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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 FORM 10-Q (Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended November 30, 1999
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 number 33-95318
PORTOLA PACKAGING, INC.
(Exact name of Registrant as specified in its Charter)
890 Faulstich Court
(408) 453-8840
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 reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
12,115,896 shares of Registrant's $.001 par value Common Stock, consisting of
2,134,992 shares of nonvoting Class A Common Stock and 9,980,904 shares in the
aggregate of voting Class B Common Stock, Series 1 and 2 combined, were
outstanding at December 11, 1999.
San Jose, CA 95112
(Address of Principal Executive Offices including Zip Code)
(Registrant's Telephone Number, Including Area Code)
(Former name, former address and former fiscal year if changed
since last report)
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I. Financial Information
Item 1. Financial statements
Condensed Consolidated Balance Sheets as of November 30, 1999 and August 31, 1999
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
PART II. Other Information
Item 6: Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
November 30, August 31, 1999 1999 ------------ ------------ (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents....................... $2,826 $2,372 Accounts receivable, net........................ 24,300 26,151 Inventories..................................... 13,371 13,363 Other current assets............................ 968 799 Deferred income taxes........................... 1,952 1,952 ------------ ------------ Total current assets......................... 43,417 44,637 Property, plant and equipment, net............... 89,272 91,637 Goodwill, net.................................... 14,843 15,402 Patents, net..................................... 2,320 2,417 Covenants not to compete, net.................... 78 86 Debt financing costs, net........................ 2,405 2,508 Other assets..................................... 1,505 757 ------------ ------------ Total assets............................... $153,840 $157,444 ============ ============ LIABILITIES, REDEEMABLE WARRANTS, COMMON STOCK AND OTHER SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Current portion of long-term debt............... $435 $820 Accounts payable................................ 11,269 10,063 Book overdraft.................................. -- 3,338 Accrued liabilities............................. 5,613 6,139 Accrued compensation............................ 3,322 2,138 Accrued interest................................ 1,430 5,134 ------------ ------------ Total current liabilities...................... 22,069 27,632 Long-term debt, less current portion............. 139,221 136,275 Other long term obligations...................... 902 917 Deferred income taxes............................ 5,295 5,295 ------------ ------------ Total liabilities............................ 167,487 170,119 ------------ ------------ Commitments and contingencies (Note 4) Minority interest................................ 1,093 1,120 ------------ ------------ Redeemable warrants to purchase Class A Common Stock................................... 12,306 12,222 ------------ ------------ Common stock and other shareholders' equity (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: 8,809 shares in 1999 and 8,636 shares in 1998......................... 8 8 Class B, Series 2, convertible 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..................... 8,195 8,171 Notes receivable from shareholders............. (357) (375) Accumulated other comprehensive loss........... (915) (1,234) Accumulated deficit............................ (33,980) (32,590) ------------ ------------ Total common stock and other shareholders' equity (deficit)........... (27,046) (26,017) ------------ ------------ Total liabilities, redeemable warrants, common stock and other shareholders' equity (deficit)........... $153,840 $157,444 ============ ============
The accompanying notes are an integral part of the
condensed consolidated financial statements.
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
For the Three Months Ended November 30, --------------------- 1999 1998 ---------- ---------- Sales........................... $47,613 $44,759 Cost of sales................... 37,389 33,264 ---------- ---------- Gross profit................ 10,224 11,495 ---------- ---------- Selling, general and administrative................ 7,447 6,174 Research and development........ 616 788 Amortization of intangibles..... 899 585 ---------- ---------- 8,962 7,547 ---------- ---------- Income from operations...... 1,262 3,948 ---------- ---------- Other (income) expense: Interest income............... -- (80) Interest expense.............. 3,060 3,522 Amortization of debt financing costs............. 103 120 Minority interest............. (27) -- Loss (gain) from sale of property plant and equipment................... 47 (1) Other expense (income), net... 120 (178) ---------- ---------- 3,303 3,383 ---------- ---------- (Loss) income before income taxes.............. (2,041) 565 Income tax (benefit) provision.. (735) 201 ---------- ---------- Net (loss) income............... ($1,306) $364 ========== ========== Number of shares used in computing basic per share amounts....................... 12,090 11,792 ========== ========== Basic (loss) earnings per share..................... ($0.11) $0.03 Number of shares used in computing diluted per share amounts....................... 12,090 14,415 ========== ========== Diluted (loss) earnings per share..................... ($0.11) $0.03
The accompanying notes are an integral part of the
condensed consolidated financial statements.
PORTOLA PACKAGING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Three Months Ended November 30, --------------------- 1999 1998 ---------- ---------- Cash flows from operating activities: Net (loss) income...................................... ($1,306) $364 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization........................ 5,207 4,049 Deferred income taxes................................ -- (74) Loss (gain) on property and equipment dispositions... 47 (1) Provision for doubtful accounts...................... 53 62 Provision for excess and obsolete inventories........ 67 93 Equity in losses of affiliates....................... 238 -- Minority interest.................................... (27) -- Changes in working capital: Accounts receivable.................................. 1,891 3,661 Inventories.......................................... (41) 160 Other current assets................................. (107) (1,410) Accounts payable..................................... 1,739 (1,699) Accrued liabilities.................................. (107) 369 Accrued interest..................................... (3,704) (3,070) ---------- ---------- Net cash provided by operating activities............ 3,950 2,504 ---------- ---------- Cash flows from investing activities: Additions to property, plant and equipment............. (2,462) (2,986) Increase in other assets............................... (309) (974) ---------- ---------- Net cash used in investing activities................ (2,771) (3,960) ---------- ---------- Cash flows from financing activities: Decrease in book overdraft............................. (3,338) -- Borrowings under long-term debt arrangements, net...... 2,552 3,577 Decrease in notes receivable from shareholders......... 18 -- Issuance of common stock............................... 24 -- ---------- ---------- Net cash (used in) provided by financing activities.. (744) 3,577 ---------- ---------- Effect of exchange rate changes on cash.................. 19 (16) ---------- ---------- Increase in cash and cash equivalents................ 454 2,105 Cash and cash equivalents at beginning of period......... 2,372 3,570 ---------- ---------- Cash and cash equivalents at end of period............... $2,826 $5,675 ========== ==========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
Portola Packaging, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation:
The unaudited condensed 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 condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company's Form 10-K previously filed with the Securities and Exchange Commission. The August 31, 1999 condensed consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by generally accepted accounting principles. Interim results are subject to seasonal variations and the results of operations for the three months ended November 30, 1999 are not necessarily indicative of the results to be expected for the full fiscal year ending August 31, 2000.
2. Computation of Earnings (Loss) Per Common Share:
Basic EPS is computed as net income (loss) divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants and other convertible securities. Common equivalent shares are excluded from the November 30, 1999 computation of net loss per share as their effect is anti-dilutive.
3. Inventories:
Inventory balances as of November 30, 1999 and August 31, 1999 were as follows (in thousands):
November 30, August 31, 1999 1999 ----------- ----------- (unaudited) Raw materials.................... $6,649 $7,300 Work in process.................. 1,452 1,145 Finished goods................... 5,270 4,918 ----------- ----------- $13,371 $13,363 =========== ===========
Portola Packaging, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
4. Commitments and Contingencies:
On July 1, 1999, the Company entered into an agreement to provide a total of $3.5 million in support services to Sand Hill Systems, Inc., (SHS), then a wholly-owned subsidiary. The agreement terminated September 30, 1999, when the services provided under the agreement reached an aggregate value of $3.5 million. The Company received a promissory note for $3.5 million from SHS which bears interest at a rate equal to the base rate used in the Company's Senior Revolving Credit facility less one-half of one percent. The note was subsequently assumed by a company controlled by the Chief Executive Officer of Portola Packaging, Inc., in exchange for an ownership interest in SHS. All outstanding principal and interest amounts due on the note are payable in full on the earlier date of July 1, 2003 or the occurrence of one of the following events: nine months after a public offering equal to or exceeding $20 million in the aggregate; the sale of all or substantially all of the assets of SHS; or an event of default under the note. As of November 30, 1999, the Company had not received any payments related to the note, and as such, no income related to the services agreement had been recognized. In September 1999 the Company's interest in SHS was reduced from 100% to less than 25%. As such, effective October 1, 1999, SHS is being accounted for as an equity method investment.
The Company is currently engaged in patent infringement litigation with two separate parties who are seeking to have the court declare certain patents owned by the Company invalid. These parties have also included allegations of anti-trust violations in their complaints. The Company believes that its patents are valid and is contesting these allegations vigorously. The Company is also subject to other legal proceedings and claims arising out of the normal course of business. Based on the facts currently available, management believes that the ultimate amount of liability beyond reserves provided, if any, for any pending actions will not have a material adverse effect on the financial position of the Company. However, the ultimate outcome of any litigation is uncertain, and either unfavorable or favorable outcomes could have a material impact on the results of operations or liquidity of the Company in a particular period.
On August 11, 1999, the Company signed a letter of intent to enter into a new five-year senior secured credit facility providing for up to $50.0 million for operating purposes and an additional $10.0 million available for acquisition purposes. The new credit facility would be subject to a borrowing base and covenants similar to those in the existing senior credit facility. Currently, the Company is negotiating with the banks to finalize the terms of the new facility.
