10-K/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K/A

Amendment No. 1

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended August 31, 2004

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

For the Transition Period from                   to          

Commission File No. 33-95318

PORTOLA PACKAGING, INC.

(Exact name of Registrant as specified in its charter)

Delaware	94-1582719
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

898A Faulstich Court
San Jose, California 95112
(Address of principal executive offices, including zip code)

(408) 573-2000
(Registrant’s telephone number, including area code)

     SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

     SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference to Part III of this Form 10-K/A or any amendment to this Form 10-K/A. x

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Registrant’s voting and non-voting common stock is privately held and there is no public market for such common stock. The aggregate market value of Registrant’s voting and non-voting common stock cannot be computed by reference to the price at which the stock was sold, or the average bid and ask price of such common stock, as of any date within sixty days prior to the date of filing because there have been no sales of the voting or non-voting common stock within sixty days prior to the date of filing.

11,907,753 shares of Registrant’s $.001 par value common stock, consisting of 2,134,992 shares of non-voting Class A Common Stock and 9,772,761 shares in the aggregate of voting Class B Common Stock, Series 1 and 2 combined, were outstanding at November 19, 2004.

PORTOLA PACKAGING, INC.
ANNUAL REPORT ON FORM 10-K/A
YEAR ENDED AUGUST 31, 2004
TABLE OF CONTENTS

		Page
	PART I
Item 1.	Business		1
Item 2.	Properties		9
Item 3.	Legal Proceedings		10
Item 4.	Submission of Matters to a Vote of Security Holders		10
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		11
Item 6.	Selected Financial Data		12
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		38
Item 8.	Financial Statements and Supplementary Data		40
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		77
Item 9A.	Controls and Procedures		77
Item 9B.	Other Information		77
	PART III
Item 10.	Directors and Executive Officers of Registrant		78
Item 11.	Executive Compensation		81
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		86
Item 13.	Certain Relationships and Related Transactions		89
Item 14	Principal Accountant Fees and Services		91
	PART IV
Item 15.	Exhibits and Financial Statement Schedules		92
	Signatures		97
	Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act		98
Exhibit 10.26
Exhibit 10.29
Exhibit 10.30
Exhibit 10.31
Exhibit 10.32
Exhibit 14.01
Exhibit 21.01
Exhibit 23.01
Exhibit 31.01
Exhibit 31.02
Exhibit 31.03
Exhibit 32.01

     Cap Snap®, Snap Cap®, Portola Packaging®, Nepco®, Tech Industries, Inc.®, TI®, EDesigner Studio® and the Portola logo are our registered trademarks used in this Annual Report on Form 10-K/A.

Explanatory Note

This Form 10-K/A (this “Amendment”) amends the Annual Report on Form 10-K for the fiscal year ended August 31, 2004 that we filed on November 29, 2004. We have filed this Amendment to reclassify the (gain) loss from the sale of property, plant and equipment and the fixed asset impairment charge. Accordingly, these items have now been included in income from operations and are no longer stated below income from operations within the amended consolidated statements of operations and within the amended supplemental condensed consolidated statements of operations presented in Note 17 of the Notes to Consolidated Financial Statements. The reclassification had no effect on the Company’s net (loss) income for the fiscal years ended August 31, 2004, 2003 and 2002. In addition, we have updated our discussion within Management’s Discussion and Analysis of Financial Condition and Results of Operations to reflect these changes. We have also corrected the effective tax rate reconciliation for the fiscal year ended August 31, 2004 that is set forth in brackets presented in Note 13 of the Notes to Consolidated Financial Statements and made other wording changes due to production errors in the finalization of the originally filed Form 10-K. This Amendment does not reflect events occurring after the filing of the original Form 10-K, or modify or update the disclosures therein in any way other than as discussed above or as required to reflect the amendments set forth below.

SAFE HARBOR STATEMENT UNDER
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

     In addition to historical information, this report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this Form 10-K/A, including, without limitation, statements contained in the “Management’s Discussion and Analysis of Results of Operations and Financial Condition” regarding our financing alternatives, financial position, business strategy, plans and objectives of management for future operations, and industry conditions, are forward-looking statements. Certain statements, including, without limitation, statements containing the words “believes,” “anticipates,” “estimates,” “expects,” “plans,” and words of similar import, constitute forward-looking statements. Readers are referred to the sections of this report entitled “Raw Materials and Production,” “Product Development,” “Competition,” “Risk Factors,” “Critical Accounting Policies and Estimates” and “Quantitative and Qualitative Disclosures About Market Risk.” These sections describe risks that could cause actual results to differ materially from such forward-looking statements. Although we believe that the expectations reflected in any such forward-looking statements are reasonable, we cannot assure you that such expectations will prove to have been correct, as they only reflect management’s opinions as of the date hereof. Any forward-looking statements herein are subject to certain risks and uncertainties in our business, including but not limited to, competition in our markets, and reliance on key customers, all of which may be beyond our control. Any one or more of these factors could cause actual results to differ materially from those expressed in any forward-looking statement. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in this paragraph, elsewhere in this report and in other documents we file from time to time with the Securities and Exchange Commission, including Quarterly Reports on Form 10-Q we will file in fiscal 2005.

PART I

Item 1. BUSINESS

     We are a leading designer, manufacturer and marketer of plastic closures, bottles and related equipment used for packaging applications in the non-carbonated beverage and institutional foods markets. We also design, manufacture and sell closures and containers for the cosmetics, fragrance and toiletries (“CFT”) market. Our products provide our customers with a number of value-added benefits, such as the ability to increase the security and safety of their products by making them tamper evident and leak-proof.

     We believe that we are the sole or largest supplier to our top 25 customers of the products we supply to them. We have supplied products to these customers for an average of thirteen years. We sold over 12.2 billion closures in fiscal 2004 to over 1,000 customers under the names Snap Cap, Nepco, Portola, Tech Industries, Portola Tech International and other brand names. We sell our products to such beverage, food and consumer product companies as Dean Foods, Dairyland, Dairy Crest, Arla Foods, Kroger, Perrier Water/Nestle, Estée Lauder, Avon and Coca-Cola.

1

     Many features of our products have been developed through our significant research and development efforts. For example, we developed the “tear strip” feature that has become a standard tamper evident mechanism for non-carbonated beverage and food products. In addition, we have developed most of the technical information and know-how that we believe necessary to operate our business. We hold approximately 150 domestic and foreign patents, with over 70 additional patent applications pending, on the design of container closures and compatible neck finishes.

     Our products are manufactured through technologically advanced, high speed injection molding, compression molding and blowmolding processes at 13 manufacturing facilities, including five located in the United States, four in Canada and one in each of the United Kingdom, Mexico, China, and the Czech Republic. In addition, we have two equipment facilities located in the United States that produce equipment and tooling.

