-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CgzMoWYMQ3kCJcIgvKD6bdaBk5PxxZLrqIpaETSSkPIIx9faJQhgvq5ncBKoHS8C 21BJA/4yBDc+5SYo4NA29A== 0000912057-96-028786.txt : 19961211 0000912057-96-028786.hdr.sgml : 19961211 ACCESSION NUMBER: 0000912057-96-028786 CONFORMED SUBMISSION TYPE: S-8 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19961210 EFFECTIVENESS DATE: 19961210 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PORTOLA PACKAGING INC CENTRAL INDEX KEY: 0000788983 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 941582719 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: S-8 SEC ACT: 1933 Act SEC FILE NUMBER: 333-17533 FILM NUMBER: 96678144 BUSINESS ADDRESS: STREET 1: 890 FAULSTICH CT CITY: SAN JOSE STATE: CA ZIP: 95112 MAIL ADDRESS: STREET 1: 890 FAULSTICH COURT CITY: SAN JOSE STATE: CA ZIP: 95112 S-8 1 FORM S-8 Registration No. -------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-8 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- PORTOLA PACKAGING, INC. -------------------------- (Exact name of registrant as specified in its charter) DELAWARE 94-1582719 - ------------------------------ ----------------------------------- State or other jurisdiction of (I.R.S. employer identification no.) incorporation or organization) 890 Faulstich Court San Jose, California 95112 ---------------------------------------------------- (Address of principal executive offices) (Zip Code) Portola Packaging, Inc. 1988 Stock Option Plan 1994 Stock Option Plan 1996 Employee Stock Purchase Plan --------------------------------------- (Full title of the Plans) Robert R. Strickland Vice President-Finance and Chief Financial Officer Portola Packaging, Inc. 890 Faulstich Court San Jose, Ca 95112 ----------------------------- (Name and address of agent for service) Telephone number, including area code, of agent for service: (408) 453-8840 This registration statement shall hereafter become effective in accordance with Rule 462 promulgated under the Securities Act of 1933, as amended. - -------------------------------------------------------------------------------- CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- Proposed Proposed maximum Amount of Title of securities Amount to be maximum offering aggregate registration to be registered registered price per share(1) offering price fee Shares Available for Grant -------------------------- Par Value $0.001 1994 Stock - ---------- Option Plan - ----------- Common Stock 944,200 $4.50 $4,248,900.00 1996 Employee - ------------- Stock Purchase - -------------- Plan - ---- Common Stock 750,000 $4.50 $3,375,000.00 Unexercised Options Outstanding ------------------------------- Par Value $0.001 1988 Stock Option - ----------------- Plan - ----------------- Common Stock 1,154,010 Exercise prices $1,550,970.00 ranging from $0.61 to $2.50 1994 Stock Option - ----------------- Plan - ----------------- Common Stock 1,051,500 Exercise prices $4,605,750.00 ranging from $3.75 to $5.00 TOTAL 3,899,710 $13,780,620.00 $4,175.95 - ----------------------- (1) Estimated pursuant to Rule 457 solely for purposes of calculating the registration fee. As to shares subject to purchase under the 1994 Stock Option Plan and 1996 Employee Stock Purchase Plan, the price is based on the per share fair market value as determined by Registrant's Board of Directors. As to shares subject to outstanding but unexercised options under the 1988 Stock Option Plan and 1994 Stock Option Plan, the price is computed on the basis of actual per share exercise price. 2 PART II INFORMATION REQUIRED IN THE REGISTRATION STATEMENT ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE Portola Packaging, Inc. (the "Registrant") hereby incorporates by reference in this registration statement the following documents: (a) The Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1996. (b) All reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), since the end of the fiscal year covered by the document referred to in (a) above. All documents subsequently filed by the Registrant pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a post-effective amendment to this registration statement which indicates that all securities offered hereby have been sold or which deregisters all securities remaining unsold, shall be deemed to be incorporated by reference in this registration statement and to be a part hereof from the date of filing of such documents. ITEM 4. DESCRIPTION OF SECURITIES CAPITAL STOCK The authorized capital stock of Registrant consists of Twenty-Five Million Four Hundred Eighty-Eight Thousand Seven Hundred Fifteen (25,488,715) shares of capital stock, composed of two classes of shares of capital stock designated, respectively, "Class A Common Stock" and "Class B Common Stock". The number of shares of Class A Common Stock authorized to be issued is Five Million Two Hundred Three Thousand (5,203,000) with each such share being designated as having a par value equal to one-tenth (1/10) of one cent ($0.001). As of December 1, 1996, Two Million One Hundred Thirty-Four Thousand Nine Hundred Ninety-Two (2,134,992) shares of Registrant's Class A Common Stock are issued and outstanding. The number of shares of Class B Common Stock authorized to be issued is Twenty Million Two Hundred Eighty Five Thousand Seven Hundred Fifteen (20,285,715), with each such share being designated as having a par value of one-tenth of one cent ($0.001). The Class B Common Stock may be issued from time to time in series. The first series of Class B Common Stock, which is designated "Class B Common Stock, Series 1," consists of Seventeen Million Seven Hundred Fourteen Thousand Two Hundred Eighty-Five (17,714,285) shares. The second series of Class B Common Stock, which is designated "Class B Common Stock, Series 2," consists of Two Million Five Hundred Seventy One Thousand Four Hundred Thirty (2,571,430) shares. As of December 1, 1996, Eight Million Five Hundred Six Thousand Six Hundred Forty (8,506,640) shares of Registrant's Class B Common Stock, Series 1 and One Million One Hundred Seventy One Thousand Four Hundred Thirty (1,171,430) shares of Registrant's Class B Common Stock, Series 2 are issued and outstanding. In addition, as of 3 December 1, 1996, options to purchase One Million One Hundred Fifty-Four Thousand Ten (1,154,010) and One Million Fifty-One Thousand Five Hundred (1,051,500) shares of Class B Common Stock, Series 1 were outstanding under Registrant's 1988 Stock Option Plan and 1994 Stock Option Plan, respectively. Also, as of such date, warrants to purchase an aggregate of Two Million Four Hundred Ninety Two Thousand Seven Hundred Forty One (2,492,741) shares of Registrant's Class A Common Stock were outstanding. A warrant to purchase Two Million Fifty-Two Thousand Five Hundred Twenty Six (2,052,526) shares of Common Stock is exercisable, in whole or in part, through June 30, 2004 at sixty and two-third cents per share, subject to certain antidilution provisions. After June 30, 1999, if the Registrant has not completed an initial public offering of its Common Stock, the warrant holder may require the Registrant to purchase the warrant at a price equal to the higher of the current fair value per share of the Registrant's Common Stock or an amount computed under an earnings formula in the warrant agreement. The purchase obligation may be suspended under certain circumstances including restrictions on such payments as specified in certain credit agreements to which Registrant is a party. After December 31, 2001, the Registrant has the right to repurchase the warrant at a price equal to the higher of the fair value per share of the Registrant's Common Stock or an amount computed under an earnings formula in the warrant agreement. The earnings formula is based on income before interest, taxes and debt outstanding to calculate an estimated value per share. A second warrant to purchase Four Hundred Forty Thousand Two Hundred Fifteen (440,215) shares of Class A Common Stock may be exercised at any time until its expiration on June 30, 2004. After August 1, 2001, if Registrant has not completed an initial public offering of its Common Stock, the warrant holder may require Registrant to purchase its warrant at a price equal to the higher of the current fair value price per share of Registrant's Common Stock or the net book value price per share of Registrant's Common Stock or the net book value per share as computed under a valuation formula set forth in the warrant. The purchase obligation may be suspended under certain circumstances including restriction on such payments as specified in certain credit agreements to which Registrant is a party. On or after August 1, 2003, Registrant has the right to repurchase the warrant at a price equal to the higher of the current fair value per share of Registrant's Common Stock or the net book value per share. The earnings formula is based on earnings before interest and taxes and debt outstanding to calculate an estimated value per share. Holders of Class A Common Stock are not entitled to elect members of the Board of Directors. In the event of an aggregate public offering exceeding $10,000,000, the Class A and Class B, Series 2 Common Stock are automatically converted into Class B, Series 1 Common Stock, based on the appropriate conversion formula. The holders of Class B Common Stock have the right to elect members of the Board of Directors, with the holders of Series 1 having one vote per share, and the holders of Series 2 having a number of votes equal to the number of shares into which the Series 2 shares are convertible into Series 1 shares. In the event of liquidation or dissolution in which the value of the Company is less than $1.75 per share of Common Stock, the holders of Class B Common Stock, Series 2 will receive sixty percent (60%) of the proceeds until they have received $1.75 per share. All other amounts available for distribution shall be distributed to the Class A Common Stock and the Class B Common Stock, 4 Series 1 holders pro rata based on the number of shares outstanding. If the value of the Registrant is greater than or equal to $1.75 per share, the holders of all classes of Common Stock are entitled to a pro rata distribution based on the number of shares outstanding. The Registrant is required to reserve shares of Class B, Series 1 stock for the conversion of Class A and Class B, Series 2 into Class B, Series 1 Common Stock. ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL The validity of the shares of Common Stock to be offered hereunder has been passed upon by Tomlinson Zisko Morosoli & Maser LLP. Timothy Tomlinson, a general partner of Tomlinson Zisko Morosoli & Maser LLP, is a director of the Company. As of December 1, 1996, Mr. Tomlinson is the beneficial owner of 245,984 shares of the Registrant's Class B Common Stock, Series 1 (including 119,984 shares subject to an immediately exercisable option held of record by TZM Investment Fund of which Mr. Tomlinson is also a general partner, 66,000 shares held of record by TZM Investment Fund, 36,000 shares held of record by First TZMM Investment Partnership of which Mr. Tomlinson is also a general partner, and 4,000 shares held of record by trusts for Mr. Tomlinson's children). ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS As permitted by Section 145 of the Delaware General Corporation Law, the Registrant's Certificate of Incorporation includes a provision that eliminates the personal liability of its directors to the Registrant or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for actions or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of the Delaware General corporation law or (iv) for any transaction from which the director derived an improper personal benefit. In addition, as permitted by Section 145 of the Delaware General Corporation Law, the Bylaws of the Registrant provide that: (i) the Registrant is required to indemnify its directors and executive officers to the fullest extent permitted by the Delaware General Corporation Law; (ii) the Registrant may, in its discretion, indemnify other officers, employees and agents as set forth in the Delaware General Corporation Law; (iii) upon receipt of an undertaking to repay such advances if indemnification is determined to be unavailable, the Registrant is required to advance expenses, as incurred, to its directors and executive officers to the fullest extent permitted by the Delaware General Corporation law in connection with a proceeding (except if a determination is reasonably and promptly made by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding or, in certain circumstances, by independent legal counsel in a written opinion that the facts known to the decision-making party demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation); (iv) the rights conferred in the Bylaws are not exclusive and the Registrant is authorized to enter into indemnification agreements with its directors, officers and employees and agents; and (v) the Registrant may not retroactively amend the Bylaw provisions relating to indemnity in a manner adverse to an indemnified person. 5 The Registrant's policy is to enter into indemnity agreements with certain of its directors and executive officers. The indemnity agreements provide that directors and executive officers will be indemnified and held harmless to the fullest possible extent permitted by law including against all expenses (including attorneys's fees), judgments, fines and settlement amounts paid or reasonably incurred by them in any action, suit or proceeding on account of their services as directors, officers, employees or agents of the Registrant or as directors, officers, employees or agents of any other company or enterprise when they are serving in such capacities at the request of the Registrant. The indemnification provision in the Bylaws, and the indemnity agreements entered into between the Registrant and its directors and executive officers, may be sufficiently broad to permit indemnification of the Registrant's executive officers and directors for liabilities arising under the Securities Act of 1933, as amended (the "SECURITIES ACT"). ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED Inapplicable. ITEM 8. EXHIBITS See Exhibit Index. ITEM 9. UNDERTAKINGS (a) RULE 415 OFFERING The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act. (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective 6 amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) FILING INCORPORATING SUBSEQUENT EXCHANGE ACT DOCUMENTS BY REFERENCE The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (h) REQUEST FOR ACCELERATION OF EFFECTIVE DATE OR FILING OF REGISTRATION STATEMENT ON FORM S-8 Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against the public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. 7 SIGNATURE Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Jose, State of California, on December 3, 1996. PORTOLA PACKAGING, INC. By: /s/ Jack L. Watts ------------------------- Jack L. Watts Chairman of the Board and Chief Executive Officer 8 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Jack L. Watts, Robert R. Strickland, Patricia Voll and Timothy Tomlinson, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement on Form S-8, and to file the same with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date - -------------------------------------------------------------------------------- /s/ Jack L. Watts Chairman of the Board of - ---------------------------- Directors and Chief December 3, 1996 Jack L. Watts Executive Officer /s/ Robert R. Strickland Vice President-Finance and - ---------------------------- Chief Financial Officer December 2, 1996 Robert R. Strickland (Principal Financial Officer) /s/ Patricia Voll Vice President-Finance and - ---------------------------- Accounting (Principal December 3, 1996 Patricia Voll Accounting Officer) /s/ Timothy Tomlinson Director and Secretary December 3, 1996 - ---------------------------- Timothy Tomlinson /s/ Larry C. Williams Director December 3, 1996 - ---------------------------- Larry C. Williams /s/ Martin R. Imbler Director December 3, 1996 - ---------------------------- Martin R. Imbler /s/ Christopher C. Behrens Director December 3, 1996 - ---------------------------- Christopher C. Behrens /s/ Jeffrey Pfeffer Director December 6, 1996 - ---------------------------- Jeffrey Pfeffer, Ph.D. 9 EXHIBIT INDEX 4.01 Certificate of Incorporation of the Registrant (filed with Secretary of State of Delaware on April 29, 1994, as amended and filed with Secretary of State of Delaware on October 4, 1995), is incorporated by reference to Exhibit 3.01 to the Registrant's Quarterly Report on Form 10-Q for the period ended November 30, 1995, as filed with the Securities and Exchange Commission on January 16, 1996. 4.02 Bylaws of the Registrant are incorporated by reference to Exhibit 3.02 to the Registrant's Registration Statement on Form S-1, as filed with the Securities and Exchange Commission on August 1, 1995, declared effective by the Securities and Exchange Commission on September 27, 1995 (File No. 33-95318). 4.03 Registrant's 1988 Stock Option Plan and related documents are incorporated by reference to Exhibit 10.28 to the Registrant's Form 10-Q for the period ended November 30, 1995, as filed with the Securities and Exchange Commission on January 16, 1996. 4.04 Registrant's 1994 Stock Option Plan, as amended, and related documents. 4.05 Registrant's 1996 Employee Stock Purchase Plan. 5.01 Opinion of Counsel as to the legality of securities being registered. 23.01 Consent of Counsel (included in Exhibit 5.01) 23.02 Consent of Independent Accountants 24.01 Power of Attorney (included in signature pages to this registration statement) 10 EX-4.04 2 EXHIBIT 4.04 EXHIBIT 4.04 PORTOLA PACKAGING, INC. 1994 STOCK OPTION PLAN (AMENDED AS OF NOVEMBER 6, 1996) 1. PURPOSE AND TYPES OF OPTIONS. This 1994 Stock Option Plan (the "PLAN") is intended to increase the incentives of, and encourage stock ownership by, employees and consultants (including members of the Company's Board of Directors who are not employees of the Company) providing services to Portola Packaging, Inc., a Delaware corporation (the "COMPANY"), or to corporations which are or become subsidiary corporations of the Company. The term "subsidiary corporations" as used in this Plan shall have the meaning specified in Section 4.2 hereof. The Plan is intended to provide such employees and consultants with a proprietary interest (or to increase their proprietary interest) in the Company, and to encourage them to continue their employment or engagement by the Company or its subsidiaries. Options granted pursuant to the Plan, at the discretion of the Company's Board of Directors ("BOARD"), may be either incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended ("INTERNAL REVENUE CODE"), or options that do not so qualify as incentive stock options and which are referred to herein as non-qualified stock options. 2. STOCK. The capital stock subject to the Plan shall be shares of the Company's authorized but unissued Common Stock ("COMMON STOCK") or treasury shares of Common Stock. The maximum aggregate number of shares of Common Stock which may be issued under the Plan is Two Million (2,000,000), subject to adjustments pursuant to Section 8 hereof. In the event that any outstanding option under the Plan shall expire by its terms or is otherwise terminated for any reason (or if shares of Common Stock of the Company which are issued upon exercise of an option granted hereunder are subsequently reacquired by the Company pursuant to contractual rights of the Company under the particular stock option agreement), the shares of the Common Stock allocated to the unexercised portion of such option (or the shares so reacquired by the Company pursuant to the terms of the stock option agreement) shall again become available to be made subject to options granted under the Plan. Notwithstanding any other provision of this Plan, the aggregate number of shares of Common Stock subject to outstanding options granted under this Plan at any given time, plus the aggregate number of shares which have been issued upon exercise of all options granted under this Plan and which remain outstanding, shall never be permitted to exceed the maximum Portola Packaging, Inc. 1994 Stock Option Plan Page 2 number of shares specified above in this Section 2 (subject to adjustments under Section 8). 3. ADMINISTRATION. The Plan shall be administered by the Board. Any action by the Board with respect to the administration of the Plan shall be taken by the vote of a majority of a quorum of its members present at a duly held meeting or without a meeting by unanimous written consent of all directors. The interpretation and construction by the Board of any provision of this Plan, or of any option granted pursuant hereto, shall be final, binding and conclusive. No member of the Board shall be liable to the Company or to any subsidiary or parent corporation, or to the holder of any option granted hereunder for any action, inaction, determination or interpretation made in good faith with respect to the Plan or any transaction hereunder. Notwithstanding the foregoing, the Board shall have the authority to delegate some or all of its duties to administer this Plan and to exercise its powers hereunder to a committee ("COMMITTEE") appointed by the Board. For purposes of this Plan, all references herein to "Board" shall be deemed to also refer to any such Committee. Any Committee charged with administration of the Plan shall have all the powers and protections provided to the Board under this Plan until the Board shall revoke or restrict such powers or protections. More specifically, the Board, subject to compliance with the remaining provisions of this Plan, shall have the following powers and authority (which listing is provided by way of example and is not intended to be comprehensive or limiting to the extent of powers not included): 3.1 SELECTION OF OPTIONEES. To determine the persons providing services to the Company to whom, and the time or times at which, options to purchase Common Stock of the Company shall be granted; 3.2 NUMBER OF OPTION SHARES. To determine the number of shares of Common Stock to be subject to options granted to each such person; 3.3 EXERCISE PRICE. To determine the price to be paid for the shares of Common Stock upon the exercise of each option; 3.4 TERM AND EXERCISE SCHEDULE. To determine the term and the exercise schedule of each option; Portola Packaging, Inc. 1994 Stock Option Plan Page 3 3.5 OTHER TERMS OF OPTIONS. To determine the terms and conditions of each stock option agreement (which need not be identical) entered into between the Company and any person to whom the Board determines to grant an option; 3.6 INTERPRETATION OF PLAN. To interpret the Plan and to prescribe, amend and rescind rules and regulations relating to the Plan; 3.7 AMENDMENT OF OPTIONS. With the consent of the holder thereof, to modify or amend any option granted under the Plan; and 3.8 GENERAL AUTHORITY. To take such actions and make such determinations deemed necessary or advisable by the Board for the administration of the Plan, subject to complying with the Plan and with applicable legal requirements. 4. ELIGIBILITY AND AWARD OF OPTIONS. 4.1 AUTHORITY TO GRANT AND ELIGIBILITY. The Board shall have full and final authority, in its discretion and at any time and from time to time during the term of this Plan, to grant or authorize the granting of options to such officers, directors and employees of, and consultants retained by, the Company or its subsidiary corporations as it may select, and to determine the number of shares of Common Stock to be subject to each option. Any individual who is eligible to receive a stock option under this Plan shall be eligible to hold more than one option at any given time, in the discretion of the Board. The Board shall have full and final authority in its discretion to determine, in the case of employees (including employees that are officers or directors), whether such options shall be incentive stock options or non-qualified stock options; however, no incentive stock option may be granted to any person who is not a bona fide employee of the Company or of a subsidiary corporation of the Company. Persons selected by the Board who are prospective employees of, or consultants to be retained by, the Company or its subsidiaries, including members of the Board, shall be eligible to receive non-qualified stock options; provided, however, that in the case of such prospective employment or other engagement, the exercisability of such options shall be subject in each case to such Portola Packaging, Inc. 1994 Stock Option Plan Page 4 person in fact becoming an employee or consultant, as applicable, of the Company or its subsidiaries. 4.2 CERTAIN RESTRICTIONS APPLICABLE TO STOCK OPTIONS. No stock option shall be granted to any employee who, at the time such option is granted, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of outstanding capital stock of the Company, or of any parent corporation or subsidiary corporation of the Company, unless the exercise price (as provided in Section 5.1 hereof) is not less than one hundred ten percent (110%) of the fair market value of the Common Stock on the date the option is granted and, if an incentive stock option, the period within which the option may be exercised (as provided in Section 5.2 hereof) does not exceed five (5) years from the date the option is granted. As used in this Plan, the terms "parent corporation" and "subsidiary corporation" shall have the meanings set forth in Sections 424(e) and (f), respectively, of the Internal Revenue Code. For purposes of this Section 4.2, in determining stock ownership, an employee shall be considered as owning the voting capital stock owned, directly or indirectly, by or for his or her brothers and sisters, spouse, ancestors and lineal descendants. Voting capital stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by or for its stockholders, partners or beneficiaries, as applicable. Additionally, for purposes of this Section 4.2, outstanding capital stock shall include all capital stock actually issued and outstanding immediately after the grant of the option to the employee. Outstanding capital stock shall not include capital stock authorized for issue under outstanding options held by the employee or by any other person. Additionally, the aggregate fair market value (determined as of the date an option is granted) of the Common Stock with respect to which incentive stock options granted are exercisable for the first time by an employee during any one calendar year (under this Plan and under all other incentive stock option plans of the Company and of any parent or subsidiary corporation) shall not exceed One Hundred Thousand Dollars ($100,000). If the aggregate fair market value (determined as of the date an option is granted) of the Common Stock with respect to which incentive stock options granted are exercisable for the first time by an employee during any calendar year exceeds One Hundred Thousand Dollars ($100,000), the options for the first One Hundred Thousand Dollars ($100,000) worth of shares of Portola Packaging, Inc. 1994 Stock Option Plan Page 5 Common Stock to become exercisable in such calendar year shall be incentive stock options and the options for the amount in excess of One Hundred Thousand Dollars ($100,000) that become exercisable in that calendar year shall be non-qualified stock options. In the event that the Internal Revenue Code or the regulations promulgated thereunder are amended after the effective date of the Plan to provide for a different limit on the fair market value of shares of Common Stock permitted to be subject to incentive stock options, such different limit shall be automatically incorporated herein and shall apply to options granted after the effective date of such amendment. 4.3 DATE OF GRANT. The date on which an option is granted shall be stated in each option agreement and shall be the date of the Board's authorization of such grant or such later date as may be set by the Board at the time such grant is authorized. 5. TERMS AND PROVISIONS OF OPTION AGREEMENTS. Each option granted under the Plan shall be evidenced by a stock option agreement between the person to whom the option is granted and the Company. Each such agreement shall be subject to the following terms and conditions, and to such other terms and conditions not inconsistent herewith as the Board may deem appropriate in each case: 5.1 EXERCISE PRICE. The price to be paid for each share of Common Stock upon the exercise of an option shall be determined by the Board at the time the option is granted; provided however, that (1) no non-qualified stock option shall have an exercise price less than eighty-five percent (85%) of the fair market value of the Common Stock on the date the option is granted; (2) no incentive stock option shall have an exercise price less than one hundred percent (100%) of the fair market value of the Common Stock on the date the option is granted and (3) all stock options granted to the ten percent (10%) stockholders shall have the exercise price set at not less than one hundred ten percent (110%) of fair market value at the date of the grant, as provided in Section 4.2 hereof. For all purposes of this Plan, the fair market value of the Common Stock on any particular date shall be the closing price on the trading day next preceding that date on the principal securities exchange on which the Company's Common Stock is listed, or, if such Common Stock is not then listed on any securities exchange, the fair market value Portola Packaging, Inc. 1994 Stock Option Plan Page 6 of the Common Stock on such date shall be the mean of the closing bid and asked prices as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") on the trading day next preceding such date. In the event that the Company's Common Stock is neither listed on a securities exchange nor quoted by NASDAQ, then the Board shall in good faith determine the fair market value of the Company's Common Stock on such date, with such determination being based upon past arms-length sales by the Company of its equity securities and other factors considered relevant in determining the Company's fair value; provided, however, that any individual form of option agreement may provide for alternative means of valuation for the purpose of repurchase at fair market value of shares acquired. 5.2 TERM OF OPTIONS. The period or periods within which an option may be exercised shall be determined by the Board at the time the option is granted, but no exercise period shall exceed ten (10) years from the date the option is granted (or five (5) years in the case of any incentive stock option granted to a ten percent (10%) stockholder as described in Section 4.2 hereof). 5.3 EXERCISABILITY. Stock options granted under this Plan shall be exercisable at such future time or times (or may be fully exercisable upon grant), whether or not in installments, as shall be determined by the Board and provided in the form of stock option agreement. Notwithstanding any other provisions of this Plan, no option may be exercised after the expiration of ten (10) years from the date of grant. 5.4 METHOD OF PAYMENT FOR COMMON STOCK UPON EXERCISE. Except as otherwise provided in the applicable stock option agreement (subject to the limitations of this Plan), the exercise price for each share of Common Stock purchased under an option shall be paid in full in cash at the time of purchase (or by check acceptable to the Board). At the discretion of the Board, the stock option agreement may provide for (or the Board may permit) the exercise price to be paid by one or more of the following additional alternative methods: (i) the surrender of shares of the Company's Common Stock, in proper form for transfer, owned by the person exercising the option and having a fair market value on the date of exercise equal to the exercise price, provided that such shares (a) have been owned by the Portola Packaging, Inc. 1994 Stock Option Plan Page 7 optionee for more than six (6) months and have been paid for within the meaning of Rule 144 under the Securities Act of 1933, as amended (the "SECURITIES ACT") (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares) or (b) were obtained by the optionee in the public market, (ii) to the extent permitted under the applicable provisions of the Delaware General Corporation Law, the delivery by the person exercising the option of a full recourse promissory note executed by such person, bearing interest at a per annum rate which is not less than the "test rate" as set by the regulations promulgated under Sections 483 or 1274, as applicable, of the Internal Revenue Code and as in effect on the date of exercise, or (iii) any combination of cash, shares of Common Stock or promissory notes, so long as the sum of the cash so paid, plus the fair market value of the shares of Common Stock so surrendered and the principal amounts of the promissory notes so delivered, is equal to the aggregate exercise price. Without limiting the generality of the foregoing, the form of option agreement may provide (or the Board may otherwise permit, in its discretion) that the option be exercised through a "net issue" exercise procedure (cash-less exercise), whereby the optionee may elect to receive shares of the Company's Common Stock having an aggregate fair market value at the date of exercise equal to the net value of the portion of the option so exercised as of the exercise date. For purposes of the foregoing, the net value of any option (or portion thereof) as of such exercise date shall be equal to the aggregate fair market value of the shares subject to the option (or portion thereof being exercised) less the aggregate exercise price of the option (or portion thereof). In such event the Company shall issue to the optionee a number of shares of the Company's Common Stock having a fair market value as of the date of exercise equal to the net value of the option (or portion thereof being exercised). No share of Common Stock shall be issued under any option until full payment therefor has been made in accordance with the terms of the stock option agreement (and in compliance with the Plan). Notwithstanding the foregoing, an Option may not be exercised by surrender to the Company of shares of the Company's Common Stock to the extent such surrender of stock would constitute a violation of the provisions of any law, regulation and/or agreement restricting the redemption of the Company's Common Stock. Any promissory note accepted upon the exercise of an option from a person who is a consultant or other independent contractor retained by the Company or Portola Packaging, Inc. 1994 Stock Option Plan Page 8 any subsidiary shall be adequately secured by collateral other than the shares of the Common Stock acquired upon such exercise. Additionally, if permitted by the form of stock option agreement, or at the Board's discretion, any such promissory note may permit the payment of principal and interest accruing thereunder by surrender of shares of the Company's Common Stock, in proper form for transfer, and having a fair market value on the date of payment and surrender equal to the dollar amount to be applied to principal and accrued interest thereunder. 5.5 NON-ASSIGNABILITY. No stock option granted under the Plan shall be assignable or transferable by an optionee except by will or the laws of descent and distribution and each stock option granted under the Plan shall be exercisable only by the optionee during his or her lifetime. 5.6 TERMINATION OF EMPLOYMENT PROVISIONS APPLICABLE TO STOCK OPTIONS. Each stock option agreement shall comply with the following provisions relating to early termination of the option based upon termination of the employee's employment with the Company: 5.6.1 DEATH. Upon the death of an employee of the Company, any stock option which such employee holds may be exercised to the extent it was exercisable at the date of death, within such period after the date of death as the Board shall prescribe in the stock option agreement (but not less than six (6) months nor more than twelve (12) months after death), by the employee's representative or by the person entitled thereto under the employee's will or the laws of intestate succession. If the option is not so exercised in accordance with the foregoing, it shall terminate upon the expiration of such prescribed period. 5.6.2 DISABILITY. If the employee's employment with the Company is terminated because of the disability of the employee, any stock option which the employee holds may be exercised by the employee within such period after the date of termination of employment resulting from such disability (but not less than six (6) months nor more than twelve (12) months after termination by reason of disability) as the Board shall prescribe in the stock option agreement, to the extent such option would otherwise be exercisable during such period. If the option is not so exercised in accordance Portola Packaging, Inc. 1994 Stock Option Plan Page 9 with the foregoing, it shall terminate upon the expiration of such prescribed period unless the employee dies prior thereto, in which event the employee shall be treated as though his or her death occurred on the date of termination resulting from such disability and the provisions of Section 5.6.1 hereof shall apply. 