<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1996
OR
[ ] 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.
--- ---
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 January 6, 1997.
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
INDEX
Part I - Financial Information Page
- ------------------------------ ----
Item 1. Financial Statements
Consolidated Balance Sheets as of
November 30, 1996 and August 31, 1996. . . . . . . . . . . 3
Consolidated Statements of Operations for
the Three Months Ended November 30, 1996 and 1995 . . . . . 5
Consolidated Statements of Cash Flows for
the Three Months Ended November 30, 1996 and 1995 . . . . . 6
Notes to Consolidated Financial Statements. . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . 9
Part II - Other Information
- ---------------------------
Item 4. Submission of Matters to a
Vote of Security Holders . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
- ----------
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
- -------------
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOVEMBER 30, AUGUST 31,
1996 1996
---- ----
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $2,284 $7,797
Investments 568 710
Accounts receivable, net 21,959 23,835
Inventories 12,728 11,650
Other current assets 2,946 2,061
Deferred income taxes 1,307 1,307
----- -----
Total current assets 41,792 47,360
Notes receivable 256 256
Property, plant and equipment, net 74,833 69,773
Goodwill, net 17,748 17,564
Patents, net 2,183 2,235
Covenants not to compete,net 3,149 3,699
Debt financing costs, net 3,784 3,853
Other assets 5,297 7,487
----- -----
Total assets $149,042 $152,227
------- -------
------- -------
Continued
The accompanying notes are an integral part of these financial statements
3
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PORTOLA PACKAGING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NOVEMBER 30, AUGUST 31,
1996 1996
---- ----
(UNAUDITED)
LIABILITIES, REDEEMABLE WARRANTS, COMMON
STOCK AND OTHER STOCKHOLDERS' DEFICIT
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt and short-term borrowings $5,686 $1,805
Accounts payable 7,212 10,029
Accrued liabilities 8,969 9,157
Accrued interest 2,068 4,999
----- -----
Total current liabilities 23,935 25,990
Long-term debt, less current portion 116,127 116,108
Other long term obligations 2,148 2,303
Deferred income taxes 7,056 7,067
----- -----
Total liabilities 149,266 151,468
Commitments and contingencies
Redeemable warrants to purchase Class A Common Stock 4,816 4,560
Common stock and other stockholders' deficit:
Class A convertible common stock of $.001 par value:
Authorized: 5,203 shares; Issued and outstanding
2,135 shares in both periods 2 2
Class B, Series 1, common stock of $.001 par value:
Authorized: 17,715 shares; Issued and outstanding
8,507 shares in both periods 9 9
Class B, Series 2, common stock of $.001 par value:
Authorized: 2,571 shares; Issued and outstanding
1,171 shares in both periods 1 1
Additional paid-in capital 9,280 9,280
Notes receivable from stockholders (425) (425)
Cumulative foreign currency translation adjustment 21 (8)
Unrealized holding losses on marketable securities (256) (170)
Accumulated deficit (13,672) (12,490)
------ ------
Total common stock and other stockholders' deficit (5,040) (3,801)
----- -----
Total liabilities, redeemable warrants, common stock and
other stockholders' deficit $149,042 $152,227
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements
4
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PORTOLA PACKAGING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS
ENDED NOVEMBER 30,
------------------
UNAUDITED
1996 1995
---- ----
Sales $39,892 $37,967
Cost of sales
Gross profit 32,115 28,182
------ ------
7,777 9,785
Selling, general and administrative 5,054 4,366
Research and development 594 352
Amortization of intangibles 755 1,139
--- -----
6,403 5,857
Income from operations 1,374 3,928
Other (income) expense:
Interest income (200) (266)
Interest expense 3,166 3,063
Amortization of debt financing costs 198 126
Other (income) expense (246) 62
--- --
2,918 2,985
----- -----
Income (loss) before extraordinary item and
income taxes (1,544) 943
Provision for (benefit from) income taxes (618) 147
--- ---
Income (loss) before extraordinary item (926) 796
Extraordinary item, net of tax benefit of $843 --- 1,265
--- -----
Net loss ($926) ($469)
---- ----
---- ----
Earnings (loss) per common share:
Income (loss) before extraordinary item ($0.10) $0.05
Net loss ($0.10) ($0.06)
Number of shares used in computing per share amount 11,813 12,077
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
NOVEMBER 30,
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
Cash flows (used for) provided by operating activities:
Net (loss) $ (926) $ (469)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,723 3,758
Deferred income taxes (545)
Loss on property and equipment dispositions 13
Provision for losses on accounts receivable 196 13
Write-off loan fees 2,109
Changes in working capital:
Accounts receivable 2,279 687
Inventories (822) 79
Other current assets (768) 984
Accounts payable (3,219) (1,246)
Accrued expenses (300) (2,036)
Accrued interest (2,931) 1,210
------ ------
Net cash (used for) provided by operating activities (2,755) 4,544
Cash flows used in investing activities:
Additions to property and equipment (6,719) (4,417)
Proceeds from sale of property, plant and equipment 259
Payment for UK acquisition, net of cash acquired (1,445)
Payment for Rapid Plast acquisition, net of cash acquired (2,134)
Proceeds from short term investments - 1,000
(Increase) decrease in other assets 2,278 1,917
------ ------
Net cash used in investing activities (6,316) (2,945)
Cash flows provided by (used in) financing activities:
Repayment of senior note (57,000)
Repayment of revolving line of credit (15,383)
Proceeds from public debt offering 110,000
Repayment of subordinated note (10,000)
Borrowings under debt arrangements 3,881 3,172
Repayments under debt arrangements (3,500)
Prepayment of loan fees (4,019)
Prepayment penalty (157)
Payment under covenants (348) (273)
------ ------
Net cash provided by financing activities 3,533 22,840
------ ------
Effect of echange rate on cash 25
------ ------
Increase (decrease) in cash and cash equivalents (5,513) 24,439
Cash and cash equivalents at beginning of period 7,797 763
------ ------
Cash and cash equivalents at end of period $ 2,284 $ 25,202
===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION:
The consolidated financial statements included herein have been prepared by
Portola Packaging, Inc. and its subsidiaries (the "Company") without audit and
in the opinion of management include all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation. The
accompanying financial statements should be read in conjunction with the audited
financial statements contained in the Company's Form 10-K previously filed with
the Securities and Exchange Commission. Interim results are subject to
significant seasonal variations and the results of operations for the three
months ended November 30, 1996 are not necessarily indicative of the results to
be expected for the full year.
2. COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE:
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 or 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 the quarters ended November 30, 1996 and
1995. The accretion of warrants of $256,000 and $206,000 for the quarters ended
November 30, 1996 and 1995, respectively, is added to the loss for the period to
derive loss per share.
3. ACQUISITION:
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
$3.0 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. The transaction has
been accounted for as a purchase and the results of operations subsequent to the
acquisition date have been consolidated with the Company. Portola Packaging
Ltd. is being operated as an "unrestricted subsidiary". Accordingly, amounts
that may be invested by the Company in
7
<PAGE>
Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
3. ACQUISITION: (continued)
Portola Packaging Ltd. are subject to limitations pursuant to the terms of
the Indenture pertaining to the senior notes issued in October 1995.
Consideration for the acquisition was allocated as follows:
Total consideration paid $2,975,000
Fair value of net assets acquired 2,420,000
---------
Goodwill $555,000
---------
---------
4. INVENTORIES:
Inventory balances as of November 30, 1996 and August 31, 1996 were as
follows:
Nov 30, Aug 31,
1996 1996
---- ----
(unaudited)
Raw materials $6,562 $6,023
Work in process 664 858
Finished goods 5,502 4,769
----- -----
$12,728 $11,650
5. CONTINGENCIES:
The Company is engaged in patent litigation with two separate 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 party to a number of other lawsuits and claims arising
out of the normal course of business. In this regard, the plastic closure
industry is characterized by frequent litigation regarding patent and other
intellectual property rights, and the Company and its subsidiaries are party to
various claims of this nature. 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.