Portola Packaging, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
5. Recent Accounting Pronouncements:
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 established accounting and reporting standards for derivative instruments and hedging activities and requires the recognition of all derivatives in the balance sheet at their fair market values. The implementation date of this standard was recently delayed by the issuance of SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" and it is not effective for the Company until fiscal year 2001. The impact of adopting this statement on the Company's current financial statements would not be material.
6. Segment Information:
In fiscal year 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". Prior period amounts have been restated in accordance with the requirements of the new standard.
The Company's reportable operating businesses are organized primarily by geographic region. The United States and United Kingdom segments offer the Company's principal closure product lines, and the Company's Canada segment offers both closure and bottle product lines. The Company evaluates the performance of its segments and allocates resources to them based on earnings before interest, taxes, depreciation, amortization and certain non-operating income and expenses. Certain Company businesses and activities, including the equipment division, Portola Allied Tool and general corporate costs, do not meet the definition of a reportable operating segment and have been aggregated into "Other". Certain corporate expenses related to the domestic closure operations, including human resources, finance, selling and information technology costs, have been allocated to the United States segment for purposes of determining Adjusted EBITDA. The accounting policies of the segments are consistent with those policies used by the Company as a whole.
Portola Packaging, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The table below presents information about reported segments for the three month periods ended November 30, (in thousands):
United United States Canada Kingdom Other Total ---------- --------- --------- --------- --------- Revenues................... 1999 $28,773 $6,228 $6,172 $6,440 $47,613 1998 31,408 5,759 4,993 2,599 44,759 Adjusted EBITDA............ 1999 6,429 989 1,114 (2,376) 6,156 1998 8,349 690 806 (1,795) 8,050
Intersegment revenues of $1.5 million and $1.2 million have been eliminated from the segment totals presented above for the periods ended November 30, 1999 and 1998, respectively.
The table below presents a reconciliation of total segment Adjusted EBITDA to total consolidated income before income taxes for the three month periods ended November 30, (in thousands):
1999 1998 ----------- ------------ Total Adjusted EBITDA - for reportable segments.............................. $6,156 $8,050 Depreciation and amortization.............. (5,207) (4,049) Interest expense, net...................... (3,060) (3,442) Gain (loss) from sale of property, plant and equipment......................... (47) 1 Other...................................... 117 5 ----------- ------------ Consolidated (loss) income before income taxes.......................... ($2,041) $565 =========== ============
7. Other Comprehensive (Loss) Income:
In fiscal year 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive Income". The following is a breakdown of other comprehensive (loss) income for the three month periods ended November 30, (in thousands):
1999 1998 --------- --------- Net (loss) income.......................... ($1,306) $364 Cumulative translation adjustment.......... 319 137 --------- --------- Total comprehensive (loss) income.......... ($987) $501 ========= =========
Portola Packaging, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
8. Subsequent Events:
On December 20, 1999, the Company deposited $1.4 million in a United States bank in preparation for the acquisition of the 45% interest it does not currently own in Shanghai Portola Packaging LLC (SHPPC). If completed, the transaction will be accounted for as a purchase and accordingly the purchase price will be allocated to the underlying assets and liabilities acquired based on the proportional change in ownership and the respective estimated fair values at the date when the purchase is finalized. Any excess purchase price over the estimated fair values of the assets acquired will be allocated to goodwill.
SHPPC is located in the Shanghai province of China and manufactures and sells closures primarily for the Asian marketplace. After the purchase, SHPPC will continue to be operated as an "unrestricted" subsidiary pursuant to the terms of the Company's senior revolving credit facility and the senior note indenture, each of which was entered into in October 1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Disclosures Regarding Forward-Looking Statements
This report 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. Certain statements included in this Form 10-Q, including, without limitation, statements related to the impact of the final disposition of legal matters in the "Commitments and Contingencies" footnote to the condensed consolidated financial statements, anticipated cash flow sources and uses under "Liquidity and Capital Resources", the mitigation of the Year 2000 issue under "Impact of the Year 2000 Issue" and other statements contained in the "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.
Results of Operations
Sales increased $2.8 million, or 6.3%, from $44.8 million for the three months ended November 30, 1998 to $47.6 million for the three months ended November 30, 1999. This increase was primarily due to the addition of $3.0 million in sales from the consolidation of our Mexican operations beginning in the second quarter of fiscal 1999, and increased sales in our United Kingdom subsidiary of $1.2 million due to an increase in sales volume. Also contributing to the sales growth for the quarter was the addition of sales from our new subsidiary, Portola Allied Tool of $962,000, increased sales from our Canadian operations of $469,000 primarily due to an increase in bottle prices, and the addition of $1.1 million in sales from newly operational joint ventures in China and the United States. Decreased sales in the domestic closure operations are due primarily to decreased sales volume of $2.6 million. Decreased sales from the equipment division of $900,000 also offset the increase in sales.
Gross profit decreased $1.3 million to $10.2 million or 21.4% of sales for the first quarter of fiscal 2000 as compared to $11.5 million, or 25.7%, for the first quarter of fiscal 1999. A majority of the decrease was attributable to decreased margins in the domestic closure operations of $2.5 million primarily caused by a decrease in sales volume in September and October of 1999, and increased resin costs that we will be unable to pass on to our customers until the second quarter of fiscal 2000. The decrease in domestic closures gross margin was partially offset by the addition of $574,000 in gross profit from the consolidation of our Mexican operations and from the addition of $541,000 in gross profits from our new domestic joint ventures.
Selling, general and administrative expenses increased $1.2 million, or 19.4%, to $7.4 million for the three months ended November 30, 1999, as compared to $6.2 million for the same period in fiscal year 1999, and increased as a percentage of sales from 13.8% for the three months ended November 30, 1998 to 15.5% for the three months ended November 30, 1999. The increase was primarily due to the addition of $705,000 of expenses related to our new domestic joint ventures and from expenses related to Sand Hill Systems Inc., previously a wholly-owned subsidiary of the Company (see Note 4 to Notes to Condensed Consolidated Financial Statements). Part of the increase was also attributable to the addition of $307,000 of expenses related to the consolidation of our Mexican operations and the addition of $162,000 of expenses related to our new domestic subsidiary, Portola Allied Tool. International selling expenses also increased by $205,000 due to an increase in related employee, travel and supplies costs. These increases were partially offset by a decrease of $109,000 in employee costs from our United Kingdom operations.
Research and development expense decreased $172,000, or 21.8%, to $616,000 for the three months ended November 30, 1999, as compared to $788,000 for the three months ended November 30, 1998, and decreased as a percentage of sales from 1.8% in the three months ended November 30, 1998 to 1.3% in the three months ended November 30, 1999. The decrease in research and development expense was primarily due to the effect of the reimbursement of certain tool development costs that offset expenses and a decrease in prototype expenses.
Amortization of intangibles (consisting of amortization of patents, goodwill and covenants not to compete) increased $314,000, or 53.7%, to $899,000 for the three months ended November 30, 1999, as compared to $585,000 for the three months ended November 30, 1998. The increase was primarily due to the increase of goodwill amortization expense related to the acquisition of our Mexican subsidiary and the acquisition of Portola Allied Tool.
Interest income decreased $80,000 for the three months ended November 30, 1999 as compared to the same period in fiscal year 1999. This decline was primarily due to fluctuations in the levels of invested cash in fiscal 2000 as compared to fiscal 1999.
Interest expense decreased $462,000 to $3.1 million for the three months ended November 30, 1999, as compared to $3.5 million for the three months ended November 30, 1998. This decrease reflects the payoff of our Canadian term loan during fiscal year 1999, the payoff of a U.K. acquisition note in the first quarter of fiscal year 2000 and reduced interest rates for certain borrowings under our senior credit facility.
Amortization of debt financing costs decreased $17,000 for the three months ended November 30, 1999 to $103,000 from $120,000 for the three months ended November 30, 1998. The decrease in debt financing costs is primarily attributable to the write-off of the western Canadian debt costs in fiscal 1999 due to the early payoff of this debt. The remaining debt financing costs are primarily attributable to the $110 million senior notes issued in October 1995.
Other expense of $120,000 for the three months ended November 30, 1999 is comprised primarily of equity in losses of affiliates of $238,000 offset by gains on foreign currency transactions. Other income of $178,000 for the three months ended November 30, 1998 was primarily due to foreign currency gains.
The Company recorded a benefit from income taxes of $735,000 for the three months ended November 30, 1999 based on its pre-tax loss using an effective tax rate of 36%. The actual effective tax rate for the entire fiscal year could vary substantially depending on actual results achieved. The Company recorded a provision for income taxes of $201,000 for the three month period ending November 30, 1998.
