10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

     (Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended November 30, 1999

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to _________

Commission file number 33-95318

PORTOLA PACKAGING, INC.
(Exact name of Registrant as specified in its Charter)

 

Delaware	94-1582719
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification Number)

890 Faulstich Court
San Jose, CA    95112
(Address of Principal Executive Offices including Zip Code)

(408) 453-8840
(Registrant's Telephone Number, Including Area Code)


(Former name, former address and former fiscal year if changed since last report)

    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [  ]

    12,115,896 shares of Registrant's $.001 par value Common Stock, consisting of 2,134,992 shares of nonvoting Class A Common Stock and 9,980,904 shares in the aggregate of voting Class B Common Stock, Series 1 and 2 combined, were outstanding at December 11, 1999.

PORTOLA PACKAGING, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX

PART I. Financial Information

Item 1. Financial statements

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

PART II. Other Information

Item 6: Exhibits and Reports on Form 8-K

Exhibit Index

PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements

PORTOLA PACKAGING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

                                                    November 30,   August 31,
                                                       1999          1999
                                                   ------------  ------------
                                                   (unaudited)
                        ASSETS
CURRENT ASSETS:
 Cash and cash equivalents.......................       $2,826        $2,372
 Accounts receivable, net........................       24,300        26,151
 Inventories.....................................       13,371        13,363
 Other current assets............................          968           799
 Deferred income taxes...........................        1,952         1,952
                                                   ------------  ------------
    Total current assets.........................       43,417        44,637

Property, plant and equipment, net...............       89,272        91,637
Goodwill, net....................................       14,843        15,402
Patents, net.....................................        2,320         2,417
Covenants not to compete, net....................           78            86
Debt financing costs, net........................        2,405         2,508
Other assets.....................................        1,505           757
                                                   ------------  ------------
      Total assets...............................     $153,840      $157,444
                                                   ============  ============

   LIABILITIES, REDEEMABLE WARRANTS, COMMON STOCK
     AND OTHER SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
 Current portion of long-term debt...............         $435          $820
 Accounts payable................................       11,269        10,063
 Book overdraft..................................        --            3,338
 Accrued liabilities.............................        5,613         6,139
 Accrued compensation............................        3,322         2,138
 Accrued interest................................        1,430         5,134
                                                   ------------  ------------
  Total current liabilities......................       22,069        27,632

Long-term debt, less current portion.............      139,221       136,275
Other long term obligations......................          902           917
Deferred income taxes............................        5,295         5,295
                                                   ------------  ------------
    Total liabilities............................      167,487       170,119
                                                   ------------  ------------
Commitments and contingencies (Note 4)

Minority interest................................        1,093         1,120
                                                   ------------  ------------
Redeemable warrants to purchase Class A
  Common Stock...................................       12,306        12,222
                                                   ------------  ------------
Common stock and other shareholders'
 equity (deficit):
  Class A convertible Common Stock of $.001
  par value:
   Authorized: 5,203 shares;  Issued and
    outstanding 2,135 shares in both periods.....            2             2
  Class B, Series 1, Common Stock of $.001
  par value:
   Authorized: 17,715 shares;  Issued and
    outstanding: 8,809 shares in 1999 and
    8,636 shares in 1998.........................            8             8
  Class B, Series 2, convertible Common Stock
  of $.001 par value:
   Authorized: 2,571 shares;  Issued and
    outstanding 1,171 shares in both periods.....            1             1
  Additional paid-in capital.....................        8,195         8,171
  Notes receivable from shareholders.............         (357)         (375)
  Accumulated other comprehensive loss...........         (915)       (1,234)
  Accumulated deficit............................      (33,980)      (32,590)
                                                   ------------  ------------
      Total common stock and other
        shareholders' equity (deficit)...........      (27,046)      (26,017)
                                                   ------------  ------------
      Total liabilities, redeemable
        warrants, common stock and other
        shareholders' equity (deficit)...........     $153,840      $157,444
                                                   ============  ============

The accompanying notes are an integral part of the condensed consolidated financial statements.

PORTOLA PACKAGING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

                                  For the Three Months
                                   Ended November 30,
                                 ---------------------
                                    1999        1998
                                 ---------- ----------
Sales...........................   $47,613    $44,759
Cost of sales...................    37,389     33,264
                                 ---------- ----------
    Gross profit................    10,224     11,495
                                 ---------- ----------
Selling, general and
  administrative................     7,447      6,174
Research and development........       616        788
Amortization of intangibles.....       899        585
                                 ---------- ----------
                                     8,962      7,547
                                 ---------- ----------
    Income from operations......     1,262      3,948
                                 ---------- ----------
Other (income) expense:
  Interest income...............       --         (80)
  Interest expense..............     3,060      3,522
  Amortization of debt
    financing costs.............       103        120
  Minority interest.............       (27)       --
  Loss (gain) from sale of
    property plant and
    equipment...................        47         (1)
  Other expense (income), net...       120       (178)
                                 ---------- ----------
                                     3,303      3,383
                                 ---------- ----------
    (Loss) income before
      income taxes..............    (2,041)       565
Income tax (benefit) provision..      (735)       201
                                 ---------- ----------
Net (loss) income...............   ($1,306)      $364
                                 ========== ==========
Number of shares used in
  computing basic per share
  amounts.......................    12,090     11,792
                                 ========== ==========
  Basic (loss) earnings
  per share.....................    ($0.11)     $0.03

Number of shares used in
  computing diluted per share
  amounts.......................    12,090     14,415
                                 ========== ==========
  Diluted (loss) earnings
  per share.....................    ($0.11)     $0.03

The accompanying notes are an integral part of the condensed consolidated financial statements.

PORTOLA PACKAGING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

                                                          For the Three Months
                                                           Ended November 30,
                                                         ---------------------
                                                             1999       1998
                                                         ---------- ----------
Cash flows from operating activities:
  Net (loss) income......................................  ($1,306)      $364
  Adjustments to reconcile net (loss) income to net
      cash provided by operating activities:
    Depreciation and amortization........................    5,207      4,049
    Deferred income taxes................................       --        (74)
    Loss (gain) on property and equipment dispositions...       47         (1)
    Provision for doubtful accounts......................       53         62
    Provision for excess and obsolete inventories........       67         93
    Equity in losses of affiliates.......................      238         --
    Minority interest....................................      (27)        --
  Changes in working capital:
    Accounts receivable..................................    1,891      3,661
    Inventories..........................................      (41)       160
    Other current assets.................................     (107)    (1,410)
    Accounts payable.....................................    1,739     (1,699)
    Accrued liabilities..................................     (107)       369
    Accrued interest.....................................   (3,704)    (3,070)
                                                         ---------- ----------
    Net cash provided by operating activities............    3,950      2,504
                                                         ---------- ----------
Cash flows from investing activities:
  Additions to property, plant and equipment.............   (2,462)    (2,986)
  Increase in other assets...............................     (309)      (974)
                                                         ---------- ----------
    Net cash used in investing activities................   (2,771)    (3,960)
                                                         ---------- ----------
Cash flows from financing activities:
  Decrease in book overdraft.............................   (3,338)        --
  Borrowings under long-term debt arrangements, net......    2,552      3,577
  Decrease in notes receivable from shareholders.........       18         --
  Issuance of common stock...............................       24         --
                                                         ---------- ----------
    Net cash (used in) provided by financing activities..     (744)     3,577
                                                         ---------- ----------
Effect of exchange rate changes on cash..................       19        (16)
                                                         ---------- ----------
    Increase in cash and cash equivalents................      454      2,105
Cash and cash equivalents at beginning of period.........    2,372      3,570
                                                         ---------- ----------
Cash and cash equivalents at end of period...............   $2,826     $5,675
                                                         ========== ==========

The accompanying notes are an integral part of the condensed consolidated financial statements.

Portola Packaging, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. Basis of Presentation:

     The unaudited condensed consolidated financial statements included herein have been prepared by Portola Packaging, Inc. and its subsidiaries (the "Company") without audit and in the opinion of management include all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company's Form 10-K previously filed with the Securities and Exchange Commission. The August 31, 1999 condensed consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by generally accepted accounting principles. Interim results are subject to seasonal variations and the results of operations for the three months ended November 30, 1999 are not necessarily indicative of the results to be expected for the full fiscal year ending August 31, 2000.

2. Computation of Earnings (Loss) Per Common Share:

     Basic EPS is computed as net income (loss) divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants and other convertible securities. Common equivalent shares are excluded from the November 30, 1999 computation of net loss per share as their effect is anti-dilutive.

3. Inventories:

     Inventory balances as of November 30, 1999 and August 31, 1999 were as follows (in thousands):

                                         November 30,  August 31,
                                            1999         1999
                                        -----------  -----------
                                         (unaudited)

    Raw materials....................       $6,649       $7,300
    Work in process..................        1,452        1,145
    Finished goods...................        5,270        4,918
                                        -----------  -----------
                                           $13,371      $13,363
                                        ===========  ===========

Portola Packaging, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

4. Commitments and Contingencies:

     On July 1, 1999, the Company entered into an agreement to provide a total of $3.5 million in support services to Sand Hill Systems, Inc., (SHS), then a wholly-owned subsidiary. The agreement terminated September 30, 1999, when the services provided under the agreement reached an aggregate value of $3.5 million. The Company received a promissory note for $3.5 million from SHS which bears interest at a rate equal to the base rate used in the Company's Senior Revolving Credit facility less one-half of one percent. The note was subsequently assumed by a company controlled by the Chief Executive Officer of Portola Packaging, Inc., in exchange for an ownership interest in SHS. All outstanding principal and interest amounts due on the note are payable in full on the earlier date of July 1, 2003 or the occurrence of one of the following events: nine months after a public offering equal to or exceeding $20 million in the aggregate; the sale of all or substantially all of the assets of SHS; or an event of default under the note. As of November 30, 1999, the Company had not received any payments related to the note, and as such, no income related to the services agreement had been recognized. In September 1999 the Company's interest in SHS was reduced from 100% to less than 25%. As such, effective October 1, 1999, SHS is being accounted for as an equity method investment.

     The Company is currently engaged in patent infringement litigation with two separate parties who are seeking to have the court declare certain patents owned by the Company invalid. These parties have also included allegations of anti-trust violations in their complaints. The Company believes that its patents are valid and is contesting these allegations vigorously. The Company is also subject to other legal proceedings and claims arising out of the normal course of business. Based on the facts currently available, management believes that the ultimate amount of liability beyond reserves provided, if any, for any pending actions will not have a material adverse effect on the financial position of the Company. However, the ultimate outcome of any litigation is uncertain, and either unfavorable or favorable outcomes could have a material impact on the results of operations or liquidity of the Company in a particular period.