6. SUBSEQUENT EVENT:
In December 1996, the Company evaluated its operations to provide focus and
productivity improvements in its core business, and announced a restructuring
plan which includes the elimination of several management positions and the
closure of its Portland, Oregon plant in February 1997. The Company estimates
it will record a restructuring charge of approximately $900,000 in connection
with this restructuring plan in the quarter ended February 28, 1997.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales increased $1.9 million, or 5.1%, from $38.0 million for the three
months ended November 30, 1995 to $39.9 million for the three months ended
November 30, 1996. This increase was attributable to a $2.6 million increase
in sales in Canada and the United Kingdom, as these newer subsidiaries
increase their operations, somewhat offset by a decrease in sales of $450,000
from domestic closure operations and a decrease of approximately $250,000 in
equipment sales. The decrease in closure sales in the United States was
primarily due to lower sales to ongoing customers and lower exports of
fitments to Europe. The Company has experienced some design issues with one
of its new products, which, combined with the cooler weather in much of the
United States this year compared to last year, resulted in a decline in sales
of these products.
Gross profit decreased $2.0 million or 20.5%, to $7.8 million for the
three months ended November 30, 1996, as compared to $9.8 million for the
three months ended November 30, 1995. Gross profit as a percentage of sales
decreased from 25.8% for the three months ended November 30, 1995 to 19.5%
for the three months ended November 30, 1996. The margin decrease was due to
the mix of sales, with higher sales from the Canadian and UK operations, each
of which have had relatively low margins. In addition, margins in the
domestic closure business were down slightly for the quarter as compared with
the same quarter of the prior year. The decline in margin in domestic
operations is primarily due to lower sales volumes in fiscal 1997 as compared
to fiscal 1996 due to cooler weather in much of the United States this year
compared to last year and to a lesser extent, the quality issues discussed
above. The Company has evaluated its operations to provide focus and
productivity improvements in its core business and in December 1996,
announced a restructuring plan which consolidates its Closure, Packaging and
Manufacturing divisions. This restructuring plan includes a reduction in
staff positions and the closure of the Company's Portland, Oregon plant in
February 1997. The Company estimates it will record a restructuring charge
of approximately $900,000 in connection with this restructuring plan in the
quarter ended February 28, 1997.
Selling, general and administrative expense increased $688,000 or 15.8%, to
$5.1 million for the three months ended November 30, 1996, as compared to $4.4
million for the three months ended November 30, 1995, and increased as a
percentage of sales from 11.5% for the three months ended November 30, 1995 to
12.7% for the three months ended November 30, 1996. These increases are
primarily due to increases in personnel in the sales and marketing area,
increased commission expense due to increases in sales, and an increase in legal
fees primarily due to patent litigation.
Research and development expense increased $242,000, or 68.8%, to $594,000
for the three months ended November 30, 1996, as compared to $352,000 for the
three months ended November 30, 1995, and increased as a percentage of sales
from 0.9% in the three months ended
9
<PAGE>
November 30, 1995 to 1.5% in the three months ended November 30, 1996. The
absolute increase in research and development expense was due primarily to
increased staffing to address expanded new product development opportunities as
well as increased spending in patent consulting.
Amortization of intangibles (consisting of amortization of patents,
goodwill and covenants not to compete) decreased $384,000, or 33.7%, to $755,000
for the three months ended November 30, 1996, as compared to $1.1 million for
the three months ended November 30, 1995. The decrease was primarily due a
decrease in patent amortization due to the write-down of patent costs in August
1996.
Interest income decreased $66,000 to $200,000 for the three months ended
November 30, 1996 from $266,000 for the same period in fiscal 1996. This
decline is primarily due to lower levels of invested cash in fiscal 1997 as
compared to fiscal 1996, as the $110 million senior notes financing was
completed in early October 1995.
Interest expense increased $103,000 to $3.2 million for the three months
ended November 30, 1996, as compared to $3.1 million for the three months ended
November 30, 1995. This is primarily due to a higher level of debt in fiscal
1997 due to the issuance of $110 million of 10.75% senior notes on October 2,
1995.
Amortization of debt financing costs increased $72,000 for the three months
ended November 30, 1996 to $198,000 from $126,000 for the three months ended
November 30, 1995. This increase is primarily attributable to debt financing
incurred in Canada.
Other (income) expense increased to a net income of $246,000 for the three
months ended November 30, 1996 from a net expense of $62,000 for the three
months ended November 30, 1995. This is primarily due to foreign exchange gains
on intercompany transactions, primarily in the United Kingdom where the pound
strengthened against the dollar.
The Company recorded a benefit from income taxes of $618,000 for the three
months ended November 30, 1996 based on its pre-tax loss using an effective tax
rate of 40% in anticipation of its expected tax rate for the entire fiscal year.
The Company had an effective tax rate of 11.8% for fiscal 1996. Income tax
expense does not bear a normal relationship to income before income taxes
primarily due to nondeductable goodwill and other intangibles arising from the
Company's acquisitions.
An extraordinary item of $1,265,000, net of taxes, was recorded for the
three months ended November 30, 1995, as loan fees and other costs were expensed
in connection with an early extinguishment of debt resulting from the $110
million senior notes issue.
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. At
November 30, 1996, the Company had cash and cash equivalents of $2.3 million, a
decrease of $5.5 million from August 31, 1996.
10
<PAGE>
Cash used for operations totaled $2.8 million for the three months ended
November 30, 1996, a $7.3 million decrease from the $4.5 million provided by
operations for the three months ended November 30, 1995. Inventories and other
current assets used funds of $1.6 million in the three months ended November 30,
1996, compared to providing funds of $1.0 million in the same period of the
prior year. Accrued interest expense used funds of $2.9 million in the first
quarter of fiscal 1997 compared to providing funds of $1.2 million in the same
period of fiscal 1996. Additionally, accounts payable used funds of
$3.2 million in the first period of fiscal 1997 as compared to using funds of
$1.2 million in the first period of fiscal 1996.
Cash used in investing activities was $6.3 million for the three months
ended November 30, 1996, as compared to $2.9 million for the three months ended
November 30, 1995. This consisted primarily of additions to property and
equipment.
Cash provided by financing activities was $3.5 million for the first
quarter of fiscal 1997 compared to $22.8 million for the first quarter of fiscal
1996. On October 2, 1995 the Company completed an offering of $110 million of
senior notes that mature on October 1, 2005. The net proceeds of the offering
were approximately $106 million, of which $83 million was used to retire the
Company's outstanding debt under its senior term loans, revolving facility and
senior subordinated notes. During the first quarter of fiscal 1997 the Company
borrowed $3 million under its $35 million revolving line of credit.
At November 30, 1996, the Company had $2.3 million in cash and cash
equivalents as well as borrowing capacity under the revolving credit line (of
which $33.5 million was available for draw as of January 8, 1997). Management
believes 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.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company is a privately-held company, and currently has no class of voting
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended. 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.
During the fiscal quarter ended November 30, 1996, the Company solicited the
written consent of the holders of more than fifty percent (50%) of the issued
and outstanding voting securities of the Company to approve (i) the Company's
1996 Employee Stock Purchase Plan, the terms of which were first authorized by
the Board of Directors of the Company in May 1996, and (ii) an amendment to the
Company's 1994 Stock Option Plan, as adopted by the Board of Directors of the
Company in October 1996, the terms of which provide for an increase in the
number of shares reserved for issuance under the 1994 Stock Option Plan from One
Million (1,000,000) to Two Million (2,000,000) shares. Consents representing
64.37% of the issued and outstanding shares of Class B Common Stock, Series 1
and 2 combined (5,149,375 and 1,080,054 shares of Class B, Series 1 and Series
2, respectively), and approving adoption of the Company's 1996 Employee Stock
Purchase Plan, had been received by the Company on or before November 4, 1996.