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, 1999, the Company had cash and cash equivalents of $2.8 million, an increase of $454,000 from August 31, 1999. Cash provided by operations totaled $4.0 million for the three months ended November 30, 1999, which represents a $1.5 million increase from the $2.5 million provided by operations for the three months ended November 30, 1998. Accounts payable provided funds of $1.7 million in the first three months of fiscal 2000 compared to using funds of $1.7 million in the first three months of fiscal year 1999, and accrued expenses used funds of $107,000 in the first quarter of fiscal 2000 as compared to providing funds of $369,000 in the same period of fiscal year 1999. The increase in funds provided by accounts payable was partially offset by a decrease in funds provided by accounts receivable, from $3.7 million in the first quarter of fiscal year 1999 to $1.9 million for the same period in fiscal year 2000. In addition, accrued interest expense used funds of $3.7 million in the first quarter of fiscal 2000 compared to using funds of $3.1 million in the same period of fiscal year 1999. Cash used in investing activities was $2.8 million for the three months ended November 30, 1999, as compared to using $4.0 million for the three months ended November 30, 1998. In both periods the use of cash consisted primarily of additions to property, plant and equipment and for the first quarter of fiscal 1999 included an $825,000 investment in the Company's Chinese joint venture. Cash used by financing activities was $744,000 for the first quarter of fiscal year 2000 as compared to providing $3.6 million for the first quarter of fiscal year 1999. The decrease was principally due to $3.3 million of cash used in the first quarter of fiscal year 2000 to satisfy a book overdraft and decreased borrowings under the Company's line of credit in the first quarter of fiscal year 2000 as compared to the same period in fiscal year 1999. At November 30, 1999, the Company had $2.8 million in cash and cash equivalents as well as borrowing capacity under the revolving credit line (of which $6.0 million was available for draw as of November 30, 1999). While there can be no assurances, 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 into fiscal year 2000.Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 established accounting and reporting standards for derivative instruments and hedging activities and requires the recognition of all derivatives in the balance sheet at their fair market values. The implementation date of this standard was recently delayed by the issuance of SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" and it is not effective for the Company until fiscal year 2001. The impact of adopting this statement on the Company's current financial statements would not be material.
Impact of the Year 2000 Issue
The Year 2000 issue is the result of computer programs being written using two digits, rather than four, to define the applicable year. Software programs and hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including a temporary inability to engage in normal business activities.
Using mainly internal personnel and operating cash flows, the Company
has modified or replaced portions of hardware and software so that its
systems properly recognize dates beyond December 31, 1999. However, the
operational effectiveness of the Company in the year 2000 will be partly
based on the ability of its suppliers and customers to successfully
complete their Year 2000 resolution processes and operate effectively in
the new year. While the Company believes it has taken reasonable steps to
mitigate potential Year 2000 issues, the failure of suppliers to deliver
raw materials on time or for customers to buy product in normal quantities
and frequencies could have a material impact on the Company's financial
results.
PART II - OTHER INFORMATION
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 |
10.30 | Summary description of the Company Bonus Plan and Company Profit Sharing Plan. |
10.31 | $3.5 million Variable Rate Promissory Note, dated as of July 1, 1999, by Sand Hill Systems, Inc., in favor of the Company. |
10.32 | Services Agreement, dated as of July 1, 1999, by and between the Company and Sand Hill Systems, Inc. |
10.33 | Release and Assumption Agreement, dated as of September 17, 1999, by and among the Company, Sand Hill Systems, Inc., and Portola Company IV LLC. |
10.34 | Amended and Restated Stock Pledge Agreement, dated as of October 4, 1999, by Portola Company IV LLC in favor of the Company |
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, 1999.
PORTOLA PACKAGING, INC.
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) |
By: | /s/ Dennis L. Berg |
| |
Dennis L. Berg | |
Vice President, Finance and Chief Financial Officer | |
(Principal Financial Officer and Duly Authorized Officer) |
EXHIBIT INDEX
Exhibit Number | Exhibit Title |
10.30 | Summary description of the Company Bonus Plan and Company Profit Sharing Plan. |
10.31 | $3.5 million Variable Rate Promissory Note, dated as of July 1, 1999, by Sand Hill Systems, Inc., in favor of the Company. |
10.32 | Services Agreement, dated as of July 1, 1999, by and between the Company and Sand Hill Systems, Inc. |
10.33 | Release and Assumption Agreement, dated as of September 17, 1999, by and among the Company, Sand Hill Systems, Inc., and Portola Company IV LLC. |
10.34 | Amended and Restated Stock Pledge Agreement, dated as of October 4, 1999, by Portola Company IV LLC in favor of the Company |
27.01 | Financial Data Schedule. |
Exhibit 10.30
Summary description of the Company Bonus Plan and Company Profit Sharing Plan:
The Company has adopted a bonus incentive plan effective for fiscal year 2000. Certain management and technical employees are eligible for bonuses under the plan. Bonuses under this plan will be based on two principal factors, namely, the Company's financial performance relative to plan, measured by Adjusted EBITDA, and the extent to which the Company has reached customer satisfaction goals as measured by a quarterly customer survey. Eligible employees will receive target bonuses to the extent these goals are reached. Such bonuses will increase up to double the originally proposed amount to the extent that financial performance exceeds plan by up to 15% and customer survey results exceed original targets. If and to the extent that financial performance falls short of plan or customer satisfaction ratings fail to meet target levels established during the first quarter of 2000, bonuses will be less than originally proposed or may not be awarded. The Company has also revised its profit sharing plan to provide that eligible employees will receive profit sharing awards of up to five percent of compensation based on the same Company financial performance and customer satisfaction goals outlined above. Such awards will increase up to double the original amount to the extent that financial performance exceeds plan by up to 15% and customer survey results exceed the original targets. If and to the extent that financial performance falls short of plan or customer satisfaction ratings fail to meet target levels established during the first quarter of 2000, awards will be less than originally proposed or may not be awarded
Exhibit 10.31
VARIABLE RATE PROMISSORY NOTE
$3,500,000 Issued as of the 1st day of July, 1999 San Jose, California FOR VALUE RECEIVED, Sand Hill Systems, Inc., a Delaware corporation ("Debtor"), hereby promises to pay (in lawful money of the United States of America) to the order of Portola Packaging, Inc., a Delaware corporation ("Lender"), at the office of Lender located at 890 Faulstich Court, San Jose, California 95112, or at such other place as Lender or a future holder hereof (Lender or such other holder being sometimes referenced herein as "Holder") may from time to time designate in writing, the principal sum of Three Million Five Hundred Thousand Dollars ($3,500,000), together with interest on the unpaid principal balance hereof, all as specified below. This Promissory Note ("Note") has been issued pursuant to that certain Services Agreement, dated as of the 1st day of July, 1999, between Debtor and Lender (the "Services Agreement"). All payments made hereon shall be applied first to the payment of all unpaid accrued interest (at the rate specified herein) to the date of payment and the balance, if any, (after deduction of any other charges due from Debtor) shall be applied to the payment of principal. Interest shall thereupon cease on the principal so credited. All interest accruing at the annual percentage rates specified herein shall be calculated on the basis of a three hundred sixty-five (365)-day year and actual days elapsed. Additionally, notwithstanding any provision of this Note, it is the intent and agreement of the Lender in the event any interest specified herein is found to violate any applicable law or regulation, that this Note shall be construed or deemed amended so that the interest is reduced to the extent necessary to comply with such applicable law or regulation. 1. Payments of Principal and Interest. 1.1 Interest. During the term hereof, the principal amount hereof from time to time outstanding shall bear interest at: (i) the Base Rate in effect from time to time minus one half of one percent as the term "Base Rate" is defined in that certain Second Amended and Restated Credit and Security Agreement dated as of October 2, 1995 between Lender and Heller Financial, Inc. (the "Credit Agreement"); (ii) in the event the Credit Agreement is terminated while any portion of the principal of this Note is outstanding, at the equivalent reference or base rate (generally know as the "prime rate") specified in any successor senior secured credit agreement between the Lender and its senior creditors as such rate is in effect from time to time minus one half of one percent; or (iii) if there is no such agreement in effect, then the reference rate or prime rate as published from time to time by the Bank of America. Interest shall be added to principal on the first day of each calendar quarter, commencing January 1, 2000, and thereafter shall itself bear interest. 1.2 Maturity Date. Payment of principal shall be due and payable on the first day of July, 2003 (the "Maturity Date"), plus any of the following that apply: (i) all accrued interest and (ii) all unpaid amounts chargeable against Debtor pursuant to the terms hereof or under the Services Agreement. 1.3 Acceleration. Notwithstanding the provisions of Section 1.2, principal and all accrued interest shall be due and payable (i) nine (9) months after consummation of an initial sale by Debtor of securities to the public generally pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission with net proceeds to Debtor of not less than Twenty Million Dollars ($20,000,000), or (ii) upon sale of all or substantially all of the assets of Debtor, or (iii) upon an Event of Default hereunder. 2. Events of Default. The occurrence of any of the following shall be deemed to be an event of default ("Event of Default") hereunder: 2.1 Nonpayment. The failure of Debtor to make any payment of principal due pursuant to the terms hereof, which failure is not cured within five (5) calendar days after Holder gives notice to Debtor of such default. 2.2 Insolvency; Receiver or Trustee. Any of the following circumstances occur: 2.2.1 The adjudication of Debtor as a bankrupt or insolvent, or the admission by Debtor in writing of its inability to pay its debts as they mature, or an assignment by Debtor for the benefit of creditors. 