History

     We were founded in 1964 and were acquired from our founders in 1986 by a group led by Jack L. Watts, our current Chairman of the Board and Chief Executive Officer. We reincorporated in the State of Delaware on April 29, 1994. We have grown from $31.4 million in sales and 2.4 billion in closure units sold in fiscal 1988 to $242.5 million in sales and over 12.2 billion closures and 258.7 million bottles sold in fiscal 2004. Portola’s senior management has significant experience in the plastic packaging business and an average tenure of over eight years.

     On June 30, 1994, we acquired Northern Engineering & Plastics Corp., a Pennsylvania corporation, and certain related companies and assets (collectively, “Pennsylvania Nepco”) for a purchase price of $43.7 million. The acquisition of Pennsylvania Nepco, a designer, manufacturer and marketer of tamper evident plastic closures in markets similar to those served by Portola, enabled us to establish new customer relationships, diversify and expand our product offerings and customer base and benefit from Pennsylvania Nepco’s proprietary product designs.

     On June 16, 1995, we purchased for $13.6 million the 50% interest we had not previously owned in Canada Cap Snap Corporation, a British Columbia corporation engaged in manufacturing and distributing small closures in western Canada, together with all the capital stock of two affiliated plastic bottle manufacturers. On September 1, 1996, we purchased for $2.1 million Rapid Plast J-P, Inc., a company headquartered in Montreal, Quebec engaged in manufacturing and distributing plastic bottles, primarily in eastern Canada. The Canadian acquisitions enabled us to establish a position in the Canadian bottle manufacturing marketplace and to advance our position in the Canadian closure marketplace.

     During fiscal 1999, we entered into a joint venture with Greiner A.G. of Austria to form an Austrian company now named Capsnap Europe Packaging GmbH (“CSE”), which is 50% owned by Portola. CSE currently sells five-gallon closures and bottles that are produced by our United Kingdom subsidiary and our joint venture partner in CSE. CSE also has a 50% ownership interest in Watertek, a joint venture in Turkey that produces and sells five-gallon water bottles and closures for the European and Middle Eastern market places. Watertek is the owner of a 50% interest in a Greek company, Cap Snap Hellas that sells our products in Greece.

     On March 31, 1999, we purchased certain operating and intangible assets and repaid certain liabilities of Allied Tool, Inc. (“Portola Allied”) for a total purchase price of $2.2 million. Portola Allied is located in Michigan and is engaged primarily in the manufacture and sale of tooling and molds used in the blowmolding industry.

     Effective March 22, 2000, we acquired the remaining 45% ownership interest in Shanghai Portola Packaging Company Limited (“PPI China”) that we did not previously own for $1.4 million. PPI China is located in the Shanghai province of China and is engaged in the manufacture and distribution of plastic closures and plastics components for the electronics industry in Asia, Australia and New Zealand.

     Effective January 1, 2001, we purchased certain assets and assumed certain liabilities of Consumer Cap Corporation (“Consumer”) for approximately $9.9 million. Consumer’s manufacturing and distributing operations were merged with our existing operations at that time.

2

     On September 19, 2003, we acquired all of the outstanding capital stock of Tech Industries, Inc., (we renamed Tech Industries as Portola Tech International, or PTI, subsequent to the acquisition; accordingly, we refer to Tech Industries as PTI throughout this Form 10-K/A) for approximately $40.0 million (including assumed liabilities and transaction costs). PTI is a manufacturer of plastic closures and containers for the CFT industries. PTI’s customers include Estée Lauder and Avon, each of which has used our products for over 20 years. Tech Industries provided us with an entrance to the CFT market, where advanced design capabilities and specialized manufacturing processes are required. During 2004 we began to implement our efficient manufacturing processes within PTI’s operations. We funded the purchase price for PTI through borrowings under our existing credit facility.

     In March 2004, we purchased certain machinery and equipment for production of dairy closures, together with certain inventory and accounts receivable from a producer of 38mm plastic closures for the dairy market in the United Kingdom. We expect to utilize this machinery and equipment in the U.K. and other Portola facilities outside of the U.K. The seller subsequently ceased production of 38mm dairy closures for the U.K. market.

Business strategy

     Our primary strategy is to increase cash flow by maintaining and extending our position as a leader in significant segments in the plastic closure, bottle and CFT market. The key elements of this strategy are as follows:

     Emphasizing research and development and product engineering. Packaging of food, beverages and CFT products is rapidly changing in the marketplace, as producers encounter increased competition and escalating sophistication among their customers. The demands for new packaging solutions can only be met by using new materials and innovative design and manufacturing techniques. We are continuing our commitment to the research and development of new containers, closures and packaging systems.

     Emphasizing customer support and total product solutions. We build long-term relationships with customers and attract new customers by providing on-time delivery and technical service and support, and by positioning and selling our products as total product solutions. We work closely with our customers to design closures and compatible container necks and neck inserts that meet their specific needs, provide them with a wide range of stock and customizable products, and support their ongoing needs for service and support. Many of our beverage closure customers also use our capping equipment, which we believe improves their products and strengthens our relationships with them.

     Expanding sales in markets outside of the United States. We expect significant growth in markets outside of the United States for plastic closures, containers and capping equipment, as bottled water, other non-carbonated beverage and CFT companies in international markets adopt more advanced packaging materials and techniques. We are seeking to capitalize on these growth opportunities by entering into joint ventures with local bottle manufacturers, bottlers and distributors, by increasing export sales and by establishing direct operations in local markets. For example, we have purchased land and may develop a new manufacturing facility in the Czech Republic to serve European markets for closures and CFT products.

     Low cost producers in our markets. Our operations use advanced automated and proprietary manufacturing processes to provide high quality products at relatively low production costs. We have a continuous process improvement program, based on the Toyota model, designed to further automate our production flow, enhance the capabilities of our workforce and upgrade our molds, equipment and systems. This enables us to limit our direct labor costs while meeting the strict sanitary requirements necessary for producing food and beverage packaging products in our markets.

     Product Integrity initiative. We have adopted a Product Integrity strategy in which we focus on providing products and services that leverage our core strengths in enhancing our customers’ product safety and protecting their brand equity. We design our products to assure customers that their products will be received by end-users with all of the attributes the manufacturer intended, including taste, freshness, odor and effectiveness. Other Product Integrity initiatives include the establishment of a separate division that will develop and sell anti-counterfeiting devices and services designed to protect brand equity as well as quality control and manufacturing control products designed to eliminate defective products. In addition, Product Integrity encompasses other safety and security services designed to protect the integrity of the manufacturing process and protect products as they move through the distribution chain.

3

     Seeking strategic acquisitions. From time to time we may consider strategic acquisitions, focusing on markets with higher growth rates than those we currently serve, and on markets in which we can leverage our strengths in Product Integrity and manufacturing efficiency.