Consents representing 64.37% of the issued and outstanding shares of Class B
Common Stock, Series 1 and 2 combined (5,149,375 and 1,080,054 shares of Class
B, Series 1 and Series 2, respectively), and approving adoption of the amendment
to the Company's 1994 Stock Option Plan, had been received by the Company on or
before November 6, 1996. 8,506,640 shares of Class B Common Stock, Series 1 and
1,171,430 shares of Class B Common Stock, Series 2 were issued and outstanding
on the date of commencement of each consent solicitation.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith or incorporated by reference
herein.
Exhibit
Number Exhibit Title
- ----- -------------
4.02 Form of Stock Certificate evidencing ownership of Registrant's Class B
Common Stock, Series 1.
10.39 Registrant's 1994 Stock Option Plan, as amended, together with related
documents, is incorporated by reference to Exhibit 4.04 to
Registrant's Registration Statement on Form S-8, as filed with the
Securities and Exchange Commission on December 10, 1996.
10.40 Registrant's 1996 Employee Stock Purchase Plan, together with related
documents, is incorporated by reference to Exhibit 4.05 to
Registrant's Registration Statement on Form S-8, as filed with the
Securities and Exchange Commission on December 10, 1996.
10.41 Registrant's Senior Executive Bonus Plan for fiscal year 1997.
10.42 Registrant's Management Incentive Plan for fiscal year 1997.
10.43 Registrant's Management Deferred Compensation Plan Trust Agreement.
11.01 Computation of Net Loss per share.
27.01 Financial Data Schedule.
(b) The Company did not file any reports on Form 8-K during the three (3) month
period ended November 30, 1996.
13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PORTOLA PACKAGING, INC.
(Registrant)
Date: January 10, 1997 /s/ Robert R. Strickland
-----------------------------
Robert R. Strickland
Vice-President - Finance and
Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer)
Date: January 10, 1997 /s/ Patricia Voll
-----------------------------
Patricia Voll
Vice President, Finance and Accounting
(Principal Accounting Officer)
14
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EXHIBIT INDEX
Exhibit
Number Exhibit Title
- ------ -------------
4.02 Form of Stock Certificate evidencing ownership of Registrant's Class B
Common Stock, Series 1.
10.39 Registrant's 1994 Stock Option Plan, as amended, together with related
documents, is incorporated by reference to Exhibit 4.04 to
Registrant's Registration Statement on Form S-8, as filed with the
Securities and Exchange Commission on December 10, 1996.
10.40 Registrant's 1996 Employee Stock Purchase Plan, together with related
documents, is incorporated by reference to Exhibit 4.05 to
Registrant's Registration Statement on Form S-8, as filed with the
Securities and Exchange Commission on December 10, 1996.
10.41 Registrant's Senior Executive Bonus Plan for fiscal year 1997.
10.42 Registrant's Management Incentive Plan for fiscal year 1997.
10.43 Registrant's Management Deferred Compensation Plan Trust Agreement.
11.01 Computation of Net Loss per share.
27.01 Financial Data Schedule.
15
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INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
<TABLE>
<CAPTION>
<S>
<C>
NUMBER SHARES
_______ ________
PORTOLA PACKAGING, INC.
This Certifies that ______________________________________________ is the record holder of _______________________________________
Shares of the Class B Common Stock, Series 1 of
PORTOLA PACKAGING, INC.
transferable only on the share register of said Corporation, in person or by duly authorized Attorney upon surrender of this
certificate properly endorsed or assigned.
This certificate and the shares represented hereby are issued and shall be subject to all the provisions of the
Certificate of Incorporation and the By-Laws of said Corporation, and any amendments thereof, to all of which the holder of this
certificate by acceptance hereof assents.
A statement of the rights, preferences, privileges and restrictions granted to or imposed upon the respective classes of
shares of stock of the corporation and upon the holders thereof may be obtained by [a]ny stockholder, upon request and without
charge, at the principal office of the Corporation.
By acceptance of this certificate the holder hereof assents to and agrees to be bound by all of the provisions of the
Certificate of Incorporation and By-Laws of the Corporation and all amendments thereto.
Class A Common shares and Class B Common, Series 2 shares are convertible into Class B Common, Series 1 shares as set
forth in the Certificate of Incorporation.
WITNESS the Seal of the Corporation and the signatures of its duly authorized officers this ____ day of __________
A.D. 19_____.
_______________________________________ ________________________________________
Secretary Vice President
</TABLE>
<PAGE>
FOR VALUE RECEIVED, __________________________ HEREBY SELLS, ASSIGNS AND
TRANSFERS UNTO ____________________________________________ SHARES REPRESENTED
BY THE WITHIN CERTIFICATE AND DOES HEREBY IRREVOCABLY CONSTITUTE AND APPOINT
_________________________________________________ ATTORNEYS TO TRANSFER THE SAID
SHARES ON THE SHARE REGISTER OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF
SUBSTITUTION IN THE PREMISES.
DATED ______________ 19____ __________________________________
IN THE PRESENCE OF:_____________________________________________________________
NOTICE: THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.
A statement of the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights may be obtained by any stockholder, upon request and
without charge, at the principal office of the corporation.
<PAGE>
PORTOLA PACKAGING INC.
SENIOR EXECUTIVE BONUS PLAN
FISCAL YEAR 1997
<PAGE>
PORTOLA PACKAGING INC.
SENIOR EXECUTIVE INCENTIVE PLAN
HIGHLIGHTS
Portola Packaging Inc. recommends a Senior Executive Bonus Plan for the fiscal
year ending August 31, 1997 as follows:
ELIGIBLE EMPLOYEES
Jack L. Watts - Chairman and Chief Executive Officer
AVAILABLE POOL
Mr. Watts' target bonus of $175,000 with a maximum bonus of $350,000.
PROPOSED BONUS CRITERIA
CORPORATE GOALS (70% WEIGHTING)
1. Meet or exceed plan operating income margin 35%
2. Improve employee survey results 15%
3. Improve customer satisfaction 15%
4. Meet or exceed plan percent of sales from new products 15%
and international customers
5. Successful execution of FY'97 ISO 9000 implementation plan 20%
-----
100%
INDIVIDUAL GOALS (30% WEIGHTING)
1. Smooth implementation of Corporate reorganization 50%
2. Fill key Corporate positions 50%
-----
100%
<PAGE>
CALCULATION OF MAXIMUM BONUS
Same as outlined in the Management Incentive Plan proposal.
PROCESS FOR GRANT OF BONUS
The Executive Compensation Committee will meet after the auditors have completed
their field work and delivered preliminary financial statements for the
corporation.
Based on those financial statements, an available maximum bonus will be
calculated.
The Committee will then determine the appropriate bonus based on the foregoing
criteria. The Committee may not award the maximum amount of bonus available
depending on its evaluation of the criteria set forth above.
In all cases, the Committee's recommendation is subject to approval by the Board
of Directors.
GENERAL LIMITATIONS
The grant of bonuses is subject to the following limitations:
* Together with the Management Incentive Plan, bonuses to its senior
executives cannot in the aggregate exceed 10% of income from
operations after payment or accrual of bonuses according to the
corporation's audited financial statements.
* Bonuses together with other compensation of all employees cannot
exceed amounts permitted under the corporation's loan agreements.
* All bonuses are subject to approval of the Board of Directors in its
sole discretion and are not earned until such approval is given.
<PAGE>
PORTOLA PACKAGING, INC.