5.6.3 TRANSFER TO RELATED CORPORATION. In the event that an employee of the Company leaves the employ of the Company to become an employee of any parent or subsidiary corporation of the Company, or if the employee leaves the employ of any such parent or subsidiary corporation to become an employee of the Company or of another parent or subsidiary corporation, such employee shall be deemed to continue as an employee of the Company for all purposes of this Plan, and any reference to employment by the Company shall also be deemed to refer to employment by any parent or subsidiary of the Company. 5.6.4 OTHER SEVERANCE. In the event an employee of the Company leaves the employ of the Company for any reason other than as set forth above in this Section 5.6, any incentive stock option which such employee holds must be exercised, to the extent it was exercisable at the date such employee left the employ of the Company, not later than three (3) months after the date on which the employee's employment terminates (or such shorter period as may be prescribed in the option agreement, the minimum specified period being thirty (30) days). The stock option shall terminate upon the expiration of such prescribed period. 5.7 EFFECT OF TERMINATION OF ENGAGEMENT OF NON-EMPLOYEES ON NON-QUALIFIED STOCK OPTIONS. The Board, in its discretion, may provide in each non-qualified stock option agreement issued to a consultant or non-employee Director retained by the Company such provisions as the Board deems appropriate with respect to whether, and if so when, the option (or any portion thereof) shall be terminated prior to normal expiration (or otherwise affected) upon any termination of the optionee's engagement as a consultant providing services to the Company. Any reference in this Plan to services of a consultant to the Company shall be deemed (for all purposes of this Plan) to mean and include the existence of a consulting relationship with any parent corporation or subsidiary corporation of the Company. Portola Packaging, Inc. 1994 Stock Option Plan Page 10 5.8 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the provisions of Sections 5.6 and 5.7, if the exercise of an Option within the applicable time periods set forth therein is prevented because the issuance of shares upon such exercise would constitute a violation of any applicable federal or state securities law or other law or regulation, the Option shall remain exercisable until three (3) months after the date the optionee is notified by the Company that the Option is exercisable, but in any event no later than the expiration of ten (10) years from the date of grant pursuant to Section 4.3. 5.9 ALL OPTIONS SUBJECT TO TERMS OF THIS PLAN. In addition to the provisions contained in any option agreement granted under this Plan, each such stock option agreement shall provide that the same is subject to the terms and conditions of this Plan and each optionee shall be given a copy of this Plan. Further, any terms or conditions contained in any such stock option agreement granted hereunder which are inconsistent in any respect with the provisions of this Plan shall be disregarded and void, or shall be deemed amended to the extent necessary to comply with the provisions of this Plan and the intent of the Board. 5.10 OTHER PROVISIONS. Option agreements under the Plan shall contain such other provisions, including, without limitation: (i) restrictions and conditions upon the exercise of the option, (ii) rights of first refusal in favor of the Company (or its assignees) applicable to shares of Common Stock acquired upon exercise of an option which are subsequently proposed to be transferred by the optionee, (iii) lock-up agreements (applicable in the event of the public offering of the Common Stock of the Company) restricting an optionee from any sales or other transfers of option stock for a designated period of time following the effective date of a registration statement under the Securities Act of 1933, (iv) other restrictions on the transferability or right to retain shares of the Common Stock received upon the exercise of the option, including repurchase rights at original cost based on a vesting schedule, (v) commitments to pay cash bonuses, make loans or transfer other property to an optionee upon exercise of any option, and (vi) restrictions required by federal and applicable state securities laws, as the Board shall deem necessary or advisable; provided that no such additional provision shall be inconsistent with any other Portola Packaging, Inc. 1994 Stock Option Plan Page 11 term or condition of this Plan and no such additional provision shall cause any incentive stock option granted hereunder to fail to qualify as an incentive stock option under Section 422 of the Internal Revenue Code. Without limiting the generality of the foregoing, the Board may provide in the form of stock option agreement that, in lieu of an exercise schedule, the option may immediately be exercisable in full and provide a "vesting schedule" with respect to the stock so purchased, giving the Company (or its assignees) the right to repurchase the shares of Common Stock at cost (or some other specified amount) to the extent such shares have not become vested upon any termination of the optionee's employment or other engagement with the Company, which vesting may depend upon or be related to the attainment of performance goals or other conditions (such as the passage of stated time periods) pursuant to which the obligation to resell such shares to the Company shall lapse. 6. SECURITIES LAW REQUIREMENTS. The Board shall require any potential optionee, as a condition of the exercise of an option, to represent and establish to the satisfaction of the Board that all shares of Common Stock to be acquired upon the exercise of such option will be acquired for investment and not for resale. No shares of Common Stock shall be issued upon the exercise of any option unless and until: (i) the Company and the optionee have satisfied all applicable requirements under the Securities Act and the Securities Exchange Act of 1934, as amended, (ii) any applicable listing requirement of any stock exchange on which the Company's Common Stock is listed has been satisfied, and (iii) all other applicable provisions of state and federal law have been satisfied. The Board shall cause such legends to be placed on certificates evidencing shares of Common Stock issued upon exercise of an option as, in the opinion of the Company's counsel, may be required by federal and applicable state securities laws. 7. WITHHOLDING TAXES. The exercise of any option granted under this Plan shall be conditioned upon the optionee's payment to the Company of all amounts (in addition to the exercise price) required to meet federal, state or local taxes of any kind required by law to be withheld with respect to shares to be issued on exercise of such option. The Board, in its discretion, may declare cash bonuses to an Portola Packaging, Inc. 1994 Stock Option Plan Page 12 optionee to satisfy any such withholding requirements or may incorporate provisions in the form of stock option agreement allowing (or after grant of the option may permit, in its discretion) an optionee to satisfy any such withholding obligations, in whole or in part, by delivery of shares of the Company's Common Stock already owned by the optionee and which are not subject to repurchase, forfeiture, vesting or other similar requirements or restrictions. The fair market value of any such shares used to satisfy such withholding obligations shall be determined as of the date the amount of tax to be withheld is to be determined. The Company shall have the right to deduct from payments of any kind otherwise due to the optionee (whether regular salary, commissions, or otherwise) any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon exercise of options granted under the Plan. 8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. 8.1 STOCK SPLITS AND SIMILAR EVENTS. Subject to any required action by the Company's Board and stockholders, the number of shares of Common Stock covered by outstanding options granted under this Plan and the exercise price thereof shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of Common Stock resulting from a subdivision or combination of such shares or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of such outstanding shares of Common Stock effected without the receipt of consideration by the Company; provided, however, that the conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." 8.2 MERGERS AND ACQUISITIONS. Subject to any required action by the Company's Board and stockholders, if the Company shall be the surviving corporation in any merger or consolidation which results in the holders of the outstanding voting securities of the Company (determined immediately prior to such merger or consolidation) owning, directly or indirectly, at least a majority of the beneficial interest in the outstanding voting securities of the surviving corporation or its parent corporation (determined immediately after such merger or consolidation), the options granted under this Plan Portola Packaging, Inc. 1994 Stock Option Plan Page 13 shall pertain and apply to the securities or other property to which a holder of the number of shares subject to the unexercised portion of such options would have been entitled. A dissolution or liquidation of the Company or a sale of all or substantially all its business and assets or a merger or consolidation in which the Company is not the surviving corporation or which results in the holders of the outstanding voting securities of the Company (determined immediately prior to such merger or consolidation) owning, directly or indirectly, less than a majority of the beneficial interest in the outstanding voting securities of the surviving corporation or its parent corporation (determined immediately after such merger or consolidation) will cause the options granted hereunder to terminate, unless the agreement of such sale, merger, consolidation or other acquisition otherwise provides. 8.3 BOARD'S DETERMINATION FINAL AND BINDING UPON OPTIONEES. The foregoing determinations and adjustments in this Section 8 relating to stock or securities of the Company shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. The Company shall give notice of any such adjustment or action to each optionee; provided, however, that any such adjustment or action shall be effective and binding for all purposes, whether or not such notice is given or received. 8.4 NO FRACTIONS OF SHARES. Fractions of shares shall not be issued by the Company. Instead, such fractions of shares shall either be paid in cash at fair market value or shall be rounded up or down to the nearest share, as determined by the Board. 8.5 NO RIGHTS EXCEPT AS EXPRESSLY STATED. Except as hereinabove expressly provided in this Section 8, no additional rights shall accrue to any optionee by reason of any subdivision or combination of shares of the capital stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of any class or by reason of any dissolution, liquidation, merger or consolidation or spin-off of assets or of stock of another corporation, and any issue by the Company of shares of stock of any class or of securities convertible into shares of stock of any class shall not affect, and no adjustment by reason Portola Packaging, Inc. 1994 Stock Option Plan Page 14 thereof shall be made with respect to, the number or exercise price of shares subject to options granted hereunder. 8.6 NO LIMITATIONS ON COMPANY'S DISCRETION. The grant of options under this Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. 9. NO ADDITIONAL EMPLOYMENT RELATED RIGHTS OR BENEFITS 9.1 NO SPECIAL EMPLOYMENT RIGHTS. Nothing contained in this Plan or in any option granted hereunder shall confer upon any optionee any right with respect to the continuation of his or her employment or other engagement by the Company or interfere in any way with the right of the Company, subject to the terms of any separate employment or consulting agreement to the contrary, at any time to terminate such employment or consulting relationship or to increase or decrease the compensation of any optionee. Whether an authorized leave of absence, or absence in military or government service, shall constitute termination of an optionee's employment or other engagement shall be determined by the Board. 9.2 OTHER EMPLOYEE BENEFITS. The amount of any compensation deemed to be received by any employee or consultant as a result of the exercise of an option or the sale of shares received upon such exercise will not constitute compensation with respect to which any other employment (or other engagement) related benefits of such optionee are determined, including, without limitation, benefits under any bonus, pension, profit-sharing, life insurance or salary continuation plan, except as otherwise specifically determined by the Board or as expressly provided for in the option agreement. The granting of an option shall impose no obligation upon the optionee to exercise such option. 10. RIGHTS AS A STOCKHOLDER AND ACCESS TO INFORMATION. No optionee and no person claiming under or through any such optionee shall be, or have any of the rights or privileges of, a stockholder of the Portola Packaging, Inc. 1994 Stock Option Plan Page 15 Company in respect of any of the shares issuable upon the exercise of any option granted under this Plan, unless and until the option is properly and lawfully exercised and a certificate representing the shares so purchased is duly issued to the optionee or to his or her estate. No adjustment shall be made for dividends or any other rights if the record date relating to such dividend or other right is before the date the optionee became a stockholder. Holders of options granted under this Plan shall be provided annual financial statements. Upon written request to the Secretary of the Company, any optionee shall be entitled to inspect, at the executive offices of the Company, the information made available to stockholders of the Company pursuant to Section 220 or any other applicable provision of the Delaware General Corporation Law. The Company shall deliver to each optionee during the period for which he or she has one or more options outstanding, copies of all annual reports and other information which are provided to all stockholders of the Company, except the Company shall not be required to deliver such information to key employees whose duties in connection with the Company assure their access to equivalent information. 11. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Subject to the limitations of this Plan, the Board may modify, extend or renew outstanding options granted under the Plan. Furthermore, the Board may, subject to the other provisions of this Plan, upon the cancellation of previously granted options having higher per share exercise prices, regrant options at a lower price; provided, however, that no such modification or cancellation and regrant of an option shall, without the written consent of the optionee, alter or impair any rights of the optionee under any option previously granted under the Plan. 12. USE OF PROCEEDS. The proceeds received from the sale of shares of the Common Stock upon exercise of options granted under the Plan shall be used for general corporate purposes. 13. RESERVATION OF SHARES. The Company, during the term of this Plan, will at all times reserve and keep available such number of Portola Packaging, Inc. 1994 Stock Option Plan Page 16 shares of its Common Stock as shall be sufficient to satisfy the requirements of the Plan and all options issued hereunder. 14. TERM OF PLAN. 14.1 EFFECTIVE DATE. The Plan became effective when adopted by the Board on November 18, 1994 but no stock option granted under the Plan shall become exercisable unless and until the Plan shall have been approved by the Company's stockholders by the vote of the holders of a majority of the outstanding shares of the Company present and entitled to vote at a duly held meeting of the Company's stockholders (or by consent of the holders of the outstanding shares of the Company entitled to vote) in accordance with the requirements of the Company's Bylaws and the Delaware General Corporation Law. If such stockholder approval is not obtained within twelve (12) months after the date of the Board's adoption of the Plan, any incentive stock options previously granted under the Plan shall terminate and no further incentive stock options shall be granted. Subject to the foregoing limitation, options may be granted under the Plan at any time after the effective date and before the date fixed for termination of the Plan. 14.2 TERMINATION. Unless sooner terminated in accordance with Section 15, the Plan shall terminate upon the earlier of: (i) the close of business on the last business day preceding the tenth (10th) anniversary of the date of the Plan's adoption by the Board occurs, or (ii) the date on which all shares available for issuance under the Plan shall have been issued pursuant to options granted under the Plan and none of such shares shall remain subject to contractual repurchase rights of the Company pursuant to "vesting" or other similar provisions. If the date of termination is determined under clause (i) above, then any options outstanding on such date shall continue to have force and effect in accordance with the provisions of the option agreements evidencing such options. 15. EARLY TERMINATION AND AMENDMENT OF THE PLAN. The Board may from time to time suspend or terminate the Plan or revise or amend it; provided, however, that, without the approval of the Company's stockholders (except as to 15.1 below, which also requires the Portola Packaging, Inc. 1994 Stock Option Plan Page 17 consent of the affected optionees) at a duly held meeting of the Company's stockholders by the vote of a majority of the shares present and entitled to vote (or by written consent of the holders entitled to vote) in compliance with the requirements of the Company's Bylaws and the Delaware General Corporation Law, no such action of the Board shall: 15.1 MODIFICATIONS OF OUTSTANDING OPTIONS. Without the consent of each affected optionee, alter or impair any rights of an optionee under any option previously granted under the Plan; 15.2 INCREASES IN NUMBER OF SHARES SUBJECT TO THE PLAN. Increase the aggregate number of shares of the Common Stock which may be issued upon exercise of options granted under the Plan (except for adjustments made pursuant to Section 8 hereof); 15.3 CHANGES IN ELIGIBILITY. Change the designation of employees eligible to receive incentive stock options under the Plan; 15.4 PLAN DURATION. Extend the termination date beyond that provided in Section 14.2; 15.5 CHANGES NOT APPROVED BY LEGAL COUNSEL. Otherwise amend or modify the Plan (or outstanding options) under circumstances where stockholder approval is considered necessary in the opinion of legal counsel to the Company; or 15.6 CHANGES TO THIS SECTION. Amend this Section 15 to defeat its purposes. IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. THE SECURITY REPRESENTED BY THIS AGREEMENT HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. PORTOLA PACKAGING, INC. DIRECTOR NON-QUALIFIED STOCK OPTION AGREEMENT THIS DIRECTOR NON-QUALIFIED STOCK OPTION AGREEMENT ("AGREEMENT") by and between Portola Packaging, Inc. a Delaware corporation (the "COMPANY"), and ________________ (the "DIRECTOR"), is made as of the ______ day of ____________, 19__ (such date being sometimes referred to herein as the date of "GRANT"). R E C I T A L S A. The Company has adopted and implemented its 1994 Stock Option Plan (the "PLAN") permitting the grant of stock options to employees and consultants (including members of the Company's Board of Directors who are not employees of the Company) of the Company and its subsidiary corporations (as defined in the Plan), some of which are intended to be non-qualified stock options in that they do not qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "INTERNAL REVENUE CODE"), to purchase shares of the authorized but unissued Common Stock or treasury shares of the Company ("COMMON STOCK"). B. The Board of Directors (or a duly authorized Committee thereof) of the Company (in either case, referred to herein as the "BOARD") has authorized the granting of a non-qualified stock option to the Director, thereby allowing the Director to acquire an ownership interest (or increase his or her ownership interest) in the Company. Director Non-Qualified Stock Option Agreement Portola Pakaging, Inc. Page 2 A G R E E M E N T NOW, THEREFORE, in reliance on the foregoing Recitals and in consideration of the mutual covenants hereinafter set forth, the parties hereby agree as follows: 1. GRANT OF STOCK OPTION. The Company hereby grants to the Director a non-transferable and non-assignable option to purchase an aggregate of up to ____________________________ (_______________) shares of the Company's Common Stock, par value $0.001, at the exercise price of __________________ ($_______) per share, upon the terms and conditions set forth herein (such purchase right being sometimes referred to herein as "THE OPTION" or "THIS OPTION"). 2. TERM AND TYPE OF OPTION. Unless earlier terminated in accordance with Sections 6 or 7.2 hereof, the Option and all rights of the Director to purchase Common Stock hereunder shall expire with respect to all of the shares then subject to this Agreement at 5:00 p.m. Pacific time on _____________, 19___. This Option is a non-qualified stock option in that it is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code. Accordingly, the Director understands that under current law he or she will recognize ordinary income for federal income tax purposes in connection with exercise of this Option in an amount equal to the excess (if any) of the fair market value of the shares of Common Stock so purchased (determined as of the date of such exercise) over the exercise price paid for such shares. 3. EXERCISE SCHEDULE. Subject to the remaining provisions of this Agreement, this Option shall be exercisable as follows: 3.1 FIRST INSTALLMENT. The Director may not exercise this Option until the first day of the second year after the date of this Agreement (the "COMMENCEMENT DATE"). As of the Commencement Date, the Director may exercise this Option for up to _______ percent (__%) of the shares covered hereby (rounded up to the nearest whole number of shares). 3.2 SUBSEQUENT INSTALLMENTS. Upon the first day of each _____________, _____________, _____________ and _____________ following the Commencement Date, and continuing thereafter on the Director Non-Qualified Stock Option Agreement Portola Pakaging, Inc. Page 3 first day of each subsequent calendar quarter, the Director may exercise this Option for up to an additional ____________ percent (__%) of the shares covered hereby (rounded up to the nearest whole number of shares), so that this Option shall become fully exercisable as of ___________, 19__. In no event shall the Option be exercisable for more shares than the number of shares set forth in Section 1. 3.3 CUMULATIVE NATURE OF EXERCISE SCHEDULE. The exercise dates specified above refer to the earliest dates on which the Option may be exercised with respect to the stated percentages of the Common Stock covered by this Option and the Option may be exercised with respect to all or any part of any such percentage of the total shares at any time on or after such dates (until the expiration date specified in Section 2 above or any earlier termination of this Option pursuant to Section 6 or 7.2 of this Agreement). Except as permitted in Section 6, the Director must be and remain a director or employee of the Company, or of any parent or subsidiary corporation of the Company (as defined in Internal Revenue Code Sections 424(e) and (f)), during the entire period commencing with the date of grant of this Option and ending with each of the periods appearing in the above schedule in order to exercise this Option with respect to the shares applicable to any such period. Any references in this Agreement to the Director serving as a member of the Board or employee of the Company shall be deemed to also refer to the Director serving as a member of the Board or employee of any parent or subsidiary of the Company, as applicable. 3.4 OVERRIDING LIMITATION ON TIME FOR EXERCISE. Notwithstanding any other provisions of this Agreement, the Option may not be exercised after the expiration of ten (10) years from the date of grant. 4. RIGHT OF FIRST REFUSAL. The Director shall not sell, assign, pledge or in any manner transfer any of the shares of the Common Stock purchased hereunder, or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise, except for a transfer which meets the requirements hereinafter set forth. 4.1 NOTICE OF PROPOSED SALE. If the Director desires to sell or otherwise transfer any of his or her shares of Common Director Non-Qualified Stock Option Agreement Portola Pakaging, Inc. Page 4 Stock, the Director shall first give written notice thereof to the Company. The notice shall name the proposed transferee and state the number of shares to be transferred, the proposed consideration and all other material terms and conditions of the proposed transfer. 4.2 OPTION OF COMPANY TO PURCHASE. For thirty (30) days following receipt of such notice, the Company (and its assignees as provided in Section 4.3 below) shall have the option to elect to purchase all of the shares specified in the notice at the price and upon the terms set forth in such notice; provided that if the terms of payment set forth in the Director's notice were other than cash against delivery, the Company (and its assignees) shall pay cash for said shares equal to the fair market value thereof as determined in good faith by the Board (with the Director abstaining from such determination), except that to the extent such consideration is composed, in whole or in part, of promissory notes, the Company (and its assignees) shall have the option of similarly issuing promissory notes of like form, tenor and effect. (Notwithstanding the foregoing, in the event that the Director disagrees with the determination of fair market value made by the Board, the Director shall have the right to have such fair market value determined by arbitration in accordance with the rules of the American Arbitration Association. The arbitration shall be held in San Francisco, California or San Jose, California. The cost of the arbitration shall be borne in equal shares by the Company and the Director.) In the event the Company (and its assignees) elects to purchase all of such shares, it shall give written notice to the Director of its election and settlement for such purchase of shares shall be made as provided below in Section 4.4. 4.3 ASSIGNABILITY OF COMPANY'S RIGHTS HEREUNDER. The Company may at any time transfer and assign its rights and delegate its obligations under this Section 4 to any other person, corporation, firm or entity, including its officers, other directors or stockholders, with or without consideration. 4.4 CLOSING OF COMPANY PURCHASE. In the event the Company (and its assignees) elects to acquire all of those shares of the Director as specified in the Director's notice, the Secretary of the Company shall so notify the Director within thirty (30) days after receipt of the Director's notice, and settlement thereof shall be made Director Non-Qualified Stock Option Agreement Portola Pakaging, Inc. Page 5 in cash or as otherwise set forth above within thirty (30) days after the date the Secretary of the Company gives the Director notice of the Company's election. 4.5 TRANSFERRED SHARES REMAIN SUBJECT TO RESTRICTIONS. In the event the Company (and its assignees) do not elect to acquire all of the shares specified in the Director's notice, the Director may, within the sixty (60) day period following the expiration of the thirty (30) day period for electing to exercise the purchase rights granted to the Company (and its assignees) in Section 4.2, transfer the shares in the manner specified in his or her notice. In that event, the transferee, assignee or other recipient shall, as a condition of the transfer of ownership, receive and hold such shares subject to the provisions of this Section 4 (and also subject to any other applicable provisions hereof) and shall execute such documentation as may be requested by the Company, including, but not limited to, an investment representation letter containing provisions similar to those set forth in the Notice of Exercise and Investment Representation Statement attached as Exhibit A hereto. 4.6 EXCEPTIONS TO FIRST REFUSAL RIGHTS. Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the provisions of this Section 4 (provided that the transferee shall first agree in writing, satisfactory to the Company, to be bound by the terms and provisions of Sections 4, 5, 10 and 12-19 hereof): 4.6.1 TRANSFER TO FAMILY MEMBER. The Director's transfer of any or all shares held subject to this Agreement (either during the Director's lifetime or on death by will or intestacy) to such Director's immediate family or to any custodian or trustee for the account of the Director or his or her immediate family. "Immediate family" as used herein shall mean spouse, lineal descendants, father, mother, or brother or sister of the Director. 4.6.2 AS SECURITY FOR CERTAIN LOANS. The Director's bona fide pledge or mortgage of any shares with a commercial lending institution. 4.7 WAIVERS BY THE COMPANY. The provisions of this Section 4 may be waived by the Company with respect to any transfer Director Non-Qualified Stock Option Agreement Portola Pakaging, Inc. Page 6 proposed by the Director only by duly authorized action of its Board (with the Director abstaining from such action). 4.8 UNAUTHORIZED TRANSFERS VOID. Any sale or transfer, or purported sale or transfer, of the Common Stock subject to this Agreement shall be null and void unless the terms, conditions and provisions of this Section 4 are strictly complied with. 4.9 TERMINATION OF FIRST REFUSAL RIGHT. The foregoing right of first refusal shall terminate upon the earlier of: 4.9.1 PUBLIC OFFERING. The date securities of the Company are first offered and sold to the public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "SECURITIES ACT"); or 4.9.2 ACQUISITION OF THE COMPANY. Immediately prior to the acquisition of substantially all of the business and assets of the Company by an unaffiliated third party (as determined by the Board), whether by merger, sale of outstanding stock or of the Company's assets, or otherwise, where no express provision is made for the assignment and continuation of the Company's rights hereunder by a new or successor corporation. 5. AGREEMENT TO LOCK-UP IN THE EVENT OF PUBLIC OFFERING. In the event of a public offering of the Company's Common Stock pursuant to a registration statement declared effective with the SEC, if requested by the Company or by its underwriters, the Director agrees not to sell, sell short, grant any option to buy or otherwise dispose of the shares of Common Stock purchased pursuant to this Agreement (except for any such shares which may be included in the registration) for a period of up to two hundred seventy (270) days following the effective date of such registration statement. The Company may impose stop-transfer instructions with respect to the shares of the Common Stock subject to the foregoing restriction until the end of said period. The Company may impose stop-transfer instructions with respect to the shares of the Common Stock subject to the foregoing restriction until the end of such period. The Director shall be subject to this Section 5 provided and only if the officers and other directors of the Company are also subject to similar arrangements. Director Non-Qualified Stock Option Agreement Portola Pakaging, Inc. Page 7 6. RIGHTS ON CESSATION OF SERVICE AS A DIRECTOR. An Option may be exercised after the date (the "TERMINATION DATE") on which a Director ceases to be a member of the Board or employee of the Company or its parent or subsidiary corporations (referred to as ceasing to be an "ELIGIBLE DIRECTOR") only as set forth below and subject to the limitation provided in Section 3.4: 6.1 DEATH. Upon the death of the Director, the Director's estate may, for a period of twelve (12) months following the Termination Date, exercise the Option to the extent it was exercisable by the Director on the Termination Date in accordance with Section 8.2. The Director's estate shall mean the Director's legal representative upon death or any person who acquires the right to exercise the Option by reason of such death under the Director's will or the laws of intestate succession. 6.2 DISABILITY. If the Director ceases to be an Eligible Director because of a disability, the Director may, within twelve (12) months following the Termination Date, exercise the Option to the extent it was exercisable by the Director on the Termination Date unless the Director dies prior thereto, in which event the Director shall be treated as though the Director's death occurred on the date the Director ceased to be an Eligible Director due to a disability and the provisions of Section 6.1 above shall apply. 6.3 OTHER TERMINATION. If the Director ceases to be an Eligible Director for any reason other than provided in Sections 6.1 or 6.2 above, the Director or the Director's estate may, within three (3) months after the Termination Date exercise the Option to the extent it was exercisable by the Director on the Termination Date. 6.4 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of an Option within the applicable time periods set forth above is prevented because the issuance of shares upon such exercise would constitute a violation of any applicable federal, state or foreign securities law or other law or regulation, the Option shall remain exercisable until three (3) months after the date the Director is notified by the Company that the Option is exercisable, but in any event no later than the expiration of ten (10) years from the date of grant. Director Non-Qualified Stock Option Agreement Portola Pakaging, Inc. Page 8 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. 7.1 STOCK SPLITS AND SIMILAR EVENTS. Subject to any required action by the Company's Board and stockholders, the number of shares of Common Stock covered by the Option and the exercise price thereof shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of Common Stock resulting from a subdivision or combination of such shares or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of such outstanding shares of Common Stock effected without the receipt of consideration by the Company; provided, however, that the conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." 7.2 MERGERS AND ACQUISITIONS. Subject to any required action by the Company's Board and stockholders, if the Company shall be a constituent corporation in any merger or consolidation, provided the option is not terminated as set forth below in Section 7.3 upon consummation of such merger or consolidation, the Options shall pertain and apply to the securities or other property to which a holder of the number of shares subject to the unexercised portion of this Option would have been entitled upon such consummation. 7.3 BOARD'S DETERMINATION FINAL AND BINDING UPON DIRECTOR. To the extent that the foregoing adjustments in this Section 7 relate to stock or securities of the Company, such adjustments shall be made by the Board (with the Director abstaining), whose determination in that respect shall be final, binding and conclusive. The Company agrees to give notice of any such adjustment to the Director; provided, however, that any such adjustment shall be effective and binding for all purposes hereof whether or not such notice is given or received. 7.4 NO RIGHTS EXCEPT AS EXPRESSLY STATED. Except as hereinabove expressly provided in this Section 7, no additional rights shall accrue to the Director by reason of any subdivision or combination of shares of the capital stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of any class or by reason of any dissolution, liquidation, Director Non-Qualified Stock Option Agreement Portola Pakaging, Inc. Page 9 merger or consolidation or spin-off of assets or of stock of another corporation, and any issue by the Company of shares of stock of any class or of securities convertible into shares of stock of any class shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or exercise price of shares subject to the Option. Neither the Director nor any person claiming under or through the Director shall be, or have any of the rights or privileges of, a stockholder of the Company in respect of any of the shares issuable upon the exercise of this Option, unless and until this Option is properly and lawfully exercised and a certificate representing the shares so purchased is duly issued and delivered to the Director or to his or her estate. 7.5 NO LIMITATIONS ON COMPANY'S DISCRETION. The grant of the Option hereby shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. 8. MANNER OF EXERCISE. 