Plastic closure market

     Portola competes in the closure segment of the worldwide plastic container packaging industry, focusing on proprietary tamper evident plastic closure applications. Plastic closures have various applications and are designed and engineered to meet specific uses. Portola’s major product applications for plastic closures for beverages include dairy, fruit juice, bottled water, sport drinks, other non-carbonated beverage products and institutional food products, as well as closures and containers for the CFT market.

     Closure design is a function of the type of container and its contents. Products which are perishable, highly acidic or susceptible to tampering all require specialized capping applications. In many instances, it may be necessary for the container to be re-sealable, or it may be preferable for the contents to be dispensed through the closure without the closure being removed.

     The use of plastic closures has grown as the demand for tamper evident packaging has grown. A tamper evident feature is highly valued by the non-carbonated beverage and food market. While certain tamper evident devices can be incorporated into metal closures, the most sophisticated devices have been developed for plastic closures. We invented the original snap-on cap design as well as the “tear strip” feature with breakaway bands for plastic closures. These Portola innovations established the standard tamper evident mechanism for the non-carbonated beverage and food industries.

     Historically, growth in demand for our products has been driven by population growth, increasing concerns about the sanitation and safety of packaged food and beverage products, and the continued shift from glass or metal to plastic containers throughout the packaged food industry. In addition, in many international markets, demand for plastic containers is growing with increasing consumer disposable income. For the fruit juice, dairy and bottled water markets, demand is also a function of climate variations, with warm weather tending to increase consumption. In the CFT market, growth has been driven by trends such as the aging of the population, increasing demand by younger consumers and the development of new cosmetic and skin care products. As packaging has shifted from glass and metal to plastic containers, which tend to rely on plastic closures, the use of plastic closures has grown more than the overall closures market. See “Products” and “Product development” below.

Products

     We design, manufacture and sell a wide array of tamper evident plastic closures for dairy, fruit juice, bottled water, sport drinks, other non-carbonated beverage products and institutional food products and for cosmetics, fragrances and toiletries. We also design, manufacture and sell (i) blowmolded bottles used in the dairy, bottled water, fruit juice and industrial markets, (ii) closures and jars for CFT products, (iii) injection stretch bottles blowmolded for bottled water markets (iv) high speed capping equipment used by our plastic closure customers in their bottling and packaging operations and (v) tooling and molds used in the blowmolding industry to manufacture bottles.

     Plastic closures. We offer a wide variety of plastic closures under each of our principal product lines to satisfy a great number of application and customer requirements. Our plastic closures for beverages are broadly grouped into five categories: (i) small closures used to cap blowmolded plastic bottles, (ii) closures for five-gallon returnable glass and plastic water cooler bottles, (iii) widemouth closures for institutional food products, (iv) fitments for gable-top containers (such as conventional paperboard milk and juice cartons), and (v) push-pull dispensing closures for bottled water, flavored water and sports drinks. Our plastic closures range in size from 26 mm to 110 mm and conform to international packaging standards. We offer 30 standard colors, and also offer a high degree of product distinction for our customers through over 300 custom-blended colors, and sophisticated printing, embossing and adhesive labeling capabilities. Most of our plastic closures offer a snap-on, snap-screw or screw feature, designs which are preferred by packagers because they reduce production costs. Our plastic closures also incorporate tear strips, breakaway bands or other visible tamper evident devices, a feature that has become an industry standard for non-carbonated beverage and food products. Our sales of plastic closures represented approximately 67%, 75% and 80% of total sales in fiscal 2004, 2003 and 2002, respectively.

4

     The following describes our principal closure lines for the non-carbonated beverage and institutional food markets:

• Closures for gallon and half-gallon plastic containers. We are a leading provider of 38 mm closures used primarily for gallon and half-gallon blowmolded containers for milk, fruit juices and bottled water in the United States, and similar plastic containers in Mexico and the United Kingdom. These closures represented $116.6 million.

• Five-gallon closures. We are a leading provider of plastic closures for five-gallon returnable glass and plastic water cooler bottles in the United States and the United Kingdom. These closures represented $28.3 million.

• Other food and beverage closures. We produce a variety of specialty closures for the beverage and food markets. These products include (i) wide mouth closures for plastic containers used in institutional food applications such as condiments, mayonnaise and salad dressing, (ii) re-closeable plastic dispensing fitments for gable-top paperboard cartons used for orange juice, lemonade, other juice, dairy and soy products, and (iii) push-pull dispensing tamper evident closures for bottled water, fruit juices and sport drinks. We believe that we are a leader in many of these markets in the United States and the United Kingdom. These products represented $32.6 million.

     In September 2003, we entered the CFT market through our acquisition of PTI, which produces and markets custom bottle caps and jar covers for personal care, cosmetics products fragrance and toiletries. We believe that we are a leader in closures for the CFT market, with particular strength in compression-molded closures used in high-end product applications. PTI has had long-standing relationships, averaging over 20 years, with five out of the seven major global cosmetics companies, including Avon, Estée Lauder and L’Oreal. These closures represented $27.6 million, or 11%, of total sales in fiscal 2004.

     Plastic bottles. We produce a wide variety of blowmolded high density plastic bottles in Canada for use primarily in the dairy, bottled water and fruit juice industries. We also produce five-gallon polycarbonate water bottles in Mexico and the United Kingdom. The ability to sell the closures and bottles together enables the Canadian, Mexican and the United Kingdom operations to provide their customers with a complete packaging system. Through our joint venture, CSE, we sell five-gallon polycarbonate bottles and closures primarily in Europe. In the CFT market, PTI offers a line of heavy wall PETG and polypropylene jars that complements our closure offerings. Our sales of bottles represented 13%, 13% and 11% of total sales in fiscal 2004, 2003 and 2002, respectively.

     Capping equipment and tooling. We design, manufacture and sell capping equipment for use in high speed bottling, filling and packaging beverage production lines. A substantial majority of our plastic closure customers use our capping equipment. Our ability to supply capping equipment and technical assistance along with our plastic closures represents an important competitive advantage, as customers have confidence that our plastic closures will be applied properly to provide leak-proof seals, and that any capping problems will be resolved quickly.

     We also manufacture and sell high quality tooling and molds used in the blowmolding industry for the manufacture of bottles. These capabilities allow us to rapidly respond to customers tooling needs, enhancing our ability to provide a complete solution to our customers. Our sales of equipment and tooling represented 5%, 6% and 6% of total sales in fiscal 2004, 2003 and 2002, respectively.

Product development

     We continue to be committed to product development and engineering in areas of our sales and operations. Our research and development group and engineering staff, as well as a number of skilled package design consultants, engage in a range of design and development services, focusing on (i) new products and existing product enhancements, (ii) tooling and molds necessary for manufacturing plastic closures and (iii) capping equipment compatible with our closures and our customers’ containers. Research and development expenditures for fiscal 2004, 2003 and 2002 were $6.2 million, $4.7 million and $3.1 million, respectively.