MANAGEMENT INCENTIVE PLAN
Proposal for Fiscal 1997
September 12, 1996
I. PURPOSE
The purpose of the Management Incentive Plan ("Plan") is to:
A. Reinforce those objectives most important to Company success with a
focus on reaching strategic and operational goals;
B. Maintain and reinforce the importance of annual and long-term earnings
and cash flow;
C. Encourage achievement of stretch goals related to profitability and
growth, and provide compensation opportunities as the reward for their
attainment;
D. Encourage teamwork as a means of achieving ongoing success; and
E. Provide for additional compensation opportunity based on
organizational unit and individual results.
II. PLAN OPERATION
The Management Incentive Plan provides cash incentive awards based upon
Corporate Performance, Unit Performance and Individual Performance
(definitions of these and other terms are contained in Section III). Goals
are established in each of these three performance areas for each bonus
plan participant, with the goals weighted to indicate relative importance.
The goals are agreed to between the participant and his/her manager and
approved one level up. There should normally not be more than 5 goals in
each area. The three areas are also weighted, with the CEO's staff having
a 70% weighting for the Corporate component and that component being
weighted less at lower levels of the organization (see Exhibit C). However,
a minimally acceptable operating income must be achieved in order for any
award to be made. The amount of the management incentive awards will be
determined in the following fashion.
A. The Incentive Opportunity Percentage ("IOP") will be determined at the end
of the fiscal year when audited data is available. If the pretax operating
income results fall within the Performance Table (see Exhibit A), then the
IOP is determined from the Table.
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For actual results between those shown in the Table, interpolation is used
to determine the IOP. If the actual performance is greater than maximum
pretax operating income in the Table, the IOP shall not be greater than
200%.
The Table is constructed so that if pretax operating income equals Plan,
the IOP is 100% and Target Bonuses will be fully funded. Above Plan
operating income performance, the Bonus Pool increases $1 for every $5
increase in pretax initially, and as the variance from Plan increases, the
funding of the Pool increases. As IOP approaches 200% of Target, the Bonus
Pool ultimately increases $1 for every $2 increase in pretax.
If pretax operating income is below Plan, the Bonus Pool decreases $0.35
for every $1 decrease in earnings until the IOP declines to 50% of Target
at 95% of Plan operating income. IOP is held at the 50% level over a
further decline in operating income to allow some payouts for unit and
individual performances.
If the Corporate pretax operating income result falls below the minimum
threshold on the Performance Table, 92% of Plan, the IOP will be zero and
no incentive awards will occur.
B. An individual's weighted average performance against his/her goals is
determined in the following manner. Examples of the calculations are
contained in Exhibits D and E.
1. The CORPORATE PERFORMANCE is determined by evaluating actual
performance against the corporate objectives. Performance against
each objective is evaluated on a scale of 0 to 200% as described in
Exhibit B. The performance on each objective is multiplied by the
weight for that objective to calculate the weighted result. The
weighted results of the corporate objectives are summed to determine
the total corporate performance weighted result.
2. UNIT PERFORMANCE is determined by evaluating actual performance
against unit objectives. Performance against each objective is
evaluated on a scale of 0 to 200%. The performance on each objective
is multiplied by the weight for that objective to calculate the
weighted result. The weighted results of the unit objectives are
summed to determine the total unit performance weighted result.
3. INDIVIDUAL PERFORMANCE is determined by evaluating actual performance
against individual objectives. Performance against each objective is
evaluated on a scale of 0 to 200%. The performance on each objective
is multiplied by the weight for that objective to calculate the
weighted result. The weighted results of the unit objectives are
summed to determine the total individual performance weighted result.
C. The MANAGEMENT INCENTIVE PLAN BONUS will be calculated as follows:
* The corporate, unit and individual results will be multiplied by the
weighting assigned to each one, with those weightings based on the
individual's level within the organization.
2
<PAGE>
* The resulting three weighted results will be summed to get the
individual's overall weighted average performance.
* The overall weighted average performance will be multiplied by the
Corporate IOP to determine the percent of the individual's Target
Bonus earned.
* The percent of the Target Bonus earned is then multiplied by the
Target Bonus to determine the total award.
D. Payments of individual award amounts less Profit Sharing and appropriate
taxes, will be made only to eligible participants. In no event may a
participant's award be distributed or transferred to any other Company
employee or group of employees.
E. Award payments will be made as soon as is practical but no later than
November 15 of the year following the plan year.
III. DEFINITIONS
A. PARTICIPANT: A full-time employee of the Company, approved by the CEO
to receive an incentive award and whose employment with the Company
commenced on or before June 30.
The term "Participant" will be used in referring to all eligible
positions listed above.
B. RANGE OF OPPORTUNITY: The range of opportunity will be from 0% to 200%
of Target Bonus depending upon the participant's performance and the
Corporate IOP result (see "Performance Table").
C. TARGET BONUS: Each participant in the Management Incentive Plan has a
Target Bonus established by the Corporation that is appropriate for
the participant's position and scope of responsibilities. A payout
equal to 100% of Target Bonus is considered a full bonus payout.
Payouts above 100% are very unusual and based on exceptional
performance and results.
D. CORPORATE PERFORMANCE: Performance against overall Corporate goals
established by the CEO's staff and approved by the Board of Directors
prior to the start of the plan year.
E. PERFORMANCE TABLE: A table defining a range of pretax operating income
results for a given plan year and the Incentive Opportunity Percentage
("IOP") associated with each level within the ranges. The Performance
Table is attached as Exhibit A.
F. INCENTIVE OPPORTUNITY PERCENTAGE: Indicates the degree to which the
Bonus Pool is funded. The Management Incentive Plan depends upon the
Corporation performing well against its operating income plan for the
plan year. The degree of performance is translated into an Incentive
Opportunity Percentage ("IOP") by the Performance Table.
3
<PAGE>
G. BONUS POOL: The accrued funds available to pay out management
incentive awards.
H. UNIT: A measurable subsection of the Company under the Management
Incentive Plan; that is, a Division or a Corporate Department.
I. UNIT PERFORMANCE: Performance against defined objectives established
for a given unit by its management and approved by the CEO's staff
prior to the start of the plan year.
J. PERFORMANCE WEIGHTS: The sum of the weights for the objectives
established for each of the corporate, unit and individual performance
areas must equal 100%. No single objective should be weighted more
than 60% or less than 10%.
K. INDIVIDUAL PERFORMANCE: Performance by a participant against usually
not more than five individual objectives which support the achievement
of Corporate and Unit objectives.
IV. TRANSFERS FROM ONE UNIT TO ANOTHER
In the event that a Participant transfers from one incentive eligible
position to another, a decision will be made on a case by case basis as to
the relative impact of old vs. new unit results on the final award
determination. The Chief Executive Officer and appropriate Division and/or
Department Manager(s) will make the decision at the time of transfer.
V. TRANSFERS INTO INELIGIBLE POSITIONS
In the event that a Participant transfers into an ineligible position at
the Company's request for reasons other than failure to meet job
requirements, the employee would be eligible to participate for the
remainder of the calendar year. If a participant transfers at his/her own
request into an ineligible position, the participant will not be eligible
to receive an award
VI. NEW PARTICIPANTS
An eligible employee whose employment commences, or who is promoted and
made a Plan Participant after September 1, but on or before June 30, shall
receive a pro rata share of the award which would have otherwise been paid.
The pro rata share shall equal the number of months, or partial months, the
employee was eligible for Plan participation divided by twelve, times the
award amount. No award amount shall be paid to an employee hired or newly
promoted into an eligible position after June 30 of the plan year.
Employees hired or promoted into eligible positions on or before June 30
should have individual objectives developed within thirty days of the hire
or promotion date.
VII. TERMINATION
4
<PAGE>
A participant who is terminated for any reason other than death, disability
(as defined in the Company's Long-Term Disability Plan), or normal or early
retirement forfeits all rights to the payment of awards under the plan.