2.2.2 The application for or consent by Debtor to the appointment of a receiver, trustee or similar officer for it or for any substantial part of its property or business. 2.2.3 The appointment of such a receiver, trustee or similar officer without the application or consent of Debtor and which appointment shall have continued undischarged for a period of thirty (30) days. 2.2.4 (A) the institution by Debtor (whether by petition, application, answer, consent or otherwise) of any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding relating to it under the laws of any jurisdiction, or (B) the institution of any such proceedings (by petition, application or otherwise) against Debtor which shall have remained undismissed for a period of thirty (30) days. 2.2.5 The issuance of any judgment, writ of attachment or execution or similar process or levy against any of the material assets of Debtor which shall have not been discharged, released, vacated, fully bonded, or permanently stayed within thirty (30) days after its issue or levy. 2.3 Dissolution. The issuance of any order, judgment or decree against Debtor decreeing the dissolution of Debtor, which order shall have remained undischarged or unstayed for a period in excess of thirty (30) days. 3. Miscellaneous Provisions. 3.1 Attorneys' Fees. Should suit be brought to enforce, interpret or collect 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 and other costs of enforcement and collection. 3.2 Jurisdiction. THIS NOTE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A. (IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES). 3.3 Obligation Unconditional. No provision of this Note or of any other agreement shall alter, impair or render conditional the payment obligations of Debtor, which are absolute and unconditional, to pay the principal and interest on this Note at the place and at the respective times herein prescribed. 3.4 Debtor's Waivers. Except as expressly provided to the contrary herein, Debtor (and all guarantors, endorsers and other parties now or hereafter becoming liable for the payment of this Note) hereby waives diligence, presentment, protest, demand of payment, notice of protest, dishonor and nonpayment, and waives the legal effect of Holder's failure to give all notices not expressly provided for herein. Debtor expressly agrees that, without in any way affecting the liability of Debtor hereunder, the Holder may extend the Maturity Date or the time for payment of any amount due hereunder, accept security, release any party liable hereunder, and release any security now or hereafter securing this Note. Debtor further waives, to the full extent permitted by law, the right to plead any and all statutes of limitation as a defense to any demand on this Note, or on any agreement now or hereafter securing this Note. 3.5 Loss or Destruction. Upon receipt of evidence reasonably satisfactory to Debtor of the loss or mutilation of this Note, Debtor will execute and deliver, in substitution hereof, a replacement note. 3.6 Severance. Every provision of this Note is intended to be severable. In the event any term or provision hereof is declared to be illegal or invalid for any reason by a court of competent jurisdiction, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable. Lender and Debtor further agree to replace any such void or unenforceable provision of this Note with valid and enforceable provisions which will achieve, to the extent possible, the economic, business and other purposes of the void or unenforceable provision. 3.7 Waivers and Delays by Holder to be Strictly Limited. Any waiver, express or implied, of any breach or default hereunder shall not be considered a waiver of any subsequent or different breach or default. No delay or omission on the part of Holder in exercising any right under this Note or under any of the documents referenced in Section 2 shall operate as a waiver of such right or of any other right of the Holder hereunder. 3.8 Modification. No provision of this Note may be waived, modified or discharged other than by an express writing signed by the party against whom enforcement of such waiver, modification or discharge is sought. DEBTOR: SAND HILL SYSTEMS, INC. By: /s/ Jack L. Watts -------------------- Jack L. Watts, President and Chief Executive Officer
Exhibit 10.32
SERVICES AGREEMENT
THIS SERVICES AGREEMENT by and between Portola Packaging, Inc., a Delaware corporation ("Portola"), and Sand Hill Systems, Inc., a Delaware corporation ("Sand Hill"), is dated as of the1st day of July, 1999. R E C I T A L S A. Sand Hill is a wholly-owned subsidiary of Portola. B. Portola is providing and intends to continue to provide certain services defined in Section 2 below (the "Services") in respect of personnel, facilities and equipment to Sand Hill. C. Sand Hill wishes to receive these Services. D. The parties have previously agreed to have Sand Hill make payment for the Services in the form of an unsecured Promissory Note. NOW THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows: A G R E E M E N T 1. Term. Portola shall provide Services to Sand Hill until the date that the Services heretofore rendered and to be rendered have an aggregate value of Three Million Five Hundred Thousand ($3,500,000). This Agreement shall terminate, and Portola shall no longer be obligated to provide Services, on the earlier of that date or March 31, 2000 (the "Termination Date"). All Services heretofore or hereafter rendered shall be valued by Portola in its sole discretion, provided such valuations shall not be unreasonable under the circumstances. 2. Services Provided. The Services, as this term is used in this Agreement have consisted and shall consist of the following as well as of other services as the parties may agree in the future: 2.1 Fully serviced office space at Portola's facilities located at 850, 860 and 890 Faulstich Court in San Jose, California, to the extent available and not otherwise used by Portola for other purposes. 2.2 Administration services provided by senior executives of Portola including, without limitation, Jack L. Watts, Laurie D. Bassin, James A. Taylor, Dennis Berg and Pete Schneider. 2.3 General and administrative services such as the following: (i) Preparation of periodic payroll, payroll tax filings, W-2 preparation and all other services relating to the handling of Sand Hill's payroll. (ii) General ledger processing and financial statement reconciliation, including preparation of monthly financial statements and other month-end, quarter-end and year-end actions associated with closing the books of Sand Hill for those periods. (iii) External audit assistance and data compilation. (iv) Budget analysis. (v) Services relating to human resources matters, such as administering employee health and workers' compensation claims (for both those employees continuing to be employed by Portola and those employed directly by Sand Hill). (vi) Services in connection with insurance matters, such as casualty, liability and product liability claims, both for and against Sand Hill. (vii) Miscellaneous matters such as accounts payable processing, check preparation, disbursements, travel and other expense advances processing and control, cash deposit, handling and application, bank liaison, management of short term investments of cash, fixed asset reporting and control, external audit assistance and data compilation, compliance with governmental reporting requirements, training, safety and security and corporate communications. In order that Portola may provide the accounting services specified above, Sand Hill shall provide Portola with all necessary backup documentation on a monthly basis by not later than the fifth day of each next succeeding month. 2.4 Provision of full-time employees as set forth on Exhibit "A" hereto (the "Sand Hill Employees") and other employees as the parties may later agree. 2.5 Use of the computers, office furniture and other equipment as set forth on Exhibit "B" hereto (the "Sand Hill Equipment"). 2.6 Access to Portola's telephone network. 2.7 Access to Portola's internal e-mail system. 2.8 Occasional use of Portola's other facilities and equipment as reasonably necessary to execute Sand Hill's business plan. 2.9 Legal services. 2.10 Portola shall perform its obligations under this Agreement in an efficient, professional and competent manner. Portola represents that it currently has and during the term of this Agreement will continue to employ competent personnel who are capable of performing, and willing and sufficient in number to perform, its obligations hereunder. 3 Payment. The parties having agreed from the inception of Portola's providing of Services that payment therefor shall be by promissory note, Sand Hill hereby delivers to Portola its Promissory Note substantially in the form of Exhibit "C" hereto, and Portola hereby accepts said Note in payment for all Services. 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 PRINCIPLES) SHALL GOVERN THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO. THE PARTIES HEREBY EXCLUDE THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS FROM THIS AGREEMENT. 4.2 Arbitration. The parties agree that all disputes arising under this Agreement shall be finally settled under the Commercial Rules of Arbitration of the American Arbitration Association by a single arbitrator appointed in accordance with said rules. The award of any such arbitrator may be entered and enforced in any court of competent jurisdiction, including without limitation, the Federal District Court for the Northern District of California or the Superior Court for the County of Santa Clara, California. 4.3 Other Provisions. This Agreement is binding upon and inures to the benefit of the successors and assigns of the parties hereto. This Agreement constitutes the entire understanding and agreement of the parties with respect to the subject matter hereof. This Agreement may only be amended or observance of any terms of this Agreement may be waived only by a writing signed by the party to be bound thereby. Should suit or arbitration be brought to enforce or interpret any part of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees to be fixed by the court or arbitrator. Nothing contained in this Agreement shall be deemed or construed as creating a joint venture or a partnership between the parties hereto. Neither party shall have any power or authority to bind or commit the other. 4.4 Notices. Whenever either party hereto desires or is required to give any notice, demand or request with respect to this Agreement, each such communication shall be in writing and shall be given or made by telecopy, telegraph, cable, mail or other delivery and telecopied, telegraphed, cabled, mailed or delivered to the intended recipient at the addresses specified below: If to Portola: Portola Packaging, Inc. 890 Faulstich Court San Jose, California 95112 Telecopy: (408) 453-8462 Attn: President with a copy to : Themistocles G. Michos, Esq. Vice President and General Counsel of Portola 221 Main Street, 16th floor San Francisco, CA 94105 Telecopy: (508) 437-0399 If to Sand Hill: Sand Hill Systems, Inc. 2400 Sand Hill Road, Suite 201 Menlo Park, CA 94025 Telecopy: (650) 854-1578 with a copty to: Timothy Tomlinson, Esq. Tomlinson Zisko Morosoli & Maser LLP 200 Page Mill Road, 2nd Floor Palo Alto, CA 94306 Telecopy: (650) 324-1808 Except as may be otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopier with verified receipt by the receiving telecopier, when delivered to the telegraph or cable office, when personally delivered, two (2) days after being delivered to an air courier (e.g. DHL, or Federal Express) upon proof of delivery, or, in the case of a mailed notice, four (4) days after being deposited certified or registered mail, postage prepaid. Either party may change its address for such communications by giving notice thereof to the other party in conformance with this section. IN WITNESS WHEREOF, the parties hereto have made and entered into this Agreement as of the day and year first below written. PORTOLA PACKAGING, INC. By: /s/ James Taylor ------------------- James Taylor, Chief Financial Officer SAND HILL SYSTEMS, INC. By: /s/ Jack L. Watts -------------------- Jack L. Watts, President and Chief Executive Officer