     On August 11, 1999, the Company signed a letter of intent to enter into a new five-year senior secured credit facility providing for up to $50.0 million for operating purposes and an additional $10.0 million available for acquisition purposes. The new credit facility would be subject to a borrowing base and covenants similar to those in the existing senior credit facility. Currently, the Company is negotiating with the banks to finalize the terms of the new facility.

Portola Packaging, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

5. Recent Accounting Pronouncements:

     In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 established accounting and reporting standards for derivative instruments and hedging activities and requires the recognition of all derivatives in the balance sheet at their fair market values. The implementation date of this standard was recently delayed by the issuance of SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" and it is not effective for the Company until fiscal year 2001. The impact of adopting this statement on the Company's current financial statements would not be material.

6. Segment Information:

     In fiscal year 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". Prior period amounts have been restated in accordance with the requirements of the new standard.

     The Company's reportable operating businesses are organized primarily by geographic region. The United States and United Kingdom segments offer the Company's principal closure product lines, and the Company's Canada segment offers both closure and bottle product lines. The Company evaluates the performance of its segments and allocates resources to them based on earnings before interest, taxes, depreciation, amortization and certain non-operating income and expenses. Certain Company businesses and activities, including the equipment division, Portola Allied Tool and general corporate costs, do not meet the definition of a reportable operating segment and have been aggregated into "Other". Certain corporate expenses related to the domestic closure operations, including human resources, finance, selling and information technology costs, have been allocated to the United States segment for purposes of determining Adjusted EBITDA. The accounting policies of the segments are consistent with those policies used by the Company as a whole.

Portola Packaging, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

     The table below presents information about reported segments for the three month periods ended November 30, (in thousands):

                                       United              United
                                       States    Canada    Kingdom    Other     Total
                                     ---------- --------- --------- --------- ---------

Revenues...................    1999    $28,773    $6,228    $6,172    $6,440   $47,613
                               1998     31,408     5,759     4,993     2,599    44,759

Adjusted EBITDA............    1999      6,429       989     1,114    (2,376)    6,156
                               1998      8,349       690       806    (1,795)    8,050

     Intersegment revenues of $1.5 million and $1.2 million have been eliminated from the segment totals presented above for the periods ended November 30, 1999 and 1998, respectively.

     The table below presents a reconciliation of total segment Adjusted EBITDA to total consolidated income before income taxes for the three month periods ended November 30, (in thousands):

                                              1999         1998
                                           ----------- ------------

Total Adjusted EBITDA - for reportable
     segments..............................    $6,156       $8,050
Depreciation and amortization..............    (5,207)      (4,049)
Interest expense, net......................    (3,060)      (3,442)
Gain (loss) from sale of property, plant
     and equipment.........................       (47)           1
Other......................................       117            5
                                           ----------- ------------
Consolidated (loss) income before
     income taxes..........................   ($2,041)        $565
                                           =========== ============

7. Other Comprehensive (Loss) Income:

     In fiscal year 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive Income". The following is a breakdown of other comprehensive (loss) income for the three month periods ended November 30, (in thousands):

                                             1999      1998
                                           --------- ---------

Net (loss) income.......................... ($1,306)     $364
Cumulative translation adjustment..........     319       137
                                           --------- ---------
Total comprehensive (loss) income..........   ($987)     $501
                                           ========= =========

Portola Packaging, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

8. Subsequent Events:

     On December 20, 1999, the Company deposited $1.4 million in a United States bank in preparation for the acquisition of the 45% interest it does not currently own in Shanghai Portola Packaging LLC (SHPPC). If completed, the transaction will be accounted for as a purchase and accordingly the purchase price will be allocated to the underlying assets and liabilities acquired based on the proportional change in ownership and the respective estimated fair values at the date when the purchase is finalized. Any excess purchase price over the estimated fair values of the assets acquired will be allocated to goodwill.

     SHPPC is located in the Shanghai province of China and manufactures and sells closures primarily for the Asian marketplace. After the purchase, SHPPC will continue to be operated as an "unrestricted" subsidiary pursuant to the terms of the Company's senior revolving credit facility and the senior note indenture, each of which was entered into in October 1995.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Disclosures Regarding Forward-Looking Statements

     This report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended. Certain statements included in this Form 10-Q, including, without limitation, statements related to the impact of the final disposition of legal matters in the "Commitments and Contingencies" footnote to the condensed consolidated financial statements, anticipated cash flow sources and uses under "Liquidity and Capital Resources", the mitigation of the Year 2000 issue under "Impact of the Year 2000 Issue" and other statements contained in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding the Company's financing alternatives, financial position, business strategy, plans and objectives of management of the Company for future operations, and industry conditions, are forward-looking statements. Although the Company believes that the expectations reflected in any such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company's business, including but not limited to, competition in its markets, and reliance on key customers, all of which may be beyond the control of the Company. Any one or more of these factors could cause actual results to differ materially from those expressed in any forward-looking statement. All subsequent written and oral forward-looking statements attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements disclosed in this paragraph and elsewhere in this report.

Results of Operations

     Sales increased $2.8 million, or 6.3%, from $44.8 million for the three months ended November 30, 1998 to $47.6 million for the three months ended November 30, 1999. This increase was primarily due to the addition of $3.0 million in sales from the consolidation of our Mexican operations beginning in the second quarter of fiscal 1999, and increased sales in our United Kingdom subsidiary of $1.2 million due to an increase in sales volume. Also contributing to the sales growth for the quarter was the addition of sales from our new subsidiary, Portola Allied Tool of $962,000, increased sales from our Canadian operations of $469,000 primarily due to an increase in bottle prices, and the addition of $1.1 million in sales from newly operational joint ventures in China and the United States. Decreased sales in the domestic closure operations are due primarily to decreased sales volume of $2.6 million. Decreased sales from the equipment division of $900,000 also offset the increase in sales.

     Gross profit decreased $1.3 million to $10.2 million or 21.4% of sales for the first quarter of fiscal 2000 as compared to $11.5 million, or 25.7%, for the first quarter of fiscal 1999. A majority of the decrease was attributable to decreased margins in the domestic closure operations of $2.5 million primarily caused by a decrease in sales volume in September and October of 1999, and increased resin costs that we will be unable to pass on to our customers until the second quarter of fiscal 2000. The decrease in domestic closures gross margin was partially offset by the addition of $574,000 in gross profit from the consolidation of our Mexican operations and from the addition of $541,000 in gross profits from our new domestic joint ventures.

     Selling, general and administrative expenses increased $1.2 million, or 19.4%, to $7.4 million for the three months ended November 30, 1999, as compared to $6.2 million for the same period in fiscal year 1999, and increased as a percentage of sales from 13.8% for the three months ended November 30, 1998 to 15.5% for the three months ended November 30, 1999. The increase was primarily due to the addition of $705,000 of expenses related to our new domestic joint ventures and from expenses related to Sand Hill Systems Inc., previously a wholly-owned subsidiary of the Company (see Note 4 to Notes to Condensed Consolidated Financial Statements). Part of the increase was also attributable to the addition of $307,000 of expenses related to the consolidation of our Mexican operations and the addition of $162,000 of expenses related to our new domestic subsidiary, Portola Allied Tool. International selling expenses also increased by $205,000 due to an increase in related employee, travel and supplies costs. These increases were partially offset by a decrease of $109,000 in employee costs from our United Kingdom operations.

     Research and development expense decreased $172,000, or 21.8%, to $616,000 for the three months ended November 30, 1999, as compared to $788,000 for the three months ended November 30, 1998, and decreased as a percentage of sales from 1.8% in the three months ended November 30, 1998 to 1.3% in the three months ended November 30, 1999. The decrease in research and development expense was primarily due to the effect of the reimbursement of certain tool development costs that offset expenses and a decrease in prototype expenses.

     Amortization of intangibles (consisting of amortization of patents, goodwill and covenants not to compete) increased $314,000, or 53.7%, to $899,000 for the three months ended November 30, 1999, as compared to $585,000 for the three months ended November 30, 1998. The increase was primarily due to the increase of goodwill amortization expense related to the acquisition of our Mexican subsidiary and the acquisition of Portola Allied Tool.

     Interest income decreased $80,000 for the three months ended November 30, 1999 as compared to the same period in fiscal year 1999. This decline was primarily due to fluctuations in the levels of invested cash in fiscal 2000 as compared to fiscal 1999.

     Interest expense decreased $462,000 to $3.1 million for the three months ended November 30, 1999, as compared to $3.5 million for the three months ended November 30, 1998. This decrease reflects the payoff of our Canadian term loan during fiscal year 1999, the payoff of a U.K. acquisition note in the first quarter of fiscal year 2000 and reduced interest rates for certain borrowings under our senior credit facility.

     Amortization of debt financing costs decreased $17,000 for the three months ended November 30, 1999 to $103,000 from $120,000 for the three months ended November 30, 1998. The decrease in debt financing costs is primarily attributable to the write-off of the western Canadian debt costs in fiscal 1999 due to the early payoff of this debt. The remaining debt financing costs are primarily attributable to the $110 million senior notes issued in October 1995.

     Other expense of $120,000 for the three months ended November 30, 1999 is comprised primarily of equity in losses of affiliates of $238,000 offset by gains on foreign currency transactions. Other income of $178,000 for the three months ended November 30, 1998 was primarily due to foreign currency gains.

     The Company recorded a benefit from income taxes of $735,000 for the three months ended November 30, 1999 based on its pre-tax loss using an effective tax rate of 36%. The actual effective tax rate for the entire fiscal year could vary substantially depending on actual results achieved. The Company recorded a provision for income taxes of $201,000 for the three month period ending November 30, 1998.