8.1 GENERAL INSTRUCTIONS FOR EXERCISE. The Option shall be exercised by the Director by completing, executing and delivering to the Company the Notice of Exercise and Investment Representation Statement ("NOTICE OF EXERCISE"), in substantially the form attached hereto as Exhibit A, which Notice of Exercise shall specify the number of shares of Common Stock which the Director elects to purchase. Upon receipt of such Notice of Exercise and of payment of the purchase price, the Company shall, as soon as reasonably possible and subject to all other provisions hereof, deliver certificates for the shares of Common Stock so purchased, registered in the Director's name or in the name of his or her legal representative (if applicable). Payment of the purchase price upon any exercise of the Option shall be made by check acceptable to the Company or in cash; provided, however, that the Board may, in its sole and absolute discretion, accept any other legal consideration to the extent permitted under applicable laws and the Plan. 8.2 EXERCISE PROCEDURE AFTER DEATH. To the extent exercisable after the Director's death, this Option shall be exercised Director Non-Qualified Stock Option Agreement Portola Pakaging, Inc. Page 10 only by the Director's executor(s) or administrator(s) or the person or persons to whom this Option is transferred under the Director's will or, if the Director shall fail to make testamentary disposition of this Option, under the applicable laws of descent and distribution. Any such transferee exercising this Option must furnish the Company with (1) written Notice of Exercise and relevant information as to his or her status, (2) evidence satisfactory to the Company to establish the validity of the transfer of this Option and compliance with any laws or regulations pertaining to said transfer, and (3) written acceptance of the terms and conditions of this Option as contained in this Agreement. 9. NON-TRANSFERABLE. The Option shall, during the lifetime of the Director, be exercisable only by the Director and shall not be transferable or assignable by the Director in whole or in part other than by will or the laws of descent and distribution. If the Director shall make any such purported transfer or assignment of the Option, such assignment shall be null and void and of no force or effect whatsoever. 10. COMPLIANCE WITH SECURITIES AND OTHER LAWS. This Option may not be exercised and the Company shall not be obligated to deliver any certificates evidencing shares of Common Stock hereunder if the issuance of shares upon such exercise would constitute a violation of for such period as may reasonably be required for it to comply with any applicable requirements of: (i) the Securities Act, (ii) the Securities Exchange Act of 1934, as amended, (iii) applicable state securities laws, (iv) any applicable listing requirement of any stock exchange on which the Company's Common Stock is then listed, and (v) any other law or regulation applicable to the issuance of such shares. Nothing herein shall be construed to require the Company to register or qualify any securities under applicable federal or state securities laws, or take any action to secure an exemption from such registration and qualification for the issuance of any securities upon the exercise of this Option. Shares of Common Stock issued upon exercise of this option shall include the following legends and such other legends as in the opinion of the Company's counsel may be required by the securities laws of any state in which the Director resides: Director Non-Qualified Stock Option Agreement Portola Pakaging, Inc. Page 11 IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. A copy of Section 260.141.11 of the Rules of the Commissioner of Corporations of the State of California is set forth in Exhibit C attached hereto. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER AGREEMENTS CONTAINED IN A STOCK OPTION AGREEMENT, DATED _____________________, A COPY OF WHICH IS ON FILE WITH THE COMPANY. THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. 11. NO RIGHT TO CONTINUE AS A DIRECTOR. Nothing contained in this Agreement shall confer upon the Director any right to continue to serve as a director or employee of the Company or any parent or subsidiary corporation of the Company. The Board in its sole discretion shall determine whether any leave of absence or interruption in service (including an interruption during military service) shall be deemed to result in the Director ceasing to be an Eligible Director for purposes of this Agreement. 12. COMMITTEE OF THE BOARD. In the event that the Plan is administered by a committee of the Board (the "COMMITTEE"), all references herein to the Board shall be construed to mean the Director Non-Qualified Stock Option Agreement Portola Pakaging, Inc. Page 12 Committee for the period(s) during which the Committee administers the Plan. 13. OPTION SUBJECT TO TERMS OF PLAN. In addition to the provisions hereof, this Agreement and the Option are governed by, and subject to the terms and conditions of, the Plan. The Director acknowledges receipt of a copy of the Plan (a copy of which is attached hereto as Exhibit B) and Section 260.141.11 of the Rules of the Commissioner of Corporations of the State of California regarding restrictions on transfer (a copy of which is attached hereto as Exhibit C). The Director represents that he or she is familiar with the terms and conditions of the Plan, and hereby accepts the Option subject to all of the terms and conditions thereof, which terms and conditions shall control to the extent inconsistent in any respect with the provisions of this Agreement. The Director hereby agrees to accept as binding, conclusive and final all decisions and interpretations of the Board as to any questions arising under the Plan or under this Agreement. 14. NOTICES. All notices and other communications of any kind which either party to this Agreement may be required or may desire to serve on the other party hereto in connection with this Agreement shall be in writing and may be delivered by personal service or by registered or certified mail, return receipt requested, deposited in the United States mail with postage thereon fully prepaid, addressed to the other party at the addresses indicated on the signature page hereof or as otherwise provided below. Service of any such notice or other communication so made by mail shall be deemed complete on the date of actual delivery as shown by the addressee's registry or certification receipt or at the expiration of the third (3rd) business day after the date of mailing, whichever is earlier in time. Either party may from time to time, by notice in writing served upon the other as aforesaid, designate a different mailing address or a different person to which such notices or other communications are thereafter to be addressed or delivered. 15. FURTHER ASSURANCES. The Director shall, upon request of the Company, take all actions and execute all documents requested by the Company which the Company deems to be reasonably necessary to effectuate the terms and intent of this Agreement and, when required by any provision of this Agreement to transfer all or any portion of Director Non-Qualified Stock Option Agreement Portola Pakaging, Inc. Page 13 the Common Stock purchased hereunder to the Company (and its assignees), the Director shall deliver such Common Stock endorsed in blank or accompanied by Stock Assignments Separate from Certificate endorsed in blank, so that title thereto will pass by delivery alone. Any sale or transfer by the Director of the Common Stock to the Company (and its assignees) shall be made free of any and all claims, encumbrances, liens and restrictions of every kind, other than those imposed by this Agreement. 16. SUCCESSORS. Except to the extent the same is specifically limited by the terms and provisions of this Agreement, this Agreement is binding upon the Director and the Director's successors, heirs and personal representatives, and upon the Company, its successors and assigns. 17. TERMINATION OR AMENDMENT. Subject to the terms and conditions of the Plan, the Board may terminate or amend the Plan and/or the Option at any time; provided, however, that no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Director. 18. INTEGRATED AGREEMENT. This Agreement and the Plan constitute the entire understanding and agreement of the Director and the Company with respect to the subject matter contained herein, and there are no agreements, understandings, restrictions, representations, or warranties between the Director and the Company other than those set forth or provided for herein. To the extent contemplated herein, the provisions of this Agreement shall survive any exercise of the Option and shall remain in full force and effect. 19. OTHER MISCELLANEOUS TERMS. Titles and captions contained in this Agreement are inserted only as a matter of convenience and for reference, and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision hereof. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 20. INDEPENDENT TAX ADVICE. The Director agrees that he or she has obtained or will obtain the advice of independent tax counsel (or has determined not to obtain such advice, having had adequate opportunity to do so) regarding the federal and state income tax consequences of the receipt and exercise of the Option and of the Director Non-Qualified Stock Option Agreement Portola Pakaging, Inc. Page 14 disposition of Common Stock acquired upon exercise hereof. The Director acknowledges that he or she has not relied and will not rely upon any advice or representation by the Company or by its employees or representatives with respect to the tax treatment of the Option. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first hereinabove written. COMPANY: PORTOLA PACKAGING, INC. a Delaware corporation By: --------------------------------------------- Its: --------------------------------------------- Address: Portola Packaging, Inc. 890 Faulstich Ct. San Jose, CA 95112 DIRECTOR: -------------------------------------------------- (Signature) Name Printed: ----------------------------------- Address: ---------------------------------------- ---------------------------------------- ---------------------------------------- SCHEDULE OF EXHIBITS EXHIBIT A: Form of Notice of Exercise and Investment Representation Statement for Portola Packaging, Inc. Director Non-Qualified Stock Option Agreement EXHIBIT B: 1994 Stock Option Plan EXHIBIT C: Section 260.141.11 of the Rules of the Commissioner of Corporations of the State of California. IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. THE SECURITY REPRESENTED BY THIS AGREEMENT HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. PORTOLA PACKAGING, INC. DIRECTOR NON-QUALIFIED STOCK OPTION AGREEMENT THIS DIRECTOR NON-QUALIFIED STOCK OPTION AGREEMENT ("AGREEMENT") by and between Portola Packaging, Inc., a Delaware corporation (the "COMPANY"), and ______________________ (the "OPTIONEE"), is made as of the _________ day of ______________________, 199________ (such date being sometimes referred to herein as the date of "grant"). R E C I T A L S A. The Company has adopted and implemented its 1994 Stock Option Plan (the "PLAN") permitting the grant of stock options to employees and consultants (including members of the Company's Board of Directors who are not employees of the Company) of the Company and its subsidiary corporations (as defined in the Plan), some of which are intended to be non-qualified stock options in that they do not qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "INTERNAL REVENUE CODE"), to purchase shares of the authorized but unissued Class B Common Stock, Series 1 or treasury shares of the Company ("COMMON STOCK"). B. _____________________ ("DIRECTOR") is a director of the Company and a beneficial owner or employee of the Optionee. C. The Board of Directors (or a duly authorized Committee thereof) of the Company (in either case, referred to herein as the "BOARD") has authorized the granting of a non-qualified stock option to the Optionee, thereby allowing the Director, or Director's employer to acquire an ownership interest (or increase its, his or her ownership interest) in the Company and has permitted a one-time assignment of such non-qualified stock option from the Director to the Optionee. A G R E E M E N T NOW, THEREFORE, in reliance on the foregoing Recitals and in consideration of the mutual covenants hereinafter set forth, the parties hereby agree as follows: Director Non-Qualified Stock Option Agreement Portola, Inc./ ------------------------------- Page 2 1. GRANT OF STOCK OPTION. The Company hereby grants to the Optionee a non-transferable and non-assignable option to purchase an aggregate of up to __________________ (____________) shares of the Company's Common Stock, par value $0.001, with a per share exercise price of ________________ ($_________) per share, upon the terms and conditions set forth herein. (Such purchase right being sometimes referred to herein as "THE OPTION" or "THIS OPTION"). 2. TERM AND TYPE OF OPTION. Unless earlier terminated in accordance with Sections 6 or 7.2 hereof, the Option and all rights of the Optionee to purchase Common Stock hereunder shall expire with respect to all of the shares then subject to this Agreement at 5:00 p.m. Pacific time on ___________________, _________. This Option is a non-qualified stock option in that it is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code. Accordingly, the Optionee understands that under current law it will recognize ordinary income for federal income tax purposes in connection with exercise of this Option in an amount equal to the excess (if any) of the fair market value of the shares of Common Stock so purchased (determined as of the date of such exercise) over the exercise price paid for such shares. 3. EXERCISE SCHEDULE. Subject to the remaining provisions of this Agreement, this Option shall be exercisable as follows: 3.1 FIRST INSTALLMENT. Subject to Sections 3.4 and 7.2, commencing upon), _________________________, 199_____ (the "INITIAL EXERCISE DATE"), the Optionee may exercise this option for up to twenty percent (20%) of the shares covered hereby. 3.2 SUBSEQUENT INSTALLMENTS. Upon the first day of each _____________, _____________, _____________ and _____________ following the Commencement Date, and continuing thereafter on the first day of each subsequent calendar quarter, the Director may exercise this Option for up to an additional ____________ percent (__%) of the shares covered hereby (rounded up to the nearest whole number of shares), so that this Option shall become fully exercisable as of ___________, 19__. Subject to Section 7, in no event shall the Option be exercisable for more shares than the number of shares set forth in Section 1. 3.3 CUMULATIVE NATURE OF EXERCISE SCHEDULE. The exercise dates specified above refer to the earliest dates on which the Option may be exercised with respect to the stated percentages of the Common Stock covered by this Option and this Option may be exercised with respect to all or any part of any such percentage of the total shares at any time on or after such dates (until the expiration date specified in Section 2 above or any earlier termination of this Option pursuant to Section 6 or 7.2 of this Agreement). Except as permitted in Section 6, the Director must be and remain a director or employee of the Company, or of any parent or subsidiary corporation of the Company (as defined in Internal Revenue Code Sections 424(e) and (f)), during the entire period commencing with the date of grant of this Option and ending with each of the periods appearing in the above schedule in order to exercise this Option with respect to the shares applicable to any such period. Any references in this Agreement to the Director serving as a member of the Board or employee of the Company shall be deemed to also refer to the Director serving as a member of the Board or employee of any parent or subsidiary of the Company, as applicable. 3.4 EXERCISABILITY; OVERRIDING LIMITATION ON TIME FOR EXERCISE. Subject to the remaining provisions of this Agreement, the Option shall be exercisable at a rate of at least twenty percent (20%) of the number of shares subject to the Option for each year after the date of grant (i.e., at a rate so as to become fully exercisable at the end of five (5) years). Notwithstanding any other provisions of this Agreement, the Option may not be exercised after the expiration of ten (10) years from the date of grant. Director Non-Qualified Stock Option Agreement Portola, Inc./ ------------------------------- Page 3 4. RIGHT OF FIRST REFUSAL. The Optionee shall not sell, assign, pledge or in any manner transfer any of the shares of the Common Stock purchased hereunder, or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise, except for a transfer which meets the requirements hereinafter set forth. 4.1 NOTICE OF PROPOSED SALE. If the Optionee desires to sell or otherwise transfer any of its shares of Common Stock, the Optionee shall first give written notice thereof to the Company. The notice shall name the proposed transferee and state the number of shares to be transferred, the proposed consideration and all other material terms and conditions of the proposed transfer. 4.2 OPTION OF COMPANY TO PURCHASE. For thirty (30) days following receipt of such notice, the Company (and its assignees as provided in Section 4.3 below) shall have the option to elect to purchase all of the shares specified in the notice at the price and upon the terms set forth in such notice; provided that if the terms of payment set forth in the Optionee's notice were other than cash against delivery, the Company (and its assignees) shall pay cash for said shares equal to the fair market value thereof as determined in good faith by the Board (with the Director abstaining from such determination), except that to the extent such consideration is composed, in whole or in part, of promissory notes, the Company (and its assignees) shall have the option of similarly issuing promissory notes of like form, tenor and effect. (Notwithstanding the foregoing, in the event that the Optionee disagrees with the determination of fair market value made by the Board, the Optionee shall have the right to have such fair market value determined by arbitration in accordance with the commercial rules of the American Arbitration Association. The arbitration shall be held in San Jose, California or Menlo Park, California. The cost of the arbitration shall be borne in equal shares by the Company and the Optionee.) In the event the Company (and its assignees) elects to purchase all of such shares, it shall give written notice to the Optionee of its election and settlement for such purchase of shares shall be made as provided below in Section 4.4. 4.3 ASSIGNABILITY OF COMPANY'S RIGHTS HEREUNDER. The Company may at any time transfer and assign its rights and delegate its obligations under this Section 4 to any other person, corporation, firm or entity, including its officers, other directors or stockholders, with or without consideration. 4.4 CLOSING OF COMPANY PURCHASE. In the event the Company (and its assignees) elects to acquire all of those shares of the Optionee as specified in the Optionee's notice, the Secretary of the Company shall so notify the Optionee within thirty (30) days after receipt of the Optionee's notice, and settlement thereof shall be made in cash or as otherwise set forth above within thirty (30) days after the date the Secretary of the Company gives the Optionee notice of the Company's election. 4.5 TRANSFERRED SHARES REMAIN SUBJECT TO RESTRICTIONS. In the event the Company (and its assignees) do not elect to acquire all of the shares specified in the Optionee's notice, the Optionee may, within the sixty (60) day period following the expiration of the thirty (30) day period for electing to exercise the purchase rights granted to the Company (and its assignees) in Section 4.2, transfer the shares in the manner specified in its notice. In that event, the transferee, assignee or other recipient shall, as a condition of the transfer of ownership, receive and hold such shares subject to the provisions of this Section 4 (and also subject to any other applicable provisions hereof) and shall execute such documentation as may be requested by the Company, including, but not limited to, an investment representation letter containing provisions similar to those set forth in the Notice of Exercise and Investment Representation Statement attached as Exhibit A hereto. 4.6 EXCEPTIONS TO FIRST REFUSAL RIGHTS. Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the provisions of this Section 4 (provided that the transferee shall first agree in writing, satisfactory to the Company, to be bound by the terms and provisions of Sections 4, 5, 11 and 13-21 hereof): Director Non-Qualified Stock Option Agreement Portola, Inc./ ------------------------------- Page 4 4.6.1 TRANSFER TO FAMILY MEMBER. The Optionee's transfer of any or all shares held subject to this Agreement to such Optionee's beneficial owners or any of their respective immediate family or to any custodian or trustee for the account of the beneficial owner or his or her immediate family. "Immediate family" as used herein shall mean spouse, lineal descendants, father, mother, or brother or sister of the beneficial owner. 4.6.2 AS SECURITY FOR CERTAIN LOANS. The Optionee's bona fide pledge or mortgage of any shares with a commercial lending institution. 4.7 WAIVERS BY THE COMPANY. The provisions of this Section 4 may be waived by the Company with respect to any transfer proposed by the Optionee only by duly authorized action of its Board or a Committee thereof. 4.8 UNAUTHORIZED TRANSFERS VOID. Any sale or transfer, or purported sale or transfer, of the Common Stock subject to this Agreement shall be null and void unless the terms, conditions and provisions of this Section 4 are strictly complied with. 4.9 TERMINATION OF FIRST REFUSAL RIGHT. The foregoing right of first refusal shall terminate upon the earlier of: 4.9.1 PUBLIC OFFERING. The date securities of the Company are first offered and sold to the public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "SECURITIES ACT"); or 4.9.2 ACQUISITION OF THE COMPANY. Immediately prior to the acquisition of substantially all of the business and assets of the Company by an unaffiliated third party (as determined by the Board), whether by merger, sale of outstanding stock or of the Company's assets, or otherwise, where no express provision is made for the assignment and continuation of the Company's rights hereunder by a new or successor corporation. 5. AGREEMENT TO LOCK-UP IN THE EVENT OF PUBLIC OFFERING. In the event of a public offering of the Company's Common Stock pursuant to a registration statement declared effective with the SEC, if requested by the Company or by its underwriters, the Optionee agrees not to sell, sell short, grant any option to buy or otherwise dispose of the shares of Common Stock purchased pursuant to this Agreement (except for any such shares which may be included in the registration) for a period of up to one hundred eighty (180) days following the effective date of such registration statement. The Company may impose stop-transfer instructions with respect to the shares of the Common Stock subject to the foregoing restriction until the end of said period. The Optionee shall be subject to this Section 5 provided and only if the officers and directors of the Company are also subject to similar arrangements. 6. RIGHTS ON CESSATION OF SERVICE AS A DIRECTOR. An Option may be exercised by the Optionee after the date (the "TERMINATION DATE") on which the Director ceases to be a member of the Board or employee of the Company or its parent or subsidiary corporations (referred to as ceasing to be an "ELIGIBLE DIRECTOR") only as set forth below and subject to the limitation provided in Section 3.4: 6.1 DEATH. Upon the death of the Director, the Optionee may, for a period of twelve (12) months following the Termination Date, exercise the Option to the extent it was exercisable by the Optionee on the Termination Date. 6.2 DISABILITY. If the Director ceases to be an Eligible Director because of a disability, the Optionee may, within twelve (12) months following the Termination Date, exercise the Option to the extent it was Director Non-Qualified Stock Option Agreement Portola, Inc./ ------------------------------- Page 5 exercisable by the Optionee on the Termination Date unless the Director dies prior thereto, in which event the Optionee shall be treated as though the Director's death occurred on the date the Director ceased to be an Eligible Director due to a disability and the provisions of Section 6.1 above shall apply. 6.3 OTHER TERMINATION. If the Director ceases to be an Eligible Director for any reason other than provided in Sections 6.1 or 6.2 above, the Optionee may, within three (3) months after the Termination Date exercise the Option to the extent it was exercisable by the Optionee on the Termination Date. 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR CHANGE OF CONTROL. 7.1 STOCK SPLITS AND SIMILAR EVENTS. Subject to any required action by the Company's Board and stockholders, the number of shares of Common Stock covered by the Option and the exercise price thereof shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of Common Stock resulting from a subdivision or combination of such shares or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of such outstanding shares of Common Stock effected without the receipt of consideration by the Company; provided, however, that the conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." 7.2 MERGERS AND ACQUISITIONS. Subject to any required action by the Company's Board and stockholders, if the Company shall be a constituent corporation in any merger or consolidation, provided the option is not terminated as set forth below in Section 7.3 upon consummation of such merger or consolidation, the Options shall pertain and apply to the securities or other property to which a holder of the number of shares subject to the unexercised portion of this Option would have been entitled upon such consummation. 7.3 CHANGE OF CONTROL. In the event of a Change of Control (as defined below), this Option shall become immediately exercisable in full as of the date thirty (30) days prior to the consummation of such Change of Control. The exercise or vesting that was permissible solely by reason of this Section shall be conditioned upon the consummation of the Change in Control. Furthermore, the Board, in its sole discretion, may arrange with the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), for the Acquiring Corporation to assume the Company's rights and obligations under outstanding Options (which, for purposes of this Section 7.3, shall include Options that have become immediately exercisable and fully vested as provided above) not exercised by the Optionee prior to the consummation of the Change of Control or substitute options for the Acquiring Corporation's stock for such outstanding Options. Any Options which are neither assumed nor substituted for by the Acquiring Corporation in connection with the Change of Control nor exercised prior to the consummation of the Change of Control shall terminate and cease to be outstanding as of the effective date of the Change of Control. A "CHANGE OF CONTROL" shall be deemed to have occurred in the event any of the following occurs with respect to the Company: 7.3.1 the direct or indirect sale or exchange by the stockholders of the Company of all or substantially all of the stock of the Company where the stockholders of the Company before such sale or exchange do not retain, directly or indirectly, at least a majority of the beneficial interest in the voting stock of the Company after such sale or exchange. 7.3.2 a merger or consolidation in which the Company is not the surviving corporation, other than (i) a merger in which the stockholders of the Company before such merger or consolidation retain directly or indirectly, at least a majority of the voting stock of the surviving corporation or the parent corporation of the surviving corporation and the options are assumed or substituted by the surviving corporation which assumption or substitution shall be binding on the Optionee, or (ii) a merger or consolidation with a wholly-owned subsidiary, a Director Non-Qualified Stock Option Agreement Portola, Inc./ ------------------------------- Page 6 reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the stockholders of the Company and the Options are assumed or substituted by the Acquiring Corporation, which assumption or substitution shall be binding on the Optionee. 7.3.3 a merger or consolidation in which the Company is the surviving corporation where the stockholders of the Company before such merger or consolidation do not retain, directly or indirectly, at least a majority of the voting stock of the Company after such merger or consolidation. 7.3.4 the sale, exchange, or transfer of all or substantially all of the assets of the Company other than a sale, exchange, or transfer to one (1) or more subsidiaries of the Company. 7.3.5 a liquidation or dissolution of the Company. 7.3.6 any other transaction which qualifies as a "corporate transaction" under Section 424 of the Code wherein the stockholders of the Company give up all of their equity interest in the Company (EXCEPT for the acquisition, sale or transfer of all or substantially all of the outstanding shares of the Company). 7.4 BOARD'S DETERMINATION FINAL AND BINDING UPON OPTIONEE. To the extent that the foregoing adjustments in this Section 7 relate to stock or securities of the Company, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. The Company agrees to give notice of any such adjustment to the Optionee; provided, however, that any such adjustment shall be effective and binding for all purposes hereof whether or not such notice is given or received. 7.5 NO RIGHTS EXCEPT AS EXPRESSLY STATED. Except as hereinabove expressly provided in this Section 7, no additional rights shall accrue to the Optionee by reason of any subdivision or combination of shares of the capital stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of any class or by reason of any dissolution, liquidation, merger or consolidation or spin-off of assets or of stock of another corporation, and any issue by the Company of shares of stock of any class or of securities convertible into shares of stock of any class shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or exercise price of shares subject to the Option. Neither the Optionee nor any person claiming under or through the Optionee shall be, or have any of the rights or privileges of, a stockholder of the Company in respect of any of the shares issuable upon the exercise of this Option, unless and until this Option is properly and lawfully exercised and a certificate representing the shares so purchased is duly issued and delivered to the Optionee. 7.6 NO LIMITATIONS ON COMPANY'S DISCRETION. The grant of the Option hereby shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. 8. MANNER OF EXERCISE. The Option shall be exercised by the Optionee by completing, executing and delivering to the Company the Notice of Exercise and Investment Representation Statement ("NOTICE OF EXERCISE"), in substantially the form attached hereto as Exhibit A, which Notice of Exercise shall specify the number of shares of Common Stock which the Optionee elects to purchase. The Company's obligation to deliver shares upon the exercise of this Option shall be subject to the Optionee's satisfaction of all applicable federal, state, local and foreign income and employment tax withholding requirements, if any. Upon receipt of such Notice of Exercise and of payment of the purchase price (and payment of applicable taxes as provided above), the Company shall, as soon as reasonably possible and subject to all other provisions hereof, deliver certificates for the shares of Common Stock so purchased, registered Director Non-Qualified Stock Option Agreement Portola, Inc./ ------------------------------- Page 7 in the Optionee's name or in the name of its legal representative (if applicable). Payment of the purchase price upon any exercise of the Option shall be made as set forth in Section 9 below. 9. MEDIUM AND TIME OF PAYMENT. 9.1 The option price (and any and all federal, state and local taxes payable by Optionee by reason of the exercise of this option as set forth in section 9.4) shall be payable upon the exercise of an option in legal tender of the United States (in cash or by certified check), shares of the Common Stock, "Same Day Sales Proceeds" (as defined in Section 9.3) or any combination of such legal tender, shares and Same Day Sales Proceeds. 9.2 For purposes of calculating payment of the option price and taxes, each share of the Common Stock surrendered in payment of such price shall be valued at its fair market value on the date the option is exercised. Fair market value shall mean (i) the average of the closing bid and asked prices of the Common Stock quoted in the Over-The-Counter Market Summary or the closing price quoted on any exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of THE WALL STREET JOURNAL for the date an option is exercised or, if no report is available for such date, for the next preceding date for which such a report is available or (ii) if the Common Stock is not traded Over-The-Counter or on an exchange or is not so quoted by THE WALL STREET JOURNAL, the amount determined in good faith by the Chief Executive Officer of the Company on the date an option is exercised by applying the rules and principles of valuation set forth in Treasury Regulation Section 20.2031-2 relating to the valuation of stock for purposes of Section 2031 of the Code. Notwithstanding the foregoing, an option may not be exercised by tender to the Company of shares of Common Stock to the extent such tender of stock would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company's Common Stock. Unless otherwise provided by the Board, an option may not be exercised by tender to the Company of shares of Common Stock unless such shares of Common Stock either have been owned by the Optionee (or its beneficial owners) for more than six (6) months or were not acquired, directly or indirectly, from the Company. 9.3 "Same Day Sales Proceeds" shall mean the assignment of the proceeds of a sale of some or all of the shares being acquired upon the exercise of an option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of options by means of an assignment of the proceeds of a sale of some or all of the shares of Common Stock to be acquired upon such exercise. 9.4 It is the intent of the parties that, at the election of the Optionee, Optionee may deliver shares of Common Stock as set forth in and subject to the limitations imposed by Section 9.2 in payment of taxes payable by Optionee in connection with the exercise of this Option. Such taxes shall include both state and federal income taxes on all ordinary income realized by Optionee as a result of the exercise of this Option. The Shares so delivered by Optionee shall be valued at their fair market value in accordance with Section 9.2 and the Company shall treat such shares as taxes withheld. The Company shall pay over to the Internal Revenue Service in cash the fair market value of shares so delivered and shall report to the Internal Revenue Service and the Optionee on Form 1099-MISC or any other appropriate form such withholding taxes. 10. NON-TRANSFERABLE. The Option shall be exercisable only by the Optionee and shall not be transferable or assignable by the Optionee in whole or in part. If the Optionee shall make any such purported transfer or assignment of the Option, such assignment shall be null and void and of no force or effect whatsoever. Director Non-Qualified Stock Option Agreement Portola, Inc./ ------------------------------- Page 8 11. COMPLIANCE WITH SECURITIES AND OTHER LAWS. This Option may not be exercised and the Company shall not be obligated to deliver any certificates evidencing shares of Common Stock hereunder if the issuance of shares upon such exercise would constitute a violation of any applicable requirements of: (i) the Securities Act, (ii) the Securities Exchange Act of 1934, as amended, (iii) applicable state securities laws, (iv) any applicable listing requirement of any stock exchange on which the Company's Common Stock is then listed, and (v) any other law or regulation applicable to the issuance of such shares. Nothing herein shall be construed to require the Company to register or qualify any securities under applicable federal or state securities laws, or take any action to secure an exemption from such registration and qualification for the issuance of any securities upon the exercise of this Option. Shares of Common Stock issued upon exercise of this option shall include the following legends and such other legends as in the opinion of the Company's counsel may be required by applicable federal, state and foreign securities laws: IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. A copy of Section 260.141.11 of the Rules of the Commissioner of Corporations of the State of California is set forth in Exhibit C attached hereto. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER AGREEMENTS CONTAINED IN A STOCK OPTION AGREEMENT, DATED ________________, 199_____, A COPY OF WHICH IS ON FILE WITH THE COMPANY. THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. 