5

     We have made a substantial investment in developing both new and enhanced products. To facilitate this process and to increase the chances of ultimate market acceptance of such products, we encourage ongoing exchanges of ideas with customers, container manufacturers, machinery manufacturers and sales and service personnel. Ongoing consultations with our customers have enabled us to identify new product opportunities to develop improved traditional closures, as well as fitments and closures, for institutional foods industries.

     During the last three years, we have accelerated the pace of our product development activities to address the increasing rate of innovation in the worldwide plastic packaging industry. However, in many cases, customers who are comfortable with their existing closure products are generally slow to switch to a new design.

Intellectual property

     As of August 31, 2004, we held approximately 150 domestic and foreign patents on the design of our products, including container closures, compatible neck finishes, handling equipment and related processes and we have over 70 patent applications pending. We rely primarily on our patents to protect our intellectual property and are committed to developing new proprietary innovations in tamper evident plastic closures, bottles, related equipment and tooling for the food and beverage and CFT industries which we expect to provide us with a competitive advantage in many new product areas. A number of our prior patents relating to one of our beverage closure product lines have expired in recent years, and we believe this adversely affected our gross margins as competitors who become free to imitate Portola designs have begun to compete aggressively in product pricing. Similarly, we face the risk that our intellectual property may be misappropriated, particularly in certain foreign countries whose laws may not protect our intellectual property rights to the same extent as the laws of the United States, which could negatively affect our business. Our continued innovation in the markets served, as well as new markets, is designed to counteract this situation. We also have a number of trademarks that are deemed valuable to our business. We have developed most of the technical information and know-how necessary to operate our business.

Raw materials and production

     As of August 31, 2004, the principal raw material for our plastic closures and bottles was injection and blowmolding grade resin, which accounted for approximately 65% of the cost of all raw materials purchased for our plastic closures and bottles in fiscal 2004. Resin can be purchased from a number of reliable, competitive producers and is priced as a commodity. The majority of the resin we use in production is low density polyethylene (LDPE). We also use high density polyethylene, linear low density polyethylene, polypropylene and polycarbonate. We have contracts with our three principal resin suppliers that provide for the adjustment of prices payable by us depending on periodic increases or decreases in published indices of national bulk resin pricing. While resin prices can fluctuate substantially over relatively short periods of time, we have not experienced any significant difficulties over the past ten years in obtaining sufficient quantities of resin. In the past, we generally have been able to pass on increases in resin prices directly to our customers, in many cases after delays because of contractual provisions. However, during the past three years, with the significant increases in resin prices, we experienced difficulty passing on all of such resin price increases to certain customers. Significant increases in resin prices from current levels, coupled with an inability to promptly pass such increases on to customers, had an adverse effect on our sales and margins during fiscal 2004 and 2003 and will continue to do so in the foreseeable future. Only one of PTI’s major customer contracts provides for price adjustments due to resin price changes.

     To produce plastic closures and bottles, resin, which is delivered as small pebble-size pellets to large storage silos, is conveyed through a pipeline system to injection or compression molding, or blowmolding machines where it is melted into a thick liquid state. Coloring agents are added as appropriate and the mixture is injected or blowmolded at high pressure into a specially designed, multi-cavity mold. The principal equipment in our plants includes injection molding, compression molding and blowmolding machines, finishing lines that print, label and insert closures with foam or foil to meet customer requirements and automated systems for handling and processing raw materials and finished goods. We use similar, automated process in the production of our bottles.

6

     Our operations use advanced automated and proprietary manufacturing processes to provide high quality products at relatively low production costs. We have a continuous process improvement program, based on the Toyota model, designed to further automate our production flow, enhance the capabilities of our workforce and upgrade our molds, equipment and systems. This enables us to limit our direct labor costs while meeting the strict sanitary requirements necessary for producing food and beverage packaging products. During fiscal 2004, we began to apply our continuous process improvement program to the operations of PTI, which we believe has yielded and will continue to yield significant improvements in PTI’s operations over time. In addition, we have developed significant propriety manufacturing processes that we believe provide us with a competitive advantage.

Backlog

     Production and delivery cycles for closures and bottles are very short and our backlog is generally cancelable on short notice. Backlog for closures and bottles is generally two to three weeks of orders and is relatively constant from period to period. Contracts for equipment purchases and tooling generally include cancellation penalties. Due to the short production and delivery cycles for closures and bottles, we do not believe backlog information is a material factor in understanding our business.

     The backlog for CFT closures and containers at PTI is subject to greater variability than our other businesses. CFT orders received from customers may require product deliveries that may be immediate or may extend over a three- to nine-month period. In addition, one of PTI’s major customers receives shipments under a consignment arrangement. Revenue for this customer is recognized upon consumption. Due to these factors, it is difficult to predict PTI’s sales for any given period based on our backlog.

Sales, marketing and customer service

     We sell our products through our in-house sales staff, sales representatives and, to a lesser extent, distributors. Domestically, a substantial portion of our sales and marketing activities are conducted by majority-owned subsidiaries. Calls on customers and participation at trade shows are our primary means of customer contact. A number of our customers are large corporate clients with numerous production facilities, and each facility may make its own purchase decisions. Our customers include processors and packagers of fluid milk, non-carbonated bottled water, chilled juice and flavored drink products sold on the retail level and condiments sold in the wholesale and institutional market, as well as producers and distributors of CFT products. Our top ten customers (including our European joint venture, which is one of our customers) accounted for approximately 34% of our sales during fiscal 2004. No customer accounted for 10% or more of total sales during fiscal 2004. We believe that we are the sole or largest supplier to our top 25 customers for the products we supply to them. Our consistent product quality and customer service have allowed us to develop strong relationships with our customers; our relationships with our top 25 customers average 12 years in length. For information regarding revenues and net income (loss) by segment, see Note 14 of the Notes to Consolidated Financial Statements.

     Attention to customer service is a critical component of our marketing efforts. Our customers generally operate high-speed, high-volume production lines, many of which handle perishable products. In order to help assure that the production lines operate efficiently and avoid costly line stoppages, many customers rely on our ability to provide reliable, on-time delivery of our closure and bottle products and to maintain uniform quality of those products. We also provide technical assistance to domestic and foreign customers by dispatching service personnel on short notice to solve bottling line problems. Several of our field service representatives have extensive blowmolding technical expertise that is especially important in resolving bottle leakage problems for customers.

7

International sales and joint ventures

     Our international sales have increased substantially in recent years. Export sales from the United States and sales from our non-U.S. facilities increased to $111.7 million in fiscal 2004 from $92.8 million and $84.4 million in fiscal 2003 and 2002, respectively. Bottled water companies and other non-carbonated beverage companies in Europe, East Asia, Latin America, Australia and elsewhere have continued to adopt more advanced packaging materials and techniques and have increasingly chosen to purchase our products from our nearby plants rather than from the U.S. facilities. Correspondingly, our foreign subsidiaries have increased their production, and total foreign sales accounted for 46% of our consolidated sales in fiscal 2004. For fiscal 2004, 2003 and 2002, export closure sales from the United States to unaffiliated customers were $8.9 million, $3.9 million and $3.6 million, respectively, and export CFT sales were $4.0 million in fiscal 2004. For information regarding international revenues and net income (loss) by geographical region, see Note 14 of the Notes to Consolidated Financial Statements.