Liquidity and Capital Resources

The Company has relied primarily upon cash from operations, borrowings from financial institutions and sales of common stock to finance its operations, repay long-term indebtedness and fund capital expenditures and acquisitions. At November 30, 1999, the Company had cash and cash equivalents of $2.8 million, an increase of $454,000 from August 31, 1999. Cash provided by operations totaled $4.0 million for the three months ended November 30, 1999, which represents a $1.5 million increase from the $2.5 million provided by operations for the three months ended November 30, 1998. Accounts payable provided funds of $1.7 million in the first three months of fiscal 2000 compared to using funds of $1.7 million in the first three months of fiscal year 1999, and accrued expenses used funds of $107,000 in the first quarter of fiscal 2000 as compared to providing funds of $369,000 in the same period of fiscal year 1999. The increase in funds provided by accounts payable was partially offset by a decrease in funds provided by accounts receivable, from $3.7 million in the first quarter of fiscal year 1999 to $1.9 million for the same period in fiscal year 2000. In addition, accrued interest expense used funds of $3.7 million in the first quarter of fiscal 2000 compared to using funds of $3.1 million in the same period of fiscal year 1999. Cash used in investing activities was $2.8 million for the three months ended November 30, 1999, as compared to using $4.0 million for the three months ended November 30, 1998. In both periods the use of cash consisted primarily of additions to property, plant and equipment and for the first quarter of fiscal 1999 included an $825,000 investment in the Company's Chinese joint venture. Cash used by financing activities was $744,000 for the first quarter of fiscal year 2000 as compared to providing $3.6 million for the first quarter of fiscal year 1999. The decrease was principally due to $3.3 million of cash used in the first quarter of fiscal year 2000 to satisfy a book overdraft and decreased borrowings under the Company's line of credit in the first quarter of fiscal year 2000 as compared to the same period in fiscal year 1999. At November 30, 1999, the Company had $2.8 million in cash and cash equivalents as well as borrowing capacity under the revolving credit line (of which $6.0 million was available for draw as of November 30, 1999). While there can be no assurances, management believes that these resources, together with anticipated cash flow from operations, will be adequate to fund the Company's operations, debt service requirements and capital expenditures into fiscal year 2000.

Recent Accounting Pronouncements

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 established accounting and reporting standards for derivative instruments and hedging activities and requires the recognition of all derivatives in the balance sheet at their fair market values. The implementation date of this standard was recently delayed by the issuance of SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" and it is not effective for the Company until fiscal year 2001. The impact of adopting this statement on the Company's current financial statements would not be material.

Impact of the Year 2000 Issue

     The Year 2000 issue is the result of computer programs being written using two digits, rather than four, to define the applicable year. Software programs and hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including a temporary inability to engage in normal business activities.

     Using mainly internal personnel and operating cash flows, the Company has modified or replaced portions of hardware and software so that its systems properly recognize dates beyond December 31, 1999. However, the operational effectiveness of the Company in the year 2000 will be partly based on the ability of its suppliers and customers to successfully complete their Year 2000 resolution processes and operate effectively in the new year. While the Company believes it has taken reasonable steps to mitigate potential Year 2000 issues, the failure of suppliers to deliver raw materials on time or for customers to buy product in normal quantities and frequencies could have a material impact on the Company's financial results.

PART II - OTHER INFORMATION

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

    (a) The following exhibits are filed herewith or incorporated by reference herein.

 

Exhibit Number	Exhibit Title
10.30	Summary description of the Company Bonus Plan and Company Profit Sharing Plan.
10.31	$3.5 million Variable Rate Promissory Note, dated as of July 1, 1999, by Sand Hill Systems, Inc., in favor of the Company.
10.32	Services Agreement, dated as of July 1, 1999, by and between the Company and Sand Hill Systems, Inc.
10.33	Release and Assumption Agreement, dated as of September 17, 1999, by and among the Company, Sand Hill Systems, Inc., and Portola Company IV LLC.
10.34	Amended and Restated Stock Pledge Agreement, dated as of October 4, 1999, by Portola Company IV LLC in favor of the Company
27.01	Financial Data Schedule.

    (b) The Company did not file any reports on Form 8-K during the three (3) month period ended November 30, 1999.

PORTOLA PACKAGING, INC.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PORTOLA PACKAGING, INC.

(Registrant)

Dated: January 10, 2000

By:  /s/ Dennis L. Berg

Dennis L. Berg

Vice President, Finance and Chief Financial Officer

(Principal Financial Officer and Duly Authorized Officer)

EXHIBIT INDEX

 

Exhibit Number	Exhibit Title
10.30	Summary description of the Company Bonus Plan and Company Profit Sharing Plan.
10.31	$3.5 million Variable Rate Promissory Note, dated as of July 1, 1999, by Sand Hill Systems, Inc., in favor of the Company.
10.32	Services Agreement, dated as of July 1, 1999, by and between the Company and Sand Hill Systems, Inc.
10.33	Release and Assumption Agreement, dated as of September 17, 1999, by and among the Company, Sand Hill Systems, Inc., and Portola Company IV LLC.
10.34	Amended and Restated Stock Pledge Agreement, dated as of October 4, 1999, by Portola Company IV LLC in favor of the Company
27.01	Financial Data Schedule.

EX-10.30

Exhibit 10.30

Summary description of the Company Bonus Plan and Company Profit Sharing Plan:

       The Company has adopted a bonus incentive plan effective for
fiscal year 2000.  Certain management and technical employees are
eligible for bonuses under the plan.  Bonuses under this plan will be
based on two principal factors, namely, the Company's financial
performance relative to plan, measured by Adjusted EBITDA, and the extent
to which the Company has reached customer satisfaction goals as measured
by a quarterly customer survey.  Eligible employees will receive target
bonuses to the extent these goals are reached.  Such bonuses will
increase up to double the originally proposed amount to the extent that
financial performance exceeds plan by up to 15% and customer survey
results exceed original targets.  If and to the extent that financial
performance falls short of plan or customer satisfaction ratings fail to
meet target levels established during the first quarter of 2000, bonuses
will be less than originally proposed or may not be awarded.

     The Company has also revised its profit sharing plan to provide that
eligible employees will receive profit sharing awards of up to five
percent of compensation based on the same Company financial performance
and customer satisfaction goals outlined above.  Such awards will
increase up to double the original amount to the extent that financial
performance exceeds plan by up to 15% and customer survey results exceed
the original targets.  If and to the extent that financial performance
falls short of plan or customer satisfaction ratings fail to meet target
levels established during the first quarter of 2000, awards will be less
than originally proposed or may not be awarded

EX-10.31

Exhibit 10.31

VARIABLE RATE PROMISSORY NOTE

$3,500,000                            Issued as of the 1st day of July, 1999
                                                        San Jose, California


FOR VALUE RECEIVED, Sand Hill Systems, Inc., a Delaware corporation
("Debtor"), hereby promises to pay (in lawful money of the United States
of America) to the order of Portola Packaging, Inc., a Delaware
corporation ("Lender"), at the office of Lender located at 890 Faulstich
Court, San Jose, California 95112, or at such other place as Lender or a
future holder hereof (Lender or such other holder being sometimes
referenced herein as "Holder") may from time to time designate in
writing, the principal sum of Three Million Five Hundred Thousand Dollars
($3,500,000), together with interest on the unpaid principal balance
hereof, all as specified below.  This  Promissory Note ("Note") has been
issued pursuant to that certain Services Agreement, dated as of the 1st
day of July, 1999, between Debtor and Lender (the "Services Agreement").
All payments made hereon shall be applied first to the payment of all
unpaid accrued interest (at the rate specified herein) to the date of
payment and the balance, if any, (after deduction of any other charges
due from Debtor) shall be applied to the payment of principal.  Interest
shall thereupon cease on the principal so credited.  All interest
accruing at the annual percentage rates specified herein shall be
calculated on the basis of a three hundred sixty-five (365)-day year and
actual days elapsed.  Additionally, notwithstanding any provision of this
Note, it is the intent and agreement of the Lender in the event any
interest specified herein is found to violate any applicable law or
regulation, that this Note shall be construed or deemed amended so that
the interest is reduced to the extent necessary to comply with such
applicable law or regulation.

        1. Payments of Principal and Interest.

                1.1  Interest.  During the term hereof, the principal amount
hereof from time to time outstanding shall bear interest at: (i) the Base
Rate in effect from time to time minus one half of one percent as the
term "Base Rate" is defined in that certain Second Amended and Restated
Credit and Security Agreement dated as of October 2, 1995 between Lender
and Heller Financial, Inc. (the "Credit Agreement"); (ii) in the event
the Credit Agreement is terminated while any portion of the principal of
this Note is outstanding, at the equivalent reference or base rate
(generally know as the "prime rate") specified in any successor senior
secured credit agreement between the Lender and its senior creditors as
such rate is in effect from time to time minus one half of one percent;
or (iii) if there is no such agreement in effect, then the reference rate
or prime rate as published from time to time by the Bank of America.
Interest shall be added to principal on the first day of each calendar
quarter, commencing January 1, 2000,  and thereafter shall itself bear
interest.

                1.2  Maturity Date.  Payment of principal shall be due and
payable on the first day of July, 2003 (the "Maturity Date"), plus any of
the following that apply:  (i) all accrued interest and (ii) all unpaid
amounts chargeable against Debtor pursuant to the terms hereof or under
the Services Agreement.

                1.3  Acceleration. Notwithstanding the provisions of Section
1.2, principal and all accrued interest shall be due and payable (i)
nine (9) months after consummation of an initial sale by Debtor of
securities to the public generally pursuant to a registration statement
filed with and declared effective by the Securities and Exchange
Commission with net proceeds to Debtor of not less than Twenty Million
Dollars ($20,000,000), or (ii) upon sale of all or substantially all of
the assets of Debtor, or (iii) upon an Event of Default hereunder.

        2.  Events of Default.  The occurrence of any of the following
shall be deemed to be an event of default ("Event of Default") hereunder:

                2.1  Nonpayment.  The failure of Debtor to make any payment of
principal due pursuant to the terms hereof, which failure is not cured
within five (5) calendar days after Holder gives notice to Debtor of such
default.

                2.2  Insolvency; Receiver or Trustee.  Any of the following
circumstances occur:

                2.2.1 The adjudication of Debtor as a bankrupt or insolvent,
or the admission by Debtor in writing of its inability to pay its debts
as they mature, or an assignment by Debtor for the benefit of creditors.

                2.2.2 The application for or consent by Debtor to the
appointment of a receiver, trustee or similar officer for it or for any
substantial part of its property or business.

                2.2.3 The appointment of such a receiver, trustee or similar
officer without the application or consent of Debtor and which
appointment shall have continued undischarged for a period of thirty (30)
days.

                2.2.4 (A) the institution by Debtor (whether by petition,
application, answer, consent or otherwise) of any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution,
liquidation or similar proceeding relating to it under the laws of any
jurisdiction, or (B) the institution of any such proceedings (by
petition, application or otherwise) against Debtor which shall have
remained undismissed for a period of thirty (30) days.