12. NO RIGHT TO CONTINUE AS A DIRECTOR. Nothing contained in this Agreement shall confer upon the Director any right to continue to serve as a director or employee of the Company or any parent or subsidiary corporation of the Company. The Board in its sole discretion shall determine whether any leave of absence or interruption in service (including an interruption during military service) shall be deemed to result in the Director ceasing to be an Eligible Director for purposes of this Agreement. 13. COMMITTEE OF THE BOARD. In the event that the Plan is administered by a committee of the Board (the "COMMITTEE"), all references herein to the Board shall be construed to mean the Committee for the period(s) during which the Committee administers the Plan. 14. OPTION SUBJECT TO TERMS OF PLAN. In addition to the provisions hereof, this Agreement and the Option are governed by, and subject to the terms and conditions of, the Plan. The Optionee acknowledges receipt of a copy of the Plan (a copy of which is attached hereto as Exhibit B) and Section 260.141.11 of the Rules of the Commissioner of Corporations of the State of California regarding restrictions on transfer (a copy of which is attached Director Non-Qualified Stock Option Agreement Portola, Inc./ ------------------------------- Page 9 hereto as Exhibit C). The Optionee represents that it is familiar with the terms and conditions of the Plan, and hereby accepts the Option subject to all of the terms and conditions thereof, which terms and conditions shall control to the extent inconsistent in any respect with the provisions of this Agreement. The Optionee hereby agrees to accept as binding, conclusive and final all decisions and interpretations of the Board as to any questions arising under the Plan or under this Agreement. 15. NOTICES. All notices and other communications of any kind which either party to this Agreement may be required or may desire to serve on the other party hereto in connection with this Agreement shall be in writing and may be delivered by personal service or by registered or certified mail, return receipt requested, deposited in the United States mail with postage thereon fully prepaid, addressed to the other party at the addresses indicated on the signature page hereof or as otherwise provided below. Service of any such notice or other communication so made by mail shall be deemed complete on the date of actual delivery as shown by the addressee's registry or certification receipt or at the expiration of the third (3rd) business day after the date of mailing, whichever is earlier in time. Either party may from time to time, by notice in writing served upon the other as aforesaid, designate a different mailing address or a different person to which such notices or other communications are thereafter to be addressed or delivered. 16. FURTHER ASSURANCES. The Optionee shall, upon request of the Company, take all actions and execute all documents requested by the Company which the Company deems to be reasonably necessary to effectuate the terms and intent of this Agreement and, when required by any provision of this Agreement to transfer all or any portion of the Common Stock purchased hereunder to the Company (and its assignees), the Optionee shall deliver such Common Stock endorsed in blank or accompanied by Stock Assignments Separate from Certificate endorsed in blank, so that title thereto will pass by delivery alone. Any sale or transfer by the Optionee of the Common Stock to the Company (and its assignees) shall be made free of any and all claims, encumbrances, liens and restrictions of every kind, other than those imposed by this Agreement. 17. SUCCESSORS. Except to the extent the same is specifically limited by the terms and provisions of this Agreement, this Agreement is binding upon the Optionee and the Optionee's successors, heirs and personal representatives, and upon the Company, its successors and assigns. 18. TERMINATION OR AMENDMENT. Subject to the terms and conditions of the Plan, the Board may terminate or amend the Plan and/or the Option at any time; provided, however, that no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Optionee. 19. INTEGRATED AGREEMENT. This Agreement and the Plan constitute the entire understanding and agreement of the Optionee and the Company with respect to the subject matter contained herein, and there are no agreements, understandings, restrictions, representations, or warranties between the Optionee and the Company other than those set forth or provided for herein. To the extent contemplated herein, the provisions of this Agreement shall survive any exercise of the Option and shall remain in full force and effect. 20. OTHER MISCELLANEOUS TERMS. Titles and captions contained in this Agreement are inserted only as a matter of convenience and for reference, and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision hereof. This Agreement shall be governed by and construed in accordance with the laws of the State of California, irrespective of its choice of law principles. 21. INDEPENDENT TAX ADVICE. The Optionee agrees that it has obtained or will obtain the advice of independent tax counsel (or has determined not to obtain such advice, having had adequate opportunity to do so) regarding the federal and state income tax consequences of the receipt and exercise of the Option and of the disposition Director Non-Qualified Stock Option Agreement Portola, Inc./ ------------------------------- Page 10 of Common Stock acquired upon exercise hereof. The Optionee acknowledges that it has not relied and will not rely upon any advice or representation by the Company or by its employees or representatives with respect to the tax treatment of the Option. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first hereinabove written. COMPANY: OPTIONEE: PORTOLA PACKAGING, INC., a Delaware corporation ------------------------------- By: --------------------------- Title: ------------------------ By: --------------------------- Jack L. Watts, Chief Executive Officer Address: Address: Portola Packaging, Inc. -------------------- 890 Faulstich Court -------------------- San Jose, CA 95112 -------------------- -------------------- SCHEDULE OF EXHIBITS EXHIBIT A: Form of Notice of Exercise and Investment Representation Statement for Portola Packaging, Inc. Director Non-Qualified Stock Option Agreement EXHIBIT B: 1994 Stock Option Plan EXHIBIT C: Section 260.141.11 of the Rules of the Commissioner of Corporations of the State of California. IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. THE SECURITY REPRESENTED BY THIS AGREEMENT HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. PORTOLA PACKAGING, INC. EMPLOYEE NON-QUALIFIED STOCK OPTION AGREEMENT THIS EMPLOYEE NON-QUALIFIED STOCK OPTION AGREEMENT ("AGREEMENT") by and between Portola Packaging, Inc., a Delaware corporation (the "COMPANY"), and ______________________ (the "EMPLOYEE"), is made as of the_________ day of ______________, 19__ (such date being sometimes referred to herein as the date of "GRANT"). R E C I T A L S A. The Company has adopted and implemented its 1994 Stock Option Plan (the "PLAN") permitting the grant of stock options to employees and consultants of the Company and its subsidiary corporations (as defined in the Plan), some of which are intended to be non-qualified stock options in that they do not qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "INTERNAL REVENUE CODE"), to purchase shares of the authorized but unissued Common Stock or treasury shares of the Company ("COMMON STOCK"). B. The Board of Directors (or a duly authorized Committee thereof) of the Company (in either case, referred to herein as the "BOARD") has authorized the granting of a non-qualified stock option to the Employee, thereby allowing the Employee to acquire or increase his or her ownership interest in the Company. A G R E E M E N T Employee Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 2 NOW, THEREFORE, in reliance on the foregoing Recitals and in consideration of the mutual covenants hereinafter set forth, the parties hereby agree as follows: 1. GRANT OF STOCK OPTION. The Company hereby grants to the Employee a non-transferable and non-assignable option, to purchase an aggregate of up to ___________ shares of the Company's Common Stock, par value $0.001, at the exercise price of $_________ per share, upon the terms and conditions set forth herein (such purchase right being sometimes referred to herein as "THE OPTION" or "THIS OPTION"). 2. TERM AND TYPE OF OPTION. Unless earlier terminated in accordance with Sections 6 or 7.2 hereof, the Options and all rights of the Employee to purchase Common Stock hereunder shall expire with respect to all of the shares then subject hereto at 5:00 p.m. Pacific time on _______________, 19__. This Option is a non-qualified stock option in that it is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code. Accordingly, the Employee understands that under current law he or she will recognize ordinary income for federal income tax purposes upon exercise of this Option in an amount equal to the excess (if any) of the fair market value of the shares of Common Stock so purchased over the exercise price paid for such shares. 3. EXERCISE SCHEDULE. Subject to the remaining provisions of this Agreement, this Option shall be exercisable as follows: 3.1 FIRST INSTALLMENT. The Employee may not exercise this Option until the first day of the second year after the date of this Agreement (the "COMMENCEMENT DATE"). As of the Commencement Date, the Employee may exercise this Option for up to twenty percent (20%) of the shares covered hereby (rounded up to the nearest whole number of shares). 3.2 SUBSEQUENT INSTALLMENTS. Upon the first day of each _____________, _____________, _____________ and _____________ following the Commencement Date, and continuing thereafter on the first day of each subsequent calendar quarter, the Employee may exercise this Option for up to an additional ____________ percent (____%) of the shares covered hereby (rounded up to the nearest whole Employee Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 3 number of shares), so that this Option shall become fully exercisable as of __________, 19__. In no event shall the Option be exercisable for more shares than the number of shares set forth in Section 1. 3.3 CUMULATIVE NATURE OF EXERCISE SCHEDULE. The exercise dates specified above refer to the earliest dates on which the Option may be exercised with respect to the stated percentages of the Common Stock covered by this Option and the Option may be exercised with respect to all or any part of any such percentage of the total shares at any time on or after such dates (until the expiration date specified in Section 2 above or any earlier termination of this Option pursuant to Section 6 or 7.2 of this Agreement). Except as permitted in Section 6, the Employee must be and remain in the employ of the Company, or of any parent or subsidiary corporation of the Company (as defined in Internal Revenue Code Sections 424(e) and (f)), during the entire period commencing with the date of grant of this Option and ending with each of the periods appearing in the above schedule in order to exercise this Option with respect to the shares applicable to any such period. Any references in this Agreement to the Employee's employment with the Company shall be deemed to also refer to the Employee's employment with any parent or subsidiary of the Company, as applicable. 3.4 OVERRIDING LIMITATION ON TIME FOR EXERCISE. Notwithstanding any other provisions of this Agreement, the Option may not be exercised after the expiration of ten (10) years from the date of grant. 4. RIGHT OF FIRST REFUSAL. The Employee shall not sell, assign, pledge or in any manner transfer any of the shares of the Common Stock purchased hereunder, or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise, except for a transfer which meets the requirements hereinafter set forth. 4.1 NOTICE OF PROPOSED SALE. If the Employee desires to sell or otherwise transfer any of his or her shares of Common Stock, the Employee shall first give written notice thereof to the Company. The notice shall name the proposed transferee and state the number of Employee Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 4 shares to be transferred, the proposed consideration and all other material terms and conditions of the proposed transfer. 4.2 OPTION OF COMPANY TO PURCHASE. For thirty (30) days following receipt of such notice, the Company (and its assignees as provided in Section 4.3 below) shall have the option to elect to purchase all of the shares specified in the notice at the price and upon the terms set forth in such notice; provided that if the terms of payment set forth in the Employee's notice were other than cash against delivery, the Company (and its assignees) shall pay cash for said shares equal to the fair market value thereof as determined in good faith by the Board, except that to the extent such consideration is composed, in whole or in part, of promissory notes, the Company (and its assignees) shall have the option of similarly issuing promissory notes of like form, tenor and effect. (Notwithstanding the foregoing, in the event that the Employee disagrees with the determination of fair market value made by the Board, the Employee shall have the right to have such fair market value determined by arbitration in accordance with the rules of the American Arbitration Association. The arbitration shall be held in San Francisco, California or San Jose, California. The cost of the arbitration shall be borne in equal shares by the Company and the Employee.) In the event the Company (and its assignees) elects to purchase all of such shares, it shall give written notice to the Employee of its election and settlement for such purchase of shares shall be made as provided below in Section 4.4. 4.3 ASSIGNABILITY OF COMPANY'S RIGHTS HEREUNDER. The Company may at any time transfer and assign its rights and delegate its obligations under this Section 4 to any other person, corporation, firm or entity, including its officers, directors or stockholders, with or without consideration. 4.4 CLOSING OF COMPANY PURCHASE. In the event the Company (and its assignees) elects to acquire all of those shares of the Employee as specified in the Employee's notice, the Secretary of the Company shall so notify the Employee within thirty (30) days after receipt of the Employee's notice, and settlement thereof shall be made in cash or as otherwise set forth above within thirty (30) days after the date the Secretary of the Company gives the Employee notice of the Company's election. Employee Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 5 4.5 TRANSFERRED SHARES REMAIN SUBJECT TO RESTRICTIONS. In the event the Company (or its assignees) do not elect to acquire all of the shares specified in the Employee's notice, the Employee may, within the sixty (60) day period following the expiration of the thirty (30) day period for electing to exercise the purchase rights granted to the Company (and its assignees) in Section 4.2, transfer the shares in the manner specified in his or her notice. In that event, the transferee, assignee or other recipient shall, as a condition of the transfer of ownership, receive and hold such shares subject to the provisions of this Section 4 (and also subject to any other applicable provisions hereof) and shall execute such documentation as may be requested by the Company, including, but not limited to, an investment representation letter containing provisions similar to those set forth in the Notice of Exercise and Investment Representation Statement attached as Exhibit A hereto. 4.6 EXCEPTIONS TO FIRST REFUSAL RIGHTS. Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the provisions of this Section 4 (provided that the transferee shall first agree in writing, satisfactory to the Company, to be bound by the terms and provisions of Sections 4, 5, 10 and 12-19 hereof). 4.6.1 TRANSFER TO FAMILY MEMBER. The Employee's transfer of any or all shares held subject to this Agreement (either during the Employee's lifetime or on death by will or intestacy) to such Employee's immediate family or to any custodian or trustee for the account of the Employee or his or her immediate family. "Immediate family" as used herein shall mean spouse, lineal descendants, father, mother, or brother or sister of the Employee. 4.6.2 AS SECURITY FOR CERTAIN LOANS. The Employee's bona fide pledge or mortgage of any shares with a commercial lending institution. 4.7 WAIVERS BY THE COMPANY. The provisions of this Section 4 may be waived by the Company with respect to any transfer proposed by the Employee only by duly authorized action of its Board. 4.8 UNAUTHORIZED TRANSFERS VOID. Any sale or transfer, or purported sale or transfer, of the Common Stock subject to this Employee Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 6 Agreement shall be null and void unless the terms, conditions and provisions of this Section 4 are strictly complied with. 4.9 TERMINATION OF FIRST REFUSAL RIGHT. The foregoing right of first refusal shall terminate upon the earlier of: 4.9.1 PUBLIC OFFERING. The date securities of the Company are first offered and sold to the public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "SECURITIES ACT"); or 4.9.2 ACQUISITION OF THE COMPANY. Immediately prior to the acquisition of substantially all of the business and assets of the Company by an unaffiliated third party (as determined by the Board), whether by merger, sale of outstanding stock or of the Company's assets, or otherwise, where no express provision is made for the assignment and continuation of the Company's rights hereunder by a new or successor corporation. 5. AGREEMENT TO LOCK-UP IN THE EVENT OF PUBLIC OFFERING. In the event of a public offering of the Company's Common Stock pursuant to a registration statement declared effective with the SEC, if requested by the Company or by its underwriters, the Employee agrees not to sell, sell short, grant any option to buy or otherwise dispose of the shares of Common Stock purchased pursuant to this Agreement (except for any such shares which may be included in the registration) for a period of up to two hundred seventy (270) days following the effective date of such registration statement. The Company may impose stop-transfer instructions with respect to the shares of the Common Stock subject to the foregoing restriction until the end of said period. The Employee shall be subject to this Section 5 provided and only if the officers and directors of the Company are also subject to similar arrangements. 6. RIGHTS ON TERMINATION OF EMPLOYMENT. Upon the termination of the Employee's employment with the Company (and with any parent or subsidiary corporation of the Company), the Employee's right to exercise this Option shall be limited in the manner set forth in this Section 6 (and this Option shall terminate in the event not so exercised), and subject to the limitation provided in Section 3.4. Employee Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 7 6.1 DEATH. If the Employee's employment is terminated by death, the Employee's estate may, for a period of twelve (12) months following the date of the Employee's death, exercise the Option to the extent it was exercisable by the Employee on the date of death in accordance with Section 7.2. The Employee's estate shall mean the Employee's legal representative upon death or any person who acquires the right to exercise the Option by reason of such death in accordance with Section 8.2. 6.2 RETIREMENT. If the Employee's employment is terminated by voluntary retirement at or after reaching sixty-five (65) years of age, the Employee may, for a period of twelve (12) months following such termination, exercise the Option to the extent it was exercisable by the Employee on the date of such termination unless the Employee dies prior thereto, in which event the Employee shall be treated as though the Employee had died on the date of retirement and the provisions of Section 6.1 above shall apply. 6.3 DISABILITY. If the Employee's employment is terminated because of a disability, the Employee may, within twelve (12) months following such termination, exercise the Option to the extent it was exercisable by the Employee on the date of such termination unless the Employee dies prior to the expiration of such period, in which event the Employee shall be treated as though his or her death occurred on the date of termination due to such disability and the provisions of Section 6.1 shall apply. 6.4 OTHER TERMINATION. If the Employee's employment is terminated for any reason other than provided in Sections 6.1, 6.2 and 6.3 above, the Employee or the Employee's estate may, within three (3) months after the date of Employee's termination exercise the Option to the extent it was exercisable by the Employee on the date of such termination. 6.5 TRANSFER OF EMPLOYMENT TO RELATED CORPORATION. In the event the Employee leaves the employ of the Company to become an employee of any parent or subsidiary corporation of the Company or if the Employee leaves the employ of any such parent or subsidiary corporation to become an employee of the Company or of another parent or subsidiary corporation, the Employee shall be deemed to continue as an employee of the Company for all purposes of this Agreement. Employee Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 8 6.6 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of an Option within the applicable time periods set forth above is prevented because the issuance of shares upon such exercise would constitute a violation of any applicable federal, state or foreign securities law or other law or regulation, the Option shall remain exercisable until three (3) months after the date the Employee is notified by the Company that the Option is exercisable, but in any event no later than the expiration of ten (10) years from the date of grant. 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. 7.1 STOCK SPLITS AND SIMILAR EVENTS. Subject to any required action by the Company's Board and stockholders, the number of shares of Common Stock covered by the Option and the exercise price thereof shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of Common Stock resulting from a subdivision or combination of such shares or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of such outstanding shares of Common Stock effected without the receipt of consideration by the Company; provided, however, that the conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." 7.2 MERGERS AND ACQUISITIONS. Subject to any required action by the Company's Board and stockholders, if the Company shall be the surviving corporation in any merger or consolidation which results in the holders of the outstanding voting securities of the Company (determined immediately prior to such merger or consolidation) owning, directly or indirectly, at least a majority of the beneficial interest in the outstanding voting securities of the surviving corporation or its parent corporation (determined immediately after such merger or consolidation), the options granted under this Plan shall pertain and apply to the securities or other property to which a holder of the number of shares subject to the unexercised portion of such options would have been entitled. A dissolution or liquidation of the Company or a sale of all or substantially all its business and assets or a merger or consolidation in which the Company is not the surviving corporation or which results in the holders of the Employee Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 9 outstanding voting securities of the Company (determined immediately prior to such merger or consolidation) owning, directly or indirectly, less than a majority of the beneficial interest in the outstanding voting securities of the surviving corporation or its parent corporation (determined immediately after such merger or consolidation) will cause the options granted hereunder to terminate, unless the agreement of such sale, merger, consolidation or other acquisition otherwise provides. 7.3 BOARD'S DETERMINATION FINAL AND BINDING UPON THE EMPLOYEE. To the extent that the foregoing adjustments in this Section 7 relate to stock or securities of the Company, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. The Company agrees to give notice of any such adjustment to the Employee; provided, however, that any such adjustment shall be effective and binding for all purposes hereof whether or not such notice is given or received. 7.4 NO RIGHTS EXCEPT AS EXPRESSLY STATED. Except as hereinabove expressly provided in this Section 7, no additional rights shall accrue to the Employee by reason of any subdivision or combination of shares of the capital stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of any class or by reason of any dissolution, liquidation, merger or consolidation or spin-off of assets or of stock of another corporation, and any issue by the Company of shares of stock of any class or of securities convertible into shares of stock of any class shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or exercise price of shares subject to the Option. Neither the Employee nor any person claiming under or through the Employee shall be, or have any of the rights or privileges of, a stockholder of the Company in respect of any of the shares issuable upon the exercise of this Option, unless and until this Option is properly and lawfully exercised and a certificate representing the shares so purchased is duly issued and delivered to the Employee or to his or her estate. 7.5 NO LIMITATIONS ON COMPANY'S DISCRETION. The grant of the Option hereby shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or Employee Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 10 consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. 8. MANNER OF EXERCISE. 8.1 GENERAL INSTRUCTIONS FOR EXERCISE. The Option shall be exercised by the Employee by completing, executing and delivering to the Company the Notice of Exercise and Investment Representation Statement ("NOTICE OF EXERCISE"), in substantially the form attached hereto as Exhibit A, which Notice of Exercise shall specify the number of shares of Common Stock which the Employee elects to purchase. The Company's obligation to deliver shares upon the exercise of this Option shall be subject to the Employee's satisfaction of the minimum withholding amounts of all federal, state and local taxes of any kind required by law to be withheld with respect to shares of Common Stock to be issued upon the exercise of such Option. Upon receipt of such Notice of Exercise and of payment of the purchase price (and payment of minimum withholding amounts as provided above), the Company shall, as soon as reasonably possible and subject to all other provisions hereof, deliver certificates for the shares of Common Stock so purchased, registered in the Employee's name or in the name of his or her legal representative (if applicable). Payment of the purchase price upon any exercise of the Option shall be made by check acceptable to the Company or in cash; provided, however, that the Board may, in its sole and absolute discretion, accept any other legal consideration to the extent permitted under applicable laws and the Plan. 8.2 EXERCISE PROCEDURE AFTER DEATH. To the extent exercisable after the Employee's death, this Option shall be exercised only by the Employee's executor(s) or administrator(s) or the person or persons to whom this Option is transferred under the Employee's will or, if the Employee shall fail to make testamentary disposition of this Option, under the applicable laws of descent and distribution. Any such transferee exercising this Option must furnish the Company with (1) written Notice of Exercise and relevant information as to his or her status, (2) evidence satisfactory to the Company to establish the validity of the transfer of this Option and compliance with any laws or regulations pertaining to said transfer, and (3) written acceptance of the terms and conditions of this Option as contained in this Agreement. Employee Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 11 9. NON-TRANSFERABLE. The Option shall, during the lifetime of the Employee, be exercisable only by the Employee and shall not be transferable or assignable by the Employee in whole or in part other than by will or the laws of descent and distribution. If the Employee shall make any such purported transfer or assignment of the Option, such assignment shall be null and void and of no force or effect whatsoever. 10. COMPLIANCE WITH SECURITIES AND OTHER LAWS. The Option may not be exercised and the Company shall not be obligated to deliver any certificates evidencing shares of Common Stock hereunder if the issuance of shares upon such exercise would constitute a violation of any applicable requirements of: (i) the Securities Act, (ii) the Securities Exchange Act of 1934, as amended (iii) applicable state securities laws, (iv) any applicable listing requirement of any stock exchange on which the Company's Common Stock is then listed, and (v) any other law or regulation applicable to the issuance of such shares. Nothing herein shall be construed to require the Company to register or qualify any securities under applicable federal and state securities laws, or take any action to secure an exemption from such registration and qualification for the issuance of any securities upon the exercise of this Option. Shares of Common Stock issued upon exercise of this Option shall include the following legends and such other legends as in the opinion of the Company's counsel may be required by the securities laws of any state in which the Employee resides: IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. A copy of Section 260.141.11 of the Rules of the Commissioner of Corporations of the State of California is set forth in Exhibit C attached hereto. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER AGREEMENTS CONTAINED IN A STOCK OPTION AGREEMENT, DATED ____________________, A COPY OF WHICH IS ON FILE WITH THE COMPANY. Employee Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 12 THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. 11. NO RIGHT TO CONTINUED EMPLOYMENT. Nothing contained in this Agreement shall: (i) confer upon the Employee any right with respect to the continuance of employment by the Company, or by any parent or subsidiary corporation of the Company, or (ii) limit in any way the right of the Company, or of any parent or subsidiary corporation, to terminate the Employee's employment at any time. Except to the extent the Company and the Employee shall have otherwise agreed in writing, the Employee's employment shall be terminable by the Company (or by a parent or subsidiary, if applicable) at will. The Board in its sole discretion shall determine whether any leave of absence or interruption in service (including an interruption during military service) shall be deemed a termination of employment for the purposes of this Agreement. 12. COMMITTEE OF THE BOARD. In the event that the Plan is administered by a committee of the Board (the "Committee"), all references herein to the Board shall be construed to mean the Committee for the period(s) during which the Committee administers the Plan. 13. OPTION SUBJECT TO TERMS OF PLAN. In addition to the provisions hereof, this Agreement and the Option are governed by, and subject to the terms and conditions of, the Plan. The Employee acknowledges receipt of a copy of the Plan (a copy of which is attached hereto as Exhibit B) and Section 260.141.11 of the Rules of the Commissioner of Corporations of the State of California regarding restrictions on transfer (a copy of which is attached hereto as Exhibit C). The Employee represents that he or she is familiar with Employee Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 13 the terms and conditions of the Plan, and hereby accepts the Option subject to all of the terms and conditions thereof, which terms and conditions shall control to the extent inconsistent in any respect with the provisions of this Agreement. The Employee hereby agrees to accept as binding, conclusive and final all decisions and interpretations of the Board as to any questions arising under the Plan or under this Agreement. 14. NOTICES. All notices and other communications of any kind which either party to this Agreement may be required or may desire to serve on the other party hereto in connection with this Agreement shall be in writing and may be delivered by personal service or by registered or certified mail, return receipt requested, deposited in the United States mail with postage thereon fully prepaid, addressed to the other party at the addresses indicated on the signature page hereof or as otherwise provided below. Service of any such notice or other communication so made by mail shall be deemed complete on the date of actual delivery as shown by the addressee's registry or certification receipt or at the expiration of the third (3rd) business day after the date of mailing, whichever is earlier in time. Either party may from time to time, by notice in writing served upon the other as aforesaid, designate a different mailing address or a different person to which such notices or other communications are thereafter to be addressed or delivered. 15. FURTHER ASSURANCES. The Employee shall, upon request of the Company, take all actions and execute all documents requested by the Company which the Company deems to be reasonably necessary to effectuate the terms and intent of this Agreement and, when required by any provision of this Agreement to transfer all or any portion of the Common Stock purchased hereunder to the Company (and/or its assignees), the Employee shall deliver such Common Stock endorsed in blank or accompanied by Stock Assignments Separate from Certificate endorsed in blank, so that title thereto will pass by delivery alone. Any sale or transfer by the Employee of the Common Stock to the Company (and/or its assignees) shall be made free of any and all claims, encumbrances, liens and restrictions of every kind, other than those imposed by this Agreement. 16. SUCCESSORS. Except to the extent the same is specifically limited by the terms and provisions of this Agreement, this Agreement Employee Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 14 is binding upon the Employee and the Employee's successors, heirs and personal representatives, and upon the Company, its successors and assigns. 17. TERMINATION OR AMENDMENT. Subject to the terms and conditions of the Plan, the Board may terminate or amend the Plan and/or the Option at any time; provided, however, that no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Employee. 18. INTEGRATED AGREEMENT. This Agreement and the Plan constitute the entire understanding and agreement of the Employee and the Company with respect to the subject matter contained herein, and there are no agreements, understandings, restrictions, representations, or warranties between the Employee and the Company other than those set forth or provided for herein. To the extent contemplated herein, the provisions of this Agreement shall survive any exercise of the Option and shall remain in full force and effect. 19. OTHER MISCELLANEOUS TERMS. Titles and captions contained in this Agreement are inserted only as a matter of convenience and for reference, and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision hereof. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 20. INDEPENDENT TAX ADVICE. The Employee agrees that he or she has obtained or will obtain the advice of independent tax counsel (or has determined not to obtain such advice, having had adequate opportunity to do so) regarding the federal and state income tax consequences of the receipt and exercise of the Option and of the disposition of Common Stock acquired upon exercise hereof. The Employee acknowledges that he or she has not relied and will not rely upon any advice or representation by the Company or by its employees or representatives with respect to the tax treatment of the Option. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first hereinabove written. COMPANY: PORTOLA PACKAGING, INC. a Delaware Corporation By: -------------------------------- Its: ------------------------------- Address: 890 Faulstich Court San Jose, California 95112 EMPLOYEE: ----------------------------------- (Signature) Name Printed: ---------------------- Address: --------------------------- ----------------------------------- SCHEDULE OF EXHIBITS EXHIBIT A: Form of Notice of Exercise and Investment Representation Statement for Portola Packaging, Inc. Employee Non-Qualified Stock Option Agreement EXHIBIT B: 1994 Stock Option Plan EXHIBIT C: Section 260.141.11 of the Rules of the Commissioner of Corporations of the State of California. IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. THE SECURITY REPRESENTED BY THIS AGREEMENT HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. PORTOLA PACKAGING, INC. EMPLOYEE INCENTIVE STOCK OPTION AGREEMENT THIS EMPLOYEE INCENTIVE STOCK OPTION AGREEMENT ("AGREEMENT") by and between Portola Packaging, Inc., a Delaware corporation (the "COMPANY"), and ______________________________ (the "EMPLOYEE"), is made as of the ______ day of ____________________, 19_____ (such date being sometimes referred to herein as the date of "grant"). R E C I T A L S A. The Company has adopted and implemented its 1994 Stock Option Plan (the "PLAN") permitting the grant of stock options to employees and consultants of the Company and its subsidiary corporations (as defined in the Plan), some of which are intended to be incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "INTERNAL REVENUE CODE"), to purchase shares of the authorized but unissued Common Stock or treasury shares of the Company ("COMMON STOCK"). B. The Board of Directors (or a duly authorized Committee thereof) of the Company (in either case, referred to herein as the "BOARD") has authorized the granting of a stock option to the Employee, thereby allowing the Employee to acquire or increase his or her ownership interest in the Company. Employee Incentive Stock Option Agreement Portola Packaging, Inc. Page 2 A G R E E M E N T NOW, THEREFORE, in reliance on the foregoing Recitals and in consideration of the mutual covenants hereinafter set forth, the parties hereby agree as follows: 1. GRANT OF STOCK OPTION. The Company hereby grants to the Employee a non-transferable and non-assignable option to purchase an aggregate of up to _______________ shares of the Company's Common Stock, par value $0.001, at the exercise price of $__________ per share, upon the terms and conditions set forth herein (such purchase right being sometimes referred to herein as "THE OPTION" or "THIS OPTION"). 2. TERM AND TYPE OF OPTION. Unless earlier terminated in accordance with Sections 6 or 7.2 hereof, this Option and all rights of the Employee to purchase Common Stock hereunder shall expire with respect to all of the shares then subject hereto at 5:00 p.m. Pacific time on ______________, 19_____ This Option is intended to qualify as an incentive stock Option within the meaning of Section 422 of the Internal Revenue Code but the Company does not represent or warrant that this Option qualifies as such. Accordingly, the Employee understands that in order to obtain the benefits of incentive stock option treatment under Section 421 of the Internal Revenue Code, no sale or other disposition may be made of any shares acquired upon exercise of this Option for at least one (1) year after the date of the issuance of such shares upon exercise hereunder AND for at least two (2) years after the date of grant of this Option. The Employee shall promptly notify the Company in writing in the event that the Employee sells or otherwise disposes of any shares acquired upon exercise of this Option before the expiration of such periods. (NOTE: If the aggregate exercise price of the Option (that is, the exercise price set forth in Section 1 multiplied by the number of shares subject to the Option set forth in Section 1) plus the aggregate exercise price of any other incentive stock options held by the Employee (whether granted pursuant to the Plan or any other stock option plan of the Company) is greater than One Hundred Thousand Dollars ($100,000), the Employee should contact the Chief Financial Officer of the Company to ascertain whether the entire Option qualifies as an incentive stock option). 3. EXERCISE SCHEDULE. Subject to the remaining provisions of this Agreement, this Option shall be exercisable as follows: Employee Incentive Stock Option Agreement Portola Packaging, Inc. Page 3 3.1 FIRST INSTALLMENT. The Employee may not exercise this Option until the first day of the second year after the date of this Agreement (the "COMMENCEMENT DATE"). As of the Commencement Date, the Employee may exercise this Option for up to twenty percent (20%) of the shares covered hereby (rounded up to the nearest whole number of shares). 3.2 SUBSEQUENT INSTALLMENTS. Upon the first day of each _____________, _____________, _____________ and _____________ following the Commencement Date, and continuing thereafter on the first day of each subsequent calendar quarter, the Employee may exercise this Option for up to an additional percent ( %) of the shares covered hereby (rounded up to the nearest whole number of shares), so that this Option shall become fully exercisable as of , 19 . In no event shall the Option be exercisable for more shares than the number of shares set forth in Section 1. 3.3 CUMULATIVE NATURE OF EXERCISE SCHEDULE. The exercise dates specified above refer to the earliest dates on which this Option may be exercised with respect to the stated percentages of the Common Stock covered by this Option and the Option may be exercised with respect to all or any part of any such percentage of the total shares at any time on or after such dates (until the expiration date specified in Section 2 above or any earlier termination of this Option pursuant to Section 6 or 7.2 of this Agreement). Except as permitted in Section 6, the Employee must be and remain in the employ of the Company, or of any parent or subsidiary corporation of the Company (as defined in Internal Revenue Code Sections 424(e) and (f)), during the entire period commencing with the date of grant of this Option and ending with each of the periods appearing in the above schedule in order to exercise this Option with respect to the shares applicable to any such period. Any references in this Agreement to the Employee's employment with the Company shall be deemed to also refer to the Employee's employment with any parent or subsidiary of the Company, as applicable. 3.4 OVERRIDING LIMITATION ON TIME FOR EXERCISE. Notwithstanding any other provisions of this Agreement, the Option may not be exercised after the expiration of ten (10) years from the date of grant. Employee Incentive Stock Option Agreement Portola Packaging, Inc. Page 4 4. RIGHT OF FIRST REFUSAL. The Employee shall not sell, assign, pledge or in any manner transfer any of the shares of the Common Stock purchased hereunder, or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise, except for a transfer which meets the requirements hereinafter set forth. 4.1 NOTICE OF PROPOSED SALE. If the Employee desires to sell or otherwise transfer any of his or her shares of Common Stock, the Employee shall first give written notice thereof to the Company. The notice shall name the proposed transferee and state the number of shares to be transferred, the proposed consideration and all other material terms and conditions of the proposed transfer. 4.2 OPTION OF COMPANY TO PURCHASE. For thirty (30) days following receipt of such notice, the Company (and its assignees as provided in Section 4.3 below) shall have the Option to elect to purchase all of the shares specified in the notice at the price and upon the terms set forth in such notice; provided that if the terms of payment set forth in the Employee's notice were other than cash against delivery, the Company (and its assignees) shall pay cash for said shares equal to the fair market value thereof as determined in good faith by the Board, except that to the extent such consideration is composed, in whole or in part, of promissory notes, the Company (and its assignees) shall have the Option of similarly issuing promissory notes of like form, tenor and effect. (Notwithstanding the foregoing, in the event that the Employee disagrees with the determination of fair market value made by the Board, the Employee shall have the right to have such fair market value determined by arbitration in accordance with the rules of the American Arbitration Association. The arbitration shall be held in San Francisco, California or San Jose, California. The cost of the arbitration shall be borne in equal shares by the Company and the Employee.) In the event the Company (and its assignees) elects to purchase all of such shares, it shall give written notice to the Employee of its election and settlement for such purchase of shares shall be made as provided below in Section 4.4. 4.3 ASSIGNABILITY OF COMPANY'S RIGHTS HEREUNDER. The Company may at any time transfer and assign its rights and delegate its obligations under this Section 4 to any other person, corporation, Employee Incentive Stock Option Agreement Portola Packaging, Inc. Page 5 firm or entity, including its officers, directors or stockholders, with or without consideration. 4.4 CLOSING OF COMPANY PURCHASE. In the event the Company (and its assignees) elects to acquire all of those shares of the Employee as specified in the Employee's notice, the Secretary of the Company shall so notify the Employee within thirty (30) days after receipt of the Employee's notice, and settlement thereof shall be made in cash or as otherwise set forth above within thirty (30) days after the date the Secretary of the Company gives the Employee notice of the Company's election. 4.5 TRANSFERRED SHARES REMAIN SUBJECT TO RESTRICTIONS. In the event the Company (and its assignees) do not elect to acquire all of the shares specified in the Employee's notice, the Employee may, within the sixty (60) day period following the expiration of the thirty (30) day period for electing to exercise the purchase rights granted to the Company (and its assignees) in Section 4.2, transfer the shares in the manner specified in his or her notice. In that event, the transferee, assignee or other recipient shall, as a condition of the transfer of ownership, receive and hold such shares subject to the provisions of this Section 4 (and also subject to any other applicable provisions hereof) and shall execute such documentation as may be requested by the Company, including, but not limited to, an investment representation letter containing provisions similar to those set forth in the Notice of Exercise and Investment Representation Statement attached as Exhibit A hereto. 4.6 EXCEPTIONS TO FIRST REFUSAL RIGHTS. Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the provisions of this Section 4 (provided that the transferee shall first agree in writing, satisfactory to the Company, to be bound by the terms and provisions of Sections 4, 5, 10 and 12-20 hereof). 4.6.1 TRANSFER TO FAMILY MEMBER. The Employee's transfer of any or all shares held subject to this Agreement (either during the Employee's lifetime or on death by will or intestacy) to such Employee's immediate family or to any custodian or trustee for the account of the Employee or his or her immediate family. Employee Incentive Stock Option Agreement Portola Packaging, Inc. Page 6 "Immediate family" as used herein shall mean spouse, lineal descendants, father, mother, or brother or sister of the Employee. 4.6.2 AS SECURITY FOR CERTAIN LOANS. The Employee's bona fide pledge or mortgage of any shares with a commercial lending institution. 4.7 WAIVERS BY THE COMPANY. The provisions of this Section 4 may be waived by the Company with respect to any transfer proposed by the Employee only by duly authorized action of its Board. 4.8 UNAUTHORIZED TRANSFERS VOID. Any sale or transfer, or purported sale or transfer, of the Common Stock subject to this Agreement shall be null and void unless the terms, conditions and provisions of this Section 4 are strictly complied with. 4.9 TERMINATION OF FIRST REFUSAL RIGHT. The foregoing right of first refusal shall terminate upon the earlier of: 4.9.1 PUBLIC OFFERING. The date securities of the Company are first offered and sold to the public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "SECURITIES ACT"); or 4.9.2 ACQUISITION OF THE COMPANY. Immediately prior to the acquisition of substantially all of the business and assets of the Company by an unaffiliated third party (as determined by the Board), whether by merger, sale of outstanding stock or of the Company's assets, or otherwise, where no express provision is made for the assignment and continuation of the Company's rights hereunder by a new or successor corporation. 5. AGREEMENT TO LOCK-UP IN THE EVENT OF PUBLIC OFFERING. In the event of a public offering of the Company's Common Stock pursuant to a registration statement declared effective with the SEC, if requested by the Company or by its underwriters, the Employee agrees not to sell, sell short, grant any option to buy or otherwise dispose of the shares of Common Stock purchased pursuant to this Agreement (except for any such shares which may be included in the registration) for a period of up to two hundred seventy (270) days following the Employee Incentive Stock Option Agreement Portola Packaging, Inc. Page 7 effective date of such registration statement. The Company may impose stop-transfer instructions with respect to the shares of the Common Stock subject to the foregoing restriction until the end of said period. The Employee shall be subject to this Section 5 provided and only if the officers and directors of the Company are also subject to similar arrangements. 6. RIGHTS ON TERMINATION OF EMPLOYMENT. Upon the termination of the Employee's employment with the Company (and with any parent or subsidiary corporation of the Company), the Employee's right to exercise this Option shall be limited in the manner set forth in this Section 6 (and this Option shall terminate in the event not so exercised), and subject to the limitation provided in Section 3.4. 6.1 DEATH. If the Employee's employment is terminated by death, the Employee's estate may, for a period of twelve (12) months following the date of the Employee's death, exercise the Option to the extent it was exercisable by the Employee on the date of death in accordance with Section 8.2. The Employee's estate shall mean the Employee's legal representative upon death or any person who acquires the right to exercise the Option by reason of such death under the Employee's will or the laws of intestate succession. 6.2 RETIREMENT. If the Employee's employment is terminated by voluntary retirement at or after reaching sixty-five (65) years of age, the Employee may, within the twelve (12) month period following such termination and subject to the proviso set forth below in this Section 6.2, exercise the Option to the extent it was exercisable by the Employee on the date of such termination unless the Employee dies prior thereto, in which event the Employee shall be treated as though the Employee had died on the date of retirement and the provisions of Section 6.1 above shall apply. The Employee hereby acknowledges that the favorable tax treatment provided under Section 422 of the Internal Revenue Code may be inapplicable in the event the Option is not exercised within three (3) months after the date the Employee's employment is terminated by voluntary retirement. 6.3 DISABILITY. If the Employee's employment is terminated because of a permanent and total disability, the Employee may, within twelve (12) months following such termination, exercise the Option to the extent it was exercisable by the Employee on the Employee Incentive Stock Option Agreement Portola Packaging, Inc. Page 8 date of such termination unless the Employee dies prior to the expiration of such period, in which event the Employee shall be treated as though his or her death occurred on the date of termination due to such disability and the provisions of Section 6.1 shall apply. The Employee hereby acknowledges that the favorable tax treatment provided under Section 422 of the Internal Revenue Code may be inapplicable in the event the Option is not exercised within three (3) months after the date of the Employee's termination due to a partial, temporary or other disability not meeting the requirements of Internal Revenue Code Section 22(e)(3). 6.4 OTHER TERMINATION. If the Employee's employment is terminated for any reason other than provided in Sections 6.1, 6.2 and 6.3 above, the Employee or the Employee's estate may, within three (3) months after the date of the Employee's termination exercise the Option to the extent it was exercisable by the Employee on the date of such termination. 6.5 TRANSFER OF EMPLOYMENT TO RELATED CORPORATION. In the event the Employee leaves the employ of the Company to become an employee of any parent or subsidiary corporation of the Company or if the Employee leaves the employ of any such parent or subsidiary corporation to become an employee of the Company or of another parent or subsidiary corporation, the Employee shall be deemed to continue as an employee of the Company for all purposes of this Agreement. 6.6 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of an Option within the applicable time periods set forth above is prevented because the issuance of shares upon such exercise would constitute a violation of any applicable federal, state or foreign securities law or other law or regulation, the Option shall remain exercisable until three (3) months after the date the Employee is notified by the Company that the Option is exercisable, but in any event no later than the expiration of ten (10) years from the date of grant. The Company makes no representation as to the tax consequences of any such delayed exercise. The Employee should consult with the Employee's own tax advisor as to the tax consequences to the Employee of any such delayed exercise. 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Employee Incentive Stock Option Agreement Portola Packaging, Inc. Page 9 7.1 STOCK SPLITS AND SIMILAR EVENTS. Subject to any required action by the Company's Board and stockholders, the number of shares of Common Stock covered by the Option and the exercise price thereof shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of Common Stock resulting from a subdivision or combination of such shares or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of such outstanding shares of Common Stock effected without the receipt of consideration by the Company; provided, however, that the conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." 7.2 MERGERS AND ACQUISITIONS. Subject to any required action by the Company's Board and stockholders, if the Company shall be the surviving corporation in any merger or consolidation which results in the holders of the outstanding voting securities of the Company (determined immediately prior to such merger or consolidation) owning, directly or indirectly, at least a majority of the beneficial interest in the outstanding voting securities of the surviving corporation or its parent corporation (determined immediately after such merger or consolidation), the options granted under this Plan shall pertain and apply to the securities or other property to which a holder of the number of shares subject to the unexercised portion of such options would have been entitled. A dissolution or liquidation of the Company or a sale of all or substantially all its business and assets or a merger or consolidation in which the Company is not the surviving corporation or which results in the holders of the outstanding voting securities of the Company (determined immediately prior to such merger or consolidation) owning, directly or indirectly, less than a majority of the beneficial interest in the outstanding voting securities of the surviving corporation or its parent corporation (determined immediately after such merger or consolidation) will cause the options granted hereunder to terminate, unless the agreement of such sale, merger, consolidation or other acquisition otherwise provides. 7.3 BOARD'S DETERMINATION FINAL AND BINDING UPON THE EMPLOYEE. To the extent that the foregoing adjustments in this Section 7 relate to stock or securities of the Company, such adjustments shall be made by the Board, whose determination in that Employee Incentive Stock Option Agreement Portola Packaging, Inc. Page 10 respect shall be final, binding and conclusive. The Company agrees to give notice of any such adjustment to the Employee; provided, however, that any such adjustment shall be effective and binding for all purposes hereof whether or not such notice is given or received. 7.4 NO RIGHTS EXCEPT AS EXPRESSLY STATED. Except as hereinabove expressly provided in this Section 7, no additional rights shall accrue to the Employee by reason of any subdivision or combination of shares of the capital stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of any class or by reason of any dissolution, liquidation, merger or consolidation or spin-off of assets or of stock of another corporation, and any issue by the Company of shares of stock of any class or of securities convertible into shares of stock of any class shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or exercise price of shares subject to the Option. Neither the Employee nor any person claiming under or through the Employee shall be, or have any of the rights or privileges of, a stockholder of the Company in respect of any of the shares issuable upon the exercise of this Option, unless and until this Option is properly and lawfully exercised and a certificate representing the shares so purchased is duly issued and delivered to the Employee or to his or her estate. 7.5 NO LIMITATIONS ON COMPANY'S DISCRETION. The grant of the Option hereby shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. 8. MANNER OF EXERCISE. 8.1 GENERAL INSTRUCTIONS FOR EXERCISE. The Option shall be exercised by the Employee by completing, executing and delivering to the Company the Notice of Exercise and Investment Representation Statement ("NOTICE OF EXERCISE"), in substantially the form attached hereto as Exhibit A, which Notice of Exercise shall specify the number of shares of Common Stock which the Employee elects to purchase. Upon receipt of such Notice of Exercise and of payment of the purchase price, the Company shall, as soon as reasonably Employee Incentive Stock Option Agreement Portola Packaging, Inc. Page 11 possible and subject to all other provisions hereof, deliver certificates for the shares of Common Stock so purchased, registered in the Employee's name or in the name of his or her legal representative (if applicable). Payment of the purchase price upon any exercise of the Option shall be made by check acceptable to the Company or in cash; provided, however, that the Board may, in its sole and absolute discretion, accept any other legal consideration to the extent permitted under applicable laws and the Plan. 8.2 EXERCISE PROCEDURE AFTER DEATH. To the extent exercisable after the Employee's death, this Option shall be exercised only by the Employee's executor(s) or administrator(s) or the person or persons to whom this Option is transferred under the Employee's will or, if the Employee shall fail to make testamentary disposition of this Option, under the applicable laws of descent and distribution. Any such transferee exercising this Option must furnish the Company with (1) written Notice of Exercise and relevant information as to his or her status, (2) evidence satisfactory to the Company to establish the validity of the transfer of this Option and compliance with any laws or regulations pertaining to said transfer, and (3) written acceptance of the terms and conditions of this Option as contained in this Agreement. 9. NON-TRANSFERABLE. The Option shall, during the lifetime of the Employee, be exercisable only by the Employee and shall not be transferable or assignable by the Employee in whole or in part other than by will or the laws of descent and distribution. If the Employee shall make any such purported transfer or assignment of the Option, such assignment shall be null and void and of no force or effect whatsoever. 10. COMPLIANCE WITH SECURITIES AND OTHER LAWS. The Option may not be exercised and the Company shall not be obligated to deliver any certificates evidencing shares of Common Stock hereunder if the issuance of shares upon such exercise would constitute a violation of any applicable requirements of: (i) the Securities Act, (ii) the Securities Exchange Act of 1934, as amended, (iii) applicable state securities laws, (iv) any applicable listing requirement of any stock exchange on which the Company's Common Stock is then listed, and (v) any other law or regulation applicable to the issuance of such shares. Nothing herein shall be construed to require the Company to Employee Incentive Stock Option Agreement Portola Packaging, Inc. Page 12 register or qualify any securities under applicable federal or state securities laws, or take any action to secure an exemption from such registration and qualification for the issuance of any securities upon the exercise of the Option. Shares of Common Stock issued upon exercise of this Option shall include the following legends and such other legends as in the opinion of the Company's counsel may be required by the securities laws of any state in which the Employee resides: IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. A copy of Section 260.141.11 of the Rules of the Commissioner of Corporations of the State of California is set forth in EXHIBIT C attached hereto. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER AGREEMENTS CONTAINED IN A STOCK OPTION AGREEMENT, DATED _____________________, A COPY OF WHICH IS ON FILE WITH THE COMPANY. THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. 11. NO RIGHT TO CONTINUED EMPLOYMENT. Nothing contained in this Agreement shall: (i) confer upon the Employee any right with respect to the continuance of employment by the Company, or by any parent or subsidiary corporation of the Company, or (ii) limit in any Employee Incentive Stock Option Agreement Portola Packaging, Inc. Page 13 way the right of the Company, or of any parent or subsidiary corporation, to terminate the Employee's employment at any time. Except to the extent the Company and the Employee shall have otherwise agreed in writing, the Employee's employment shall be terminable by the Company (or by a parent or subsidiary, if applicable) at will. Subject to Section 12, the Board in its sole discretion shall determine whether any leave of absence or interruption in service (including an interruption during military service) shall be deemed a termination of employment for the purposes of this Agreement. 12. LEAVE OF ABSENCE. For purposes hereof, the Employee's employment shall not be deemed to terminate if the Employee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company of ninety (90) days or less. In the event of a leave in excess of ninety (90) days, the Employee's employment shall be deemed to terminate on the ninety-first (9lst) day of the leave unless the Employee's right to reemployment remains guaranteed by statute or contract. Notwithstanding the foregoing, however, a leave of absence shall be treated as employment for purposes of Section 3 if and only if the leave of absence is designated by the Company as (or required by law to be) a leave for which vesting credit is given. 13. OPTION SUBJECT TO TERMS OF PLAN. In addition to the provisions hereof, this Agreement and the Option are governed by, and subject to the terms and conditions of, the Plan. The Employee acknowledges receipt of a copy of the Plan (a copy of which is attached hereto as Exhibit B) and Section 260.141.11 of the Rules of the Commissioner of Corporations of the State of California regarding restrictions on transfer (a copy of which is attached hereto as Exhibit C). The Employee represents that he or she is familiar with the terms and conditions of the Plan, and hereby accepts the Option subject to all of the terms and conditions thereof, which terms and conditions shall control to the extent inconsistent in any respect with the provisions of this Agreement. The Employee hereby agrees to accept as binding, conclusive and final all decisions and interpretations of the Board as to any questions arising under the Plan or under this Agreement. 14. NOTICES. All notices and other communications of any kind which either party to this Agreement may be required or may desire to serve on the other party hereto in connection with this Agreement Employee Incentive Stock Option Agreement Portola Packaging, Inc. Page 14 shall be in writing and may be delivered by personal service or by registered or certified mail, return receipt requested, deposited in the United States mail with postage thereon fully prepaid, addressed to the other party at the addresses indicated on the signature page hereof or as otherwise provided below. Service of any such notice or other communication so made by mail shall be deemed complete on the date of actual delivery as shown by the addressee's registry or certification receipt or at the expiration of the third (3rd) business day after the date of mailing, whichever is earlier in time. Either party may from time to time, by notice in writing served upon the other as aforesaid, designate a different mailing address or a different person to which such notices or other communications are thereafter to be addressed or delivered. 15. FURTHER ASSURANCES. The Employee shall, upon request of the Company, take all actions and execute all documents requested by the Company which the Company deems to be reasonably necessary to effectuate the terms and intent of this Agreement and, when required by any provision of this Agreement to transfer all or any portion of the Common Stock purchased hereunder to the Company (and its assignees), the Employee shall deliver such Common Stock endorsed in blank or accompanied by Stock Assignments Separate from Certificate endorsed in blank, so that title thereto will pass by delivery alone. Any sale or transfer by the Employee of the Common Stock to the Company (and its assignees) shall be made free of any and all claims, encumbrances, liens and restrictions of every kind, other than those imposed by this Agreement. 16. SUCCESSORS. Except to the extent the same is specifically limited by the terms and provisions of this Agreement, this Agreement is binding upon the Employee and the Employee's successors, heirs and personal representatives, and upon the Company, its successors and assigns. 17. TERMINATION OR AMENDMENT. Subject to the terms and conditions of the Plan, the Board may terminate or amend the Plan and/or the Option at any time; provided, however, that no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Employee unless such amendment is required to enable the Option to qualify as an Incentive Stock Option. Employee Incentive Stock Option Agreement Portola Packaging, Inc. Page 15 18. INTEGRATED AGREEMENT. This Agreement and the Plan constitute the entire understanding and agreement of the Employee and the Company with respect to the subject matter contained herein, and there are no agreements, understandings, restrictions, representations, or warranties between the Employee and the Company other than those set forth or provided for herein. To the extent contemplated herein, the provisions of this Agreement shall survive any exercise of the Option and shall remain in full force and effect. 19. OTHER MISCELLANEOUS TERMS. Titles and captions contained in this Agreement are inserted only as a matter of convenience and for reference, and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision hereof. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 20. INDEPENDENT TAX ADVICE. The Employee agrees that he or she has obtained or will obtain the advice of independent tax counsel (or has determined not to obtain such advice, having had adequate opportunity to do so) regarding the federal and state income tax consequences of the receipt and exercise of the Option and of the disposition of Common Stock acquired upon exercise hereof. The Employee acknowledges that he or she has not relied and will not rely upon any advice or representation by the Company or by its employees or representatives with respect to the tax treatment of the Option. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. COMPANY: PORTOLA PACKAGING, INC. a Delaware Corporation By: -------------------------------- Its: ------------------------------- Address: 890 Faulstich Court San Jose, California 95112 Employee Incentive Stock Option Agreement Portola Packaging, Inc. Page 16 EMPLOYEE: ----------------------------------- (Signature) Name Printed: ---------------------- Address: --------------------------- ----------------------------------- SCHEDULE OF EXHIBITS EXHIBIT A: Form of Notice of Exercise and Investment Representation Statement for Portola Packaging, Inc. Employee Incentive Stock Option Agreements EXHIBIT B: 1994 Stock Option Plan EXHIBIT C: Section 260.141.11 of the Rules of the Commissioner of Corporations of the State of California. IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. THE SECURITY REPRESENTED BY THIS AGREEMENT HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. PORTOLA PACKAGING, INC. EMPLOYEE INCENTIVE STOCK OPTION AGREEMENT THIS EMPLOYEE INCENTIVE STOCK OPTION AGREEMENT ("AGREEMENT") by and between Portola Packaging, Inc., a Delaware corporation (the "COMPANY"), and ____________________ (the "EMPLOYEE"), is made as of the _______ day of ______________________, ____ (such date being sometimes referred to herein as the date of "grant"). R E C I T A L S A. The Company has adopted and implemented its 1994 Stock Option Plan (the "PLAN") permitting the grant of stock options to employees and consultants of the Company and its subsidiary corporations (as defined in the Plan), some of which are intended to be incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "INTERNAL REVENUE CODE"), to purchase shares of the authorized but unissued Common Stock or treasury shares of the Company ("COMMON STOCK"). B. The Board of Directors (or a duly authorized Committee thereof) of the Company (in either case, referred to herein as the "BOARD") has authorized the granting of a stock option to the Employee, thereby allowing the Employee to acquire or increase his or her ownership interest in the Company. A G R E E M E N T Employee Incentive Stock Option Agreement Portola Packaging, Inc. / _______________________ ________________________________ Page 2 NOW, THEREFORE, in reliance on the foregoing Recitals and in consideration of the mutual covenants hereinafter set forth, the parties hereby agree as follows: 1. GRANT OF STOCK OPTION. The Company hereby grants to the Employee a non-transferable and non-assignable option to purchase an aggregate of up to ________________________________ (_____) shares of the Company's Common Stock, par value $0.001, at the exercise price of ________________________ ___________ ($______) per share, upon the terms and conditions set forth herein (such purchase right being sometimes referred to herein as "THE OPTION" or "THIS OPTION"). 2. TERM AND TYPE OF OPTION. Unless earlier terminated in accordance with Sections 6 or 7.2 hereof, this Option and all rights of the Employee to purchase Common Stock hereunder shall expire with respect to all of the shares then subject hereto at 5:00 p.m. Pacific time on _______________________. This Option is intended to qualify as an incentive stock Option within the meaning of Section 422 of the Internal Revenue Code but the Company does not represent or warrant that this Option qualifies as such. Accordingly, the Employee understands that in order to obtain the benefits of incentive stock option treatment under Section 421 of the Internal Revenue Code, no sale or other disposition may be made of any shares acquired upon exercise of this Option for at least one (1) year after the date of the issuance of such shares upon exercise hereunder AND for at least two (2) years after the date of grant of this Option. The Employee shall promptly notify the Company in writing in the event that the Employee sells or otherwise disposes of any shares acquired upon exercise of this Option before the expiration of such periods. (NOTE: If the aggregate exercise price of the Option (that is, the exercise price set forth in Section 1 multiplied by the number of shares subject to the Option set forth in Section 1) plus the aggregate exercise price of any other incentive stock options held by the Employee (whether granted pursuant to the Plan or any other stock option plan of the Company) is greater than One Hundred Thousand Dollars ($100,000), the Employee should contact the Chief Financial Officer of the Company to ascertain whether the entire Option qualifies as an incentive stock option). Employee Incentive Stock Option Agreement Portola Packaging, Inc. / _______________________ ________________________________ Page 3 3. EXERCISE SCHEDULE. Subject to the remaining provisions of this Agreement, this Option shall be exercisable as follows: 3.1 FIRST INSTALLMENT. The Employee may not exercise this Option until _____________ (the "COMMENCEMENT DATE"). As of the Commencement Date, the Employee may exercise this Option for up to twenty percent (20%) of the shares covered hereby (rounded up to the nearest whole number of shares). 3.2 SUBSEQUENT INSTALLMENTS. Upon the ______________ (_____) day of each ________________________________ following the Commencement Date, and continuing thereafter on the __________________ (_____) day of each subsequent ___________________________________, the Employee may exercise this Option for up to an additional ____ percent (____) of the shares covered hereby (rounded up to the nearest whole number of shares), so that this Option shall become fully exercisable as of _________________. In no event shall the Option be exercisable for more shares than the number of shares set forth in Section 1. 