     We have historically entered new markets outside of the United States through joint ventures with bottle manufacturers, bottlers and distributors that have an established presence in the local market. We currently are a party to a joint venture with CSE that sells certain products in Europe. For risks associated with our foreign operations, see “Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations-Risk Factors-Difficulties presented by non-U.S. economic, political, legal, accounting and business factors could negatively affect our interests and business efforts.”

     In November 2003, we purchased land in the Czech Republic. We have not begun any building activity on this site and we continue to analyze the expansion alternatives regarding this land. However, in April 2004 we entered into a lease of manufacturing space in an existing Czech Republic plant owned by our CSE joint venture partner and began closure manufacturing on a limited scale to serve the European markets for closures and CFT products.

Competition

     We compete in sales of container closures and bottles to the beverage and food industry, many of which are proprietary, on the basis of price, product design, product quality, reliability, on-time delivery and customer service. We believe that our broad range of beverage and food products and our ability to provide our customers with innovative, low-cost closures and complete capping systems, as well as our reputation for quality, reliability and service, and our automated and strategically located production facilities give us a competitive advantage. We compete in the same manner with our CFT products and are able to offer our customers a range of customization in that area that we believe provides us with competitive advantages.

     While no single competitor offers products that compete with all of our product lines, we face direct competition in each of those lines from a number of companies, many of which have financial and other resources that are substantially greater than ours. For example, we compete with divisions or subsidiaries of Alcoa, Inc., Berry Plastics Corporation, Crown Cork & Seal Company, Inc., International Paper Company and Rexam PLC, as well as a number of smaller companies, such as IPEC, Blackhawk Molding Company and Integra. Additionally, we from time to time also face direct competition from bottling companies and other beverage and food providers that elect to produce their own closures rather than purchase them from outside sources. A significant increase in competition, through technological innovations, offerings of lower priced products or introduction of new products not offered by us, could have a significant adverse effect on our financial condition and results of operations.

Employees

     As of August 31, 2004, we had 1,376 full-time employees, 51 of whom were engaged in product development, 111 in marketing, sales and customer support, 1,123 in manufacturing and 91 in finance and administration. We use seasonal and part-time employees for training, vacation replacements and other short-term requirements. None of our employees in the United States is covered by any collective bargaining agreement. Approximately 38 employees of our Canadian subsidiary are members of the Teamsters Union, and during fiscal 2002, we entered into a three-year agreement with the Teamsters Union. In addition, approximately 75 of our employees are covered by a collective bargaining agreement in Mexico. We have never experienced a work stoppage and believe that employee relations are good.

8

Item 2. PROPERTIES

Properties

     We believe that our facilities are well-maintained, in good operating condition and strategically located. We believe our facilities are adequate for our current needs and near-term growth requirements. However, substantial capital expenditures will be required to meet the production requirements for new and developing product lines. We cannot assure you that unanticipated developments will not occur that would require us to add production facilities sooner than expected. The table below indicates the locations, functions, square footage and nature of ownership of our current facilities. In addition, in November 2003 we purchased land in the Czech Republic for future construction of a facility.

				Nature of
Location	Functions	Square feet		ownership(1)
San Jose, CA	Executive Office and Engineering		21,930	Owned
Kingsport, TN	Closure Mfg./Warehouse		93,400	Owned
Clifton Park, NY(1)	Closure Mfg./Warehouse		51,400	Leased
Batavia, IL(1)	Closure Mfg./Warehouse/Executive Office/Engineering/Research and Development		73,100	Leased
New Castle, PA	Corporate Office/Warehouse/Equipment Division		22,350	Owned
Sumter, SC(2)	Warehouse		56,700	Owned
Melbourne, FL(1)	Sales Representative Organization		1,000	Leased
Onsted, MI	Sales Representative Organization		250	Leased
Kansas City, MO	Sales Representative Organization		150	Leased
Michigan Center, MI(1)	Tool Manufacturing		12,000	Leased
Tolleson, AZ	Closure Mfg/Warehouse		115,000	Leased
Woonsocket, RI	Closure and Container Mfg./Warehouse		495,000	Owned
Louney, Czech Republic(3)	Land		362,722	Owned
Litinov, Czech Republic(1)(4)	Closure Mfg.		32,733	Leased
Shanghai, China(1)(5)	Closure Mfg./Warehouse/Engineering/Research and Development		65,060	Leased
Richmond, British Columbia, Canada	Bottle & Closure Mfg./Warehouse		49,000	Leased
Edmonton, Alberta, Canada	Bottle Mfg./Warehouse		55,600	Leased
Toronto, Ontario, Canada	Bottle Mfg./Warehouse		47,000	Leased
Montreal, Quebec, Canada	Bottle Mfg./Warehouse		43,500	Leased
Guadalajara, Mexico(6)	Bottle & Closure Mfg./Warehouse		60,000	Leased
Doncaster, South Yorkshire, England	Bottle & Closure Mfg./Warehouse/Engineering/Research and Development		80,000	Leased
Albany, Auckland, New Zealand(1)	Office/Warehouse		1,500	Leased
Gmunden, Austria	Office		2,098	Leased

(1)	The facilities shown as leased in the table above are subject to long-term leases or lease options that extend for at least five years, except as follows: (a) the lease for Clifton Park, NY expires in June 2005, (b) the lease for Batavia, IL expires in July 2007, (c) the lease for Melbourne, FL is on a month to month basis, (d) the lease for Michigan Center, MI expires in October 2005, (e) the lease for Litinov, Czech Republic expires in April 2005, (f) the lease for Shanghai, China expires in November 2007, and (g) the lease for New Zealand expires in March 2005 and is then on a month to month basis for one year.
(2)	We closed our South Carolina plant and relocated its operations primarily to Kingsport, Tennessee and to other facilities during fiscal 2004.
(3)	We purchased land in Louney, Czech Republic in November 2003. No building activity has begun on this site. We are reviewing various options regarding the expansion of our manufacturing capabilities in the Czech Republic that may or may not include development of this land.

9

(4)	We entered into a short-term lease of manufacturing space in our CSE joint venture partner’s manufacturing plant. The lease expires in April 2005.
(5)	In April 2004, we entered into leases of two additional buildings, totaling 31,860 square feet, in Shanghai, China. The building A lease became effective May 1, 2004 and building B lease became effective November 1, 2004. The lease term for building A is 24 months and the lease term for building B is 18 months.
(6)	In April 2004, we amended the lease of our Guadalajara, Mexico plant to allow for construction of a 20,000 square foot expansion to our existing facilities. Construction of this expansion began in the third quarter of fiscal 2004 and was completed by September 1, 2004, at which time the amended lease became effective. We guaranteed approximately $0.2 million in future lease payments related to the amended lease. This is in addition to the guaranty of approximately $0.6 million related to the original lease. The amended lease expires August 31, 2014.