                2.2.5 The issuance of any judgment, writ of attachment or
execution or similar process or levy against any of the material assets
of Debtor which shall have not been discharged, released, vacated, fully
bonded, or permanently stayed within thirty (30) days after its issue or
levy.

                2.3  Dissolution.  The issuance of any order, judgment or
decree against Debtor decreeing the dissolution of Debtor, which order
shall have remained undischarged or unstayed for a period in excess of
thirty (30) days.

        3. Miscellaneous Provisions.

                3.1  Attorneys' Fees.  Should suit be brought to enforce,
interpret or collect any part of this Note, the prevailing party shall be
entitled to recover, as an element of the costs of suit and not as
damages, reasonable attorneys' fees and other costs of enforcement and
collection.

                3.2  Jurisdiction.  THIS NOTE SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A.
(IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES).

                3.3  Obligation Unconditional.  No provision of this Note or of
any other agreement shall alter, impair or render conditional the payment
obligations of Debtor, which are absolute and unconditional, to pay the
principal and interest on this Note at the place and at the respective
times herein prescribed.

                3.4  Debtor's Waivers.  Except as expressly provided to the
contrary herein, Debtor (and all guarantors, endorsers and other parties
now or hereafter becoming liable for the payment of this Note) hereby
waives diligence, presentment, protest, demand of payment, notice of
protest, dishonor and nonpayment, and waives the legal effect of Holder's
failure to give all notices not expressly provided for herein.  Debtor
expressly agrees that, without in any way affecting the liability of
Debtor hereunder, the Holder may extend the Maturity Date or the time for
payment of any amount due hereunder, accept security, release any party
liable hereunder, and release any security now or hereafter securing this
Note.  Debtor further waives, to the full extent permitted by law, the
right to plead any and all statutes of limitation as a defense to any
demand on this Note, or on any agreement now or hereafter securing this
Note.

                3.5  Loss or Destruction.  Upon receipt of evidence reasonably
satisfactory to Debtor of the loss or mutilation of this Note, Debtor
will execute and deliver, in substitution hereof, a replacement note.

                3.6  Severance.  Every provision of this Note is intended to be
severable.  In the event any term or provision hereof is declared to be
illegal or invalid for any reason by a court of competent jurisdiction,
such illegality or invalidity shall not affect the balance of the terms
and provisions hereof, which terms and provisions shall remain binding
and enforceable.  Lender and Debtor further agree to replace any such
void or unenforceable provision of this Note with valid and enforceable
provisions which will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.

                3.7  Waivers and Delays by Holder to be Strictly Limited.  Any
waiver, express or implied, of any breach or default hereunder shall not
be considered a waiver of any subsequent or different breach or default.
No delay or omission on the part of Holder in exercising any right under
this Note or under any of the documents referenced in Section 2 shall
operate as a waiver of such right or of any other right of the Holder
hereunder.

                3.8  Modification.  No provision of this Note may be waived,
modified or discharged other than by an express writing signed by the
party against whom enforcement of such waiver, modification or discharge
is sought.


                               DEBTOR:

                               SAND HILL SYSTEMS, INC.


                               By:     /s/ Jack L. Watts
                                       --------------------
                                       Jack L.  Watts, President and
                                       Chief Executive Officer

EX-10.32

Exhibit 10.32

SERVICES AGREEMENT

        THIS SERVICES AGREEMENT by and between Portola Packaging, Inc., a
Delaware corporation ("Portola"), and Sand Hill Systems, Inc., a Delaware
corporation ("Sand Hill"), is dated as of the1st day of July, 1999.

                             R E C I T A L S

        A. Sand Hill is a wholly-owned subsidiary of Portola.

        B. Portola  is providing and intends to continue to provide
certain services defined in Section 2 below (the "Services") in respect
of personnel, facilities and equipment to Sand Hill.

        C. Sand Hill wishes to receive these Services.

        D. The parties have previously agreed to have Sand Hill make
payment for the Services in the form of an unsecured Promissory Note.

        NOW THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:

                             A G R E E M E N T

         1. Term.   Portola shall provide Services to Sand Hill until the
date that the Services heretofore rendered and to be rendered have an
aggregate value of Three Million Five Hundred Thousand ($3,500,000).
This Agreement shall terminate, and Portola shall no longer be obligated
to provide Services, on the earlier of that date or March 31, 2000  (the
"Termination Date").  All Services heretofore or hereafter rendered shall
be valued by Portola in its sole discretion, provided such valuations
shall not be unreasonable under the circumstances.

         2. Services Provided.   The Services, as this term is used in this
Agreement have consisted and shall consist of the following as well as of
other services as the parties may agree in the future:

                2.1     Fully serviced office space at Portola's facilities
located at 850, 860 and 890 Faulstich Court in San Jose, California, to
the extent available and not otherwise used by Portola for other
purposes.

                2.2     Administration services provided by senior executives of
Portola including, without limitation, Jack L. Watts, Laurie D. Bassin,
James A. Taylor, Dennis Berg and Pete Schneider.

                2.3     General and administrative services such as the
following:

                    (i)    Preparation of periodic payroll, payroll tax
                           filings, W-2 preparation and all other services
                           relating to the handling of Sand Hill's payroll.
                    (ii)   General ledger processing and financial statement
                           reconciliation, including preparation of monthly
                           financial statements and other month-end,
                           quarter-end and year-end actions associated with
                           closing the books of Sand Hill for those periods.
                   (iii)   External audit assistance and data compilation.
                    (iv)   Budget analysis.
                     (v)   Services relating to human
                           resources matters, such as administering employee
                           health and workers' compensation claims (for both
                           those employees continuing to be employed by
                           Portola and those employed directly by Sand
                           Hill).
                     (vi)  Services in connection with
                           insurance matters, such as casualty, liability
                           and product liability claims, both for and
                           against Sand Hill.
                    (vii)  Miscellaneous matters such as
                           accounts payable processing, check preparation,
                           disbursements, travel and other expense advances
                           processing and control, cash deposit, handling
                           and application, bank liaison, management of
                           short term investments of cash, fixed asset
                           reporting and control, external audit assistance
                           and data compilation, compliance with
                           governmental reporting requirements, training,
                           safety and security and corporate communications.
                           In order that Portola may provide the accounting
                           services specified above, Sand Hill shall provide
                           Portola with all necessary backup documentation
                           on a monthly basis by not later than the fifth
                           day of each next succeeding month.

                2.4  Provision of full-time employees as set forth on Exhibit
"A" hereto (the "Sand Hill  Employees") and other employees as the
parties may later agree.

                2.5  Use of the computers, office furniture and other
equipment as set forth on Exhibit "B" hereto (the "Sand Hill Equipment").

                2.6  Access to Portola's telephone network.

                2.7  Access to Portola's internal e-mail system.

                2.8  Occasional use of Portola's other facilities and
equipment as reasonably necessary to execute Sand Hill's business plan.

                2.9  Legal services.

                2.10 Portola shall perform its obligations under this
Agreement in an efficient, professional and competent manner.  Portola
represents that it currently has and during the term of this Agreement
will continue to employ competent personnel who are capable of
performing, and willing and sufficient in number to perform, its
obligations hereunder.

        3 Payment.  The parties having agreed from the inception of
Portola's providing of Services that payment therefor shall be by
promissory note, Sand Hill hereby delivers to Portola its Promissory Note
substantially in the form of Exhibit "C" hereto, and Portola hereby
accepts said Note in payment for all Services.

        4. Miscellaneous.

                4.1  Governing Laws.  IT IS THE INTENTION OF THE PARTIES
HERETO THAT THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A.
(IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES) SHALL GOVERN THE VALIDITY
OF THIS AGREEMENT, THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION
AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO.  THE
PARTIES HEREBY EXCLUDE THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE
INTERNATIONAL SALE OF GOODS FROM THIS AGREEMENT.

                4.2  Arbitration.  The parties agree that all disputes arising
under this Agreement shall be finally settled under the Commercial Rules
of Arbitration of the American Arbitration Association by a single
arbitrator appointed in accordance with said rules.  The award of any
such arbitrator may be entered and enforced in any court of competent
jurisdiction, including without limitation, the Federal District Court
for the Northern District of California or the Superior Court for the
County of Santa Clara, California.

                4.3  Other Provisions.  This Agreement is binding upon and
inures to the benefit of the successors and assigns of the parties
hereto.  This Agreement constitutes the entire understanding and
agreement of the parties with respect to the subject matter hereof.  This
Agreement may only be amended or observance of any terms of this
Agreement may be waived only by a writing signed by the party to be bound
thereby.  Should suit or arbitration be brought to enforce or interpret
any part of this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees to be fixed by the court or
arbitrator.  Nothing contained in this Agreement shall be deemed or
construed as creating a joint venture or a partnership between the
parties hereto.  Neither party shall have any power or authority to bind
or commit the other.

                4.4  Notices.  Whenever either party hereto desires or is
required to give any notice, demand or request with respect to this
Agreement, each such communication shall be in writing and shall be given
or made by telecopy, telegraph, cable, mail or other delivery and
telecopied, telegraphed, cabled, mailed or delivered to the intended
recipient at the addresses specified below:

If to Portola:                   Portola Packaging, Inc.
                                 890 Faulstich Court
                                 San Jose, California 95112
                                 Telecopy: (408) 453-8462
                                 Attn:  President


with a copy to :                 Themistocles G. Michos, Esq.
                                 Vice President and General Counsel of Portola
                                 221 Main Street, 16th floor
                                 San Francisco, CA 94105
                                 Telecopy: (508) 437-0399


If to Sand Hill:                 Sand Hill Systems, Inc.
                                 2400 Sand Hill Road, Suite 201
                                 Menlo Park, CA 94025
                                 Telecopy: (650) 854-1578


with a copty to:                 Timothy Tomlinson, Esq.
                                 Tomlinson Zisko Morosoli & Maser LLP
                                 200 Page Mill Road, 2nd Floor
                                 Palo Alto, CA 94306
                                 Telecopy: (650) 324-1808

        Except as may be otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted
by telecopier with verified receipt by the receiving telecopier, when
delivered to the telegraph or cable office, when personally delivered,
two (2) days after being delivered to an air courier (e.g. DHL, or
Federal Express) upon proof of delivery, or, in the case of a mailed
notice, four (4) days after being deposited certified or registered mail,
postage prepaid.  Either party may change its address for such
communications by giving notice thereof to the other party in conformance
with this section.

        IN WITNESS WHEREOF, the parties hereto have made and entered into
this Agreement as of the day and year first below written.