3.3 CUMULATIVE NATURE OF EXERCISE SCHEDULE. The exercise dates specified above refer to the earliest dates on which this Option may be exercised with respect to the stated percentages of the Common Stock covered by this Option and the Option may be exercised with respect to all or any part of any such percentage of the total shares at any time on or after such dates (until the expiration date specified in Section 2 above or any earlier termination of this Option pursuant to Section 6 or 7.2 of this Agreement). Except as permitted in Section 6, the Employee must be and remain in the employ of the Company, or of any parent or subsidiary corporation of the Company (as defined in Internal Revenue Code Sections 424(e) and (f)), during the entire period commencing with the date of grant of this Option and ending with each of the periods appearing in the above schedule in order to exercise this Option with respect to the shares applicable to any such period. Any references in this Agreement to the Employee's employment with the Company shall be deemed to also refer to the Employee's employment with any parent or subsidiary of the Company, as applicable. 3.4 OVERRIDING LIMITATION ON TIME FOR EXERCISE. Notwithstanding any other provisions of this Agreement, the Option may Employee Incentive Stock Option Agreement Portola Packaging, Inc. / _______________________ ________________________________ Page 4 not be exercised after the expiration of ten (10) years from the date of grant. 4. RIGHT OF FIRST REFUSAL. The Employee shall not sell, assign, pledge or in any manner transfer any of the shares of the Common Stock purchased hereunder, or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise, except for a transfer which meets the requirements hereinafter set forth. 4.1 NOTICE OF PROPOSED SALE. If the Employee desires to sell or otherwise transfer any of his or her shares of Common Stock, the Employee shall first give written notice thereof to the Company. The notice shall name the proposed transferee and state the number of shares to be transferred, the proposed consideration and all other material terms and conditions of the proposed transfer. 4.2 OPTION OF COMPANY TO PURCHASE. For thirty (30) days following receipt of such notice, the Company (and its assignees as provided in Section 4.3 below) shall have the Option to elect to purchase all of the shares specified in the notice at the price and upon the terms set forth in such notice; provided that if the terms of payment set forth in the Employee's notice were other than cash against delivery, the Company (and its assignees) shall pay cash for said shares equal to the fair market value thereof as determined in good faith by the Board, except that to the extent such consideration is composed, in whole or in part, of promissory notes, the Company (and its assignees) shall have the Option of similarly issuing promissory notes of like form, tenor and effect. (Notwithstanding the foregoing, in the event that the Employee disagrees with the determination of fair market value made by the Board, the Employee shall have the right to have such fair market value determined by arbitration in accordance with the rules of the American Arbitration Association. The arbitration shall be held in San Francisco, California or San Jose, California. The cost of the arbitration shall be borne in equal shares by the Company and the Employee.) In the event the Company (and its assignees) elects to purchase all of such shares, it shall give written notice to the Employee of its election and settlement for such purchase of shares shall be made as provided below in Section 4.4. Employee Incentive Stock Option Agreement Portola Packaging, Inc. / _______________________ ________________________________ Page 5 4.3 ASSIGNABILITY OF COMPANY'S RIGHTS HEREUNDER. The Company may at any time transfer and assign its rights and delegate its obligations under this Section 4 to any other person, corporation, firm or entity, including its officers, directors or stockholders, with or without consideration. 4.4 CLOSING OF COMPANY PURCHASE. In the event the Company (and its assignees) elects to acquire all of those shares of the Employee as specified in the Employee's notice, the Secretary of the Company shall so notify the Employee within thirty (30) days after receipt of the Employee's notice, and settlement thereof shall be made in cash or as otherwise set forth above within thirty (30) days after the date the Secretary of the Company gives the Employee notice of the Company's election. 4.5 TRANSFERRED SHARES REMAIN SUBJECT TO RESTRICTIONS. In the event the Company (and its assignees) do not elect to acquire all of the shares specified in the Employee's notice, the Employee may, within the sixty (60) day period following the expiration of the thirty (30) day period for electing to exercise the purchase rights granted to the Company (and its assignees) in Section 4.2, transfer the shares in the manner specified in his or her notice. In that event, the transferee, assignee or other recipient shall, as a condition of the transfer of ownership, receive and hold such shares subject to the provisions of this Section 4 (and also subject to any other applicable provisions hereof) and shall execute such documentation as may be requested by the Company, including, but not limited to, an investment representation letter containing provisions similar to those set forth in the Notice of Exercise and Investment Representation Statement attached as Exhibit A hereto. 4.6 EXCEPTIONS TO FIRST REFUSAL RIGHTS. Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the provisions of this Section 4 (provided that the transferee shall first agree in writing, satisfactory to the Company, to be bound by the terms and provisions of Sections 4, 5, 10 and 12-20 hereof). 4.6.1 TRANSFER TO FAMILY MEMBER. The Employee's transfer of any or all shares held subject to this Agreement (either Employee Incentive Stock Option Agreement Portola Packaging, Inc. / _______________________ ________________________________ Page 6 during the Employee's lifetime or on death by will or intestacy) to such Employee's immediate family or to any custodian or trustee for the account of the Employee or his or her immediate family. "Immediate family" as used herein shall mean spouse, lineal descendants, father, mother, or brother or sister of the Employee. 4.6.2 AS SECURITY FOR CERTAIN LOANS. The Employee's bona fide pledge or mortgage of any shares with a commercial lending institution. 4.7 WAIVERS BY THE COMPANY. The provisions of this Section 4 may be waived by the Company with respect to any transfer proposed by the Employee only by duly authorized action of its Board. 4.8 UNAUTHORIZED TRANSFERS VOID. Any sale or transfer, or purported sale or transfer, of the Common Stock subject to this Agreement shall be null and void unless the terms, conditions and provisions of this Section 4 are strictly complied with. 4.9 TERMINATION OF FIRST REFUSAL RIGHT. The foregoing right of first refusal shall terminate upon the earlier of: 4.9.1 PUBLIC OFFERING. The date securities of the Company are first offered and sold to the public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "SECURITIES ACT"); or 4.9.2 ACQUISITION OF THE COMPANY. Immediately prior to the acquisition of substantially all of the business and assets of the Company by an unaffiliated third party (as determined by the Board), whether by merger, sale of outstanding stock or of the Company's assets, or otherwise, where no express provision is made for the assignment and continuation of the Company's rights hereunder by a new or successor corporation. 5. AGREEMENT TO LOCK-UP IN THE EVENT OF PUBLIC OFFERING. In the event of a public offering of the Company's Common Stock pursuant to a registration statement declared effective with the SEC, if requested by the Company or by its underwriters, the Employee agrees Employee Incentive Stock Option Agreement Portola Packaging, Inc. / _______________________ ________________________________ Page 7 not to sell, sell short, grant any option to buy or otherwise dispose of the shares of Common Stock purchased pursuant to this Agreement (except for any such shares which may be included in the registration) for a period of up to two hundred seventy (270) days following the effective date of such registration statement. The Company may impose stop-transfer instructions with respect to the shares of the Common Stock subject to the foregoing restriction until the end of said period. The Employee shall be subject to this Section 5 provided and only if the officers and directors of the Company are also subject to similar arrangements. 6. RIGHTS ON TERMINATION OF EMPLOYMENT. Upon the termination of the Employee's employment with the Company (and with any parent or subsidiary corporation of the Company), the Employee's right to exercise this Option shall be limited in the manner set forth in this Section 6 (and this Option shall terminate in the event not so exercised), and subject to the limitation provided in Section 3.4. 6.1 DEATH. If the Employee's employment is terminated by death, the Employee's estate may, for a period of twelve (12) months following the date of the Employee's death, exercise the Option to the extent it was exercisable by the Employee on the date of death in accordance with Section 8.2. The Employee's estate shall mean the Employee's legal representative upon death or any person who acquires the right to exercise the Option by reason of such death under the Employee's will or the laws of intestate succession. 6.2 RETIREMENT. If the Employee's employment is terminated by voluntary retirement at or after reaching sixty-five (65) years of age, the Employee may, within the twelve (12) month period following such termination and subject to the proviso set forth below in this Section 6.2, exercise the Option to the extent it was exercisable by the Employee on the date of such termination unless the Employee dies prior thereto, in which event the Employee shall be treated as though the Employee had died on the date of retirement and the provisions of Section 6.1 above shall apply. The Employee hereby acknowledges that the favorable tax treatment provided under Section 422 of the Internal Revenue Code may be inapplicable in the event the Option is not exercised within three (3) months after the date the Employee's employment is terminated by voluntary retirement. Employee Incentive Stock Option Agreement Portola Packaging, Inc. / _______________________ ________________________________ Page 8 6.3 DISABILITY. If the Employee's employment is terminated because of a permanent and total disability, the Employee may, within twelve (12) months following such termination, exercise the Option to the extent it was exercisable by the Employee on the date of such termination unless the Employee dies prior to the expiration of such period, in which event the Employee shall be treated as though his or her death occurred on the date of termination due to such disability and the provisions of Section 6.1 shall apply. The Employee hereby acknowledges that the favorable tax treatment provided under Section 422 of the Internal Revenue Code may be inapplicable in the event the Option is not exercised within three (3) months after the date of the Employee's termination due to a partial, temporary or other disability not meeting the requirements of Internal Revenue Code Section 22(e)(3). 6.4 OTHER TERMINATION. If the Employee's employment is terminated for any reason other than provided in Sections 6.1, 6.2 and 6.3 above, the Employee or the Employee's estate may, within three (3) months after the date of the Employee's termination exercise the Option to the extent it was exercisable by the Employee on the date of such termination. 6.5 TRANSFER OF EMPLOYMENT TO RELATED CORPORATION. In the event the Employee leaves the employ of the Company to become an employee of any parent or subsidiary corporation of the Company or if the Employee leaves the employ of any such parent or subsidiary corporation to become an employee of the Company or of another parent or subsidiary corporation, the Employee shall be deemed to continue as an employee of the Company for all purposes of this Agreement. 6.6 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of an Option within the applicable time periods set forth above is prevented because the issuance of shares upon such exercise would constitute a violation of any applicable federal, state or foreign securities law or other law or regulation, the Option shall remain exercisable until three (3) months after the date the Employee is notified by the Company that the Option is exercisable, but in any event no later than the expiration of ten (10) years from the date of grant. The Company makes no representation as to the tax consequences of any such delayed Employee Incentive Stock Option Agreement Portola Packaging, Inc. / _______________________ ________________________________ Page 9 exercise. The Employee should consult with the Employee's own tax advisor as to the tax consequences to the Employee of any such delayed exercise. 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. 7.1 STOCK SPLITS AND SIMILAR EVENTS. Subject to any required action by the Company's Board and stockholders, the number of shares of Common Stock covered by the Option and the exercise price thereof shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of Common Stock resulting from a subdivision or combination of such shares or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of such outstanding shares of Common Stock effected without the receipt of consideration by the Company; provided, however, that the conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Employee Incentive Stock Option Agreement Portola Packaging, Inc. / _______________________ ________________________________ Page 10 7.2 CHANGE OF CONTROL. In the event of a Change of Control (as defined below), these Options shall become immediately exercisable in full as of the date thirty (30) days prior to the consummation of such Change of Control. The exercise or vesting that was permissible solely by reason of this Section shall be conditioned upon the consummation of the Change in Control. Furthermore, the Board, in its sole discretion, may arrange with the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), for the Acquiring Corporation to assume the Company's rights and obligations under outstanding Options (which, for purposes of this Section 7.2, shall include Options that have become immediately exercisable and fully vested as provided above) not exercised by the Employee prior to the consummation of the Change of Control or substitute options for the Acquiring Corporation's stock for such outstanding Options. Any Options which are neither assumed nor substituted for by the Acquiring Corporation in connection with the Change of Control nor exercised prior to the consummation of the Change of Control shall terminate and cease to be outstanding as of the effective date of the Change of Control. A "CHANGE OF CONTROL" shall be deemed to have occurred in the event any of the following occurs with respect to the Company: 7.2.1 the direct or indirect sale or exchange by the stockholders of the Company of all or substantially all of the stock of the Company where the stockholders of the Company before such sale or exchange do not retain, directly or indirectly, at least a majority of the beneficial interest in the voting stock of the Company after such sale or exchange. 7.2.2 a merger or consolidation in which the Company is not the surviving corporation, other than (i) a merger in which the Stockholders of the Company before such merger or consolidation retain directly or indirectly, at least a majority of the voting stock of the surviving corporation or the parent corporation of the surviving corporation and the options are assumed or substituted by the surviving corporation which assumption or substitution shall be binding on the Employee, or (ii) a merger or consolidation with a wholly-owned Subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which Employee Incentive Stock Option Agreement Portola Packaging, Inc. / _______________________ ________________________________ Page 11 there is no substantial change in the Stockholders of the Company and the Options are assumed or substituted by the Acquiring Corporation, which assumption or substitution shall be binding on the Employee. 7.2.3 a merger or consolidation in which the Company is the surviving corporation where the Stockholders of the Company before such merger or consolidation do not retain, directly or indirectly, at least a majority of the voting stock of the Company after such merger or consolidation. 7.2.4 the sale, exchange, or transfer of all or substantially all of the assets of the Company other than a sale, exchange, or transfer to one (1) or more Subsidiaries of the Company. 7.2.5 a liquidation or dissolution of the Company. 7.2.6 any other transaction which qualifies as a "corporate transaction" under Section 424 of the Code wherein the stockholders of the Company give up all of their equity interest in the Company (EXCEPT for the acquisition, sale or transfer of all or substantially all of the outstanding shares of the Company). 7.3 BOARD'S DETERMINATION FINAL AND BINDING UPON THE EMPLOYEE. To the extent that the foregoing adjustments in this Section 7 relate to stock or securities of the Company, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. The Company agrees to give notice of any such adjustment to the Employee; provided, however, that any such adjustment shall be effective and binding for all purposes hereof whether or not such notice is given or received. 7.4 NO RIGHTS EXCEPT AS EXPRESSLY STATED. Except as hereinabove expressly provided in this Section 7, no additional rights shall accrue to the Employee by reason of any subdivision or combination of shares of the capital stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of any class or by reason of any dissolution, liquidation, merger or consolidation or spin-off of assets or of stock of another Employee Incentive Stock Option Agreement Portola Packaging, Inc. / _______________________ ________________________________ Page 12 corporation, and any issue by the Company of shares of stock of any class or of securities convertible into shares of stock of any class shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or exercise price of shares subject to the Option. Neither the Employee nor any person claiming under or through the Employee shall be, or have any of the rights or privileges of, a stockholder of the Company in respect of any of the shares issuable upon the exercise of this Option, unless and until this Option is properly and lawfully exercised and a certificate representing the shares so purchased is duly issued and delivered to the Employee or to his or her estate. 7.5 NO LIMITATIONS ON COMPANY'S DISCRETION. The grant of the Option hereby shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. 8. MANNER OF EXERCISE. 8.1 GENERAL INSTRUCTIONS FOR EXERCISE. The Option shall be exercised by the Employee by completing, executing and delivering to the Company the Notice of Exercise and Investment Representation Statement ("NOTICE OF EXERCISE"), in substantially the form attached hereto as Exhibit A, which Notice of Exercise shall specify the number of shares of Common Stock which the Employee elects to purchase. Upon receipt of such Notice of Exercise and of payment of the purchase price, the Company shall, as soon as reasonably possible and subject to all other provisions hereof, deliver certificates for the shares of Common Stock so purchased, registered in the Employee's name or in the name of his or her legal representative (if applicable). Payment of the purchase price upon any exercise of the Option shall be made by check acceptable to the Company or in cash; provided, however, that the Board may, in its sole and absolute discretion, accept any other legal consideration to the extent permitted under applicable laws and the Plan. 8.2 EXERCISE PROCEDURE AFTER DEATH. To the extent exercisable after the Employee's death, this Option shall be exercised Employee Incentive Stock Option Agreement Portola Packaging, Inc. / _______________________ ________________________________ Page 13 only by the Employee's executor(s) or administrator(s) or the person or persons to whom this Option is transferred under the Employee's will or, if the Employee shall fail to make testamentary disposition of this Option, under the applicable laws of descent and distribution. Any such transferee exercising this Option must furnish the Company with (1) written Notice of Exercise and relevant information as to his or her status, (2) evidence satisfactory to the Company to establish the validity of the transfer of this Option and compliance with any laws or regulations pertaining to said transfer, and (3) written acceptance of the terms and conditions of this Option as contained in this Agreement. 9. NON-TRANSFERABLE. The Option shall, during the lifetime of the Employee, be exercisable only by the Employee and shall not be transferable or assignable by the Employee in whole or in part other than by will or the laws of descent and distribution. If the Employee shall make any such purported transfer or assignment of the Option, such assignment shall be null and void and of no force or effect whatsoever. 10. COMPLIANCE WITH SECURITIES AND OTHER LAWS. The Option may not be exercised and the Company shall not be obligated to deliver any certificates evidencing shares of Common Stock hereunder if the issuance of shares upon such exercise would constitute a violation of any applicable requirements of: (i) the Securities Act, (ii) the Securities Exchange Act of 1934, as amended, (iii) applicable state securities laws, (iv) any applicable listing requirement of any stock exchange on which the Company's Common Stock is then listed, and (v) any other law or regulation applicable to the issuance of such shares. Nothing herein shall be construed to require the Company to register or qualify any securities under applicable federal or state securities laws, or take any action to secure an exemption from such registration and qualification for the issuance of any securities upon the exercise of the Option. Shares of Common Stock issued upon exercise of this Option shall include the following legends and such other legends as in the opinion of the Company's counsel may be required by the securities laws of any state in which the Employee resides: Employee Incentive Stock Option Agreement Portola Packaging, Inc. / _______________________ ________________________________ Page 14 IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. A copy of Section 260.141.11 of the Rules of the Commissioner of Corporations of the State of California is set forth in EXHIBIT C attached hereto. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER AGREEMENTS CONTAINED IN A STOCK OPTION AGREEMENT, DATED ____________________, A COPY OF WHICH IS ON FILE WITH THE COMPANY. THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. 11. NO RIGHT TO CONTINUED EMPLOYMENT. Nothing contained in this Agreement shall: (i) confer upon the Employee any right with respect to the continuance of employment by the Company, or by any parent or subsidiary corporation of the Company, or (ii) limit in any way the right of the Company, or of any parent or subsidiary corporation, to terminate the Employee's employment at any time. Except to the extent the Company and the Employee shall have otherwise agreed in writing, the Employee's employment shall be terminable by the Company (or by a parent or subsidiary, if applicable) at will. Subject to Section 12, the Board in its sole discretion shall determine whether any leave of absence or interruption in service (including an interruption during military service) shall be deemed a termination of employment for the purposes of this Agreement. Employee Incentive Stock Option Agreement Portola Packaging, Inc. / _______________________ ________________________________ Page 15 12. LEAVE OF ABSENCE. For purposes hereof, the Employee's employment shall not be deemed to terminate if the Employee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company of ninety (90) days or less. In the event of a leave in excess of ninety (90) days, the Employee's employment shall be deemed to terminate on the ninety-first (91st) day of the leave unless the Employee's right to reemployment remains guaranteed by statute or contract. Notwithstanding the foregoing, however, a leave of absence shall be treated as employment for purposes of Section 3 if and only if the leave of absence is designated by the Company as (or required by law to be) a leave for which vesting credit is given. 13. OPTION SUBJECT TO TERMS OF PLAN. In addition to the provisions hereof, this Agreement and the Option are governed by, and subject to the terms and conditions of, the Plan. The Employee acknowledges receipt of a copy of the Plan (a copy of which is attached hereto as Exhibit B) and Section 260.141.11 of the Rules of the Commissioner of Corporations of the State of California regarding restrictions on transfer (a copy of which is attached hereto as Exhibit C). The Employee represents that he or she is familiar with the terms and conditions of the Plan, and hereby accepts the Option subject to all of the terms and conditions thereof, which terms and conditions shall control to the extent inconsistent in any respect with the provisions of this Agreement. The Employee hereby agrees to accept as binding, conclusive and final all decisions and interpretations of the Board as to any questions arising under the Plan or under this Agreement. 14. NOTICES. All notices and other communications of any kind which either party to this Agreement may be required or may desire to serve on the other party hereto in connection with this Agreement shall be in writing and may be delivered by personal service or by registered or certified mail, return receipt requested, deposited in the United States mail with postage thereon fully prepaid, addressed to the other party at the addresses indicated on the signature page hereof or as otherwise provided below. Service of any such notice or other communication so made by mail shall be deemed complete on the date of actual delivery as shown by the addressee's registry or certification receipt or at the expiration of the third (3rd) business day after the date of mailing, whichever is earlier in time. Either Employee Incentive Stock Option Agreement Portola Packaging, Inc. / _______________________ ________________________________ Page 16 party may from time to time, by notice in writing served upon the other as aforesaid, designate a different mailing address or a different person to which such notices or other communications are thereafter to be addressed or delivered. 15. FURTHER ASSURANCES. The Employee shall, upon request of the Company, take all actions and execute all documents requested by the Company which the Company deems to be reasonably necessary to effectuate the terms and intent of this Agreement and, when required by any provision of this Agreement to transfer all or any portion of the Common Stock purchased hereunder to the Company (and its assignees), the Employee shall deliver such Common Stock endorsed in blank or accompanied by Stock Assignments Separate from Certificate endorsed in blank, so that title thereto will pass by delivery alone. Any sale or transfer by the Employee of the Common Stock to the Company (and its assignees) shall be made free of any and all claims, encumbrances, liens and restrictions of every kind, other than those imposed by this Agreement. 16. SUCCESSORS. Except to the extent the same is specifically limited by the terms and provisions of this Agreement, this Agreement is binding upon the Employee and the Employee's successors, heirs and personal representatives, and upon the Company, its successors and assigns. 17. TERMINATION OR AMENDMENT. Subject to the terms and conditions of the Plan, the Board may terminate or amend the Plan and/or the Option at any time; provided, however, that no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Employee unless such amendment is required to enable the Option to qualify as an Incentive Stock Option. 18. INTEGRATED AGREEMENT. This Agreement and the Plan constitute the entire understanding and agreement of the Employee and the Company with respect to the subject matter contained herein, and there are no agreements, understandings, restrictions, representations, or warranties between the Employee and the Company other than those set forth or provided for herein. To the extent Employee Incentive Stock Option Agreement Portola Packaging, Inc. / _______________________ ________________________________ Page 17 contemplated herein, the provisions of this Agreement shall survive any exercise of the Option and shall remain in full force and effect. 19. OTHER MISCELLANEOUS TERMS. Titles and captions contained in this Agreement are inserted only as a matter of convenience and for reference, and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision hereof. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 20. INDEPENDENT TAX ADVICE. The Employee agrees that he or she has obtained or will obtain the advice of independent tax counsel (or has determined not to obtain such advice, having had adequate opportunity to do so) regarding the federal and state income tax consequences of the receipt and exercise of the Option and of the disposition of Common Stock acquired upon exercise hereof. The Employee acknowledges that he or she has not relied and will not rely upon any advice or representation by the Company or by its employees or representatives with respect to the tax treatment of the Option. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. COMPANY: PORTOLA PACKAGING, INC. a Delaware Corporation By: ------------------------------------ Its: ------------------------------------ Address: 890 Faulstich Court San Jose, California 95112 EMPLOYEE: --------------------------------------- (Signature) Employee Incentive Stock Option Agreement Portola Packaging, Inc. / _______________________ ________________________________ Page 18 Name Printed: -------------------------- Address: -------------------------- ---------------------------------------- Employee Incentive Stock Option Agreement Portola Packaging, Inc. / _______________________ ________________________________ Page 19 SCHEDULE OF EXHIBITS EXHIBIT A: Form of Notice of Exercise and Investment Representation Statement for Portola Packaging, Inc. Employee Incentive Stock Option Agreements EXHIBIT B: 1994 Stock Option Plan EXHIBIT C: Section 260.141.11 of the Rules of the Commissioner of Corporations of the State of California. IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. THE SECURITY REPRESENTED BY THIS AGREEMENT HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. PORTOLA PACKAGING, INC. CONSULTANT NON-QUALIFIED STOCK OPTION AGREEMENT THIS CONSULTANT NON-QUALIFIED STOCK OPTION AGREEMENT ("AGREEMENT") by and between Portola Packaging, Inc., a Delaware corporation (the "COMPANY"), and ______________ (the "CONSULTANT"), is made as of the day of , 19 (such date being sometimes referred to herein as the date of "GRANT"). R E C I T A L S A. The Company has adopted and implemented its 1994 Stock Option Plan (the "PLAN") permitting the grant of stock options to employees and consultants of the Company and its subsidiary corporations (as defined in the Plan), some of which are intended to be non-qualified stock options in that they do not qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "INTERNAL REVENUE CODE"), to purchase shares of the authorized but unissued Common Stock or treasury shares of the Company ("COMMON STOCK"). B. The Board of Directors (or a duly authorized Committee thereof) of the Company (in either case, referred to herein as the "BOARD") has authorized the granting of a non-qualified stock option to the Consultant, thereby allowing the Consultant to acquire or increase his or her ownership interest in the Company. A G R E E M E N T Consultant Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 2 NOW, THEREFORE, in reliance on the foregoing Recitals and in consideration of the mutual covenants hereinafter set forth, the parties hereby agree as follows: 1. GRANT OF STOCK OPTION. The Company hereby grants to the Consultant a non-transferable and non-assignable option to purchase an aggregate of up to ____________________ (_____________) shares of the Company's Common Stock, par value $0.001, at the exercise price of ____________________ ($____) per share, upon the terms and conditions set forth herein (such purchase right being sometimes referred to herein as "THE OPTION" or "THIS OPTION"). 2. TERM AND TYPE OF OPTION. Unless earlier terminated in accordance with Sections 6 or 7.2 hereof, the Option and all rights of the Consultant to purchase Common Stock hereunder shall expire with respect to all of the shares then subject hereto at 5:00 p.m. Pacific time on ______________, 19__. This Option is a non-qualified stock option in that it is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code. Accordingly, the Consultant understands that under current law he or she will recognize ordinary income for federal income tax purposes in connection with exercise of this Option in an amount equal to the excess (if any) of the fair market value of the shares of Common Stock so purchased (determined as of the date of such exercise) over the exercise price paid for such shares. 3. EXERCISE SCHEDULE. Subject to the remaining provisions of this Agreement, this Option shall be exercisable as follows: 3.1 FIRST INSTALLMENT. The Consultant may not exercise this Option until the first day of the second year after the date of this Agreement (the "COMMENCEMENT DATE"). As of the Commencement Date, the Consultant may exercise this Option for up to twenty percent (20%) of the shares covered hereby (rounded up to the nearest whole number of shares). 3.2 SUBSEQUENT INSTALLMENTS. Upon the first day of each _____________, _____________, _____________ and _____________ following the Commencement Date, and continuing thereafter on the first day of each subsequent calendar quarter, the Consultant may exercise this Option for up to an additional ____________ percent Consultant Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 3 (____%) of the shares covered hereby (rounded up to the nearest whole number of shares), so that this Option shall become fully exercisable as of ___________, 19__. In no event shall the Option be exercisable for more shares than the number of shares set forth in Section 1. 3.3 CUMULATIVE NATURE OF EXERCISE SCHEDULE. The exercise dates specified above refer to the earliest dates on which the Option may be exercised with respect to the stated percentages of the Common Stock covered by this Option and the Option may be exercised with respect to all or any part of any such percentage of the total shares at any time on or after such dates (until the expiration date specified in Section 2 above or any earlier termination of this Option pursuant to Section 6 or 7.2 of this Agreement). Except as permitted in Section 6, the Consultant must be and remain in a consulting relationship with the Company, or with any parent or subsidiary corporation of the Company (as defined in Internal Revenue Code Sections 424(e) and (f)), during the entire period commencing with the date of grant of this Option and ending with each of the periods appearing in the above schedule in order to exercise this Option with respect to the shares applicable to any such period. Any references in this Agreement to the Consultant's consulting relationship with the Company shall be deemed to also refer to the Consultant's consulting relationship with any parent or subsidiary of the Company, as applicable. 3.4 OVERRIDING LIMITATION ON TIME FOR EXERCISE. Notwithstanding any other provisions of this Agreement, the Option may not be exercised after the expiration of ten (10) years from the date of grant. 4. RIGHT OF FIRST REFUSAL. The Consultant shall not sell, assign, pledge or in any manner transfer any of the shares of the Common Stock purchased hereunder, or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise, except for a transfer which meets the requirements hereinafter set forth. 4.1 NOTICE OF PROPOSED SALE. If the Consultant desires to sell or otherwise transfer any of his or her shares of Common Stock, the Consultant shall first give written notice thereof to the Company. The notice shall name the proposed transferee and Consultant Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 4 state the number of shares to be transferred, the proposed consideration and all other material terms and conditions of the proposed transfer. 4.2 OPTION OF COMPANY TO PURCHASE. For thirty (30) days following receipt of such notice, the Company (and its assignees as provided in Section 4.3 below) shall have the option to elect to purchase all of the shares specified in the notice at the price and upon the terms set forth in such notice; provided that if the terms of payment set forth in the Consultant's notice were other than cash against delivery, the Company (and its assignees) shall pay cash for said shares equal to the fair market value thereof as determined in good faith by the Board, except that to the extent such consideration is composed, in whole or in part, of promissory notes, the Company (and its assignees) shall have the option of similarly issuing promissory notes of like form, tenor and effect. (Notwithstanding the foregoing, in the event that the Consultant disagrees with the determination of fair market value made by the Board, the Consultant shall have the right to have such fair market value determined by arbitration in accordance with the rules of the American Arbitration Association. The arbitration shall be held in San Francisco, California or San Jose, California. The cost of the arbitration shall be borne in equal shares by the Company and the Consultant.) In the event the Company (and its assignees) elects to purchase all of such shares, it shall give written notice to the Consultant of its election and settlement for such purchase of shares shall be made as provided below in Section 4.4. 