Exhibit 10.33
RELEASE AND ASSUMPTION AGREEMENT
This Release and Assumption Agreement ("Agreement") is made and entered into this 17th day of September, 1999 by and among Portola Packaging, Inc., a Delaware corporation ("PPI"), Sand Hill Systems, Inc., a Delaware corporation ("SHS"); and Portola Company IV LLC, a Delaware limited liability company ("PC") R E C I T A L S A. PPI and SHS entered into a Services Agreement dated as of July 1, 1999 (the "Services Agreement") with respect to the provision by PPI of certain services, personnel, facilities and equipment to SHS. B. Pursuant to the Services Agreement, SHS issued in favor of PPI a variable rate promissory note in the principal amount of Three Million Five Hundred Thousand Dollars ($3,500,000) (the "Note") in payment for the services to be provided by PPI under the Services Agreement. C. PC is willing to assume the Note and all obligations thereunder in exchange for seven million shares (7,000,000) of SHS Common Stock, and SHS is willing to issue such Shares to PC in exchange for such assumption and the release by PPI of SHS's obligations under the Note. D. PPI is willing to release SHS from its obligations under the Note upon the assumption by PC of all of SHS's obligations thereunder. NOW, THEREFORE, in reliance on the foregoing recitals and in consideration of the mutual covenants contained herein, the parties hereto agree as follows: A G R E E M E N T 1. Assignment. SHS hereby assigns and transfers to PC all of SHS's right, title and interest in and related obligations under the Note, and PPI hereby consents to such assignment and the assumption by PC of the Note and SHS's obligations thereunder. 2. Assumption and Pledge. PC hereby assumes and agrees to pay, perform and discharge all obligations of SHS under or arising out of the Note. PC further agrees to secure its obligations under the Note by pledging 500,000 shares of PPI Class B Common Stock ( the "PPI Stock") pursuant to the terms of a Stock Pledge Agreement substantially in the form attached hereto as Exhibit A being entered into between PC and PPI concurrently herewith. 3. Release of Claims. 3.1 As used herein, the term "Claims" shall mean any and all claims, demands, damages, sums of money, costs, expenses, actions, rights, causes of action, agreements, promises, obligations or liabilities of any kind or nature whatsoever, known or unknown, fixed or contingent, suspected or unsuspected, which PPI may have had or claim to have had, or now has or claims to have, or hereafter may claim to have or assert to have, which arise out of in any manner whatsoever, either directly or indirectly, or are related to the Note. 3.2 In consideration of PC's assumption of the Note and SHS's obligations thereunder and PC's related pledge of the PPI Stock, PPI hereby acknowledges full and complete satisfaction of, and hereby releases, and forever discharges SHS as well as its successors, assigns, representatives, shareholders, officers, directors, employees, agents, servants and attorneys from any and all Claims. The parties intend that this release shall be broadly construed and interpreted so as to settle, release and extinguish any and all Claims or any matter related in any way thereto. 3.3 It is the intention of the parties in executing this Agreement that the same shall be effective as a bar to, and full settlement of, an and all Claims hereinabove specified. PPI hereby expressly waives any and all rights and benefits conferred upon PPI by the provisions of Section 1542 of the Civil Code of California, as well as by any other statutes or common law principles of similar effect. Section 1542 of the Civil Code of California reads as follows: "1542. 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 the execution of the Release, which if known by him must have materially affected his settlement with the debtor." The parties understand that this Agreement shall act as a release of future claims that may arise from the Claims whether such Claims are currently known, unknown, foreseen, or unforeseen. PPI understands and acknowledges the significance and consequence of such specific waiver of Section 1542 and hereby assumes full responsibility for any injuries, damages, losses, or liability that he or she may hereafter incur from the Claims. 4. Stock Purchase and Certain Expenses. In consideration of PC's assumption of the Note and SHS's obligations thereunder and the release by PPI of SHS from its obligations under the Note as set forth herein, SHS agrees as follows: 4.1 SHS hereby sells to PC, and PC hereby acquires from SHS, an aggregate of seven million shares (7,000,000) of SHS Common Stock (the "Shares"). SHS shall deliver a certificate representing the Shares to PC as soon as is practical after the date of this Agreement. 4.2 SHS hereby agrees to pay from time to time promptly upon request by PC (i) all attorneys' fees and expenses incurred by PC in connection with PC's initial financing, (ii) all costs and expenses incurred by PC in connection with the preparation of PC's financial statements and the preparation and filing of PC's annual tax returns and (iii) all of PC's franchise taxes in Delaware and Nevada. SHS's payment obligations set forth in this Section 4.2 shall expire one year after the effective date of SHS's initial underwritten public offering. 5. SHS's Representations and Warranties. SHS hereby represents and warrants that: 5.1 SHS has and will transfer to PC, good, valid and marketable title to all of the Shares being sold hereunder, and there are no security interests, liens, claims, charges, encumbrances, assessments or restrictions or any other defects in title of any nature whatsoever on any of the Shares. 5.2 SHS, or the person executing this Agreement on behalf of SHS, has the right, power, legal capacity and authority to enter into and perform SHS's obligations under this Agreement. 6. PC's Representations and Warranties. PC hereby represents and warrants that: 6.1 PC is aware that the Shares are highly speculative and that there can be no assurance as to what return, if any, there may be. 6.2 PC is aware of SHS's business affairs and financial condition; has acquired sufficient information about SHS to reach an informed and knowledgeable decision to acquire the Shares; has received an opportunity to ask questions relating to SHS's business, legal and financial affairs and to obtain all additional information which PC requested. 6.3 PC is purchasing the Shares for investment for PC's own amount only and not as a nominee or agent, and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Federal Securities Act of 1933 (the "Act") or the California Corporate Securities Law of 1968 (the "Law"). 6.4 PC does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant a participation in the Shares to such person or to any third person. 6.5 PC understands that the Shares have not been registered under the Act or the Law by reason of specific exemptions therefrom, some of which exemptions may depend upon, among other things, the bona fide nature of the PC's investment intent as expressed herein. In this connection, PC understands that, in the view of the Securities and Exchange Commission (the "Commission"), the statutory basis for such exemption from the Act may not be available if the PC's representations mean that the PC's present intention is to hold the Shares for a minimum capital gains period under the tax statutes, for a deferred sale, for a market rise, for a sale if the market does not rise, or for a year or any other fixed period in the future. 6.6 PC further understands that the Shares must be held indefinitely unless it is subsequently registered under the Act or an exemption from such registration is available. 6.7 PC is aware of Rule 144 promulgated under the Act which permits limited public resale of Shares acquired in a nonpublic offering, subject to the satisfaction of certain conditions, including, among other things, the availability of certain current public information about SHS, the passage of not less than one year after the holder has purchased and completed payment for the securities to be sold, effectuation of the sale on the public market through a broker in an unsolicited "broker's transaction" or to a "market maker", and compliance with specified limitations on the amount of securities to be sold (generally, one percent (1%) of the total amount of Shares outstanding) during any three-month period; provided, however, that such conditions need not be met by a person who is not an affiliate of SHS at the time of the sale and has not been an affiliate for the preceding three months, if the securities have been beneficially owned by such person for at least two years prior to their sale. PC understands that SHS's Shares may not be publicly traded or SHS may not be satisfying the current public information requirements of Rule 144 at the time PC wishes to sell the Shares; and thus, PC may be precluded from selling the Shares under Rule 144 even though the one-year minimum holding period may have been satisfied. 6.8 PC further understands that in the event the requirements of Rule 144 are not met, registration under the Act, compliance with Regulation A or some other registration exemption will be required for any disposition of the Shares; and that, although Rule 144 is not exclusive, the Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and other than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales and that such persons and the brokers who participate in such transactions do so at their own risk. 6.9 PC has either (i) a preexisting business or personal relationship with SHS or its directors or officers or (ii) by reason of PC's business or financial experience, the capacity to protect PC's own interest in connection with the transaction contemplated by this Agreement. 6.10 PC is (i) experienced in investing in companies recently organized and in the development stage, (ii) able to fend for itself in connection with this investment, and (iii) able to bear the economic risk of this investment. 6.11 PC is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and has full power and authority to carry on its business as now conducted and as currently proposed to be conducted. 6.12 PC has all requisite power to enter into this Agreement, the Stock Pledge Agreement referred to in Section 2 hereof and the Investors' Rights Agreement referred to in Section 7 hereof and to otherwise carry out and perform all of its obligations under the terms of this Agreement, the Stock Pledge Agreement and the Investors' Rights Agreement. 