PORTOLA PACKAGING, INC.


By:     /s/ James Taylor
        -------------------
        James Taylor,
        Chief Financial Officer

SAND HILL SYSTEMS, INC.


By:     /s/ Jack L. Watts
        --------------------
        Jack L. Watts, President and
        Chief Executive Officer

EX-10.33

Exhibit 10.33

RELEASE AND ASSUMPTION AGREEMENT

        This Release and Assumption Agreement ("Agreement") is made and
entered into this 17th day of September, 1999 by and among Portola
Packaging, Inc., a Delaware corporation ("PPI"), Sand Hill Systems, Inc., a
Delaware corporation ("SHS"); and Portola Company IV LLC, a Delaware limited
liability company ("PC")


                           R E C I T A L S

        A.      PPI and SHS entered into a Services Agreement dated as of July
1, 1999 (the "Services Agreement") with respect to the provision by PPI of
certain services, personnel, facilities and equipment to SHS.

        B.      Pursuant to the Services Agreement, SHS issued in favor of PPI a
variable rate promissory note in the principal amount of Three Million Five
Hundred Thousand Dollars ($3,500,000) (the "Note") in payment for the services
to be provided by PPI under the Services Agreement.

        C.      PC is willing to assume the Note and all obligations thereunder
in exchange for seven million shares (7,000,000) of SHS Common Stock, and SHS
is willing to issue such Shares to PC in exchange for such assumption and the
release by PPI of SHS's obligations under the Note.

        D.      PPI is willing to release SHS from its obligations under the
Note upon the assumption by PC of all of SHS's obligations thereunder.

        NOW, THEREFORE, in reliance on the foregoing recitals and in
consideration of the mutual covenants contained herein, the parties hereto
agree as follows:

                         A G R E E M E N T

        1.      Assignment.     SHS hereby assigns and transfers to PC all of SHS's
right, title and interest in and related obligations under the Note, and PPI
hereby consents to such assignment and the assumption by PC of the Note and SHS's
obligations thereunder.

        2.      Assumption and Pledge.   PC hereby assumes and agrees to pay,
perform and discharge all obligations of SHS under or arising out of the
Note.  PC further agrees to secure its obligations under the Note by
pledging 500,000 shares of PPI Class B Common Stock ( the "PPI Stock")
pursuant to the terms of a Stock Pledge Agreement substantially in the form
attached hereto as Exhibit A being entered into between PC and PPI
concurrently herewith.

        3.      Release of Claims.

                3.1     As used herein, the term "Claims" shall mean any and all
claims, demands, damages, sums of money, costs, expenses, actions, rights,
causes of action, agreements, promises, obligations or liabilities of any
kind or nature whatsoever, known or unknown,  fixed or contingent, suspected
or unsuspected, which PPI may have had or claim to have had, or now has or
claims to have, or hereafter may claim to have or assert to have, which
arise out of in any manner whatsoever, either directly or indirectly, or are
related to the Note.

                3.2     In consideration of PC's assumption of the Note and SHS's
obligations thereunder and PC's related pledge of the PPI Stock,  PPI hereby
acknowledges full and complete satisfaction of, and hereby releases, and
forever discharges SHS as well as its successors, assigns, representatives,
shareholders, officers, directors, employees, agents, servants and attorneys
from any and all Claims.  The parties intend that this release shall be
broadly construed and interpreted so as to settle, release and extinguish
any and all Claims or any matter related in any way thereto.

                3.3     It is the intention of the parties in executing this
Agreement that the same shall be effective as a bar to, and full settlement of,
an and all Claims hereinabove specified.  PPI hereby expressly waives any and all
rights and benefits conferred upon PPI by the provisions of Section 1542 of the
Civil Code of California, as well as by any other statutes or common law
principles of similar effect.  Section 1542 of the Civil Code of California
reads as follows:

                "1542.  A general release does not extend to claims which the
                 creditor does not know or suspect to exist in his favor at the
                 time of the execution of the Release, which if known by him must
                 have materially affected his settlement with the debtor."

The parties understand that this Agreement shall act as a release of future
claims that may arise from the Claims whether such Claims are currently
known, unknown, foreseen, or unforeseen.  PPI understands and acknowledges
the significance and consequence of such specific waiver of Section 1542 and
hereby assumes full responsibility for any injuries, damages, losses, or
liability that he or she may hereafter incur from the Claims.

        4.      Stock Purchase and Certain Expenses.    In consideration of PC's
assumption of the Note and SHS's obligations thereunder and the release by PPI of
SHS from its obligations under the Note as set forth herein, SHS agrees as
follows:

                4.1      SHS hereby sells to PC, and PC hereby acquires from SHS,
an aggregate of seven million shares (7,000,000) of SHS Common Stock (the
"Shares").  SHS shall deliver a certificate representing the Shares to PC as
soon as is practical after the date of this Agreement.

                4.2     SHS hereby agrees to pay from time to time promptly upon
request by PC (i) all attorneys' fees and expenses incurred by PC in connection
with PC's initial financing, (ii) all costs and expenses incurred by PC in
connection with the preparation of PC's financial statements and the preparation
and filing of PC's annual tax returns and (iii) all of PC's franchise taxes in
Delaware and Nevada.  SHS's payment obligations set forth in this Section
4.2 shall expire one year after the effective date of SHS's initial
underwritten public offering.

        5.      SHS's Representations and Warranties.  SHS hereby represents and
warrants that:

                5.1     SHS has and will transfer to PC, good, valid and
marketable title to all of the Shares being sold hereunder, and there are no security
interests, liens, claims, charges, encumbrances, assessments or restrictions or any
other defects in title of any nature whatsoever on any of the Shares.

                5.2     SHS, or the person executing this Agreement on behalf of
SHS, has the right, power, legal capacity and authority to enter into and perform
SHS's obligations under this Agreement.

        6.      PC's Representations and Warranties.  PC hereby represents and
warrants that:

                6.1     PC is aware that the Shares are highly speculative and
that there can be no assurance as to what return, if any,
there may be.

                6.2     PC is aware of SHS's business affairs and financial
condition; has acquired sufficient information about SHS to reach an informed and
knowledgeable decision to acquire the Shares;  has received an opportunity
to ask questions relating to SHS's business, legal and financial affairs and
to obtain all additional information which PC requested.

                6.3     PC is purchasing the Shares for investment for PC's own
amount only and not as a nominee or agent, and not with a view to, or for resale in
connection with, any "distribution" thereof within the meaning of the
Federal Securities Act of 1933 (the "Act") or the California Corporate
Securities Law of 1968 (the "Law").

                6.4     PC does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant a participation in the
Shares to such person or to any third person.

                6.5     PC understands that the Shares have not been registered
under the Act or the Law by reason of specific exemptions therefrom, some of
which exemptions may depend upon, among other things, the bona fide nature of
the PC's investment intent as expressed herein.  In this connection, PC
understands that, in the view of the Securities and Exchange Commission (the
"Commission"), the statutory  basis for such exemption from the Act may not
be available if the PC's representations mean that the PC's present
intention is to hold the Shares for a minimum capital gains period under the
tax statutes, for a deferred sale, for a market rise, for a sale if the
market does not rise, or for a year or any other fixed period in the future.

                6.6     PC further understands that the Shares must be held
indefinitely unless it is subsequently registered under the Act or an
exemption from such registration is available.

                6.7     PC is aware of Rule 144 promulgated under the Act which
permits limited public resale of Shares acquired in a nonpublic offering, subject
to the satisfaction of certain conditions, including, among other things, the
availability of certain current public information about SHS, the passage of
not less than one year after the holder has purchased and completed payment
for the securities to be sold, effectuation of the sale on the public market
through a broker in an unsolicited "broker's transaction" or to a "market
maker", and compliance with specified limitations on the amount of
securities to be sold (generally, one percent (1%) of the total amount of
Shares outstanding) during any three-month period; provided, however, that
such conditions need not be met by a person who is not an affiliate of SHS
at the time of the sale and has not been an affiliate for the preceding
three months, if the securities have been beneficially owned by such person
for at least two years prior to their sale.  PC understands that SHS's
Shares may not be publicly traded or SHS may not be satisfying the current
public information requirements of Rule 144 at the time PC wishes to sell
the Shares; and thus, PC may be precluded from selling the Shares under Rule
144 even though the one-year minimum holding period may have been satisfied.

                6.8     PC further understands that in the event the requirements
of Rule 144 are not met, registration under the Act, compliance with Regulation
A or some other registration exemption will be required for any disposition
of the Shares; and that, although Rule 144 is not exclusive, the Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and other than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales and that
such persons and the brokers who participate in such transactions do so at
their own risk.

                6.9     PC has either (i) a preexisting business or personal
relationship with SHS or its directors or officers or (ii)
by reason of PC's business or financial experience, the
capacity to protect PC's own interest in connection with
the transaction contemplated by this Agreement.

                6.10    PC is (i) experienced in investing in companies recently
organized and in the development stage, (ii) able to fend for itself in connection
with this investment, and (iii) able to bear the economic risk of this investment.

                6.11    PC is a limited liability company duly organized, validly
existing and in good standing under  the laws of the State of Delaware and has
full power and authority to carry on its business as now conducted and as currently
proposed to be conducted.

                6.12    PC has all requisite power to enter into this Agreement,
the Stock Pledge Agreement referred to in Section 2 hereof and the Investors'
Rights Agreement referred to in Section 7 hereof  and to otherwise carry out and
perform all of its obligations under the terms of this Agreement, the Stock
Pledge Agreement and the Investors' Rights Agreement.

                6.13    All action necessary for the authorization, execution,
delivery and performance of this Agreement, the Stock Pledge Agreement and the
Investors' Rights Agreement has been duly and validly taken by PC and is
currently in full force and effect.

                6.14    This Agreement, the Stock Pledge Agreement, the Investors'
Rights Agreement and the Note are valid and binding obligations of PC, enforceable
in accordance with their respective terms, except as enforceability thereof
may be limited under general principles of equity (regardless of whether the
issue of such enforceability is considered in a proceeding in equity or at
law) or by applicable bankruptcy, reorganization, insolvency, moratorium or
other laws relating to or affecting generally the enforcement of creditors'
rights.

