless the Employee's right to reemployment remains guaranteed
by statute or contract. Notwithstanding the foregoing, however, a leave of
absence shall be treated as employment for purposes of Section 3 if and only if
the leave of absence is designated by the Company as (or required by law to be)
a leave for which vesting credit is given.
13. OPTION SUBJECT TO TERMS OF PLAN. In addition to the provisions
hereof, this Agreement and the Option are governed by, and subject to the terms
and conditions of, the Plan. The Employee acknowledges receipt of a copy of the
Plan (a copy of which is attached hereto as Exhibit B) and Section 260.141.11 of
the Rules of the Commissioner of Corporations of the State of California
regarding restrictions on transfer (a copy of which is attached hereto as
Exhibit C). The Employee represents that he or she is familiar with the terms
and conditions of the Plan, and hereby accepts the Option subject to all of the
terms and conditions thereof, which terms and conditions shall control to the
extent inconsistent in any respect with the provisions of this Agreement. The
Employee hereby agrees to accept as binding, conclusive and final all decisions
and interpretations of the Board as to any questions arising under the Plan or
under this Agreement.
14. NOTICES. All notices and other communications of any kind which
either party to this Agreement may be required or may desire to serve on the
other party hereto in connection with this Agreement shall be in writing and may
be delivered by personal service or by registered or certified mail, return
receipt requested, deposited in the United States mail with postage thereon
fully prepaid, addressed to the other party at the addresses indicated on the
signature page hereof or as otherwise provided below. Service of any such
notice or other communication so made by mail shall be deemed complete on the
date of actual delivery as shown by the addressee's registry or certification
receipt or at the expiration of the third (3rd) business day after the date of
mailing, whichever is earlier in time. Either party may from time to time, by
notice in writing served upon the other as aforesaid, designate a different
mailing address or a different person to which such notices or other
communications are thereafter to be addressed or delivered.
<PAGE>
Employee Incentive Stock Option Agreement
Portola Packaging, Inc. / _______________
______________________
Page 13
15. FURTHER ASSURANCES. The Employee shall, upon request of the Company,
take all actions and execute all documents requested by the Company which the
Company deems to be reasonably necessary to effectuate the terms and intent of
this Agreement and, when required by any provision of this Agreement to transfer
all or any portion of the Common Stock purchased hereunder to the Company (and
its assignees), the Employee shall deliver such Common Stock endorsed in blank
or accompanied by Stock Assignments Separate from Certificate endorsed in blank,
so that title thereto will pass by delivery alone. Any sale or transfer by the
Employee of the Common Stock to the Company (and its assignees) shall be made
free of any and all claims, encumbrances, liens and restrictions of every kind,
other than those imposed by this Agreement.
16. SUCCESSORS. Except to the extent the same is specifically limited by
the terms and provisions of this Agreement, this Agreement is binding upon the
Employee and the Employee's successors, heirs and personal representatives, and
upon the Company, its successors and assigns.
17. TERMINATION OR AMENDMENT. Subject to the terms and conditions of the
Plan, the Board may terminate or amend the Plan and/or the Option at any time;
provided, however, that no such termination or amendment may adversely affect
the Option or any unexercised portion hereof without the consent of the Employee
unless such amendment is required to enable the Option to qualify as an
Incentive Stock Option.
18. INTEGRATED AGREEMENT. This Agreement and the Plan constitute the
entire understanding and agreement of the Employee and the Company with respect
to the subject matter contained herein, and there are no agreements,
understandings, restrictions, representations, or warranties between the
Employee and the Company other than those set forth or provided for herein. To
the extent contemplated herein, the provisions of this Agreement shall survive
any exercise of the Option and shall remain in full force and effect.
19. OTHER MISCELLANEOUS TERMS. Titles and captions contained in this
Agreement are inserted only as a matter of convenience and for reference, and in
no way define, limit, extend or describe the scope of this Agreement or the
intent of any provision hereof. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
20. INDEPENDENT TAX ADVICE. The Employee agrees that he or she has
obtained or will obtain the advice of independent tax counsel (or has determined
not to obtain such advice, having had adequate opportunity to do so) regarding
the federal and state income tax consequences of the receipt and exercise of the
Option and of the
<PAGE>
Employee Incentive Stock Option Agreement
Portola Packaging, Inc. / _______________
______________________
Page 14
disposition of Common Stock acquired upon exercise hereof. The Employee
acknowledges that he or she has not relied and will not rely upon any advice
or representation by the Company or by its employees or representatives with
respect to the tax treatment of the Option.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
PORTOLA PACKAGING, INC.
a Delaware Corporation
By:____________________________________
Its:___________________________________
Address: 890 Faulstich Court
San Jose, California 95112
EMPLOYEE:
_______________________________________
(Signature)
Name Printed:__________________________
Address:_______________________________
_______________________________________
<PAGE>
Employee Incentive Stock Option Agreement
Portola Packaging, Inc. / _______________
______________________
Page 15
SCHEDULE OF EXHIBITS
EXHIBIT A: Form of Notice of Exercise and Investment Representation
Statement for Portola Packaging, Inc. Employee Incentive
Stock Option Agreements
EXHIBIT B: 1994 Stock Option Plan
EXHIBIT C: Section 260.141.11 of the Rules of the Commissioner of
Corporations of the State of California.