6.13 All action necessary for the authorization, execution, delivery and performance of this Agreement, the Stock Pledge Agreement and the Investors' Rights Agreement has been duly and validly taken by PC and is currently in full force and effect. 6.14 This Agreement, the Stock Pledge Agreement, the Investors' Rights Agreement and the Note are valid and binding obligations of PC, enforceable in accordance with their respective terms, except as enforceability thereof may be limited under general principles of equity (regardless of whether the issue of such enforceability is considered in a proceeding in equity or at law) or by applicable bankruptcy, reorganization, insolvency, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights. 6.15 The execution and delivery of this Agreement, the Stock Pledge Agreement and the Investors' Rights Agreement and the consummation of the transactions herein or therein contemplated, do not and will not: (i) conflict with, or result in a breach of, any of the terms, provisions or conditions of PC's Limited Liability Company Agreement or of any other material agreement to which PC is a party, (ii) violate, conflict with or result in the breach or termination of, or otherwise give any party the right to terminate, or constitute an event which, after the giving of notice or the passage of time, or both, would constitute a default under the terms of, any material agreement or instrument to which PC is a party or by which it or any of its material properties or assets is bound, and which in any of the foregoing cases, either separately or in the aggregate, might materially and adversely affect the operations or financial condition of PC, or (iii) result in the creation of any lien, charge or encumbrance upon any material properties or assets of PC (other than the PPI Stock) pursuant to the terms of any such agreement or instrument which, in the aggregate, might materially and adversely affect the operations or financial condition of PC. 7. Investors' Rights Agreement. Concurrently with the execution of this Agreement and as a condition to PC's obligations hereunder, PC and SHS will enter into an Investors' Rights Agreement substantially in the form of Exhibit B attached hereto. 8. Binding upon Successors and Assigns. Subject to, and unless otherwise provided in, this Agreement, each and all of the covenants, terms, provisions, and Agreements contained herein shall be binding upon, and inure to the benefit of, the permitted successors, executors, heirs, representatives, administrators and assigns of the parties hereto. 9. Entire Agreement. This Agreement constitutes the entire understanding and Agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous Agreements or understandings, inducements or conditions, express or implied, written or oral, between the parties with respect hereto and thereto. The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof. 10. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original as against any party whose signature appears thereon and all of which together shall constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as signatories. 11. Amendment and Waivers. Any term or provision of this Agreement may be amended, and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a writing signed by the party to be bound thereby. The waiver by a party of any breach hereof or default in the performance hereof shall not be deemed to constitute a waiver of any other default or any succeeding breach or default. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first hereinabove written. PORTOLA PACKING, INC. SAND HILL SYSTEMS, INC. By: /s/ James A. Taylor By: /s/ Jack L. Watts -------------------- -------------------- James A. Taylor, President and Jack L. Watts, President and Chief Executive Officer Chief Operating Officer PORTOLA COMPANY IV LLC By: /s/ Jack L. Watts --------------------- Jack L. Watts, General Manager
Exhibit 10.34
AMENDED AND RESTATED STOCK PLEDGE AGREEMENT
THIS AMENDED AND RESTATED STOCK PLEDGE AGREEMENT (the "Agreement"), is made and entered into effective as of this 4th day of October, 1999 by PORTOLA COMPANY IV LLC, a Delaware limited liability company ("Pledgor"), in favor of PORTOLA PACKAGING, INC., a Delaware corporation ("Services Provider"). R E C I T A L S Pledgor and Services Provider entered into that certain Stock Pledge Agreement effective as of September 17, 1999. Pledgor and Services Provider desire to amend and restate said Stock Pledge Agreement to provide for a partial release of the Pledged Securities (as defined below) under the circumstances specified herein. NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: A G R E E M E N T 1. Definitions. Whenever the following terms are used herein, they shall be defined as follows: 1.1 "Agreement" or "this Agreement" shall mean and include all amendments, modifications and supplements hereto and shall refer to this Agreement as the same may be in effect at the time such reference becomes operative. 1.2 "Collateral" shall mean and include all of the Pledged Securities, together with all proceeds thereof and all cash, additional securities and other property at any time and from time to time receivable or otherwise distributed in respect of or in exchange for any or all of such Pledged Securities. 1.3 "Commission" shall mean the Securities and Exchange Commission, or any other federal agency then administering the Securities Act. 1.4 "Event of Default" shall mean any of the events listed in Section 6.1 of this Agreement. 1.5 "Note" shall mean the Variable Rate Note dated as of July 1, 1999 in the principal amount of $3,500,000 issued by SHS to Services Provider. 1.6 "Obligations" shall mean and include all liabilities, obligations, covenants and duties owing to Services Provider by Pledgor arising under this Agreement and the Note. The term also includes, without limitation, all interest, charges, expenses, fees, attorneys' fees and other sums chargeable to Pledgor under this Agreement or under the Note. 1.7 "Pledged Securities" shall mean the shares of Class B Common Stock of Services Provider initially pledged to Services Provider hereunder as set forth on Exhibit "A" attached hereto, together with all other securities from time to time pledged to Services Provider by Pledgor pursuant to the terms and conditions hereof. 1.8 "Release and Assumption Agreement" shall mean that agreement dated the date hereof by and among Pledgor, SHS and Services Provider pursuant to which Pledgor is assuming SHS's obligations to Services Provider under the Note. 1.9 "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same may from time to time be in effect. 1.10 "Securities Laws" shall mean the Securities Act, the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, together with any and all applicable state blue sky laws and laws of foreign countries regulating the issuance, sale or transfer of securities, all as the same may from time to time be in effect. 1.11 "SHS" shall mean Sand Hill Systems, Inc., a Delaware corporation. 2. Pledge. To induce Services Provider to enter into the Release and Assumption Agreement and in consideration thereof and of any loans, advances or financial accommodations heretofore or hereafter granted by Services Provider to or for Pledgor's account, whether pursuant to the Release and Assumption Agreement or otherwise, all of which will inure to Pledgor's direct benefit, Pledgor hereby pledges, conveys, hypothecates, mortgages, assigns, sets over, delivers and grants to Services Provider a security interest in all of the Collateral now or hereafter owned by Pledgor as security for the payment and performance when due of the Obligations; TO HAVE AND TO HOLD the Collateral, together with all rights, title, interests, powers, privileges and preferences pertaining or incidental thereto, unto Services Provider, its successors and assigns forever, subject, however, to the terms, covenants and conditions hereinafter set forth. 3. Representations, Warranties and Covenants Regarding Collateral. Pledgor hereby represents, warrants and covenants to Services Provider that: 3.1 Due Authorization, Etc. The execution, delivery and performance of this Agreement, the creation of the liens and security interests and the delivery to Services Provider of the Collateral provided for hereunder are within Pledgor's corporate power, have been duly authorized by all necessary or proper corporate action, are not in contravention of any provision of law or of any agreement or indenture by which Pledgor is bound, or of Pledgor's Certificate of Formation or Company Agreement, and do not require the consent or approval of any governmental body, agency, authority or other person or entity, which has not been obtained and a copy thereof furnished to Services Provider. 3.2 Valid and Binding Obligation. This Agreement constitutes Pledgor's valid and legally binding obligation, enforceable in accordance with its terms, except as enforceability thereof may be limited under general principles of equity (regardless of whether the issue of such enforceability is considered in a proceeding in equity or at law) or by applicable bankruptcy, reorganization, insolvency, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights. 3.3 Title to Collateral. Pledgor is the legal and equitable owner of, and has the complete and unconditional authority to pledge, the Collateral and holds the same free and clear of all liens, charges, encumbrances and security interests except those in favor of Services Provider granted hereunder, and will defend its title thereto against the claims of all persons whomsoever. 3.4 Status of Pledged Securities. All of the Pledged Securities are duly authorized, validly issued, fully paid and non-assessable. 3.5 Pledge of Existing Securities and Property. Upon execution and delivery of this Agreement, Pledgor shall deliver to Services Provider certificates evidencing all of the Pledged Securities, accompanied by executed stock powers (in the form of Exhibit "B" attached hereto) or other suitable assignments in blank, and by such other instruments or documents as Services Provider or its counsel may reasonably request. 3.6 Pledge of Future Securities and Property. Except as provided in Section 4.1 hereof, Pledgor will cause any additional Pledged Securities or property constituting the Collateral issued to or received by it, whether for value paid by it or otherwise, to be forthwith deposited and pledged with Services Provider, in each case accompanied by instruments of assignment duly executed in blank by Pledgor substantially the same as those required by Section 3.5. 3.7 No Liens or Security Interests. Pledgor will not permit any lien, claim, charge, security interest or encumbrance to exist with respect to the Collateral hereafter, other than those in favor of Services Provider and liens for taxes not yet due and payable. 3.8 Disposition of Collateral. Pledgor will not sell, exchange, hypothecate, pledge, assign, convey, mortgage or abandon any Collateral without Services Provider's prior written consent. 3.9 Payment of Taxes and Charges. Pledgor will pay all taxes, assessments and charges levied, assessed or imposed upon the Collateral before the same become delinquent or become liens upon any of the Collateral except where the same may be contested in good faith by appropriate proceedings and as to which adequate reserves have been provided. 3.10 Further Acts. Pledgor agrees to perform all acts and do all things which Services Provider may request, now or hereafter, to evidence, preserve or protect the creation, attachment or perfection of the security interests herein granted to Services Provider. 