                6.15     The execution and delivery of this Agreement, the Stock
Pledge Agreement and the Investors' Rights Agreement and the consummation of the
transactions herein or therein contemplated, do not and will not: (i)
conflict with, or result in a breach of, any of the terms, provisions or
conditions of PC's Limited Liability Company Agreement or of any other
material agreement to which PC is a party, (ii) violate, conflict with or
result in the breach or termination of, or otherwise give any party the
right to terminate, or constitute an event which, after the giving of notice
or the passage of time, or both, would constitute a default under the terms
of, any material agreement or instrument to which PC is a party or by which
it or any of its material properties or assets is bound, and which in any of
the foregoing cases, either separately or in the aggregate, might materially
and adversely affect the operations or financial condition of PC, or (iii)
result in the creation of any lien, charge or encumbrance upon any material
properties or assets of PC (other than the PPI Stock) pursuant to the terms
of any such agreement or instrument which, in the aggregate, might
materially and adversely affect the operations or financial condition of PC.

        7.      Investors' Rights Agreement.   Concurrently with the execution
of this Agreement and as a condition to PC's obligations hereunder, PC and
SHS will enter into an Investors' Rights Agreement substantially in the
form of Exhibit B attached hereto.

        8.      Binding upon Successors and Assigns.  Subject to, and unless
otherwise provided in, this Agreement, each and all of the covenants, terms,
provisions, and Agreements contained herein shall be binding upon, and inure
to the benefit of, the permitted successors, executors, heirs,
representatives, administrators and  assigns of the parties hereto.

        9.      Entire Agreement.  This Agreement constitutes the entire
understanding and Agreement of the parties hereto with respect to the subject
matter hereof and supersedes all prior and contemporaneous Agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect hereto and thereto.  The express terms hereof
control and supersede any course of performance or usage of the trade
inconsistent with any of the terms hereof.

        10.     Counterparts.  This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and
the same instrument.  This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the
signatures of all of the parties reflected hereon as signatories.

        11.     Amendment and Waivers.  Any term or provision of this Agreement
may be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only by a  writing signed by the party to be bound thereby.
The waiver by a party of any breach hereof or default in the performance
hereof shall not be deemed to constitute a waiver of any other default or
any succeeding breach or default.

        IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first hereinabove written.


PORTOLA PACKING, INC.                   SAND HILL SYSTEMS, INC.


By:     /s/ James A. Taylor                       By:     /s/ Jack L. Watts
        --------------------                              --------------------
        James A. Taylor, President and                    Jack L. Watts,
        President and                                     Chief Executive Officer
        Chief Operating Officer



                                                  PORTOLA COMPANY IV LLC


                                                  By:     /s/ Jack L. Watts
                                                          ---------------------
                                                          Jack L. Watts, General Manager

EX-10.34

Exhibit 10.34

AMENDED AND RESTATED STOCK PLEDGE AGREEMENT

        THIS AMENDED AND RESTATED STOCK PLEDGE AGREEMENT (the "Agreement"),
is made and entered into effective as of this 4th day of October, 1999 by
PORTOLA COMPANY IV LLC, a Delaware limited liability company ("Pledgor"),
in favor of PORTOLA PACKAGING, INC., a Delaware corporation ("Services
Provider").


                           R E C I T A L S

        Pledgor and Services Provider entered into that certain Stock
Pledge Agreement effective as of September 17, 1999.

        Pledgor and Services Provider desire to amend and restate said
Stock Pledge Agreement to provide for a partial release of the Pledged
Securities (as defined below) under the circumstances specified herein.

        NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:


                          A G R E E M E N T

        1.      Definitions.  Whenever the following terms are used
herein, they shall be defined as follows:

                1.1     "Agreement" or "this Agreement" shall mean and
include all amendments, modifications and supplements hereto and shall
refer to this Agreement as the same may be in effect at the time such
reference becomes operative.

                1.2     "Collateral" shall mean and include all of the
Pledged Securities, together with all proceeds thereof and all cash,
additional securities and other property at any time and from time to
time receivable or otherwise distributed in respect of or in exchange for
any or all of such Pledged Securities.

                1.3     "Commission" shall mean the Securities and
Exchange Commission, or any other federal agency then administering the
Securities Act.

                1.4     "Event of Default" shall mean any of the events
listed in Section 6.1 of this Agreement.

                1.5     "Note" shall mean the Variable Rate Note dated as
of July 1, 1999 in the principal amount of $3,500,000 issued by SHS to
Services Provider.

                1.6     "Obligations" shall mean and include all
liabilities, obligations, covenants and duties owing to Services Provider
by Pledgor arising under this Agreement and the Note.  The term also
includes, without limitation, all interest, charges, expenses, fees,
attorneys' fees and other sums chargeable to Pledgor under this Agreement
or under the Note.

                1.7     "Pledged Securities" shall mean the shares of Class
B Common Stock of Services Provider initially pledged to Services
Provider hereunder as set forth on Exhibit "A" attached hereto, together
with all other securities from time to time pledged to Services Provider
by Pledgor pursuant to the terms and conditions hereof.

                1.8     "Release and Assumption Agreement"  shall mean that
agreement dated the date hereof by and among Pledgor, SHS and Services
Provider pursuant to which Pledgor is assuming SHS's obligations to
Services Provider under the Note.

                1.9     "Securities Act" shall mean the Securities Act of
1933, as amended, or any similar federal statute, and the rules and
regulations of the Commission thereunder, all as the same may from time
to time be in effect.

                1.10    "Securities Laws" shall mean the Securities Act,
the Securities Exchange Act of 1934, as amended, or any similar federal
statute, and the rules and regulations of the Commission thereunder,
together with any and all applicable state blue sky laws and laws of
foreign countries regulating the issuance, sale or transfer of
securities, all as the same may from time to time be in effect.

                1.11    "SHS"  shall mean Sand Hill Systems, Inc., a
Delaware corporation.

        2.      Pledge.  To induce Services Provider to enter into the
Release and Assumption Agreement and in consideration thereof and of any
loans, advances or financial accommodations heretofore or hereafter
granted by Services Provider to or for Pledgor's account, whether
pursuant to the Release and Assumption Agreement or otherwise, all of
which will inure to Pledgor's direct benefit, Pledgor hereby pledges,
conveys, hypothecates, mortgages, assigns, sets over, delivers and grants
to Services Provider a security interest in all of the Collateral now or
hereafter owned by Pledgor as security for the payment and performance
when due of the Obligations; TO HAVE AND TO HOLD the Collateral, together
with all rights, title, interests, powers, privileges and preferences
pertaining or incidental thereto, unto Services Provider, its successors
and assigns forever, subject, however, to the terms, covenants and
conditions hereinafter set forth.

        3.      Representations, Warranties and Covenants Regarding
Collateral.  Pledgor hereby represents, warrants and covenants to
Services Provider that:

                3.1     Due Authorization, Etc.  The execution, delivery
and performance of this Agreement, the creation of the liens and security
interests and the delivery to Services Provider of the Collateral
provided for hereunder are within Pledgor's corporate power, have been
duly authorized by all necessary or proper corporate action, are not in
contravention of any provision of law or of any agreement or indenture by
which Pledgor is bound, or of Pledgor's Certificate of Formation or
Company Agreement, and do not require the consent or approval of any
governmental body, agency, authority or other person or entity, which has
not been obtained and a copy thereof furnished to Services Provider.

                3.2     Valid and Binding Obligation.  This Agreement
constitutes Pledgor's valid and legally binding obligation, enforceable
in accordance with its terms, except as enforceability thereof may be
limited under general principles of equity (regardless of whether the
issue of such enforceability is considered in a proceeding in equity or
at law) or by applicable bankruptcy, reorganization, insolvency,
moratorium or other laws relating to or affecting generally the
enforcement of creditors' rights.

                3.3     Title to Collateral.  Pledgor is the legal and
equitable owner of, and has the complete and unconditional authority to
pledge, the Collateral and holds the same free and clear of all liens,
charges, encumbrances and security interests except those in favor of
Services Provider granted hereunder, and will defend its title thereto
against the claims of all persons whomsoever.

                3.4     Status of Pledged Securities.  All of the Pledged
Securities are duly authorized, validly issued, fully paid and
non-assessable.

                3.5     Pledge of Existing Securities and Property.  Upon
execution and delivery of this Agreement, Pledgor shall deliver to
Services Provider certificates evidencing all of the Pledged Securities,
accompanied by executed stock powers (in the form of Exhibit "B" attached
hereto) or other suitable assignments in blank, and by such other
instruments or documents as Services Provider or its counsel may
reasonably request.

                3.6     Pledge of Future Securities and Property.  Except
as provided in Section 4.1 hereof, Pledgor will cause any additional
Pledged Securities or property constituting the Collateral issued to or
received by it, whether for value paid by it or otherwise, to be
forthwith deposited and pledged with Services Provider, in each case
accompanied by instruments of assignment duly executed in blank by
Pledgor substantially the same as those required by Section 3.5.

                3.7     No Liens or Security Interests.  Pledgor will not
permit any lien, claim, charge, security interest or encumbrance to exist
with respect to the Collateral hereafter, other than those in favor of
Services Provider and liens for taxes not yet due and payable.

                3.8     Disposition of Collateral.  Pledgor will not sell,
exchange, hypothecate, pledge, assign, convey, mortgage or abandon any
Collateral without Services Provider's prior written consent.

                3.9     Payment of Taxes and Charges.  Pledgor will pay all
taxes, assessments and charges levied, assessed or imposed upon the
Collateral before the same become delinquent or become liens upon any of
the Collateral except where the same may be contested in good faith by
appropriate proceedings and as to which adequate reserves have been
provided.

                3.10    Further Acts.  Pledgor agrees to perform all acts
and do all things which Services Provider may request, now or hereafter,
to evidence, preserve or protect the creation, attachment or perfection
of the security interests herein granted to Services Provider.

                3.11    Services Provider's Right to Take Action.  In the
event that Pledgor fails or refuses to perform any of its obligations set
forth herein, Services Provider shall have the right, without obligation,
to do all things it deems necessary or advisable to discharge the same,
and any sums paid by Services Provider, or the cost thereof, including
without limitation, attorneys' fees, shall constitute secured Obligations
and be payable, with accrued interest thereon, as provided for in the
Release and Assumption Agreement.

                3.12    No Obligation by Services Provider.  Pledgor
acknowledges and agrees that nothing contained herein shall obligate
Services Provider or impose a duty upon Services Provider to assume any
duties or obligations of Pledgor with respect to any of the Collateral.