If an employee is terminated as a result of death, disability or normal or
early retirement, a pro rata share of the award amount will be paid as if
the employee had not been terminated. The total award will be based on the
achievement of Corporate and Unit Objectives. The pro rata share shall
equal the number of months, including partial months, the individual was an
actively employed participant during the Incentive Plan year divided by
twelve, times the award amount.
In the event of death, any award which was to be paid to the participant
will be paid to the most current beneficiary on file for the Group Life
Insurance Plan.
VIII. AFFECT ON OTHER PLANS
The payment of an award is excluded from, and in no manner affects, the
calculation or determination of benefits payable under any other Company
benefit plan or program, including but not limited to the Company's
retirement, disability and life insurance plans.
However, Management Incentive Plan participants will not be eligible for
both an award under this plan and an award under the Profit Sharing Plan.
The participant in this plan will receive the greater of the two awards.
If the management incentive award is greater, a portion equal to the profit
sharing award for the year will go into the participant's pretax profit
sharing account and the balance, less appropriate tax withholding, will be
paid in cash.
IX. RIGHT OF CONTINUED EMPLOYMENT
The plan and participation in the plan does not confer on any employee any
legal or equitable right to be continued in the employ of the Company, and
the Company reserves the right to terminate any employee.
X. PLAN ADMINISTRATION AND REVISIONS
The plan may be terminated or modified at any time by the Compensation
Committee of the Board of Directors. No bonuses will be paid under the
provisions of this plan without the review and approval of the Compensation
Committee.
The right to revise or modify any award to accommodate special and unusual
circumstances is under the sole discretion of the Compensation Committee.
5
<PAGE>
Exhibit 10.43
- --------------------------------------------------------------------------------
PORTOLA PACKAGING, INC.
MANAGEMENT DEFERRED COMPENSATION
PLAN TRUST AGREEMENT
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Section Page
- ------- ----
ARTICLE I
TITLE AND DEFINITIONS
1.1 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
ADMINISTRATION
2.1 Trustee Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Maintenance of Records . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III
FUNDING
3.1 Contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Subtrusts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE IV
PAYMENTS FROM TRUST FUND
4.1 Payments to Trust Beneficiaries. . . . . . . . . . . . . . . . . . . . . 4
4.2 Trustee Responsibility Regarding Payments to Trust
Beneficiaries When the Company Is Insolvent. . . . . . . . . . . . . . . 6
4.3 Payments to the Company. . . . . . . . . . . . . . . . . . . . . . . . . 7
4.4 Trustee Compensation and Expenses; Other Fees and Expenses . . . . . . . 7
4.5 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.6 Alienation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.7 Claims for Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE V
INVESTMENT OF TRUST ASSETS
5.1 Investment of Subtrust Assets. . . . . . . . . . . . . . . . . . . . . . 8
5.2 Disposition of Income. . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VI
TRUSTEE
6.1 General Powers and Duties. . . . . . . . . . . . . . . . . . . . . . . . 8
6.2 Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
6.3 Third Persons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
6.4 Limitation on Obligation of Trustee. . . . . . . . . . . . . . . . . . .10
ARTICLE VII
RESIGNATION AND REMOVAL OF TRUSTEE
7.1 Method and Procedure . . . . . . . . . . . . . . . . . . . . . . . . . .10
i
<PAGE>
ARTICLE VIII
AMENDMENT AND TERMINATION
8.1 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
8.2 Duration and Termination . . . . . . . . . . . . . . . . . . . . . . . .12
8.3 Distribution upon Termination. . . . . . . . . . . . . . . . . . . . . .13
ARTICLE IX
MISCELLANEOUS
9.1 Limitation on Participants' Rights . . . . . . . . . . . . . . . . . . .13
9.2 Receipt or Release . . . . . . . . . . . . . . . . . . . . . . . . . . .13
9.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
9.4 Headings, etc., Not Part of Agreement. . . . . . . . . . . . . . . . . .14
9.5 Execution in Counterparts. . . . . . . . . . . . . . . . . . . . . . . .14
9.6 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . .14
9.7 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
ii
<PAGE>
PORTOLA PACKAGING, INC.
MANAGEMENT DEFERRED COMPENSATION PLAN TRUST AGREEMENT
This Trust Agreement made and entered into this ___ day of December, 1996,
by and between Portola Packaging, Inc., a Delaware corporation (the "Company"),
and First American Trust Company (hereinafter called "Trustee"), evidences the
terms of a trust for the benefit of certain employees, former employees and
their designated beneficiaries (hereinafter collectively called "Trust
Beneficiaries") who will be entitled to receive benefits under the Portola
Packaging, Inc. Management Deferred Compensation Plan ("Plan").
WITNESSETH:
WHEREAS, the Company wishes to establish an irrevocable trust (hereinafter
called the "Trust") and to transfer to the Trust assets which shall be held
therein, subject to the claims of the Company's creditors in the event of the
Company's insolvency, until paid to the Trust Beneficiaries as benefits in such
manner and at such times as required hereunder; and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974
("ERISA").
NOW, THEREFORE, it is mutually understood and agreed as follows:
ARTICLE I
TITLE AND DEFINITIONS
SECTION 1.1 TITLE.
This Trust Agreement shall be known as the Portola Packaging, Inc.
Management Deferred Compensation Plan Trust Agreement.
<PAGE>
SECTION 1.2 DEFINITIONS.
The following words, when used in this Trust Agreement with initial letter
capitalized, shall have the meanings set forth below:
"General Fund" shall mean that portion of the Trust fund which is not
allocated to a Subtrust.
"Plan" shall mean the Portola Packaging, Inc. Management Deferred
Compensation Plan.
"Subtrust" shall mean a separate subtrust established for a Participant
pursuant to Section 3.2.
Capitalized terms not defined above shall be defined in accordance with the
Plan.
ARTICLE II
ADMINISTRATION
SECTION 2.1 TRUSTEE RESPONSIBILITY.
By its acceptance of this Trust, the Trustee agrees to make payments under
this Trust to Trust Beneficiaries in accordance with the provisions of this
Trust Agreement.
SECTION 2.2 MAINTENANCE OF RECORDS.
The Committee shall have the duty and responsibility to maintain all
individual Trust Beneficiary records and to prepare and file all reports and
other information required by any federal or state law or regulation relating to
the Trust and the Trust assets.
2
<PAGE>
ARTICLE III
FUNDING
SECTION 3.1 CONTRIBUTIONS.
(a) The Company hereby deposits with the Trustee in trust the sum of
$100.00 to be held in the General Fund of the Trust.
(b) The Company shall contribute to the Trust an amount equal to the
amount deferred by each Participant employed by the Company for the Plan Year
and the Company Contribution Amount, if any, for each Participant employed by
the Company for the Plan Year; in no event shall these contributions be made
after the Company's tax return due date for that Plan Year. The Company shall
also contribute cash to the Trust in an amount at least equal to the "cost of
insurance" (as defined in the Policies) to provide the death benefits described
in Section 6.5 of the Plan; provided that such obligation shall not apply with
respect to a Policy if the applicable insured is no longer either a Participant
or employed by the Company.
(c) Except as provided otherwise herein, all contributions received
pursuant to (a) and (b) above, together with the income therefrom and any
increment thereon, shall be held, managed and administered by the Trustee as a
single Trust pursuant to the terms of this Trust Agreement without distinction
between principal and income.