<PAGE>
EXHIBIT 11.01
PORTOLA PACKAGING, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended August 31,
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Weighted average common shares
outstanding for the period 11,087 11,393 11,800
--------- --------- ---------
Shares used in per share calculation 11,087 11,393 11,800
--------- --------- ---------
--------- --------- ---------
Income (loss)before extraordinary items and cumulative
effect of change in accounting principle $1,100 $140 ($8,177)
Less the increase in the put value of warrants (455) (610) (895)
--------- --------- ---------
Income (loss) before extraordinary item $645 ($470) ($9,072)
--------- --------- ---------
--------- --------- ---------
Cumulative effect of change in accounting principle $85
---------
---------
Net income (loss) $225 $140 ($9,442)
Less the increase in the put value of warrants (455) (610) (895)
--------- --------- ---------
Net income (loss) ($230) ($470) ($10,337)
--------- --------- ---------
--------- --------- ---------
Net income (loss) per share
before extraordinary item and cumulative effect of
change in accounting principle $0.06 ($0.04) ($0.77)
--------- --------- ---------
--------- --------- ---------
Cumulative effect of change in accounting principle $0.01
Net income (loss) per share ---------
---------
($0.02) ($0.04) ($0.88)
--------- --------- ---------
--------- --------- ---------
</TABLE>
(1) There is no difference between primary and fully diluted net income (loss)
per share for all periods presented.
<PAGE>
EXHIBIT 12.01
PORTOLA PACKAGING, INC
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
YEAR ENDED AUGUST 31,
-----------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Fixed Charges:
Interest expense $3,200 $3,128 $3,996 $8,658 $13,084
Debt financing costs 969 479 1,058 447 492
Rent expense 284 295 465 499 635
------- ------- ------- ------- --------
Total interest 4,453 3,902 5,519 9,604 14,211
Total fixed charges 4,453 3,902 5,519 9,604 14,211
Less: Capitalized interest -- -- -- -- --
------- ------- ------- ------- --------
Total fixed charges $4,453 $3,902 $5,519 $9,604 $14,211
======= ======= ======= ======= ========
Earnings:
Net income (loss) $663 $309 $225 $140 ($9,442)
Income tax benefit from
extraordinary item -- (592) (539) -- (845)
Cumulative effect of
adopting SFAS No. 109 -- -- 85 -- --
Provision for income taxes 1,287 1,521 1,095 1,294 865
Net fixed charges 4,453 3,902 5,519 9,604 14,211
------- ------- ------- ------- --------
Total earnings $6,403 $5,140 $6,385 $11,038 $4,789
======= ======= ======= ======= ========
Calculation of ratio of
earnings to fixed charges:
Total earnings $6,403 $5,140 $6,385 $11,038 $4,789
Total fixed charges $4,453 $3,902 $5,519 $9,604 $14,211
Ratio of earnings to
fixed charges 1.44 1.32 1.16 1.15 --
Deficiency of earnings
to fixed charges $(9,422)
<PAGE>
EXHIBIT 21.01
SUBSIDIARIES OF PORTOLA PACKAGING, INC.,
A DELAWARE CORPORATION
Portola Packaging Canada Ltd., a Canadian federal corporation (operating)
Portola Packaging Ltd., a U.K. corporation (formerly Cap Snap Limited, a U.K.
corporation, which was formerly Cap Snap (U.K.) Ltd.) (operating but not
significant pursuant to Item 601 of Regulation S-K)
Portola Packaging Ltd. (also known as Emballages Portola Ltee), a Canadian
federal corporation (operating but not significant pursuant to Item 601 of
Regulation S-K)
<PAGE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this annual report on Form 10-K of our report
which includes an explanatory paragraph on the adoption of a new established
standard for the impairment of long-lived assets and the adoption of Statement
of Financial Accounting Standard No. 109, ACCOUNTING FOR INCOME TAXES, on our
audits of the consolidated financial statements and financial statement schedule
of Portola Packaging, Inc. and Subsidiaries.
COOPERS & LYBRAND L.L.P.
San Jose, California
October 22, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 7797
<SECURITIES> 710
<RECEIVABLES> 23835
<ALLOWANCES> (817)
<INVENTORY> 11650
<CURRENT-ASSETS> 47360
<PP&E> 104123
<DEPRECIATION> (34350)
<TOTAL-ASSETS> 152227
<CURRENT-LIABILITIES> 25990
<BONDS> 116108
0
0
<COMMON> 12
<OTHER-SE> (3813)
<TOTAL-LIABILITY-AND-EQUITY> 152227
<SALES> 159462
<TOTAL-REVENUES> 159462
<CGS> 117592
<TOTAL-COSTS> 141783
<OTHER-EXPENSES> 12657
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13576
<INCOME-PRETAX> (7312)
<INCOME-TAX> 865
<INCOME-CONTINUING> (8177)
<DISCONTINUED> 0
<EXTRAORDINARY> 1265
<CHANGES> 0
<NET-INCOME> (9442)
<EPS-PRIMARY> (0.88)
<EPS-DILUTED> (0.88)
</TABLE>