        4. Dividends, Etc.

                4.1     Right to Receive Dividends, Etc.  For so long as no
Event of Default exists hereunder, Pledgor shall have the right to
receive cash dividends declared and paid by PPI with respect to the
Collateral.  Any and all stock or liquidating dividends, other
distributions in property, returns of capital or other distributions made
on or in respect of Collateral, whether resulting from a subdivision,
combination or reclassification of the outstanding capital stock of PPI,
received in exchange for the Collateral or any part thereof or received
as a result of any merger, consolidation, acquisition or other exchange
of assets to which PPI is a party or otherwise shall be and become part
of the Collateral pledged hereunder and, if received by Pledgor, shall
(unless waived by Services Provider) forthwith be delivered to Services
Provider, to be held subject to the terms of this Agreement.

                4.2     Possession of the Collateral, Etc.  Services
Provider may hold any of the Collateral, endorsed or assigned in blank,
and may use the Collateral for the purpose of making denominational
exchanges or registrations or transfers or for such other purpose in
furtherance of this Agreement as Services Provider may deem desirable.

                4.3     Termination of Right to Receive Dividends.  Upon
the occurrence and during the continuance of any Event of Default, all of
Pledgor's rights to receive any cash dividends pursuant to Section 4.1
hereof shall cease, and all such rights shall thereupon become vested in
Services Provider, which shall have the sole and exclusive right to
receive and retain the dividends which Pledgor would otherwise be
authorized to receive and retain pursuant to Section 4.1 hereof.  In such
event, Pledgor shall pay over to Services Provider any dividends received
by Pledgor with respect to the Collateral, and any and all money and
other property paid over to or received by Services Provider pursuant to
the provisions of this Section 4.3 shall be retained by Services Provider
as Collateral hereunder and shall be applied in accordance with the
provisions hereof.

        5.      Voluntary Prepayment; Release of Pledged Securities.
Pledgor shall have the right but not the obligation to prepay, including,
but not limited upon, the occurrence of an Event of Default under Section
7 hereof, all or any portion of the principal and interest due on the
Note, by delivering to Services Provider cash in an amount equal to the
amount of principal and interest thereon being prepaid on the Note,
provided that the amount of principal being prepaid on the Note
(calculated before the addition to principal of accrued interest on such
principal amount) must equal or exceed Twenty-Five Thousand Dollars
($25,000).  Notwithstanding anything to the contrary contained in the
Note, the prepayment shall be applied first to accrued interest on the
amount of principal being prepaid on the Note pursuant to this Section 5,
and then to the principal amount being prepaid on the Note pursuant to
this Section 5, which amount shall include any accrued interest on the
principal amount being prepaid that has been added to principal under the
Note.  Services Provider and Pledgor hereby agree that upon payment to
Services Provider of any prepayment on the Note made by Pledgor under
this Section 5, Services Provider shall release its security interest in
that number of shares of the Pledged Securities that is equal to the
amount of principal being prepaid hereunder (before the addition to
principal of accrued interest on such principal amount), divided by the
number seven (7).  Services Provider further agrees to execute and/or
deliver to Pledgor any documents or instruments reasonably requested by
Pledgor to effectuate such release of the Pledged Securities. In the
event of any such prepayment, Exhibit "A" to this Agreement shall be
amended accordingly and Pledgor shall execute and deliver to Services
Provider an Assignment Separate from Certificate duly executed in blank,
in the form attached hereto as Exhibit "B," covering such lesser number
of shares of Pledged Securities.

        6.      Mandatory Prepayment.  Upon receipt by Pledgor of any
cash dividends, distributions and other payments on or with respect to
the shares of Common Stock of SHS or any cash proceeds from the sale,
transfer or other disposition of shares of Common Stock of SHS, the Note
shall be automatically accelerated as to that amount of accrued interest
and unpaid principal that is equal to the amount of such cash dividends,
distributions or other proceeds, and Pledgor hereby covenants and agrees
that upon its receipt of any cash dividends, distributions and other
payments on or with respect to the shares of Common Stock of SHS or any
cash proceeds from the sale, transfer or other disposition of shares of
Common Stock of SHS, Pledgor shall promptly apply the full amount of any
such payments and proceeds to prepayment of the Note until such time as
the Note is paid in full.  Services Provider and Pledgor hereby agree
that each prepayment on the Note made by Pledgor hereunder shall be
applied first to accrued and unpaid interest and thereafter to payment of
principal.

        7.      Events of Default; Remedies.

                7.1     Default.  Each of the following shall constitute an Event
of Default hereunder:

                7.1.1   if any of the Collateral shall be attached or
levied upon or seized in any legal proceedings, or held by virtue of any
lien or distress; or

                7.1.2 subject to Section 7.1.3 below, if Pledgor shall
                       materially breach any material covenant,
                       representation or warranty set forth herein or in
                       the Note (the foregoing subject to a ten (10) day
                       cure period or such other period as is specified
                       in the applicable agreement or provision); or

                7.1.3 the occurrence of any event of default under the
                       Note.

                7.2     Services Provider's Rights and Remedies.  Upon the
occurrence of any Event of Default and during the continuance thereof:
                7.2.1   Services Provider shall thereupon have, in
addition to all other rights provided herein and in the Note, the rights
and remedies of a secured party under the Uniform Commercial Code of the
State of California and, further, Services Provider may, without demand
and without advertisement, notice or legal process of any kind (except as
may be required by law), all of which Pledgor waives, at any time or
times (i) apply any cash dividends received by Services Provider pursuant
to Section 4.3 hereof to the Obligations, and (ii) if following such
application there remains outstanding any of the Obligations, sell the
remaining Collateral, or any part thereof, at public or private sale or
at any broker's board or on any securities exchange, for cash, upon
credit or for future delivery as Services Provider shall deem
appropriate.  Services Provider shall be authorized at any such sale (if
on the advice of counsel, it deems it advisable to do so) to restrict the
prospective bidders or purchasers to persons who will represent and agree
that they are purchasing the Collateral for their own account for
investment and not with a view to the distribution or resale thereof, and
upon consummation of any such sale Services Provider shall have the right
to assign, transfer and deliver to the purchaser or purchasers thereof
the Collateral so sold.  Each such purchaser at any such sale shall hold
the property sold absolutely free from any claim or right on Pledgor's
part, and Pledgor hereby waives (to the extent permitted by law) all
rights of redemption, stay and/or appraisal which Pledgor now has or may
have at any time in the future under any rule of law or statute now
existing or hereafter enacted.

                7.2.2   Services Provider agrees to give written notice
to Pledgor in the manner specified in Section 11.11 hereof not less than
ten (10) business days prior to the date of the disposition of the
Collateral subject to the security interest created herein at any such
public sale or sale at any broker's board or on any such securities
exchange, or prior to the date after which private sale or any other
disposition of said Collateral will be made, and Pledgor agrees that (i)
such notice, if given in such manner, shall constitute reasonable notice,
but notice given in any other reasonable manner or at any other
reasonable time shall be sufficient; (ii) without precluding any other
methods of sale, the sale of Collateral shall have been made in a
commercially reasonable manner if conducted in conformity with reasonable
commercial practices of asset-based  lenders disposing of similar
property, but in any event Services Provider may sell on such terms as it
may choose without assuming any credit risk and without any obligation to
advertise or give notice of any kind except as set forth above; and (iii)
the proceeds of any such sale or disposition shall be applied first to
the satisfaction of Services Provider's reasonable attorneys' fees, legal
expenses, and other costs and expenses incurred in connection with the
taking, retaking, holding, preparing for sale, and selling of the
Collateral, and second to the payment (in whatever order Services
Provider elects) of the Obligations.  After the application of all such
proceeds, Services Provider will return any excess to Pledgor and Pledgor
shall remain liable for any deficiency.  To the extent permitted by
applicable laws, Pledgor waives all claims, damages and demands against
Services Provider arising out of the repossession, retention or sale of
the Collateral, except to the extent that any of the foregoing arises out
of the gross negligence or willful misconduct of Services Provider.

                7.2.3   Restrictions Imposed by Securities Laws.  Pledgor
understands that compliance with the Securities Laws may very strictly
limit the course of Services Provider's conduct in the disposition of all
or any part of the Pledged Securities in accordance with this Section 7,
and may also limit the extent to which or the manner in which any
subsequent transferee of any Pledged Securities may dispose of the same.
Pledgor understands that Services Provider shall be entitled to place all
or any part of the Pledged Securities for private placement by an
investment banking firm, that any such investment banking firm may
purchase all or any part of the Pledged Securities for its own account,
and that Services Provider shall be entitled to place all or any part of
the Pledged Securities privately with a purchaser or purchasers who will
represent and agree that they are purchasing the Pledged Securities for
their own account for investment and not with a view to the distribution
or sale thereof in violation of the Securities Laws, notwithstanding the
existence of a public or private market upon which the quotations or
sales prices may exceed substantially the price at which Services
Provider sells.

        8.      Power of Attorney.  Pledgor appoints Services Provider, or
any other person whom Services Provider may designate, as Pledgor's
attorney-in-fact, with power to endorse Pledgor's name on any checks,
notes, acceptances, money orders, drafts or other form of payment or
security representing a portion of the Collateral that may come into
Services Provider's possession and to do all things necessary to carry
out this Agreement.  Pledgor ratifies and approves all such acts of
Services Provider.  Neither Services Provider nor any other person
designated by Services Provider as attorney-in-fact hereunder will be
liable for any acts or omissions except in the case of gross negligence
or willful misconduct on the part of Services Provider, nor for any
errors of judgment or mistakes of fact or law.  This power, coupled with
an interest, is irrevocable so long as this Agreement remains effective.

        9.      Termination of Agreement.  This Agreement shall continue in
full force and effect until all Obligations have been fully paid and
satisfied.  Upon termination of this Agreement, Services Provider shall
surrender to Pledgor or other person legally entitled thereto, without
recourse or warranty, all certificates evidencing and stock powers and
other assignments in respect of the Pledged Securities and any other
properties included in the Collateral which are in the possession of
Services Provider and have not been disposed of pursuant to Section 7.2
hereof.

        10.     Waivers, Amendments, Successors and Assigns.

                10.1    Waiver of Demand, Presentment and Notice.  Pledgor
waives demand, presentment and protest of any instrument and notice
thereof, notice of default and all other notices to which Pledgor might
otherwise be entitled, except as otherwise specifically provided herein
or in the Release and Assumption Agreement.

                10.2    Waiver of Failure or Delay.  Failure by Services
Provider to exercise any right, remedy or option under this Agreement or
in any other agreement between the parties hereto, or delay by Services
Provider in exercising the same, will not operate as a waiver thereof.