4.3 ASSIGNABILITY OF COMPANY'S RIGHTS HEREUNDER. The Company may at any time transfer and assign its rights and delegate its obligations under this Section 4 to any other person, corporation, firm or entity, including its officers, directors or stockholders, with or without consideration. 4.4 CLOSING OF COMPANY PURCHASE. In the event the Company (and its assignees) elects to acquire all of those shares of the Consultant as specified in the Consultant's notice, the Secretary of the Company shall so notify the Consultant within thirty (30) days after receipt of the Consultant's notice, and settlement thereof shall be made in cash or as otherwise set forth above within thirty (30) Consultant Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 5 days after the date the Secretary of the Company gives the Consultant notice of the Company's election. 4.5 TRANSFERRED SHARES REMAIN SUBJECT TO RESTRICTIONS. In the event the Company (and its assignees) do not elect to acquire all of the shares specified in the Consultant's notice, the Consultant may, within the sixty (60) day period following the expiration of the thirty (30) day period for electing to exercise the purchase rights granted to the Company (and its assignees) in Section 4.2, transfer the shares in the manner specified in his or her notice. In that event, the transferee, assignee or other recipient shall, as a condition of the transfer of ownership, receive and hold such shares subject to the provisions of this Section 4 (and also subject to any other applicable provisions hereof) and shall execute such documentation as may be requested by the Company, including, but not limited to, an investment representation letter containing provisions similar to those set forth in the Notice of Exercise and Investment Representation Statement attached as Exhibit A hereto. 4.6 EXCEPTIONS TO FIRST REFUSAL RIGHTS. Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the provisions of this Section 4 (provided that the transferee shall first agree in writing, satisfactory to the Company, to be bound by the terms and provisions of Sections 4, 5, 10 and 12-19 hereof). 4.6.1 TRANSFER TO FAMILY MEMBER. The Consultant's transfer of any or all shares held subject to this Agreement (either during the Consultant's lifetime or on death by will or intestacy) to such Consultant's immediate family or to any custodian or trustee for the account of the Consultant or his or her immediate family. "Immediate family" as used herein shall mean spouse, lineal descendants, father, mother, or brother or sister of the Consultant. 4.6.2 AS SECURITY FOR CERTAIN LOANS. The Consultant's bona fide pledge or mortgage of any shares with a commercial lending institution. 4.7 WAIVERS BY THE COMPANY. The provisions of this Section 4 may be waived by the Company with respect to any transfer Consultant Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 6 proposed by the Consultant only by duly authorized action of its Board. 4.8 UNAUTHORIZED TRANSFERS VOID. Any sale or transfer, or purported sale or transfer, of the Common Stock subject to this Agreement shall be null and void unless the terms, conditions and provisions of this Section 4 are strictly complied with. 4.9 TERMINATION OF FIRST REFUSAL RIGHT. The foregoing right of first refusal shall terminate upon the earlier of: 4.9.1 PUBLIC OFFERING. The date securities of the Company are first offered and sold to the public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "SECURITIES ACT"); or 4.9.2 ACQUISITION OF THE COMPANY. Immediately prior to the acquisition of substantially all of the business and assets of the Company by an unaffiliated third party (as determined by the Board), whether by merger, sale of outstanding stock or of the Company's assets, or otherwise, where no express provision is made for the assignment and continuation of the Company's rights hereunder by a new or successor corporation. 5. AGREEMENT TO LOCK-UP IN THE EVENT OF PUBLIC OFFERING. In the event of a public offering of the Company's Common Stock pursuant to a registration statement declared effective with the SEC, if requested by the Company or by its underwriters, the Consultant agrees not to sell, sell short, grant any option to buy or otherwise dispose of the shares of Common Stock purchased pursuant to this Agreement (except for any such shares which may be included in the registration) for a period of up to two hundred seventy (270) days following the effective date of such registration statement. The Company may impose stop-transfer instructions with respect to the shares of the Common Stock subject to the foregoing restriction until the end of said period. The Company may impose stop-transfer instructions with respect to the shares of the Common Stock subject to the foregoing restriction until the end of such period. The Consultant shall be subject to this Section 5 provided and only if the officers and directors of the Company are also subject to similar arrangements. Consultant Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 7 6. RIGHTS ON TERMINATION OF CONSULTING SERVICES. Upon the termination of the Consultant's consulting relationship with the Company (and with any parent or subsidiary corporation of the Company), the Consultant's right to exercise this Option shall be limited in the manner set forth in this Section 6 (and this Option shall terminate in the event not so exercised), and subject to the limitation provided in Section 3.4. 6.1 DEATH. If the Consultant's consulting relationship with the Company is terminated by death, the Consultant's estate may, for a period of twelve (12) months following the date of the Consultant's death, exercise the Option to the extent it was exercisable by the Consultant on the date of death. The Consultant's estate shall mean the Consultant's legal representative upon death or any person who acquires the right to exercise the Option by reason of such death in accordance with Section 8.2. 6.2 DISABILITY. If the Consultant's consulting relationship with the Company is terminated because of a disability, the Consultant may, within twelve (12) months following such termination, exercise the Option to the extent it was exercisable by the Consultant on the date of such termination unless the Consultant dies prior to the expiration of such period, in which event the Consultant shall be treated as though the Consultant's death occurred on the date of termination because of disability and the provisions of Section 6.1 shall apply. 6.3 OTHER TERMINATION. If the Consultant's consulting relationship is terminated for any reason other than provided in Sections 6.1 and 6.2 above, the Consultant may, within three (3) months after the date of the Consultant's termination, exercise the Option to the extent it was exercisable by the Consultant on the date of such termination. 6.4 TRANSFER OF ENGAGEMENT TO RELATED CORPORATION. In the event the Consultant severs his or her consulting relationship with the Company to become a consultant of any parent or subsidiary corporation of the Company or if the Consultant terminates his or her consulting relationship with any such parent or subsidiary corporation to become a consultant to the Company or of another parent or subsidiary corporation, the Consultant shall be deemed to continue his Consultant Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 8 or her consulting relationship with the Company for all purposes of this Agreement. 6.5 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of an Option within the applicable time periods set forth above is prevented because the issuance of shares upon such exercise would constitute a violation of any applicable federal, state or foreign securities law or other law or regulation, the Option shall remain exercisable until three (3) months after the date the Consultant is notified by the Company that the Option is exercisable, but in any event no later than the expiration of ten (10) years from the date of grant. 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. 7.1 STOCK SPLITS AND SIMILAR EVENTS. Subject to any required action by the Company's Board and stockholders, the number of shares of Common Stock covered by the Option and the exercise price thereof shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of Common Stock resulting from a subdivision or combination of such shares or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of such outstanding shares of Common Stock effected without the receipt of consideration by the Company; provided, however, that the conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." 7.2 MERGERS AND ACQUISITIONS. Subject to any required action by the Company's Board and stockholders, if the Company shall be the surviving corporation in any merger or consolidation which results in the holders of the outstanding voting securities of the Company (determined immediately prior to such merger or consolidation) owning, directly or indirectly, at least a majority of the beneficial interest in the outstanding voting securities of the surviving corporation or its parent corporation (determined immediately after such merger or consolidation), the options granted under this Plan shall pertain and apply to the securities or other property to which a holder of the number of shares subject to the unexercised portion of such options would have been entitled. A dissolution or liquidation of the Company or a sale of all or substantially all its business and Consultant Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 9 assets or a merger or consolidation in which the Company is not the surviving corporation or which results in the holders of the outstanding voting securities of the Company (determined immediately prior to such merger or consolidation) owning, directly or indirectly, less than a majority of the beneficial interest in the outstanding voting securities of the surviving corporation or its parent corporation (determined immediately after such merger or consolidation) will cause the options granted hereunder to terminate, unless the agreement of such sale, merger, consolidation or other acquisition otherwise provides. 7.3 BOARD'S DETERMINATION FINAL AND BINDING UPON THE CONSULTANT. To the extent that the foregoing adjustments in this Section 7 relate to stock or securities of the Company, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. The Company agrees to give notice of any such adjustment to the Consultant; provided, however, that any such adjustment shall be effective and binding for all purposes hereof whether or not such notice is given or received. 7.4 NO RIGHTS EXCEPT AS EXPRESSLY STATED. Except as hereinabove expressly provided in this Section 7, no additional rights shall accrue to the Consultant by reason of any subdivision or combination of shares of the capital stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of any class or by reason of any dissolution, liquidation, merger or consolidation or spin-off of assets or of stock of another corporation, and any issue by the Company of shares of stock of any class or of securities convertible into shares of stock of any class shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or exercise price of shares subject to the Option. Neither the Consultant nor any person claiming under or through the Consultant shall be, or have any of the rights or privileges of, a stockholder of the Company in respect of any of the shares issuable upon the exercise of this Option, unless and until this Option is properly and lawfully exercised and a certificate representing the shares so purchased is duly issued and delivered to the Consultant or to his or her estate. 7.5 NO LIMITATIONS ON COMPANY'S DISCRETION. The grant of the Option hereby shall not affect in any way the right or power of Consultant Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 10 the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. 8. MANNER OF EXERCISE. 8.1 GENERAL INSTRUCTIONS FOR EXERCISE. The Option shall be exercised by the Consultant by completing, executing and delivering to the Company the Notice of Exercise and Investment Representation Statement ("NOTICE OF EXERCISE"), in substantially the form attached hereto as Exhibit A, which Notice of Exercise shall specify the number of shares of Common Stock which the Consultant elects to purchase. Upon receipt of such Notice of Exercise and of payment of the purchase price, the Company shall, as soon as reasonably possible and subject to all other provisions hereof, deliver certificates for the shares of Common Stock so purchased, registered in the Consultant's name or in the name of his or her legal representative (if applicable). Payment of the purchase price upon any exercise of the Option shall be made by check acceptable to the Company or in cash; provided, however, that the Board may, in its sole and absolute discretion, accept any other legal consideration to the extent permitted under applicable laws and the Plan. 8.2 EXERCISE PROCEDURE AFTER DEATH. To the extent exercisable after the Consultant's death, this Option shall be exercised only by the Consultant's executor(s) or administrator(s) or the person or persons to whom this Option is transferred under the Consultant's will or, if the Consultant shall fail to make testamentary disposition of this Option, under the applicable laws of descent and distribution. Any such transferee exercising this Option must furnish the Company with (1) written Notice of Exercise and relevant information as to his or her status, (2) evidence satisfactory to the Company to establish the validity of the transfer of this Option and compliance with any laws or regulations pertaining to said transfer, and (3) written acceptance of the terms and conditions of this Option as contained in this Agreement. 9. NON-TRANSFERABLE. The Option shall, during the lifetime of the Consultant, be exercisable only by the Consultant and shall not Consultant Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 11 be transferable or assignable by the Consultant in whole or in part other than by will or the laws of descent and distribution. If the Consultant shall make any such purported transfer or assignment of the Option, such assignment shall be null and void and of no force or effect whatsoever. 10. COMPLIANCE WITH SECURITIES AND OTHER LAWS. The Option may be exercised and the Company shall not be obligated to deliver any certificates evidencing shares of Common Stock hereunder if the issuance of shares upon such exercise would constitute a violation of any applicable requirements of: (i) the Securities Act, (ii) the Securities Exchange Act of 1934, as amended (iii) applicable state securities laws, (iv) any applicable listing requirement of any stock exchange on which the Company's Common Stock is then listed, and (v) any other law or regulation applicable to the issuance of such shares. Nothing herein shall be construed to require the Company to register or qualify any securities under applicable federal or state securities laws, or take any action to secure an exemption from such registration and qualification for the issuance of any securities upon the exercise of this Option. Shares of Common Stock issued upon exercise of this option shall include the following legends and such other legends as in the opinion of the Company's counsel may be required by the securities laws of any state in which the Consultant resides: IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. A copy of Section 260.141.11 of the Rules of the Commissioner of Corporations of the State of California is set forth in Exhibit C attached hereto. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER AGREEMENTS CONTAINED IN A STOCK OPTION AGREEMENT, DATED ________________________, A COPY OF WHICH IS ON FILE WITH THE COMPANY. Consultant Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 12 THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. 11. NO RIGHT TO CONTINUED ENGAGEMENT. Nothing contained in this Agreement shall: (i) confer upon the Consultant any right with respect to the continuance of his or her consulting relationship with the Company, or by any parent or subsidiary corporation of the Company, or (ii) limit in any way the right of the Company, or of any parent or subsidiary corporation, to terminate the Consultant's consulting relationship with the Company at any time. Except to the extent the Company and the Consultant shall have otherwise agreed in writing, the Consultant's consulting relationship with the Company shall be terminable by the Company (or by a parent or subsidiary, if applicable) at will. The Board in its sole discretion shall determine whether any leave of absence or interruption in service (including an interruption during military service) shall be deemed a termination of the Consultant's consulting relationship with the Company for the purposes of this Agreement. 12. COMMITTEE OF THE BOARD. In the event that the Plan is administered by a committee of the Board (the "Committee"), all references herein to the Board shall be construed to mean the Committee for the period(s) during which the Committee administers the Plan. 13. OPTION SUBJECT TO TERMS OF PLAN. In addition to the provisions hereof, this Agreement and the Option are governed by, and subject to the terms and conditions of, the Plan. The Consultant acknowledges receipt of a copy of the Plan (a copy of which is attached hereto as Exhibit B) and Section 260.141.11 of the Rules of the Commissioner of Corporations of the State of California regarding restrictions on transfer (a copy of which is attached hereto as Consultant Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 13 Exhibit C). The Consultant represents that he or she is familiar with the terms and conditions of the Plan, and hereby accepts the Option subject to all of the terms and conditions thereof, which terms and conditions shall control to the extent inconsistent in any respect with the provisions of this Agreement. The Consultant hereby agrees to accept as binding, conclusive and final all decisions and interpretations of the Board as to any questions arising under the Plan or under this Agreement. 14. NOTICES. All notices and other communications of any kind which either party to this Agreement may be required or may desire to serve on the other party hereto in connection with this Agreement shall be in writing and may be delivered by personal service or by registered or certified mail, return receipt requested, deposited in the United States mail with postage thereon fully prepaid, addressed to the other party at the addresses indicated on the signature page hereof or as otherwise provided below. Service of any such notice or other communication so made by mail shall be deemed complete on the date of actual delivery as shown by the addressee's registry or certification receipt or at the expiration of the third (3rd) business day after the date of mailing, whichever is earlier in time. Either party may from time to time, by notice in writing served upon the other as aforesaid, designate a different mailing address or a different person to which such notices or other communications are thereafter to be addressed or delivered. 15. FURTHER ASSURANCES. The Consultant shall, upon request of the Company, take all actions and execute all documents requested by the Company which the Company deems to be reasonably necessary to effectuate the terms and intent of this Agreement and, when required by any provision of this Agreement to transfer all or any portion of the Common Stock purchased hereunder to the Company (and its assignees), the Consultant shall deliver such Common Stock endorsed in blank or accompanied by Stock Assignments Separate from Certificate endorsed in blank, so that title thereto will pass by delivery alone. Any sale or transfer by the Consultant of the Common Stock to the Company (and its assignees) shall be made free of any and all claims, encumbrances, liens and restrictions of every kind, other than those imposed by this Agreement. Consultant Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 14 16. SUCCESSORS. Except to the extent the same is specifically limited by the terms and provisions of this Agreement, this Agreement is binding upon the Consultant and the Consultant's successors, heirs and personal representatives, and upon the Company, its successors and assigns. 17. TERMINATION OR AMENDMENT. Subject to the terms and conditions of the Plan, the Board may terminate or amend the Plan and/or the Option at any time; provided, however, that no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Consultant. 18. INTEGRATED AGREEMENT. This Agreement and the Plan constitute the entire understanding and agreement of the Consultant and the Company with respect to the subject matter contained herein, and there are no agreements, understandings, restrictions, representations, or warranties between the Consultant and the Company other than those set forth or provided for herein. To the extent contemplated herein, the provisions of this Agreement shall survive any exercise of the Option and shall remain in full force and effect. 19. OTHER MISCELLANEOUS TERMS. Titles and captions contained in this Agreement are inserted only as a matter of convenience and for reference, and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision hereof. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 20. INDEPENDENT TAX ADVICE. The Consultant agrees that he or she has obtained or will obtain the advice of independent tax counsel (or has determined not to obtain such advice, having had adequate opportunity to do so) regarding the federal and state income tax consequences of the receipt and exercise of the Option and of the disposition of Common Stock acquired upon exercise hereof. The Consultant acknowledges that he or she has not relied and will not rely upon any advice or representation by the Company or by its employees or representatives with respect to the tax treatment of the Option. Consultant Non-Qualified Stock Option Agreement Portola Packaging, Inc. Page 15 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first hereinabove written. COMPANY: PORTOLA PACKAGING, INC. a Delaware corporation By: ----------------------------------- Its: ----------------------------------- Address: 890 Faulstich Court San Jose, California 95112 CONSULTANT: ---------------------------------------- (Signature) Name Printed: -------------------------- Address: ------------------------------ ------------------------------ ------------------------------ SCHEDULE OF EXHIBITS EXHIBIT A: Form of Notice of Exercise and Investment Representation Statement for Portola Packaging, Inc. Consultant Non-Qualified Stock Option Agreement EXHIBIT B: 1994 Stock Option Plan EXHIBIT C: Section 260.141.11 of the Rules of the Commissioner of Corporations of the State of California. EX-4.05 3 EXHIBIT 4.05 EXHIBIT 4.05 PORTOLA PACKAGING, INC. 1996 EMPLOYEE STOCK PURCHASE PLAN 1. PURPOSE. The Portola Packaging, Inc. 1996 Employee Stock Purchase Plan (the "PLAN") is established to provide eligible employees of Portola Packaging, Inc., a Delaware corporation, ("PPI"), and any current or future parent or subsidiary corporations of PPI which the Board of Directors of PPI (the "BOARD") determines should be included in the Plan (PPI along with such parent or subsidiary corporation, collectively, the "COMPANY"), with an opportunity to acquire a proprietary interest in PPI by the purchase of Common Stock of PPI. (PPI and any parent or subsidiary corporation designated by the Board as a participating corporation shall be individually referred to herein as a "PARTICIPATING COMPANY.") For purposes of the Plan, a parent corporation and a subsidiary corporation shall be as defined in sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended, (the "CODE"). PPI intends the Plan to qualify as an "employee stock purchase plan" under Section 423 of the Code (including any amendments to or replacements of such Section), and the Plan shall be so construed. Any term not expressly defined in the Plan but defined for purposes of Section 423 of the Code shall have the same definition herein. An employee participating in the Plan may withdraw his or her accumulated payroll deductions (if any) therein at any time during an Offering Period (as defined below). Accordingly, each participating employee is, in effect, granted an option pursuant to the Plan (a "PURCHASE RIGHT") which may or may not be exercised at the end of an Offering Period and which is intended to qualify as an option described in Section 423 of the Code. 2. ADMINISTRATION. The Plan shall be administered by the Board or by a duly appointed committee of the Board having such powers as shall be specified by the Board. The Board shall have the sole and absolute discretion to determine from time to time what parent corporations and/or subsidiary corporations shall be Participating Companies. All questions of interpretation of the Plan or of any Purchase Right shall be determined by the Board and shall be final and binding upon all persons having an interest in the Plan and/or any Purchase Right. Subject to the provisions of the Plan, the Board shall determine all of the relevant terms and conditions of Purchase Rights granted pursuant to the Plan; provided, however, that all employees granted Purchase Rights pursuant to the Plan shall have the same rights and privileges within the meaning of Section 423(b)(5) of the Code. All expenses incurred in connection with the administration of the Plan shall be paid by PPI. 3. SHARE RESERVE. The maximum number of shares which may be issued under the Plan shall be seven hundred fifty thousand (750,000) shares of PPI's Class B Common Stock, Series 1 comprised of authorized but unissued shares and/or treasury shares (the "SHARES"). In the event that any Purchase Right for any reason expires or is canceled or terminated, the Shares allocable to the unexercised portion of such Purchase Right may again be subjected to a Purchase Right. 4. ELIGIBILITY. Any employee of a Participating Company is eligible to participate in the Plan except the following: (a) employees who have not completed ninety (90) days of continuous employment with the Company as of the commencement of an Offering Period; Portola Packaging, Inc. 1996 Employee Stock Purchase Plan Page 2 (b) employees who are customarily employed by the Company for less than twenty (20) hours a week; (c) employees whose customary employment with the Company is for not more than five (5) months in any calendar year; and (d) employees who, together with any other person where stock would be attributed to such employee pursuant to Section 424(d) of the Code, own or hold options to purchase or who, as a result of participation in this Plan, would own or hold options to purchase, stock of PPI possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of PPI within the meaning of Section 423(b)(3) of the Code. Notwithstanding anything herein to the contrary, any individual performing services for the Company solely through a leasing agency or employment agency shall not be deemed an "employee" of the Company. 5. OFFERING DATES. (a) OFFERING PERIODS. Except as otherwise set forth below, the Plan shall be implemented by sequential offerings (individually an "OFFERING") of twelve (12) months duration (an "OFFERING PERIOD"). An Offering Period shall commence on the first day of January and end on the last day of December of each year. The initial Offering Period shall commence on January 1, 1997, and end on December 31, 1997. Notwithstanding the foregoing, the Board may establish a different term for one or more Offerings and/or different commencing and/or ending dates for such Offerings. An employee who becomes eligible to participate in the Plan after an Offering Period has commenced shall not be eligible to participate in such Offering but may participate in any subsequent Offering provided such employee is still eligible to participate in the Plan as of the commencement of any such subsequent Offering. The first day of an Offering Period shall be the "OFFERING DATE" for such Offering Period. The last day of an Offering Period shall be the "PURCHASE DATE" for such Offering Period. In the event the first and/or last day of an Offering Period is not a business day, the Board shall specify the business day that will be deemed the first or last day, as the case may be, of the Offering Period. (b) GOVERNMENTAL APPROVAL; STOCKHOLDER APPROVAL. Notwithstanding any other provision of the Plan to the contrary, any Purchase Right granted pursuant to the Plan shall be subject to (i) obtaining all necessary governmental approvals and/or qualifications of the sale and/or issuance of the Purchase Rights and/or the Shares, and (ii) obtaining the approval of the Plan by the stockholders of PPI. Notwithstanding the foregoing, stockholder approval shall not be necessary in order to grant any Purchase Right on the Offering Date of the Plan's initial Offering Period; provided; however, that the exercise of any such Purchase Right shall be subject to obtaining stockholder approval of the Plan. 6. PARTICIPATION IN THE PLAN. (a) INITIAL PARTICIPATION. An eligible employee shall become a participant in the Plan (a "PARTICIPANT") on the first Offering Date after satisfying the eligibility requirement and delivering to PPI not later than the close of business on the date fourteen (14) days prior to such Offering Date (the "SUBSCRIPTION DATE") a subscription agreement indicating the employee's election to participate in the Plan and authorizing payroll deductions. An eligible employee who does not deliver a subscription agreement to PPI on or before the Subscription Date shall not participate in the Plan for that Offering Period or for any subsequent Offering Period unless such eligible employee subsequently enrolls in the Plan by filing a subscription agreement with Portola Packaging, Inc. 1996 Employee Stock Purchase Plan Page 3 PPI on or before the Subscription Date for such subsequent Offering Period. PPI may, from time to time, change the Subscription Date as deemed advisable by the Board in its sole discretion for proper administration of the Plan. (b) CONTINUED PARTICIPATION. Participating in the Plan shall continue until (i) the Participant ceases to be eligible as provided in Section 4, (ii) the Participant withdraws from the Plan pursuant to Section 11, or (iii) the Participant terminates employment as provided in Section 12. At the end of an Offering Period, each Participant in such terminating Offering Period shall automatically participate in the next Offering Period according to the same elections contained in the Participant's subscription agreement effective for the Offering Period which has just ended, provided such Participant is still eligible to participate in the Plan as provided in Section 4. However, a Participant may file a subscription agreement with respect to such subsequent Offering Period on or before the applicable Subscription Date if the Participant desires to change any of the Participant's elections contained in the Participant's then effective subscription agreement. 7. RIGHTS TO PURCHASE SHARES. Enrollment by an eligible employee in the Plan with respect to an Offering Period will constitute the grant (as of the Offering Date) by PPI to such employee of a Purchase Right to purchase on the Purchase Date up to the number of whole Shares determined by dividing the amount accumulated in such employee's payroll deduction account during such Offering Period by the Offering Exercise Price (as defined in Section 8 below); provided, however, that the number of Shares subject to any option granted pursuant to this Plan shall not exceed the lesser of (a) the maximum number of Shares which may be purchased pursuant to Section 10(a) below with respect to the applicable Offering Period, or (b) the maximum number of Shares set by the Board pursuant to Section 10(b) below with respect to the applicable Offering Period. Fair market value of a Share shall be determined as provided in Section 8 hereof. 8. PURCHASE PRICE. The purchase price at which Shares may be acquired at the end of an Offering pursuant to the exercise of a Purchase Right granted under the Plan (the "OFFERING EXERCISE PRICE") shall be eighty-five percent (85%) of the lesser of (a) the fair market value of the Shares on the Offering Date of such Offering Period or (b) the fair market value of the Shares on the Purchase Date of such Offering Period. For purposes of the Plan the term "FAIR MARKET VALUE" of a Share on a given date shall mean the fair market value of a share of PPI's Class B Common Stock, Series 1 as determined by the Board in its sole discretion, exercised in good faith; provided, however, that where there is a public market for the Class B Common Stock, Series 1 the fair market value per share shall be the average of the closing bid and asked prices of the Class B Common Stock, Series 1 on the last trading day prior to the date of determination, as reported in THE WALL STREET JOURNAL (or if not so reported, as otherwise reported by the Nasdaq Stock Market), or, in the event the Class B Common Stock, Series 1 is listed on a stock exchange or on the Nasdaq National Market, the fair market value per share shall be the closing price on the exchange or on the Nasdaq National Market on that last trading date prior to the date of determination as reported in THE WALL STREET JOURNAL. For purposes of this Section 8, a "public market" shall be deemed to exist if (i) such stock is listed on a national securities exchange (as that term is used in the Securities Exchange Act of 1934, as amended) or (ii) such stock is traded on the over-the-counter market and prices therefor are published daily on business days in a recognized financial journal. 