Item 3. LEGAL PROCEEDINGS

     In the normal course of business we are subject to various legal proceedings and claims. Based on the facts currently available, management believes that, subject to the qualifications expressed in the following paragraph, the ultimate amount of liability beyond reserves provided, if any, for any such pending actions in the ordinary course of business will not have a material adverse effect on our financial position.

     We are currently a defendant in a suit filed by Blackhawk Molding Co., Inc. on August 28, 2003 in the U.S. District Court for the Northern District of Illinois, Eastern Division. Blackhawk Molding alleges that a “single-stick” label attached to our five-gallon caps causes our caps to infringe a patent held by it and is seeking damages. We have answered the complaint denying all allegations and asserting that Portola’s products do not infringe the Blackhawk patent and that the patent is invalid. Fact discovery has been completed, and discovery pertaining to the parties’ experts has not yet been commenced. The Court has completed the first phase of claim construction. The ultimate outcome of this action or any litigation is uncertain. An unfavorable outcome in this action could result in our sustaining material damages. In addition, any litigation concerning intellectual property could be protracted and costly and could have a material adverse effect on our business and results of operations regardless of its outcome.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

10

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

     Our common stock is privately held and no class of voting securities is registered pursuant to Section 12 of the Securities Exchange Act of 1934. There is no established trading market for any class of our common stock.

     We have two classes of common stock, Class A Common Stock and Class B Common Stock, Series 1 and Series 2. Shares of Class A Common Stock are not entitled to vote. Our Class B Common Stock, Series 1 and Class B Common Stock, Series 2 have the same voting rights, each share being entitled to one vote.

     As of October 31, 2004, there were two holders of record of the 2,134,992 outstanding shares of Class A Common Stock. As of October 31, 2004, there were approximately 195 holders of record of the 8,602,366 outstanding shares of Class B Common Stock, Series 1 and 13 holders of record of the 1,170,395 outstanding shares of Class B Common, Series 2. See Note 11 of the Notes to Consolidated Financial Statements for additional information regarding our common stock.

Dividend Policy

     We have not paid dividends on any class of our common stock. Furthermore, certain of our agreements, including the indenture related to our senior notes issued on January 23, 2004 and the fourth amendment to the amended and restated senior revolving credit facility entered into on January 23, 2004, restrict our ability to pay dividends.

Recent Sales of Unregistered Securities

     During the period covered by this report, we issued and sold an aggregate of 2,560 shares of our Class B common stock, Series 1 to thirteen employees under our 1996 Employee Stock Purchase Plan. We received an aggregate of $10,880 from these sales. These securities were not registered under the Securities Act of 1933 in reliance upon the exception provided by Section 4(2) of the Securities Act and/or Rule 701 promulgated thereunder for transactions by an issuer not involving a public offering.

11

Item 6. SELECTED FINANCIAL DATA

     The following table sets forth Portola’s selected consolidated historical financial data for each of the five years in the period ended August 31, 2004, which have been derived from the consolidated financial statements of Portola, which have been audited by PricewaterhouseCoopers LLP, independent registered public accounting firm, and are included elsewhere in this report. The following data should be read in conjunction with our consolidated financial statements and related notes, “Management’s discussion and analysis of financial condition and results of operations” and the other financial information included elsewhere in this report.

	Year ended August 31,
(Dollars in thousands)	2000			2001			2002			2003			2004
Consolidated statements of operations data, as amended:
Sales(1)	$	208,919		$	219,418		$	210,757		$	215,315		$	242,507
Cost of sales(1)(2)		162,294			169,544			157,133			166,689			201,650
Gross profit		46,625			49,874			53,624			48,626			40,857
Selling, general and administrative		30,379			28,774			30,844			29,307			30,867
Research and development		2,922			3,096			3,069			4,729			6,209
Loss (gain) on sale of property plant and equipment(3)		106			(6,784	)		(20	)		30			(1,582	)
Fixed asset impairment charge(4)		—			—			—			—			1,120
Amortization of intangibles(5)		3,457			4,176			1,551			903			1,233
Goodwill impairment charge(6)		—			—			—			207			—
Restructuring costs(7)		493			1,939			—			405			3,809
		37,357			31,201			35,444			35,581			41,656
Income (loss) from operations		9,268			18,673			18,180			13,045			(799	)
Interest income(8)		(75	)		(75	)		(1,083	)		(120	)		(212	)
Interest expense		14,486			14,453			13,251			12,544			15,843
Amortization of debt issuance costs		428			718			756			777			2,545
Loss on warrant redemption(9)		—			—			—			—			1,867
Minority interest (income) expense(10)		(118	)		278			113			73			5
Equity (income) loss of unconsolidated affiliates, net(11)		469			37			(340	)		(415	)		(625	)
Income on dissolution of joint venture(12)		—			—			(475	)		—			—
Income on recovery of investments(13)		—			—			(1,103	)		—			—
Other (income) expense, net(14)		(14	)		158			246			(154	)		(809	)
		15,176			15,569			11,365			12,705			18,614
Income (loss) before income taxes		(5,908	)		3,104			6,815			340			(19,413	)
Income tax provision (benefit)		(2,165	)		2,074			2,242			2,071			1,193
Net (loss) income	$	(3,743	)	$	1,030		$	4,573		$	(1,731	)	$	(20,606	)

	As of August 31,
	2000			2001			2002			2003			2004
Consolidated balance sheets data:
Working capital	$	18,213		$	18,665		$	18,147		$	10,449		$	32,871
Total assets		154,335			149,635			136,589			132,773			189,225
Total debt		134,848			142,382			130,911			127,235			199,484
Redeemable warrants(15)(16)		12,630			10,510			10,359			10,302			—
Total shareholders’ equity (deficit)		(30,956	)		(27,283	)		(24,913	)		(26,199	)		(46,478	)
Cash Flow Data:
Net cash provided by (used in) operating activities		17,578			15,020			24,291			14,294			(383	)
Net cash used in investing activities		(11,717	)		(4,102	)		(10,927	)		(10,582	)		(53,038	)
Net cash (used in) provided by financing activities		(4,304	)		(11,569	)		(12,135	)		(3,870	)		61,089
Other data:
Closure unit volume (in millions) (unaudited)		11,939			12,871			12,693			12,337			12,174
Closure unit volume growth (unaudited)		(2.4	)%		7.8	%		(1.4	)%		(2.8	)%		(1.3	)%
EBITDA(17)		29,862			40,223			40,112			31,627			17,160
Depreciation and amortization(2)		20,856			21,948			19,290			17,966			18,185
Amortization of debt issuance costs		428			718			756			777			2,545
Capital expenditures		10,943			14,088			10,488			11,081			22,150
Fixed charge coverage ratio		0.63	x		1.19	x		1.45	x		1.02	x		0.03	x

See next page for notes to selected consolidated financial data.