                10.3    Written Waivers, Etc.  No waiver by Services Provider
will be effective unless it is in a writing signed by Services Provider,
and then only to the extent specifically stated, and no waiver by
Services Provider on any occasion shall affect or diminish Services
Provider's right thereafter to require strict performance by Pledgor with
any provision of this Agreement.

                10.4    Remedies Cumulative.  Services Provider's rights and
remedies under this Agreement will be cumulative and not exclusive of any
other right or remedy which Services Provider may have.

                10.5    No Oral Amendments.  This Agreement cannot be
changed or terminated orally.

                10.6    Right to Assign.  Services Provider shall have the
right to assign this Agreement and to transfer, assign or sell
participations in its interests hereunder from time to time in connection
with any sale, assignment, transfer or other disposition of the Note or
any portion thereof, but Pledgor shall not be permitted to assign this
Agreement or any interest herein.

                10.7    Successors and Assigns.  All of the rights, privileges,
remedies and options given to Services Provider hereunder shall inure to
the benefit of its successors and assigns; and all the terms, conditions,
promises, covenants, provisions and warranties of this Agreement shall
inure to the benefit of and shall bind the successors and assigns of
Services Provider and Pledgor.

        11.     General Provisions.

                11.1    Further Acts, Etc.  Pledgor agrees to do such further
acts and things, and to execute and deliver such additional conveyances,
assignments, agreements and instruments, as Services Provider may at any
time reasonably request in connection with the administration and
enforcement of this Agreement or relative to the Collateral or any part
thereof or in order better to assure and confirm unto Services Provider
its rights and remedies hereunder.

                11.2    Section Headings.  Section headings used herein are for
convenience only and are not to affect the construction of or be taken
into consideration in interpreting this Agreement.

                11.3    Severability.  Wherever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall
be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions
of this Agreement.

                11.4    Payment of Taxes.  If Pledgor fails to pay any taxes,
assessments or governmental charges levied or assessed or imposed upon or
with respect to the Collateral, or otherwise fails to pay any amount
necessary for the protection and preservation of the Collateral securing
the Obligations, Services Provider may pay same at Services Provider's
option, together with interest and penalties, and the amounts so paid
shall be added to the Obligations, and be payable, with accrued interest
thereon, in the manner prescribed in the Release and Assumption
Agreement.

                11.5    CHOICE OF LAW.  IT IS THE INTENTION OF THE PARTIES
HERETO THAT THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A.
(IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES) SHALL GOVERN THE VALIDITY
OF THIS AGREEMENT, THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION
AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO.  EXCEPT
AS SET FORTH BELOW, THE PARTIES HEREBY AGREE THAT ANY SUIT TO ENFORCE ANY
PROVISION OF THIS AGREEMENT ARISING OUT OF OR BASED UPON THIS AGREEMENT
OR THE BUSINESS RELATIONSHIP BETWEEN THE PARTIES HERETO SHALL BE BROUGHT
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
CALIFORNIA OR THE SUPERIOR OR MUNICIPAL COURT IN AND FOR THE COUNTY OF
SANTA CLARA, CALIFORNIA, U.S.A.  EACH PARTY HEREBY AGREES THAT SUCH
COURTS SHALL HAVE IN PERSONAM JURISDICTION AND VENUE WITH RESPECT TO SUCH
PARTY, AND EACH PARTY HEREBY SUBMITS TO THE IN PERSONAM JURISDICTION AND
VENUE OF SUCH COURTS.  IN ADDITION TO THE FOREGOING JURISDICTION,
SERVICES PROVIDER, AT  ITS SOLE OPTION, MAY COMMENCE ANY SUCH SUIT IN ANY
JURISDICTION IN WHICH PLEDGOR HAS AN EXECUTIVE OFFICE.

                11.6    Survival of Representations and Warranties.  Pledgor
covenants, warrants and represents to Services Provider that all of
Pledgor's representations and warranties contained in this Agreement
shall be true at the time of Pledgor's execution of this Agreement, shall
survive the execution, delivery and acceptance thereof by the parties
hereto and the closing of the transactions described herein or related
hereto, and (except to the extent that they shall be untrue solely as a
result of transactions permitted by this Agreement or the Release and
Assumption Agreement or otherwise consented to by Services Provider)
shall be true from the time of Pledgor's execution of this Agreement
until the termination of this Agreement as provided in Section 9 hereof.

                11.7    Survival of Rights, Duties, Etc.  No termination or
cancellation (regardless of cause or procedure) of the Release and
Assumption Agreement or the Note shall in any way affect or impair the
powers, obligations, duties, rights and liabilities of the parties hereto
in any way with respect to (i) any transaction or event occurring prior
to such termination or cancellation, (ii) the Collateral, or (iii) any of
Pledgor's undertakings, agreements, covenants, warranties and
representations contained in this Agreement, and all such undertakings,
agreements, covenants, warranties and representations shall survive such
termination or cancellation until all of the Obligations of every nature
whatsoever shall have been fully paid and satisfied.

                11.8    Services Provider's Right to Take Action With Respect
to Collateral.  As between Services Provider and Pledgor, Services
Provider may, in its sole discretion, (i) exchange, enforce, waive or
release any security or portion of the Collateral, (ii) apply such
security or any proceeds of the Collateral and direct the order or manner
of sale thereof as Services Provider may, from time to time, determine,
and (iii) settle, compromise, collect or otherwise liquidate any such
security or Collateral for the Obligations in any manner following the
occurrence of an Event of Default and during the continuance thereof,
without affecting or impairing Services Provider's right to take any
other further action with respect to any security for the Obligations or
any part thereof.

                11.9    Payments.  Services Provider shall have the continuing
and exclusive right to apply or reverse and reapply any and all payments
to any portion of the Obligations.  To the extent that Pledgor makes a
payment or payments to Services Provider or Services Provider receives
any payment or proceeds of the Collateral for Pledgor's account, which
payment or proceeds or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be
repaid to a trustee, receiver or any other party under any bankruptcy
law, state or federal law, common law or equitable cause, then, to the
extent of such payment or proceeds received, the Obligations or part
thereof intended to be satisfied shall be revived and continue in full
force and effect, as if such payment or proceeds had not been received by
such Services Provider.

                11.10   Legal Remedy Inadequate.  Pledgor recognizes that, in
the event Pledgor fails to perform, observe or discharge any of its
obligations or liabilities under this Agreement, any remedy of law may
prove to be inadequate relief to Services Provider; therefore, Pledgor
agrees that Services Provider, if Services Provider so requests, shall be
entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.

                11.11   Notices.  Whenever any party hereto desires or is
required to give any notice, demand, or request with respect to this
Agreement, each such communication shall be in writing and shall be
deemed to have been validly served, given or delivered at the time stated
below if deposited in the United States mails, registered or certified
and return receipt requested, with proper postage prepaid, or if
delivered by courier or sent by facsimile transmission, telex, telegraph
or cable or other similar electronic medium, addressed as indicated on
the signature page hereof.  If sent by telegraph, cable, telecopy or
facsimile transmission, a conformed copy of such notice shall be sent by
mail (in the manner provided above) to the addressee; however the failure
to send such copy by mail shall not make the notice defective unless the
originally transmitted notice is not actually received.  Service of any
such communication made only by mail shall be deemed complete on the date
of actual delivery as indicated by the addressee's registry or
certification receipt or at the expiration of the fourth (4th) business
day after the date of mailing, whichever is earlier in time.  Either
party may change its address for such communications by giving notice
thereof to the other party in conformity with this Section.  Nothing
contained in this Section or otherwise in this Agreement shall excuse any
party from giving oral notice when prompt notification is appropriate,
but any oral notice which is so given shall not satisfy the requirement
of written notice as specified in this Section 11.11.

                11.12   Indemnity.  Pledgor agrees to indemnify Services
Provider from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever (including, without
limitation, fees and disbursements of counsel) which may be imposed on,
incurred by, or asserted against Services Provider in any litigation,
proceeding or investigation, including, without limitation, any of the
foregoing brought under any federal or state securities laws,  which is
threatened, instituted or conducted by any governmental agency or
instrumentality or any other person with respect to any aspect of, or any
transaction contemplated by, or referred to in, or any matter related to,
this Agreement, whether or not Services Provider is a party thereto.

                11.13   Counterparts.  This Agreement may be executed in any
number of counterparts, each of which shall be an original as against any
party whose signature appears thereon and all of which together shall
constitute one and the same instrument.  This Agreement shall become
binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of all of the parties reflected
hereon as signatories.

        IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first hereinabove written.


PLEDGOR:

PORTOLA COMPANY IV LLC


By:     /s/ Jack L. Watts
        ------------------
Name:   Jack L. Watts
Title:  General Manager

SERVICES PROVIDER:

PORTOLA PACKAGING, INC.


By:     /s/ James A. Taylor
        --------------------
Name:    James A. Taylor
Title:   President and Chief
         Operating Officer

EX-27

 

<ARTICLE>      5
<LEGEND>       THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
               FROM THE ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN
               ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

<MULTIPLIER> 1,000

                              
<PERIOD-TYPE>                    3-MOS
<FISCAL-YEAR-END>                AUG-31-2000
<PERIOD-START>                   SEP-01-1999
<PERIOD-END>                     NOV-30-1999
<CASH>                               2,826
<SECURITIES>                             0
<RECEIVABLES>                       24,300  
<ALLOWANCES>                             0
<INVENTORY>                         13,371
<CURRENT-ASSETS>                    43,417
<PP&E>                              89,272  
<DEPRECIATION>                           0
<TOTAL-ASSETS>                     153,840
<CURRENT-LIABILITIES>               22,069
<BONDS>                                  0
<PREFERRED-MANDATORY>                    0
<PREFERRED>                              0
<COMMON>                                11
<OTHER-SE>                         (27,057)
<TOTAL-LIABILITY-AND-EQUITY>       153,840
<SALES>                             47,613
<TOTAL-REVENUES>                    47,613
<CGS>                               37,389
<TOTAL-COSTS>                       37,389
<OTHER-EXPENSES>                     8,962
<LOSS-PROVISION>                         0
<INTEREST-EXPENSE>                   3,060
<INCOME-PRETAX>                     (2,041)
<INCOME-TAX>                          (735)
<INCOME-CONTINUING>                 (1,306)
<DISCONTINUED>                           0
<EXTRAORDINARY>                          0
<CHANGES>                                0
<NET-INCOME>                        (1,306)
<EPS-BASIC>                       ($0.11)
<EPS-DILUTED>                       ($0.11)

<F1> Shown net of allowance
<F2> Shown net of depreciation