(d) The principal of the Trust, and any earnings thereon shall be
held separate and apart from other funds of the Company and shall be used
exclusively for the uses and purposes of Plan Participants and Beneficiaries and
general creditors of the Company as herein set forth. Trust Beneficiaries shall
not have any preferred claim on, or any beneficial ownership interest in, any
assets of the Trust prior to the time such assets are paid to Trust
Beneficiaries as benefits as provided in Section 4.1, and all rights created
under this Trust Agreement shall be mere unsecured contractual rights of Trust
Beneficiaries against the Company or Trust. Any assets held by the Trust will
be subject to the claims of the Company's general creditors under federal and
state law in the event of Insolvency, as defined in Section 4.2(a).
3
<PAGE>
SECTION 3.2 SUBTRUSTS.
(a) If directed by the Committee, the Trustee shall establish a
separate Subtrust for a Participant and credit the amount of contributions made
with respect to such Participant to that Participant's Subtrust. Each Subtrust
shall reflect an individual interest in the assets of the Trust fund and shall
not require any segregation of particular assets.
(b) Following the allocation of assets to Subtrusts pursuant to
Section 3.2(a), the Trustee shall allocate investment earnings and losses of the
Trust fund among the Subtrusts in accordance with Section 5.2. Payment of
benefits to a Participant (or his or her Beneficiary) shall be charged against
the Subtrust established or maintained for such Participant.
(c) Amounts allocated to a Participant's Subtrust may not be utilized
to pay benefits to another Participant or Beneficiary of another Participant.
Following payment of a Participant's entire benefit under the Plan, including
payment of an in-service withdrawal under Section 6.3 (whether by the Trustee
pursuant to the terms of this Trust Agreement or by the Company or by a
combination thereof), any amounts remaining allocated to that Participant's
Subtrust (other than a Policy held with respect to such Participant) shall be
transferred by the Trustee to the Company. Upon a Participant's termination of
employment from the Company for a reason other than death, the Committee may
direct the Trustee (1) to transfer the Policy to the Company, (2) to designate a
new beneficiary (which may be the Trustee or the Company) under the Policy or
(3) to cash in the applicable Policy and transfer the proceeds to the Company.
ARTICLE IV
PAYMENTS FROM TRUST FUND
SECTION 4.1 PAYMENTS TO TRUST BENEFICIARIES.
(a) The Trustee shall make payments of benefits to Trust
Beneficiaries from the assets of the Trust, if and to the extent such assets are
available for distribution, in accordance with instructions from the Committee
as to the time, amount and manner of such payments. The Committee shall direct
the Trustee to pay (or to commence to pay) to a Participant (or, in the case of
the Participant's death, to the Participant's Beneficiary) the benefits,
excluding amounts described in Section 6.2 of the Plan, payable to such
Participant under the Plan (the "Benefit Amount"). If Subtrusts are
established, the
4
<PAGE>
Trustee shall make such payment only from funds allocated to the
Participant's Subtrust plus the General Fund, if any.
(b) The Committee shall have full authority and responsibility to
determine the correct time and amount of payment of the Benefit Amount. In
making such determination, the Committee shall be governed by the terms of the
Plan and this Trust Agreement.
(c) Any obligation to a Trust Beneficiary under this Trust Agreement
is also an obligation of the Company to the extent not paid from the Trust.
Accordingly, to the extent payments to a Trust Beneficiary are discontinued
pursuant to Section 4.2, the Company shall be obligated to pay the Trust
Beneficiary the same amount (plus applicable interest) from its general assets.
If the Trust assets are not sufficient (or if the amount credited to a Subtrust,
if applicable, is not sufficient) to make the payment of the Benefit Amount to a
Trust Beneficiary in accordance with the determination by the Committee, the
Company shall make the balance of such payment. Notwithstanding the foregoing,
neither the Trustee nor the Company shall have any obligation to pay any amounts
described in Section 6.5 of the Plan; all such amounts shall be payable solely
from the proceeds of the Policy, if any.
(d) Unless a Trust Beneficiary furnishes documentation in form and
substance satisfactory to the Trustee that no withholding is required with
respect to a payment of benefits from the Trust, the Trustee shall deduct from
any such benefit payment any federal, state or local taxes required by law to be
withheld and shall be responsible for payment and reporting of such withheld
taxes to the appropriate taxing authorities. The Trustee shall inform the
Company of the amounts so remitted.
(e) The Trustee shall provide the Company and the Committee with
written confirmation of the fact and time of any payment hereunder within ten
business days after making any payment to a Trust Beneficiary.
(f) Upon a Participant's termination of employment for a reason other
than death, the Trustee shall, at the direction of the Committee, (1) transfer
ownership of the applicable Policy to the Company, (2) designate a new
beneficiary (which may include the Trustee or the Company), or (3) cash in the
applicable Policy and transfer the proceeds to the Company. In addition any
cash previously received with respect to such Policy not used to pay benefits to
the Participant shall be transferred to the Company.
5
<PAGE>
SECTION 4.2 TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARIES
WHEN THE COMPANY IS INSOLVENT.
(a) The Company shall be considered "Insolvent" for purposes of this
Trust Agreement if (i) the Company is unable to pay its debts as they become
due, or (ii) is subject to a pending proceeding as a debtor under the United
States Bankruptcy Code.
(b) At all times during the continuance of the Trust, the principal
and income of the Trust shall be subject to claims of general creditors of the
Company as hereinafter set forth, and at any time the Trustee has actual
knowledge, or has determined, that the Company is Insolvent, the Trustee shall
deliver any undistributed principal and income in the Trust to satisfy such
claims as a court of competent jurisdiction may direct. The Company, through
its board of directors or any executive officer, shall advise the Trustee
promptly in writing of the Company's Insolvency. If the Trustee receives such
notice, or otherwise receives written notice from a third party which the
Trustee, in its sole discretion, deems reliable and responsible, the Trustee
shall discontinue payments to all Trust Beneficiaries, shall hold the Trust
assets for the benefit of the Company's general creditors, and shall resume
payments to Trust Beneficiaries in accordance with Section 4.1 of this Trust
Agreement only after the Trustee has determined that the Company is not
Insolvent or is no longer Insolvent. Unless the Trustee has actual knowledge of
the Company's Insolvency or has received notice from a third party alleging that
the Company is Insolvent, the Trustee shall have no duty to inquire whether the
Company is Insolvent. The Trustee may in all events rely on such evidence
concerning the solvency of the Company as may be furnished to the Trustee which
will give the Trustee a reasonable basis for making a determination concerning
its solvency. Nothing in this Trust Agreement shall in any way diminish any
rights of Trust Beneficiaries to pursue their rights as general creditors of the
Company with respect to benefits payable hereunder or otherwise.
(c) If the Trustee discontinues payments of benefits from the Trust
pursuant to Section 4.2(b) and subsequently resumes such payments, the first
payment following such discontinuance shall include the aggregate amount of all
payments which would have been made to Trust Beneficiaries less the aggregate
amount of payments made to Trust Beneficiaries by the Company in lieu of the
payments provided for hereunder during any such period of discontinuance,
together with interest compounded monthly at 120% of the short-term applicable
federal rates (as defined in Section 1274(d) of the Code) in effect for the
months in the period of such discontinuance. Such interest shall be in lieu of
any earnings payable on such delayed payments.
6
<PAGE>
SECTION 4.3 PAYMENTS TO THE COMPANY.
Except as provided in Sections 3.2(c), 4.1(f) or 4.2, neither the Committee
nor the Company shall have the right or power to direct the Trustee to return to
the Company or to divert to others any of the Trust assets before the Trust is
terminated pursuant to Section 8.2.
SECTION 4.4 TRUSTEE COMPENSATION AND EXPENSES; OTHER FEES AND EXPENSES.
The Company shall pay the Trustee such reasonable compensation for its
services as shall be agreed upon from time to time by the Company and the
Trustee, and the Trustee shall be reimbursed by the Company for its expenses
that are reasonably necessary and incident to its administration of the Trust.