9. PAYMENT OF PURCHASE PRICE. Shares which are acquired pursuant to the exercise of a Purchase Right for a given Offering Period may be paid for only by means of payroll deductions from the Participant's Compensation accumulated during the Offering Period. For purposes of the Plan, a Participant's "COMPENSATION" with respect to an Offering shall include only amounts paid as base salary and shall exclude, without limitation, commissions, bonuses, overtime, reimbursements of expenses, allowances, or any amount deemed received without the actual transfer of cash or any amounts directly or indirectly paid pursuant to the Portola Packaging, Inc. 1996 Employee Stock Purchase Plan Page 4 Plan or any other stock purchase or stock option plan; provided however, that for purposes of determining a Participant's Compensation, any election by such Participant to reduce his or her regular cash remuneration under Sections 125 or 401(k) of the Code shall be treated as if such Participant did not make such election. Except as set forth below, the amount of Compensation to be withheld from a Participant's Compensation during each pay period shall be determined by the Participant's subscription agreement. (a) ELECTION TO DECREASE WITHHOLDING. During an Offering Period, a Participant may elect to decrease the amount withheld from his or her Compensation by filing an amended subscription agreement with PPI on or before the Change Notice Date. The "CHANGE NOTICE DATE" shall initially be the fourteenth (14th) day prior to the end of the first pay period for which such election is to be effective; however, the Board may change such Change Notice Date from time to time. A Participant may not elect to increase the amount withheld from the Participant's Compensation during an Offering Period. (b) LIMITATIONS ON PAYROLL WITHHOLDING. The amount of payroll withholding with respect to the Plan for any Participant during any pay period shall be in one percent (1%) increments and not exceed ten percent (10%) of the Participant's Compensation for such pay period. The foregoing maximum amount to be withheld shall be reduced by any amounts contributed by the Participant and applied to the purchase of PPI stock pursuant to any other employee stock purchase plan qualifying under Section 423 of the Code. (c) PAYROLL DEDUCTION. Payroll deductions shall commence on the first payday following the Offering Date and shall continue until the last payday occurring on or before the end of the Offering Period unless sooner altered or terminated as provided in the Plan. (d) PARTICIPANT ACCOUNTS. Individual accounts shall be maintained for each Participant. All payroll deductions from a Participant's Compensation shall be credited to such account and shall be deposited with the general funds of PPI. All payroll deductions received or held by PPI may be used by PPI, for any corporate purpose. (e) NO INTEREST PAID. Interest shall not be paid on sums withheld from a Participant's Compensation. (f) EXERCISE OF PURCHASE RIGHT. On the Purchase Date of an Offering Period and subject to the limitations set forth in Section 10 hereof, each Participant who has not withdrawn from the Offering and whose participation in the Offering has not terminated on or before such Purchase Date shall acquire pursuant to automatic exercise of the Participant's Purchase Right the number of whole Shares arrived at by dividing the total amount of the Participant's accumulated payroll deductions for the Offering Period by the Offering Exercise Price. No Shares shall be purchased on behalf of a Participant whose participation in the Offering or the Plan has terminated on or before the date of such exercise. (g) RETURN OF CASH BALANCE. Any cash balance remaining in the Participant's account after the exercise of Purchase Rights for an Offering Period shall be refunded to the Participant as soon as practical after the Purchase Date of such Offering Period; provided, however, that any amount remaining in such Participant's account on a Purchase Date which is less than the amount necessary to purchase a full Share shall be carried forward, without interest, and applied toward the purchase of Shares in the subsequent Offering Period. (h) TAXES. At the time the Purchase Right is exercised, or at the time some or all of the Shares are disposed of, the Participant shall make adequate provision for foreign, federal and state tax withholding obligations of the Company, if any, which arise upon exercise of the Purchase Right and/or upon disposition of Portola Packaging, Inc. 1996 Employee Stock Purchase Plan Page 5 Shares. The Participating Company may, but shall not be obligated to, withhold from the Participant's Compensation the amount necessary to meet such withholding obligations. (i) PARTICIPATING COMPANY ESTABLISHED PROCEDURES. The Board may, from time to time, establish or change (i) a minimum required withholding amount for participation in any Offering, (ii) limitations on the frequency and/or number of changes in the amount withheld during an Offering, (iii) an exchange ratio applicable to amounts withheld in a currency other than U.S. Dollars, (iv) payroll withholding in excess of or less than the amount designated by a Participant in order to adjust for delays or mistakes in PPI's processing of subscription agreements, (v) the date(s) and manner by which the fair market value of the Shares is determined for the purposes of the administration of the Plan, (vi) a procedure(s) for administering purchases of a small number of Shares by issuing uncertificated Shares and/or holding Shares in escrows pending sale of the Shares and/or accumulation of a minimum number of Shares, and/or (vii) such other limitations or procedures as deemed advisable by the Board in the Board's sole discretion which are consistent with the Plan. 10. LIMITATIONS ON PURCHASE OF SHARES; RIGHTS AS A STOCKHOLDER. (a) FAIR MARKET VALUE LIMITATION. Notwithstanding any other provision of the Plan, no Participant shall be entitled to purchase Shares under the Plan at a rate which exceeds $25,000 in fair market value, determined as of the Offering Date for each Offering Period (or such other limit as may be imposed by the Code), for each calendar year in which the Participant participates in the Plan. (b) ALLOCATION OF SHARES. In the event the number of Shares which might be purchased by all Participants in the Plan exceeds the number of Shares available in the Plan, the Board shall make a pro rata allocation of the remaining Shares in as uniform a manner as shall be practicable and as the Board shall determine to be equitable. (c) RIGHTS AS A STOCKHOLDER AND EMPLOYEE. A Participant shall have no rights as a stockholder by virtue of the Participant's participation in the Plan until the date of the issuance of a stock certificate(s) for the Shares being purchased pursuant to the exercise of the Participant's Purchase Right. No adjustment shall be made for cash dividends or distributions or other rights for which the record date is prior to the date such stock certificate(s) are issued. Nothing herein shall confer upon a Participant any right to continue in the employ of the Company or interfere in any way with any right of the Company to terminate the Participant's employment at any time. Participants in the Plan shall be provided annual financial statements of the Company. 11. WITHDRAWAL. (a) WITHDRAWAL FROM AN OFFERING. A Participant may withdraw from an Offering by signing a written notice of withdrawal on a form provided by PPI for such purpose and delivering such notice to PPI at least fourteen (14) days prior to the end of an Offering Period. Unless otherwise indicated by the Participant, withdrawal from an Offering shall not result in a withdrawal from the Plan or any succeeding Offering therein. A Participant is prohibited from again participating in an Offering upon withdrawal from such Offering. Upon withdrawal from an Offering, the accumulated payroll deductions shall be refunded to the withdrawn Participant without interest; provided, however that if the amount remaining in such Participant's account upon withdrawal from an Offering is less than the amount necessary to purchase a full Share, such amount shall be carried forward, without interest, and applied toward the purchase of Shares in the subsequent Offering Period. Portola Packaging, Inc. 1996 Employee Stock Purchase Plan Page 6 (b) WITHDRAWAL FROM THE PLAN. A Participant may withdraw from the Plan by signing a written notice of withdrawal on a form provided by PPI for such purpose and delivering such notice to PPI at least fourteen (14) days prior to the end of an Offering Period. In the event a Participant voluntarily elects to withdraw from the Plan, the Participant may not resume participation in the Plan during the same Offering Period, but may participate in any subsequent Offering under the Plan by again satisfying the requirements of Section 6. Upon withdrawal from the Plan, the accumulated payroll deductions shall be returned to the withdrawn Participant, without interest, and his or her interest in the Plan shall terminate. (c) PARTICIPANTS SUBJECT TO SECTION 16(b). Notwithstanding the provisions of Subsections 11(a) and 11(b), a Participant subject to the provisions of Section 16(b) of the Exchange Act who withdraws from an Offering or the Plan will first become eligible to resume participation in the Plan with the first Offering that commences at least six (6) months after the end of the Offering from which the Participant withdrew pursuant to Subsections 11(a) or 11(b). 12. TERMINATION OF EMPLOYMENT. (a) DUE TO DEATH OR DISABILITY. Termination of a Participant's employment with the Company on account of either death or disability shall terminate the Participant's participation in the Plan following the earlier to occur of: (i) the end of the Offering Period in which the Participant's death or disability occurs, or (ii) the date that the federal income tax consequences of an exercise of the Purchase Right will no longer be governed by Section 421(a) and Section 423(a) of the Code. In the event of termination of a Participant's employment on account of the Participant's death, the Participant's legal representative shall have the right to withdraw from the Plan according to the terms of Section 11 prior to the time the deceased Participant's participation in the Plan terminates. For purposes of this Section 12, an employee will not be deemed to have terminated employment or failed to remain in the continuous employ of the Company in the case of sick leave, military leave, or any other leave of absence approved by the Board; provided that such leave is for a period of not more than ninety (90) days or reemployment upon the expiration of such leave is guaranteed by contract or statute. (b) NOT DUE TO DEATH OR DISABILITY. Termination of a Participant's employment with the Company for any reason other than death or disability, including the failure of a Participant to remain an employee eligible to participate in the Plan, shall terminate the Participant's participation in the Plan upon such termination of employment. A Participant whose participation has been so terminated may again become eligible to participate in the Plan by again satisfying the requirements of Sections 4 and 6. 13. TRANSFER OF CONTROL. A "TRANSFER OF CONTROL" shall be deemed to have occurred in the event any of the following occurs with respect to PPI: (a) the direct or indirect sale or exchange by the stockholders of PPI of all or substantially all of the stock of PPI where the stockholders of PPI before such sale or exchange do not retain, directly or indirectly, at least a majority of the beneficial interest in the voting stock of PPI or its ultimate parent after such sale or exchange; Portola Packaging, Inc. 1996 Employee Stock Purchase Plan Page 7 (b) a merger in which the stockholders of PPI before such merger do not retain, directly or indirectly, at least a majority of the beneficial interest in the voting stock of PPI or its ultimate parent after such sale or exchange; or (c) the sale, exchange, or transfer of all or substantially all of PPI's assets (other than a sale, exchange, or transfer to one (1) or more corporations where the stockholders of PPI before such sale, exchange, or transfer retain, directly or indirectly, at least a majority of the beneficial interest in the voting stock of the corporation(s) to which the assets were transferred or its ultimate parent after such sale or exchange). In the event of a Transfer of Control, the Board, in its sole discretion, shall either (i) provide that Purchase Rights granted under the Plan shall be fully exercisable to the extent of each Participant's account balance for the Offering Period as of a date prior to the Transfer of Control, as the Board so determines or (ii) arrange with the surviving, continuing, successor, or purchasing corporation, as the case may be, that such corporation assume PPI's rights and obligations under the Plan. All Purchase Rights shall terminate effective as of the date of the Transfer of Control to the extent that the Purchase Right is neither exercised as of the date of the Transfer of Control nor assumed by the surviving, continuing, successor, or purchasing corporation, as the case may be. 14. CAPITAL CHANGES. In the event of changes in the stock of PPI due to a stock split, reverse stock split, stock dividend, combination, reclassification, or like change in PPI's capitalization, or in the event of any merger, sale or other reorganization, including, without limitation, the acquisition of PPI (whether or not such acquisition constitutes a Transfer of Control), appropriate adjustments shall be made by PPI in the Plan's share reserve, the number of Shares subject to a Purchase Right and in the purchase price per share, including, without limitation, the number of Shares subject to a Purchase Right as set forth in Section 7. Such adjustment shall be made by the Board, whose determination shall be final, binding and conclusive. Except as expressly provided herein, no issue by PPI of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares. If the change in PPI's stock occurs as a result of the acquisition of PPI, the Board may substitute the acquiring company's stock for the stock of PPI in applying the provisions of this Section 14. 15. NON-TRANSFERABILITY. A Purchase Right may not be transferred in any manner otherwise than by will or the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant. 16. REPORTS. Each Participant for whom a Purchase Right was exercised for an Offering Period shall receive as soon as practical after the Purchase Date of such Offering Period, a report of such Participant's account setting forth the total payroll deductions accumulated, the number of Shares purchased and the remaining cash balance to be refunded or retained in the Participant's account pursuant to Section 9(g), if any. 17. PLAN TERM. This Plan shall continue until terminated by the Board or until all of the Shares reserved for issuance under the Plan have been issued or until January 1, 2007, whichever shall first occur. 18. RESTRICTION ON ISSUANCE OF SHARES. The issuance of shares pursuant to the Purchase Right shall be subject to compliance with all applicable requirements of federal or state law with respect to such securities. The Purchase Right may not be exercised if the issuance of shares upon such exercise would constitute a violation of any applicable federal or state securities laws or other laws or regulations. No Purchase Right may be exercised unless (i) a registration statement under the Securities Act of 1933, as amended, shall at the time of exercise of the Purchase Right be in effect with respect to the shares issuable upon exercise of the Purchase Portola Packaging, Inc. 1996 Employee Stock Purchase Plan Page 8 Right, or (ii) in the opinion of legal counsel to PPI, the shares issuable upon exercise of the Purchase Right may be issued in accordance with the terms of an applicable exemption from the registration requirements of said Act. As a condition to the exercise of the Purchase Right, PPI may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by PPI. 19. RIGHT OF FIRST REFUSAL. (a) RIGHT OF FIRST REFUSAL. In the event the Participant proposes to sell, pledge or otherwise transfer any Shares (the "TRANSFER SHARES") to any person or entity, including, without limitation, any stockholder of PPI, PPI shall have the right to repurchase the Transfer Shares under the terms and subject to the conditions set forth in this Section 19 (the "RIGHT OF FIRST REFUSAL"). (b) NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer of the Transfer Shares, the Participant shall give a written notice (the "TRANSFER NOTICE") to PPI describing fully the proposed transfer, including the number of Transfer Shares, the name and address of the proposed transferee (the "PROPOSED TRANSFEREE"), and if the transfer is voluntary, the proposed transfer price. In the event of a bona fide gift or involuntary transfer, the proposed transfer price shall be deemed to be the fair market value of the Transfer Shares as determined by the Board in good faith. In the event the Participant proposes to transfer any Shares to more than one Proposed Transferee, the Participant shall provide a separate Transfer Notice for the proposed transfer to each Proposed Transferee. The Transfer Notice shall be signed by both the Participant and the Proposed Transferee and must constitute a binding commitment of the Participant and the Proposed Transferee for the transfer of the Transfer Shares to the Proposed Transferee subject only to the Right of First Refusal. (c) BONA FIDE TRANSFER. Within ten (10) days after receipt of the Transfer Notice, PPI shall determine the bona fide nature of the proposed voluntary transfer and give the Participant written notice of PPI's determination. If the proposed transfer is deemed not to be BONA FIDE, the Participant shall be responsible for providing additional information to PPI to show the bona fide nature of the proposed transfer. PPI shall have the right to demand further assurances from the Participant and the Proposed Transferee (in a form satisfactory to PPI) that the Transfer Notice fully and accurately sets forth all of the terms and conditions of the proposed transfer, including, without limitation, assurance that the Transfer Notice fully and accurately sets forth the consideration actually paid for the Transfer Shares and all transactions, directly or indirectly, between the parties which may have affected the price the Proposed Transferee was willing to pay for the Transfer Shares. (d) EXERCISE OF THE RIGHT OF FIRST REFUSAL. In the event the proposed transfer is deemed to be bona fide, PPI shall have the right to purchase all, but not less than all, of the Transfer Shares at the purchase price and on the terms set forth in the Transfer Notice by delivery to the Participant of a notice of exercise of the Right of First Refusal within thirty (30) days after the date the Transfer Notice is delivered to PPI or ten (10) days after PPI has approved the proposed transfer as bona fide, whichever is later. PPI's exercise or failure to exercise the Right of First Refusal with respect to any proposed transfer described in a Transfer Notice shall not affect PPI's ability to exercise the Right of First Refusal with respect to any proposed transfer described in any other Transfer Notice, whether or not such other Transfer Notice is issued by the Participant or issued by a person other than the Participant with respect to a proposed transfer to the same Proposed Transferee. If PPI exercises the Right of First Refusal, PPI and the Participant shall thereupon consummate the sale of the Transfer Shares to PPI on the terms set forth in the Transfer Notice; provided, however, that in the event the Transfer Notice provides for the payment for the Transfer Shares other than in cash, PPI shall have the option of paying for the Transfer Shares by the discounted cash equivalent of the consideration described in the Transfer Notice as reasonably determined by PPI. For purposes of the foregoing, cancellation of any Portola Packaging, Inc. 1996 Employee Stock Purchase Plan Page 9 indebtedness from the Participant to PPI shall be treated as payment to the Participant in cash to the extent of the unpaid principal and any accrued interest canceled. (e) FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If PPI fails to exercise the Right of First Refusal in full within the period specified in Section 19(d) above, the Participant may conclude a transfer to the Proposed Transferee of the Transfer Shares on the terms and conditions described in the Transfer Notice, provided such transfer occurs not later than one hundred twenty (120) days following delivery to PPI of the Transfer Notice. PPI shall have the right to demand further assurances from the Participant and the Proposed Transferee (in a form satisfactory to PPI) that the transfer of the Transfer Shares was actually carried out on the terms and conditions described in the Transfer Notice. No Transfer Shares shall be transferred on the books of PPI until PPI has received such assurances, if so demanded, and has approved the proposed transfer as bona fide, pursuant to Section 19(c) above. Any proposed transfer on terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed transfer by the Participant, shall again be subject to the Right of First Refusal and shall require compliance by the Participant with the procedure described in this Section 19. (f) TRANSFEREES OF THE TRANSFER SHARES. All transferees of the Transfer Shares or any interest therein, other than PPI, shall be required as a condition of such transfer to agree in writing (in a form satisfactory to PPI) that such transferee shall receive and hold such Transfer Shares or interests subject to the provisions of this Section 19 providing for the Right of First Refusal with respect to any subsequent transfer. Any sale or transfer of any shares acquired upon exercise of the Purchase Right shall be void unless the provisions of this Section 19 are met. (g) TRANSFERS NOT SUBJECT TO THE RIGHT OF FIRST REFUSAL. The Right of First Refusal shall not apply to any transfer or exchange of the Shares if such transfer is in connection with an Ownership Change. An "Ownership Change" shall be deemed to have occurred in the event any of the following occurs with respect to PPI: (i) the direct or indirect sale or exchange by the stockholders of PPI of all or substantially all of the stock of PPI; (ii) a merger in which PPI is a party; or (iii) the sale, exchange, or transfer of all or substantially all of PPI's assets (other than a sale, exchange, or transfer to one or more corporations where the stockholders of PPI before such sale, exchange, or transfer retain, directly or indirectly, at least a majority of the beneficial interest in the voting stock of the corporation(s) to which the assets were transferred). (h) ASSIGNMENT OF THE RIGHT OF FIRST REFUSAL. PPI shall have the right to assign the Right of First Refusal at any time, whether or not the Participant has attempted a transfer, to one or more persons as may be selected by PPI. (i) EARLY TERMINATION OF THE RIGHT OF FIRST REFUSAL. The other provisions of this Section 19 notwithstanding, the Right of First Refusal shall terminate, and be of no further force and effect upon (i) the occurrence of a Transfer of Control as defined in Section 13, unless the surviving, continuing, successor, or purchasing corporation, as the case may be, assumes PPI's rights and obligations under the Plan, or (ii) the existence of a public market for the class of Shares subject to the Right of First Refusal. For purposes of this Section 19(i), "public market" shall have the meaning set forth in Section 8 of this Plan. Portola Packaging, Inc. 1996 Employee Stock Purchase Plan Page 10 20. STOCK DIVIDENDS SUBJECT TO RIGHT OF FIRST REFUSAL. If, from time to time, there is any stock dividend, stock split or other change in the character or amount of any of the outstanding stock of PPI, then in such event any and all new substituted or additional securities to which the Participant is entitled by reason of the Participant's ownership of the Shares acquired upon exercise of the Purchase Right shall be immediately subject to the Right of First Refusal with the same force and effect as the Shares subject to the Right of First Refusal immediately before such event. 21. ESCROW. (a) ESTABLISHMENT OF ESCROW. To insure Shares subject to the Right of First Refusal will be available for repurchase and/or to ease the administrative burden of issuing certificates for a small number of Shares, PPI may require the Participant to deposit the certificates evidencing the Shares which the Participant purchases upon exercise of the Purchase Right with PPI or with an escrow agent designated by PPI under the terms and conditions of an escrow agreement approved by PPI. If PPI does not require such deposit as a condition of exercise of the Purchase Right, PPI reserves the right at any time to require the Participant to so deposit the certificates in escrow. PPI shall bear the expenses of the escrow. (b) DELIVERY OF SHARES TO PARTICIPANT. As soon as practicable after the expiration of the Right of First Refusal and either the Participant has accumulated the minimum number of Shares to demand a certificate or the Participant desires to sell the Shares, the escrow agent shall deliver to the Participant the Shares no longer subject to such restriction. (c) NOTICES AND PAYMENTS. In the event the Shares held in escrow are subject to PPI's exercise of the Right of First Refusal, the notices required to be given to the Participant shall be given to the escrow agent and any payment required to be given to the Participant shall be given to the escrow agent. Within thirty (30) days after payment by PPI, the escrow agent shall deliver the Shares which PPI has purchased to PPI and shall deliver the payment received from PPI to the Participant. 22. LEGENDS. PPI may at any time place legends or other identifying symbols referencing the Right of First Refusal set forth in Section 19 and any applicable federal and/or state securities restrictions and any provision convenient in the administration of the Plan on some or all of the certificates representing Shares issued under the Plan. The Participant shall, at the request of PPI, promptly present to PPI any and all certificates representing Shares acquired pursuant to a Purchase Right in the possession of the Participant in order to effectuate the provisions of this Section. Unless otherwise specified by PPI, legends placed on such certificates may include but shall not be limited to the following: "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN THE 1996 EMPLOYEE STOCK PURCHASE PLAN, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION." 23. TRANSFER RESTRICTIONS. The Board, in its absolute discretion, may impose such restrictions on the transferability of the Shares purchasable upon the exercise of a Purchase Right as it deems appropriate and any such restriction shall be set forth in the respective subscription agreement and may be referred to on the certificates evidencing such Shares. 24. AMENDMENT OR TERMINATION OF THE PLAN. The Board may at any time amend or terminate the Plan, except that (i) such termination shall not affect Purchase Rights previously granted under the Plan except Portola Packaging, Inc. 1996 Employee Stock Purchase Plan Page 11 as permitted by the Plan, and (ii) no amendment may adversely affect a Purchase Right previously granted under the Plan (except to the extent permitted by the Plan or as may be necessary to qualify the Plan as an employee stock purchase plan pursuant to Section 423 of the Code). In addition, an amendment to the Plan must be approved by the stockholders of PPI, within the meaning of Section 423 of the Code, within twelve (12) months of the adoption of such amendment if such amendment would authorize the sale of more shares than are authorized for issuance under the Plan or would change the definition of the corporations that may be designated by the Board as a corporation the employees of which are eligible to participate in the Plan. IN WITNESS WHEREOF, the undersigned Secretary of Portola Packaging, Inc. certifies that the foregoing Portola Packaging, Inc. 1996 Employee Stock Purchase Plan was duly adopted by the Board of Directors of Portola Packaging, Inc. on the 20th day of May, 1996. PORTOLA PACKAGING, INC. 1996 EMPLOYEE STOCK PURCHASE PLAN SUBSCRIPTION AGREEMENT Original Application Change in Amount of Payroll Deductions I hereby elect to participate in the Portola Packaging, Inc. 1996 Employee Stock Purchase Plan (the "STOCK PURCHASE PLAN") of Portola Packaging, Inc. (the "COMPANY") and subscribe to purchase shares of the Company's Class B Common Stock, Series 1 (the "SHARES") as determined in accordance with the terms of the Stock Purchase Plan. I hereby authorize payroll deductions in the amount of _____% of my Compensation (as defined in the Stock Purchase Plan) from each paycheck throughout the Offering Period (as defined in the Stock Purchase Plan) in accordance with the terms of the Stock Purchase Plan. (The amount deducted each pay period must be in 1% increments and must be at least 1% and no more than 10% of compensation.) I understand that these payroll deductions will be accumulated for the purchase of Shares at the applicable purchase price determined in accordance with the Stock Purchase Plan. I further understand that, except as otherwise set forth in the Stock Purchase Plan, Shares will be purchased for me automatically on the last day of the Offering Period unless I withdraw from the Stock Purchase Plan or from the Offering Period by giving written notice to the Company or unless I terminate employment. I understand that I will automatically participate in each subsequent Offering Period under the Stock Purchase Plan until such time as I file with the Company a notice of withdrawal from the Stock Purchase Plan (or any such subsequent Offering Period) on such form as may be established from time to time by the Company or I terminate employment. Shares purchased for me under the Stock Purchase Plan should be issued in the name set forth below. (I understand that Shares may be issued either in my name alone or together with my spouse as community property or in joint tenancy.) NAME: ------------------------- ADDRESS: ------------------------- ------------------------- MY SOCIAL SECURITY NUMBER: --------------- I am familiar with the terms and provisions of the Stock Purchase Plan, including, without limitation, the Right of First Refusal set forth in Section 19 of the Stock Purchase Plan, and hereby agree to participate in the Stock Purchase Plan subject to all of the terms and provisions thereof. I understand that the Board reserves the right to amend the Stock Purchase Plan and my right to purchase Shares under the Stock Purchase Plan as may be necessary to qualify the Plan as an employee stock purchase plan as defined in Section 423 of the Internal Revenue Code of 1986, as amended. I understand that the effectiveness of this subscription agreement is dependent upon my eligibility to participate in the Stock Purchase Plan. Date: Signature: ------------------ ----------------------------- PORTOLA PACKAGING, INC. 1996 EMPLOYEE STOCK PURCHASE PLAN NOTICE OF WITHDRAWAL I hereby elect to withdraw from the current offering (the "OFFERING") of the Class B Common Stock, Series 1 (the "COMMON STOCK") of Portola Packaging, Inc. (the "COMPANY") under the Portola Packaging, Inc. 1996 Employee Stock Purchase Plan (the "STOCK PURCHASE PLAN"), and hereby request that all payroll deductions credited to my account under the Stock Purchase Plan with respect to the Offering (if any), and not previously used to purchase shares of Common Stock of the Company under the Stock Purchase Plan, be paid to me as soon as is practical. I understand that this Notice of Withdrawal automatically terminates my interest in the Offering. As to participation in future offerings of stock under the Stock Purchase Plan, I elect as follows: / / I elect to participate in future offerings under the Stock Purchase Plan. I understand that by making the election set forth above I will automatically participate in subsequent offerings under the Stock Purchase Plan until such time as I file with the Company a notice of withdrawal from the Stock Purchase Plan or any subsequent offering on such form as may be established from time to time by the Company or I terminate employment. (Participants subject to Section 16(b) of the Securities Exchange Act of 1934 should contact the Director of Human Resources regarding the effective date of resuming participation.) / / I elect NOT to participate in future offerings under the Stock Purchase Plan. I understand that by making the election set forth above I terminate my interest in the Stock Purchase Plan and that no further payroll deductions will be made unless I elect in accordance with the Stock Purchase Plan to become a participant in another offering under the Stock Purchase Plan. I understand that if no election is made as to participation in future offerings under the Stock Purchase Plan, I will be deemed to have elected to participate in such future offerings. Date: Signature: ------------------ ----------------------------- EXECUTIVE SUMMARY OF THE PORTOLA PACKAGING, INC. 1996 EMPLOYEE STOCK PURCHASE PLAN Below is a summary of the provisions included in the 1996 Employee Stock Purchase Plan (the "PLAN") which has been prepared for Portola Packaging, Inc. (the "COMPANY"): 1. The Plan is designed to be a plan meeting the requirements of Section 423 of the Internal Revenue Code of 1986, as amended. 2. The Plan will be implemented through consecutive offerings of twelve months duration commencing on January 1 of each year (the "OFFERING PERIODS"); 3. The maximum number of shares to be issued under the Plan will be 750,000 shares of Class B Common Stock, Series 1. 4. Participation will be available to all employees of the Company (other than certain part-time and seasonal employees and the large stockholders described in Section 12 hereof) who have been with the Company at least ninety (90) days prior to the commencement of an offering. Eligible employees must file a subscription agreement with the payroll office at least 14 days prior to the beginning of an Offering Period in order to initially participate in the Plan. 5. The employees will participate in the Plan only through payroll withholding. At the employee's election, from 1% to 10% of the employee's compensation for the payroll period will be withheld. Although the employee can increase or decrease the rate of withholding with each new Offering Period, the rate must remain within the 1% to 10% parameters for each Offering Period. Within an Offering Period the employee may only decrease the withholding. 6. If the Company has more than one Section 423 plan (if, for example, the Company acquires another company which also has a Section 423 plan), the employee's contributions to the Plan will be reduced by any amount contributed to the other plan. This requirement prevents the employee from "double dipping" by participating in more than one plan in excess of the limitations imposed by the plans. 7. In the event of a transfer of control of the Company, the outstanding options will become immediately exercisable unless they are assumed by the successor corporation. (The Board of Directors will have the ability to make all outstanding options immediately exercisable and then terminate the Plan if the acquiring corporation does not want to assume the Plan.) 8. The price at which employees will purchase shares will be 85% of the lesser of (a) the fair market value of the stock at the beginning of the Offering Period (January 1 of the applicable year) or (b) the fair market of the stock at the end of the Offering Period (December 31 of the applicable year). 9. Under the terms of the Plan, no employee will be entitled to purchase shares at a rate which exceeds $25,000 in fair market value for each calendar year in which the employee participates in the Plan. 10. The Plan will be submitted to the stockholders of the Company for their approval within 12 months of its adoption. If the stockholders do not approve the Plan, it will be terminated and outstanding options granted under the Plan will not be exercisable. Executive Summary of the Portola Packaging, Inc. 1996 Employee Stock Purchase Plan Page 2 11. The Plan initially will cover only employees of the Company and its current subsidiaries. Since the tax advantages of the Plan may be lost to employees of foreign subsidiaries and/or acquired corporations may have their own plans, the Board of Directors will have the discretion to include or exclude employees of any future subsidiary corporations. 12. Employees owning 5% or more of the total combined voting power of all classes of stock of the Company will be excluded from participation. (Both outright ownership and shares held subject to options are included in performing the 5% test.) 13. The Plan does not pay interest to the employees on the amounts withheld. 14. The Plan authorizes the Company to adopt a program for uncertificated shares or to hold shares in escrow for administrative convenience. EX-5.01 4 EXHIBIT 5.01 EXHIBIT 5.01 December 9, 1996 Portola Packaging, Inc. 890 Faulstich Court San Jose, California 95112 Re: Registration Statement on Form S-8 ---------------------------------- Ladies and Gentlemen: At your request, we have examined the Registration Statement on Form S-8 to be filed by you with the Securities and Exchange Commission on or about December 9, 1996 (the "REGISTRATION STATEMENT") in connection with the registration under the Securities Act of 1933, as amended, of an aggregate of 3,899,710 shares of your Common Stock (the "STOCK"), approximately 1,154,010 shares of which may be sold by you pursuant to options granted by you under your 1988 Stock Option Plan (the "1988 PLAN"), 1,995,700 shares of which may be sold by you pursuant to options granted or to be granted by you under your 1994 Stock Option Plan (the "1994 OPTION PLAN"), and 750,000 shares of which may be sold by you pursuant to options to be granted by you under your 1996 Employee Stock Purchase Plan (the "1996 PURCHASE PLAN"). As your counsel, we have examined the proceedings taken by you in connection with (i) the granting of options under the 1988 Plan, (ii) the granting of options under the 1994 Option Plan, and (iii) the adoption of the 1996 Purchase Plan. It is our opinion that the 3,899,710 shares of Stock that may be issued and sold by you pursuant to (i) the exercise of stock options granted under the 1988 Plan, when issued and sold in the manner referred to in the Prospectus associated with the Registration Statement, the 1988 Plan and accompanying stock options, (ii) the exercise of stock options granted and to be granted under the 1994 Option Plan, when issued and sold in the manner referred to in the Prospectus associated with the Registration Statement, the 1994 Option Plan and accompanying stock options, and (iii) the exercise of options to be granted under the 1996 Purchase Plan, when issued and sold in the manner referred to in the Prospectus associated with the Registration Statement, the 1996 Purchase Plan and accompanying options, will be legally and validly issued, fully paid and non-assessable. Portola Packaging, Inc. December 9, 1996 Page 2 We consent to the use of this opinion as an exhibit to the Registration Statement and further consent to all references to us, if any, in the Registration Statement and any amendments thereto. Very truly yours, TOMLINSON ZISKO MOROSOLI & MASER LLP EX-23.2 5 EXHIBIT 23.02 EXHIBIT 23.02 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in this registration statement on Form S-8 of our report which includes an explanatory paragraph on the adoption of a newly established standard for the impairment of long-lived assets and the adoption of Statement of Financial Accounting Standard No. 109, ACCOUNTING FOR INCOME TAXES, on our audits of the consolidated financial statements and financial statement schedule of Portola Packaging, Inc. and Subsidiaries. COOPERS & LYBRAND L.L.P. San Jose, California December 4, 1996 -----END PRIVACY-ENHANCED MESSAGE-----