3.11 Services Provider's Right to Take Action. In the event that Pledgor fails or refuses to perform any of its obligations set forth herein, Services Provider shall have the right, without obligation, to do all things it deems necessary or advisable to discharge the same, and any sums paid by Services Provider, or the cost thereof, including without limitation, attorneys' fees, shall constitute secured Obligations and be payable, with accrued interest thereon, as provided for in the Release and Assumption Agreement. 3.12 No Obligation by Services Provider. Pledgor acknowledges and agrees that nothing contained herein shall obligate Services Provider or impose a duty upon Services Provider to assume any duties or obligations of Pledgor with respect to any of the Collateral. 4. Dividends, Etc. 4.1 Right to Receive Dividends, Etc. For so long as no Event of Default exists hereunder, Pledgor shall have the right to receive cash dividends declared and paid by PPI with respect to the Collateral. Any and all stock or liquidating dividends, other distributions in property, returns of capital or other distributions made on or in respect of Collateral, whether resulting from a subdivision, combination or reclassification of the outstanding capital stock of PPI, received in exchange for the Collateral or any part thereof or received as a result of any merger, consolidation, acquisition or other exchange of assets to which PPI is a party or otherwise shall be and become part of the Collateral pledged hereunder and, if received by Pledgor, shall (unless waived by Services Provider) forthwith be delivered to Services Provider, to be held subject to the terms of this Agreement. 4.2 Possession of the Collateral, Etc. Services Provider may hold any of the Collateral, endorsed or assigned in blank, and may use the Collateral for the purpose of making denominational exchanges or registrations or transfers or for such other purpose in furtherance of this Agreement as Services Provider may deem desirable. 4.3 Termination of Right to Receive Dividends. Upon the occurrence and during the continuance of any Event of Default, all of Pledgor's rights to receive any cash dividends pursuant to Section 4.1 hereof shall cease, and all such rights shall thereupon become vested in Services Provider, which shall have the sole and exclusive right to receive and retain the dividends which Pledgor would otherwise be authorized to receive and retain pursuant to Section 4.1 hereof. In such event, Pledgor shall pay over to Services Provider any dividends received by Pledgor with respect to the Collateral, and any and all money and other property paid over to or received by Services Provider pursuant to the provisions of this Section 4.3 shall be retained by Services Provider as Collateral hereunder and shall be applied in accordance with the provisions hereof. 5. Voluntary Prepayment; Release of Pledged Securities. Pledgor shall have the right but not the obligation to prepay, including, but not limited upon, the occurrence of an Event of Default under Section 7 hereof, all or any portion of the principal and interest due on the Note, by delivering to Services Provider cash in an amount equal to the amount of principal and interest thereon being prepaid on the Note, provided that the amount of principal being prepaid on the Note (calculated before the addition to principal of accrued interest on such principal amount) must equal or exceed Twenty-Five Thousand Dollars ($25,000). Notwithstanding anything to the contrary contained in the Note, the prepayment shall be applied first to accrued interest on the amount of principal being prepaid on the Note pursuant to this Section 5, and then to the principal amount being prepaid on the Note pursuant to this Section 5, which amount shall include any accrued interest on the principal amount being prepaid that has been added to principal under the Note. Services Provider and Pledgor hereby agree that upon payment to Services Provider of any prepayment on the Note made by Pledgor under this Section 5, Services Provider shall release its security interest in that number of shares of the Pledged Securities that is equal to the amount of principal being prepaid hereunder (before the addition to principal of accrued interest on such principal amount), divided by the number seven (7). Services Provider further agrees to execute and/or deliver to Pledgor any documents or instruments reasonably requested by Pledgor to effectuate such release of the Pledged Securities. In the event of any such prepayment, Exhibit "A" to this Agreement shall be amended accordingly and Pledgor shall execute and deliver to Services Provider an Assignment Separate from Certificate duly executed in blank, in the form attached hereto as Exhibit "B," covering such lesser number of shares of Pledged Securities. 6. Mandatory Prepayment. Upon receipt by Pledgor of any cash dividends, distributions and other payments on or with respect to the shares of Common Stock of SHS or any cash proceeds from the sale, transfer or other disposition of shares of Common Stock of SHS, the Note shall be automatically accelerated as to that amount of accrued interest and unpaid principal that is equal to the amount of such cash dividends, distributions or other proceeds, and Pledgor hereby covenants and agrees that upon its receipt of any cash dividends, distributions and other payments on or with respect to the shares of Common Stock of SHS or any cash proceeds from the sale, transfer or other disposition of shares of Common Stock of SHS, Pledgor shall promptly apply the full amount of any such payments and proceeds to prepayment of the Note until such time as the Note is paid in full. Services Provider and Pledgor hereby agree that each prepayment on the Note made by Pledgor hereunder shall be applied first to accrued and unpaid interest and thereafter to payment of principal. 7. Events of Default; Remedies. 7.1 Default. Each of the following shall constitute an Event of Default hereunder: 7.1.1 if any of the Collateral shall be attached or levied upon or seized in any legal proceedings, or held by virtue of any lien or distress; or 7.1.2 subject to Section 7.1.3 below, if Pledgor shall materially breach any material covenant, representation or warranty set forth herein or in the Note (the foregoing subject to a ten (10) day cure period or such other period as is specified in the applicable agreement or provision); or 7.1.3 the occurrence of any event of default under the Note. 7.2 Services Provider's Rights and Remedies. Upon the occurrence of any Event of Default and during the continuance thereof: 7.2.1 Services Provider shall thereupon have, in addition to all other rights provided herein and in the Note, the rights and remedies of a secured party under the Uniform Commercial Code of the State of California and, further, Services Provider may, without demand and without advertisement, notice or legal process of any kind (except as may be required by law), all of which Pledgor waives, at any time or times (i) apply any cash dividends received by Services Provider pursuant to Section 4.3 hereof to the Obligations, and (ii) if following such application there remains outstanding any of the Obligations, sell the remaining Collateral, or any part thereof, at public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery as Services Provider shall deem appropriate. Services Provider shall be authorized at any such sale (if on the advice of counsel, it deems it advisable to do so) to restrict the prospective bidders or purchasers to persons who will represent and agree that they are purchasing the Collateral for their own account for investment and not with a view to the distribution or resale thereof, and upon consummation of any such sale Services Provider shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any such sale shall hold the property sold absolutely free from any claim or right on Pledgor's part, and Pledgor hereby waives (to the extent permitted by law) all rights of redemption, stay and/or appraisal which Pledgor now has or may have at any time in the future under any rule of law or statute now existing or hereafter enacted. 7.2.2 Services Provider agrees to give written notice to Pledgor in the manner specified in Section 11.11 hereof not less than ten (10) business days prior to the date of the disposition of the Collateral subject to the security interest created herein at any such public sale or sale at any broker's board or on any such securities exchange, or prior to the date after which private sale or any other disposition of said Collateral will be made, and Pledgor agrees that (i) such notice, if given in such manner, shall constitute reasonable notice, but notice given in any other reasonable manner or at any other reasonable time shall be sufficient; (ii) without precluding any other methods of sale, the sale of Collateral shall have been made in a commercially reasonable manner if conducted in conformity with reasonable commercial practices of asset-based lenders disposing of similar property, but in any event Services Provider may sell on such terms as it may choose without assuming any credit risk and without any obligation to advertise or give notice of any kind except as set forth above; and (iii) the proceeds of any such sale or disposition shall be applied first to the satisfaction of Services Provider's reasonable attorneys' fees, legal expenses, and other costs and expenses incurred in connection with the taking, retaking, holding, preparing for sale, and selling of the Collateral, and second to the payment (in whatever order Services Provider elects) of the Obligations. After the application of all such proceeds, Services Provider will return any excess to Pledgor and Pledgor shall remain liable for any deficiency. To the extent permitted by applicable laws, Pledgor waives all claims, damages and demands against Services Provider arising out of the repossession, retention or sale of the Collateral, except to the extent that any of the foregoing arises out of the gross negligence or willful misconduct of Services Provider. 7.2.3 Restrictions Imposed by Securities Laws. Pledgor understands that compliance with the Securities Laws may very strictly limit the course of Services Provider's conduct in the disposition of all or any part of the Pledged Securities in accordance with this Section 7, and may also limit the extent to which or the manner in which any subsequent transferee of any Pledged Securities may dispose of the same. Pledgor understands that Services Provider shall be entitled to place all or any part of the Pledged Securities for private placement by an investment banking firm, that any such investment banking firm may purchase all or any part of the Pledged Securities for its own account, and that Services Provider shall be entitled to place all or any part of the Pledged Securities privately with a purchaser or purchasers who will represent and agree that they are purchasing the Pledged Securities for their own account for investment and not with a view to the distribution or sale thereof in violation of the Securities Laws, notwithstanding the existence of a public or private market upon which the quotations or sales prices may exceed substantially the price at which Services Provider sells. 