Following reasonable consultation with the Company, such expenses shall include
fees of counsel and other advisors, if any, incurred by the Trustee for the
purpose of determining its responsibilities under the Trust. Such compensation,
expenses or fees, as well as all other administrative fees and expenses, shall
be paid from Trust assets unless paid directly by the Company.
SECTION 4.5 TAXES.
The Trustee shall not be personally liable for any real and personal
property taxes, income taxes or other taxes of any kind levied or assessed under
the existing or future laws against the Trust assets. Such taxes shall be paid
directly from the Trust assets unless paid by the Company, in its discretion.
SECTION 4.6 ALIENATION.
The benefits, proceeds, payments or claims of Trust Beneficiaries payable
from the Trust assets shall not be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, charge,
garnishment, execution or levy of any kind, either voluntary or involuntary.
Any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber,
garnish, levy or otherwise dispose of or execute upon any right or benefits
payable hereunder shall be void. The Trust assets shall not in any manner be
liable for or subject to the debts, contracts, liabilities, engagements or torts
of any Trust Beneficiary entitled to benefits hereunder and such benefits shall
not be considered an asset of Trust Beneficiary in the event of his insolvency
or bankruptcy.
7
<PAGE>
SECTION 4.7 CLAIMS FOR BENEFITS.
Any claims for benefit payments from the assets of the Trust shall be
resolved in accordance with Section 7.8 of the Plan.
ARTICLE V
INVESTMENT OF TRUST ASSETS
SECTION 5.1 INVESTMENT OF SUBTRUST ASSETS.
The Trustee shall invest and manage the assets of the Trust (and each
Subtrust, if any) in accordance with written directions from the Committee.
SECTION 5.2 DISPOSITION OF INCOME.
All income received by the Trust shall be reinvested. Any income that is
attributable to the amount credited to a Subtrust in accordance with Section
3.2, and income thereon, shall be credited to such Subtrust and reinvested.
ARTICLE VI
TRUSTEE
SECTION 6.1 GENERAL POWERS AND DUTIES.
Subject to written directions from the Committee regarding the investment
of Trust assets, the Trustee, on behalf of Trust Beneficiaries, shall have all
powers necessary to administer the Trust, including, but not by way of
limitation, the following powers in addition to other powers as are set forth
herein or conferred by law:
(a) To hold, invest and reinvest the principal or income of the Trust
in bonds, common or preferred stock, other securities, or other personal, real
or mixed tangible or intangible property (including investment in deposits with
the Trustee which bear a reasonable interest rate, including without limitation
investments in trust savings accounts, certificates of deposit, time
certificates or similar investments or deposits maintained by the Trustee);
8
<PAGE>
(b) To hold, invest and reinvest the principal or income of the Trust
in the Policies, direct investments under the Policies and take any other action
regarding the Policies, as specifically directed by the Committee (including
those specified pursuant to Section 3.2(c) or 4.1(f)) and to enter into
split-dollar life insurance agreements with Participants pursuant to which each
Participant designates the beneficiary to receive the portion of the death
benefits described in Section 6.5 of the Plan;
(c) To pay and provide for the payment of all benefits to Trust
Beneficiaries in accordance with the provisions of this Trust Agreement;
(d) To retain noninterest bearing deposits or a cash balance with the
Trustee of so much of the funds as may be determined to be temporarily held
awaiting investment or payment of benefits or expenses;
(e) To compromise, arbitrate or otherwise adjust claims in favor of
or against the Trust and to institute, compromise and defend actions and
proceedings; provided, however, that in the case of a dispute between a Trust
Beneficiary and the Company or the Committee over the interpretation of this
Trust Agreement, the Company or the Committee, as the case may be, will be
authorized and required to resolve such dispute;
(f) To vote any stock, bonds or other securities of any corporation
or other issuer at any time held in the Trust; to otherwise consent to or
request any action on the part of any such corporation or other issuer; to give
general or special proxies or powers of attorney, with or without power of
substitution; to participate in any reorganization, recapitalization,
consolidation, merger or similar transaction with respect to such stocks, bonds
or other securities and to deposit such stocks, bonds or other securities in any
voting trust, or with any protective or like committee, or with a trustee, or
with the depositories designated thereby; to exercise any subscription rights
and conversion privileges; and to generally exercise any of the powers of an
owner with respect to the stocks, bonds or other securities or properties in the
Trust; and
(g) Generally, to do all such acts, execute all such instruments,
take all such proceedings, and exercise all such rights and privileges with
relation to the property constituting the Trust as if the Trustee were the
absolute owner thereof.
9
<PAGE>
SECTION 6.2 RECORDS.
The Trustee shall keep a full, accurate and detailed record of all
transactions of the Trust which the Company shall have the right to examine at
any time during the Trustee's regular business hours. Within 90 days after the
close of each calendar year and within 15 days after the removal or resignation
of the Trustee, the Trustee shall furnish the Company with a statement of
account with respect to the Trust. This account shall set forth all receipts,
disbursements and other transactions (including sales and purchases) effected by
the Trustee during said year (or until its removal or resignation), shall show
the investments at the end of the year (or date of removal or resignation),
including the cost and fair market value of each item, and the amounts allocated
to each Subtrust.
SECTION 6.3 THIRD PERSONS.
A third person dealing with the Trustee shall not be required to make any
inquiry as to whether the Company or the Committee has instructed the Trustee,
or the Trustee is otherwise authorized, to take or omit any action, and shall
not be required to follow the application by the Trustee of any money or
property which may be paid or delivered to the Trustee.
SECTION 6.4 LIMITATION ON OBLIGATION OF TRUSTEE.
The Trustee shall have no responsibility for the validity of the Plan or of
the Trust and does not guarantee the payment of any amount which may become
payable to any Trust Beneficiary under the terms hereof.
ARTICLE VII
RESIGNATION AND REMOVAL OF TRUSTEE
SECTION 7.1 METHOD AND PROCEDURE.
(a) The Trustee may resign at any time by delivering to the Company a
written notice of resignation, to take effect on a date specified therein, which
shall be not less than 30 days after the delivery thereof, unless such notice
shall be waived.
10
<PAGE>
(b) The Company may remove the Trustee at any time by delivering to
the Trustee a written notice of removal, to take effect on a date specified
therein, which shall be not less than 30 days after the delivery thereof, unless
such notice shall be waived.
(c) In case of the resignation or removal of the Trustee, the Trustee
shall have a right to a settlement of its accounts, which may be made, at the
option of the Trustee, either (1) by a judicial settlement in an action
instituted by the Trustee in a court of competent jurisdiction, or (2) by an
agreement of settlement between the Trustee and the Company.
(d) Upon such settlement, all right, title and interest of such
Trustee in the assets of the Trust, and all rights and privileges under the
Trust theretofore vested in such Trustee shall vest in the successor Trustee,
and thereupon all liabilities of such Trustee shall terminate; provided,
however, that the Trustee shall execute, acknowledge and deliver all documents
and written instruments which are necessary to transfer and convey all the
right, title and interest in the assets of the Trust, and all rights and
privileges in the Trust to the successor Trustee.
(e) The Company, upon receipt of or giving notice of the resignation
or removal of the Trustee, shall promptly appoint a successor Trustee. The
successor Trustee shall be a bank or trust company qualified and authorized to
do trust business in the State of California. In the event of the failure or
refusal of the Company to appoint such a successor Trustee within 30 days after
the notice of resignation or removal, the Trustee may secure, at the expense of
the Company, the appointment of such successor Trustee by an appropriate action
in a court of competent jurisdiction. Any successor Trustee so appointed may
qualify by executing and delivering to the Company an instrument accepting such
appointment and, upon delivery, such successor Trustee, without further act,
shall become vested with all the right, title and interest, and all rights and
privileges of the predecessor Trustee with like effect as if originally named as
the Trustee herein.