12

Notes to selected consolidated financial data

(1)	During the fourth quarter of fiscal 2001, we adopted the Financial Accounting Standards Board’s Emerging Issues Task Force (“EITF”) Issue 00-10, “Accounting for Shipping and Handling Fees and Costs,” which requires all shipping and handling fees billed to customers to be classified as revenue. Prior to August 31, 2001, we included both shipping revenues and shipping and handling charges in cost of sales. We adopted EITF Issue 00-10 in the fourth quarter of fiscal 2001 and reclassified the previously reported results for fiscal 2000 to conform with the new standard, which had no effect on net income (loss). The effect of this accounting policy change was to increase revenue and cost of sales during the fiscal 2001 and 2000 by $5.1 million and $5.9 million, respectively.
(2)	Management performed a detailed analysis and also researched industry averages concerning the average life of molds. We concluded that the lives for our molds should be five years based on our findings. As of September 1, 2003, we changed the depreciable lives of our molds from three years to five years. If we had not changed the lives of the molds, we would have incurred $1.6 million in additional depreciation expense during fiscal 2004.
(3)	Loss (gain) on sale of property, plant and equipment includes a $1.6 million gain on the sale of our manufacturing buildings in Chino and San Jose, California in fiscal 2004, and a $6.8 million gain on the sale of real estate in San Jose, California in fiscal 2000.
(4)	We identified the facility would not be utilized in the near term and recognized an asset impairment loss of $1.1 million related to our Sumter, South Carolina building. As part of our restructuring plan in fiscal 2004, we closed our Sumter, South Carolina plant and moved the operations to our Kingsport, Tennessee plant. The Sumter plant is currently being used as a storage facility.
(5)	Includes amortization of patents and technology licenses, tradename, covenants not-to-compete and customer relationships for all years presented and also includes goodwill amortization for fiscal 2001 and 2000. Effective September 1, 2001, we chose early adoption of the Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” for existing goodwill and other identifiable assets, at which time the amortization of goodwill ceased.
(6)	At August 31, 2004 and 2003, we measured goodwill by operating unit and reviewed for impairment by utilizing the EBITDA multiplier methodology for United States - Closures, Canada, Mexico, China and Other, and used the discounted cash flows methodology for United States - CFT. Based on this review, no impairment was recognized during fiscal 2004 and we recorded a $0.2 million impairment related to Shanghai Portola Packaging Company Limited in fiscal 2003.
(7)	We incurred restructuring costs of $3.8 million during fiscal 2004, related to the closing and relocation of three plants in San Jose and Chino, California and Sumter, South Carolina, as well as a reduction of work force in the research and development and selling, general and administrative staffs. At August 31, 2004, accrued restructuring costs amounted to $1.4 million for employee severance costs. As of August 31, 2004, approximately $2.7 million had been charged against the restructuring reserve for the employee severance costs. We anticipate that the majority of the accrual balance will be paid within twelve months from the end of fiscal 2004. The operations from the two California plants have been relocated to a new facility located in Tolleson, Arizona, a suburb of Phoenix. We entered into a fifteen-year lease commencing December 1, 2003 for the Tolleson, Arizona facility. During the third quarter of fiscal 2004, we completed the sale of our manufacturing facility in Chino, California at a net sales price of $3.3 million and recognized a gain of $1.0 million. In July 2004, we also completed the sale of our manufacturing facility in San Jose, California at a net sales price of approximately $3.2 million and recognized a gain of $0.6 million in the fourth quarter of fiscal 2004. The operations from the Sumter, South Carolina plant have been relocated primarily to our existing facility in Kingsport, Tennessee as well as to other facilities within Portola. In connection with the closure of manufacturing operations in Sumter, we identified the facility would not be utilized in the near term and recognized an impairment charge of $1.1 million on the plant building in Sumter, South Carolina in the fourth quarter of fiscal 2004.

13

	During the second quarter of fiscal 2003, we implemented a restructuring plan to reduce our work force. During fiscal 2003, we incurred restructuring charges of $0.4 million for employee severance costs. The restructuring resulted in the termination of nine employees in general and administration, two employees in customer service, one employee in research and development and two employees in sales.
	During the first quarter of fiscal 2001, we implemented a restructuring plan involving the relocation of our New Castle, Pennsylvania closure operation to Sumter, South Carolina and Kingsport, Tennessee, and the relocation of the Cap Snap Equipment Manufacturing group from San Jose, California to New Castle, Pennsylvania. These relocations affected approximately 88 employees. We recorded restructuring charges during fiscal 2001 totaling approximately $1.9 million, which consisted of approximately $0.9 million for employee severance costs and approximately $1.0 million for the non-cash write-down of certain assets. During the fourth quarter of fiscal 2000, we effected a reduction in work force that affected 22 employees. In connection with the reduction in work force, we recorded restructuring charges in the fourth quarter of fiscal 2000, totaling approximately $0.5 million, which were primarily for employee severance costs.
(8)	Interest income includes income on the revaluation of redeemable warrants to purchase shares of our Class A Common Stock, and in fiscal 2002, interest income also included $0.8 million recognized on the recovery of an investment in Sand Hill Systems, Inc., an entity in which our chief executive officer and certain other officers held a financial interest. See Note 15 of the Notes to our consolidated financial statements.
(9)	Represents loss on warrant redemption in fiscal 2004 (see Note 15 to selected consolidated financial data below).
(10)	Represents minority interest expense for our consolidated subsidiaries that are not wholly owned.
(11)	Represents equity (income) loss relating to our 50% interest in Capsnap Europe Packaging GmbH.
(12)	Represents income on recovery on our investment in Sand Hill Systems, Inc. as described in Note 15 of the Notes to our consolidated financial statements.
(13)	Represents income relating to the forgiveness of debt in the dissolution of one of our joint ventures.
(14)	Other expense (income), net principally includes foreign currency gains and losses.
(15)	We had two outstanding warrants to purchase shares of our Class A Common Stock, each redeemable at the option of the holder upon 60 days’ prior written notice to us. These warrants were redeemable through June 30, 2004 and June 30, 2008, respectively. The redemption prices of the warrants were based on the higher of the price per share of our common stock or an amount computed under formulas in the warrant agreements. Following the offering of $180.0 million of our 8¼% senior notes due 2012 on January 23, 2004, we offered to repurchase both of the warrants. During February 2004, one warrant holder agreed to our repurchase of 2,052,526 shares of our Class A Common Stock into which the warrant was convertible at a net purchase price of $5.19 1/3 per share. This new price was based upon a price per share of common stock of $5.80 that was agreed to with the holder, minus the warrant exercise price of 60-2/3 cents for each share of Class A Common Stock. The aggregate warrant repurchase price was $10.7 million and the funds were paid on February 23, 2004. We recognized a loss of $1.7 million on the transaction during the second quarter of fiscal 2004 due to having increased the deemed price of our common stock from $5.00 per share to $5.80 per share as agreed with the warrant holder. During March 2004, the second warrant holder agreed to our repurchase of 440,215 shares of our Class A Common Stock into which the warrant was convertible at a net repurchase price of $3.30 per share. This new price was based upon an agreed price per share of common stock of $5.80, minus the warrant exercise price of $2.50 for each share of Class A Common Stock. The aggregate warrant repurchase price was $1.5 million and the funds were paid on May 4, 2004. We recognized a loss of $0.2 million on the transaction during the second quarter of fiscal 2004 due to having increased the deemed price of our common stock from $5.00 per share to the agreed-upon price of $5.80 per share. Prior to the redemption of the warrants, the carrying value of the warrants totaled $10.2 million, which represented the estimated fair value of the instruments as determined by our management using the Black-Scholes pricing model.