8. Power of Attorney. Pledgor appoints Services Provider, or any other person whom Services Provider may designate, as Pledgor's attorney-in-fact, with power to endorse Pledgor's name on any checks, notes, acceptances, money orders, drafts or other form of payment or security representing a portion of the Collateral that may come into Services Provider's possession and to do all things necessary to carry out this Agreement. Pledgor ratifies and approves all such acts of Services Provider. Neither Services Provider nor any other person designated by Services Provider as attorney-in-fact hereunder will be liable for any acts or omissions except in the case of gross negligence or willful misconduct on the part of Services Provider, nor for any errors of judgment or mistakes of fact or law. This power, coupled with an interest, is irrevocable so long as this Agreement remains effective. 9. Termination of Agreement. This Agreement shall continue in full force and effect until all Obligations have been fully paid and satisfied. Upon termination of this Agreement, Services Provider shall surrender to Pledgor or other person legally entitled thereto, without recourse or warranty, all certificates evidencing and stock powers and other assignments in respect of the Pledged Securities and any other properties included in the Collateral which are in the possession of Services Provider and have not been disposed of pursuant to Section 7.2 hereof. 10. Waivers, Amendments, Successors and Assigns. 10.1 Waiver of Demand, Presentment and Notice. Pledgor waives demand, presentment and protest of any instrument and notice thereof, notice of default and all other notices to which Pledgor might otherwise be entitled, except as otherwise specifically provided herein or in the Release and Assumption Agreement. 10.2 Waiver of Failure or Delay. Failure by Services Provider to exercise any right, remedy or option under this Agreement or in any other agreement between the parties hereto, or delay by Services Provider in exercising the same, will not operate as a waiver thereof. 10.3 Written Waivers, Etc. No waiver by Services Provider will be effective unless it is in a writing signed by Services Provider, and then only to the extent specifically stated, and no waiver by Services Provider on any occasion shall affect or diminish Services Provider's right thereafter to require strict performance by Pledgor with any provision of this Agreement. 10.4 Remedies Cumulative. Services Provider's rights and remedies under this Agreement will be cumulative and not exclusive of any other right or remedy which Services Provider may have. 10.5 No Oral Amendments. This Agreement cannot be changed or terminated orally. 10.6 Right to Assign. Services Provider shall have the right to assign this Agreement and to transfer, assign or sell participations in its interests hereunder from time to time in connection with any sale, assignment, transfer or other disposition of the Note or any portion thereof, but Pledgor shall not be permitted to assign this Agreement or any interest herein. 10.7 Successors and Assigns. All of the rights, privileges, remedies and options given to Services Provider hereunder shall inure to the benefit of its successors and assigns; and all the terms, conditions, promises, covenants, provisions and warranties of this Agreement shall inure to the benefit of and shall bind the successors and assigns of Services Provider and Pledgor. 11. General Provisions. 11.1 Further Acts, Etc. Pledgor agrees to do such further acts and things, and to execute and deliver such additional conveyances, assignments, agreements and instruments, as Services Provider may at any time reasonably request in connection with the administration and enforcement of this Agreement or relative to the Collateral or any part thereof or in order better to assure and confirm unto Services Provider its rights and remedies hereunder. 11.2 Section Headings. Section headings used herein are for convenience only and are not to affect the construction of or be taken into consideration in interpreting this Agreement. 11.3 Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. 11.4 Payment of Taxes. If Pledgor fails to pay any taxes, assessments or governmental charges levied or assessed or imposed upon or with respect to the Collateral, or otherwise fails to pay any amount necessary for the protection and preservation of the Collateral securing the Obligations, Services Provider may pay same at Services Provider's option, together with interest and penalties, and the amounts so paid shall be added to the Obligations, and be payable, with accrued interest thereon, in the manner prescribed in the Release and Assumption Agreement. 11.5 CHOICE OF LAW. 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 PRINCIPLES) SHALL GOVERN THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO. EXCEPT AS SET FORTH BELOW, THE PARTIES HEREBY AGREE THAT ANY SUIT TO ENFORCE ANY PROVISION OF THIS AGREEMENT ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE BUSINESS RELATIONSHIP BETWEEN THE PARTIES HERETO SHALL BE BROUGHT IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA OR THE SUPERIOR OR MUNICIPAL COURT IN AND FOR THE COUNTY OF SANTA CLARA, CALIFORNIA, U.S.A. EACH PARTY HEREBY AGREES THAT SUCH COURTS SHALL HAVE IN PERSONAM JURISDICTION AND VENUE WITH RESPECT TO SUCH PARTY, AND EACH PARTY HEREBY SUBMITS TO THE IN PERSONAM JURISDICTION AND VENUE OF SUCH COURTS. IN ADDITION TO THE FOREGOING JURISDICTION, SERVICES PROVIDER, AT ITS SOLE OPTION, MAY COMMENCE ANY SUCH SUIT IN ANY JURISDICTION IN WHICH PLEDGOR HAS AN EXECUTIVE OFFICE. 11.6 Survival of Representations and Warranties. Pledgor covenants, warrants and represents to Services Provider that all of Pledgor's representations and warranties contained in this Agreement shall be true at the time of Pledgor's execution of this Agreement, shall survive the execution, delivery and acceptance thereof by the parties hereto and the closing of the transactions described herein or related hereto, and (except to the extent that they shall be untrue solely as a result of transactions permitted by this Agreement or the Release and Assumption Agreement or otherwise consented to by Services Provider) shall be true from the time of Pledgor's execution of this Agreement until the termination of this Agreement as provided in Section 9 hereof. 11.7 Survival of Rights, Duties, Etc. No termination or cancellation (regardless of cause or procedure) of the Release and Assumption Agreement or the Note shall in any way affect or impair the powers, obligations, duties, rights and liabilities of the parties hereto in any way with respect to (i) any transaction or event occurring prior to such termination or cancellation, (ii) the Collateral, or (iii) any of Pledgor's undertakings, agreements, covenants, warranties and representations contained in this Agreement, and all such undertakings, agreements, covenants, warranties and representations shall survive such termination or cancellation until all of the Obligations of every nature whatsoever shall have been fully paid and satisfied. 11.8 Services Provider's Right to Take Action With Respect to Collateral. As between Services Provider and Pledgor, Services Provider may, in its sole discretion, (i) exchange, enforce, waive or release any security or portion of the Collateral, (ii) apply such security or any proceeds of the Collateral and direct the order or manner of sale thereof as Services Provider may, from time to time, determine, and (iii) settle, compromise, collect or otherwise liquidate any such security or Collateral for the Obligations in any manner following the occurrence of an Event of Default and during the continuance thereof, without affecting or impairing Services Provider's right to take any other further action with respect to any security for the Obligations or any part thereof. 11.9 Payments. Services Provider shall have the continuing and exclusive right to apply or reverse and reapply any and all payments to any portion of the Obligations. To the extent that Pledgor makes a payment or payments to Services Provider or Services Provider receives any payment or proceeds of the Collateral for Pledgor's account, which payment or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the Obligations or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by such Services Provider. 11.10 Legal Remedy Inadequate. Pledgor recognizes that, in the event Pledgor fails to perform, observe or discharge any of its obligations or liabilities under this Agreement, any remedy of law may prove to be inadequate relief to Services Provider; therefore, Pledgor agrees that Services Provider, if Services Provider so requests, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. 11.11 Notices. Whenever any party hereto desires or is required to give any notice, demand, or request with respect to this Agreement, each such communication shall be in writing and shall be deemed to have been validly served, given or delivered at the time stated below if deposited in the United States mails, registered or certified and return receipt requested, with proper postage prepaid, or if delivered by courier or sent by facsimile transmission, telex, telegraph or cable or other similar electronic medium, addressed as indicated on the signature page hereof. If sent by telegraph, cable, telecopy or facsimile transmission, a conformed copy of such notice shall be sent by mail (in the manner provided above) to the addressee; however the failure to send such copy by mail shall not make the notice defective unless the originally transmitted notice is not actually received. Service of any such communication made only by mail shall be deemed complete on the date of actual delivery as indicated by the addressee's registry or certification receipt or at the expiration of the fourth (4th) business day after the date of mailing, whichever is earlier in time. Either party may change its address for such communications by giving notice thereof to the other party in conformity with this Section. Nothing contained in this Section or otherwise in this Agreement shall excuse any party from giving oral notice when prompt notification is appropriate, but any oral notice which is so given shall not satisfy the requirement of written notice as specified in this Section 11.11. 11.12 Indemnity. Pledgor agrees to indemnify Services Provider from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including, without limitation, fees and disbursements of counsel) which may be imposed on, incurred by, or asserted against Services Provider in any litigation, proceeding or investigation, including, without limitation, any of the foregoing brought under any federal or state securities laws, which is threatened, instituted or conducted by any governmental agency or instrumentality or any other person with respect to any aspect of, or any transaction contemplated by, or referred to in, or any matter related to, this Agreement, whether or not Services Provider is a party thereto. 11.13 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original as against any party whose signature appears thereon and all of which together shall constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as signatories. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first hereinabove written. PLEDGOR: PORTOLA COMPANY IV LLC By: /s/ Jack L. Watts ------------------ Name: Jack L. Watts Title: General Manager SERVICES PROVIDER: PORTOLA PACKAGING, INC. By: /s/ James A. Taylor -------------------- Name: James A. Taylor Title: President and Chief Operating Officer