ARTICLE VIII
AMENDMENT AND TERMINATION
SECTION 8.1 AMENDMENTS.
The Company shall have the right to amend (but, except as otherwise
provided in Section 9.2, not terminate) the Trust from time to time and to amend
further or cancel any such amendment. Any
11
<PAGE>
amendment shall be stated in an instrument in writing executed by the Company
and the Trustee, and this Trust Agreement shall be amended in the manner and at
the time therein set forth, and the Company and the Trustee shall be bound
thereby; provided, however:
(a) No amendment shall have any retroactive effect so as to deprive
any Trust Beneficiary of any benefits already vested under the Plan, or create a
reversion of Trust assets to the Company except as already provided in this
Trust Agreement, other than such changes, if any, as may be required in order
for the Trust to be considered a component of a plan described in Section 9.3;
(b) No amendment shall make the Trust revocable; and
(c) No amendment shall increase the duties or liabilities of the
Trustee without its written consent.
SECTION 8.2 DURATION AND TERMINATION.
This Trust shall not be revocable and shall continue until the earliest of
(a) the date on which Plan Participants and their Beneficiaries are no longer
entitled to benefits pursuant to the terms of the Plan, (b) the receipt by the
Company of the written approval of a termination of the Trust by all
Participants or Beneficiaries who are entitled to benefits under the Plan, (c)
the exhaustion of all appeals of a final determination of a court of competent
jurisdiction that the interest in the Trust of Trust Beneficiaries is includable
for federal income tax purposes in the gross income of such Trust Beneficiaries,
without such determination having been reversed (or the earlier expiration of
the time to appeal), (d) the expiration of the maximum length of time for which
Trusts may be established under any applicable state law, (e) a determination of
the Company to terminate the Trust because applicable law requires it to be
amended in a way that could make it taxable to its beneficiaries and failure to
so amend the Trust would subject the Company to material penalties, or (f) a
determination of the Company to terminate the Trust because the Company
concludes, after consulting with legal counsel, that judicial authority or the
opinion of the U.S. Department of Labor (as expressed in its proposed or final
regulations, advisory opinions, or similar administrative announcements) creates
a significant possibility that the Trust will not be considered a component of
an unfunded plan maintained primarily to provide deferred compensation for a
select group of management or highly compensated employees as described in
Section 201(2) of the Employee Retirement Income Security Act of 1974, as
amended.
12
<PAGE>
SECTION 8.3 DISTRIBUTION UPON TERMINATION.
Upon termination of this Trust, any remaining assets shall be returned to
the Company in such proportions as the Committee directs, and the Trustee shall
provide a final account to the Company and the Committee.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 LIMITATION ON PARTICIPANTS' RIGHTS.
Participation in the Trust shall not give a Participant the right to be
retained in the Company's employ or any right or interest in the Trust other
than as herein provided. The Company reserves the right to dismiss Participants
without any liability for any claim either against the Trust, except to the
extent provided herein, or against the Company. All benefits payable hereunder
shall be provided solely from the assets of the Trust.
SECTION 9.2 RECEIPT OR RELEASE.
Any payment to a Trust Beneficiary in accordance with the provisions of the
Trust shall, to the extent thereof, be in full satisfaction of all claims
against the Trustee and the Company, and the Trustee may require such Trust
Beneficiary, as a condition precedent to such payment, to execute a receipt and
release to such effect.
SECTION 9.3 GOVERNING LAW.
This Trust Agreement and the Trust hereby created shall be construed,
administered and governed in all respects under applicable federal law, and to
the extent that federal law is inapplicable, under the laws of the State of
California; provided, however, that if any provision is susceptible to more than
one interpretation, such interpretation shall be given thereto as is consistent
with the Trust being (a) classified as a grantor trust as defined in Sections
671 et seq. of the Code and (b) classified as a component of an unfunded plan
maintained primarily to provide deferred compensation for a select group of
management or highly compensated employees, as described in Section 201(2) of
the Employee Retirement Income Security Act of 1974, as amended. If any
provision of this instrument shall be held by a court of
13
<PAGE>
competent jurisdiction to be invalid or unenforceable, the remaining provisions
hereof shall continue to be fully effective.
SECTION 9.4 HEADING, ETC., NOT PART OF AGREEMENT.
Headings and subheadings in this Trust Agreement are inserted for
convenience of reference only and are not to be considered in the construction
of the provisions hereof.
SECTION 9.5 EXECUTION IN COUNTERPARTS.
This Trust Agreement may be executed in several counterparts, each of which
shall be deemed an original, and said counterparts shall constitute but one and
the same instruments, which may be sufficiently evidenced by any one
counterpart.
SECTION 9.6 SUCCESSORS AND ASSIGNS.
This Trust Agreement shall inure to the benefit of, and be binding upon,
the parties hereto and their successors and assigns.
SECTION 9.7 INDEMNITY.
(a) Except in the case of liabilities and claims arising out of the
Trustee's willful misconduct or gross negligence, the Company shall indemnify
and hold the Trustee harmless from and against all liabilities and claims
(including reasonable attorney's fees and expenses in defense thereof) arising
out of or in any way connected with the Plan or the Trust fund or the
management, operation, administration or control thereof and based in whole or
in part on:
(1) Any act or inaction of the Company or the Committee or
(2) Any act or inaction of the Trustee resulting from the
absence of proper directions hereunder.
(b) The Trustee does not warrant and shall not be liable for any tax
consequences associated with the Trust or the Plan.
14
<PAGE>
(c) The Trustee shall not be liable for the inadequacy of the Trust
to pay all amounts due under the Plan.
IN WITNESS WHEREOF the undersigned have executed this Trust Agreement as of
the date first written above.
PORTOLA PACKAGING, INC. TRUSTEE
By: /s/ Robert R. Strickland FIRST AMERICAN TRUST
----------------------------- COMPANY
By: /s/ Joanne Jordan
----------------------------------
15
<PAGE>
EXHIBIT 11.01
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
COMPUTATION OF NET LOSS PER SHARE (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NOVEMBER 30,
-------------------------------
1996 1995
------ -------
Weighted average common shares
outstanding for the period 11,813 12,077
------ -------
Shares used in per share calculation 11,813 12,077
------ -------
------ -------
Income (loss) before extraordinary item ($926) $796
Less the increase in the put value of warrants (256) (206)
------ -------
Income (loss) before extraordinary item ($1,182) $590
------ -------
------ -------
Extraordinary item $1,265
------ -------
------ -------
Net income (loss) ($926) ($469)
Less the increase in the put value of warrants (256) (206)
------ -------
Net income (loss) ($1,182) ($675)
------ -------
------ -------
Net income (loss) per share
before extraordinary item ($0.10) $0.05
------ ------
------ ------
Effect of extraordinary item per share ($0.11)
------ -------
Net loss per share ($0.10) ($0.06)
------ -------
------ -------
(1) There is no difference between primary and fully diluted net loss per share
for all periods presented.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 2,284
<SECURITIES> 568
<RECEIVABLES> 21,959<F1>
<ALLOWANCES> 0
<INVENTORY> 12,728
<CURRENT-ASSETS> 41,792
<PP&E> 74,833<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 149,042
<CURRENT-LIABILITIES> 23,935
<BONDS> 116,127
0
0
<COMMON> 12
<OTHER-SE> (5,052)
<TOTAL-LIABILITY-AND-EQUITY> 149,042
<SALES> 39,892
<TOTAL-REVENUES> 39,892
<CGS> 32,115
<TOTAL-COSTS> 37,763
<OTHER-EXPENSES> 509
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,364
<INCOME-PRETAX> (1,544)
<INCOME-TAX> (618)
<INCOME-CONTINUING> (926)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (926)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
<FN>
<F1> Tag 12 shown net of allowance
<F2> Tag 16 shown net of depreciation
</FN>
</TABLE>