14

(16)

As of June 30, 2001, we applied EITF Issue 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.” The effect of the application of Issue 00-19 was to reclassify our redeemable warrants from temporary equity to a liability on June 30, 2001.

(17)

EBITDA represents, for any relevant period, income (loss) before interest expense, taxes, depreciation of property, plant and equipment, amortization of debt issuance costs and amortization of intangibles. EBITDA is not a recognized term under GAAP and does not purport to be an alternative to net income as a measure of operating performance or to cash flow from operating activities as a measure of liquidity. Additionally, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Because not all companies use identical calculations, this presentation of EBITDA may not be comparable to other similarly titled measures of other companies.

	Year ended August 31,
(Dollars in thousands)	2000			2001		2002		2003			2004
Consolidated net (loss) income	$	(3,743	)	$	1,030	$	4,573	$	(1,731	)	$	(20,606	)
Add: Interest expense		14,486			14,453		13,251		12,544			15,843
Taxes		(2,165	)		2,074		2,242		2,071			1,193
Depreciation and amortization		20,856			21,948		19,290		17,966			18,185
Amortization of debt issuance costs		428			718		756		777			2,545
EBITDA	$	29,862		$	40,223	$	40,112	$	31,627		$	17,160

15

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included elsewhere in this Form 10-K/A. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk factors” section of this Form 10-K/A. Our actual results may differ materially from those contained in any forward-looking statements.

Overview

     We are a leading designer, manufacturer and marketer of plastic closures, bottles and related equipment used for packaging applications in the non-carbonated beverage and institutional foods markets. We also design, manufacture and sell closures and containers for the cosmetics, fragrance and toiletries (“CFT”) market. Our products provide our customers with a number of value-added benefits, such as the ability to increase the security and safety of their products by making them tamper evident and leak-proof. Our financial statements for the year ended August 31, 2004 include PTI’s results beginning September 19, 2003.

     As of August 31, 2004, we had the following principal holding and operating subsidiaries:

Portola Allied Tool, Inc.—U.S.
Northern Engineering and Plastics Corporation—U.S.
Portola Tech International, Inc.—U.S.
Portola Ltd.—U.K.
Portola Packaging Limited—U.K.
Portola Packaging Canada Ltd.—Canada
Portola Packaging Inc. Mexico, S.A. de C.V.—Mexico
Shanghai Portola Packaging Company Limited—Republic of China
Portola Holding (Asia Pacific) Limited—Hong Kong
Portola GmbH—Austria
Portola s.r.o.—Czech Republic
Portola Packaging (ANZ) Limited — New Zealand

     All of these subsidiaries, except Portola Packaging (ANZ) Limited, are restricted subsidiaries under the indenture governing our $180 million in aggregate principal amount of 8¼% senior notes that we issued in January 2004. The following subsidiaries are restricted subsidiaries under the terms of our senior revolving credit facility entered into in January 2004: Portola Allied Tool, Inc., Northern Engineering and Plastics Corporation, PTI, Portola Ltd., Portola Packaging Limited, Portola Packaging Canada Ltd., and Portola Packaging, Inc. Mexico, S.A. de C.V. Restricted subsidiary status allows greater flexibility in funding the operations of these subsidiaries under the terms of the indenture governing our senior notes and the terms of our senior credit facility. Unrestricted subsidiary status imposes limitations on our ability and the ability of our restricted subsidiaries to finance the operations of unrestricted subsidiaries.

Critical accounting policies and estimates

     General. The consolidated financial statements and notes to consolidated financial statements contain information that is pertinent to “Management’s discussion and analysis of financial condition and results of operations.” The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, current and expected economic conditions and, in some cases, actuarial techniques. We constantly re-evaluate these factors and make adjustments where facts and circumstances dictate. We believe that the following accounting policies are critical due to the degree of estimation required.

16

     Allowance for doubtful accounts. We provide credit to our customers in the normal course of business, perform ongoing credit evaluations of our customers and maintain reserves for potential credit losses. The allowance for doubtful accounts related to trade receivables is determined based on two methods. The amounts calculated from each of these methods are combined to determine the total amount reserved. First, an evaluation of specific accounts is conducted when information is available indicating that a customer may not be able to meet its financial obligations. Judgments are made in these specific cases based on available facts and circumstances, and a specific reserve for that customer may be recorded to reduce the receivable to the amount that is expected to be collected. These specific reserves are re-evaluated and adjusted as additional information is received that impacts the amount reserved. Second, a general reserve is established for all customers based on historical collection and write-off experience. The collectibility of trade receivables could be significantly reduced if default rates are greater than expected or if an unexpected material adverse change occurs in a major customer’s ability to meet its financial obligations. The allowance for doubtful accounts totaled approximately $1.2 million as of both August 31, 2004 and August 31, 2003.

     Revenue recognition. We follow Staff Accounting Bulletin 104, “Revenue Recognition,” in recognizing revenues within our financial statements. This bulletin requires, among other things, that revenue be recognized only when title has transferred and risk of loss has passed to a customer with the capability to pay, and when we have no significant remaining obligations related to the sale.

     Inventory valuation. Cap and bottle related inventories are stated at the lower of cost (first-in, first-out method) or market and equipment related inventories are stated at the lower of cost (average cost method) or market. We record reserves against the value of inventory based upon ongoing changes in technology and customer needs. These reserves are estimates, which could vary significantly, either favorably or unfavorably, from actual requirements if future economic conditions, customer inventory levels or competitive conditions differ from our expectations.

     Depreciation lives. We periodically evaluate the depreciable lives of our fixed assets. Management performed detailed analysis and also researched industry averages concerning the average mold life of molds. We concluded that the lives for our molds should be five years based on our findings. As of September 1, 2003, we changed the depreciable lives of our molds from three years to five years. If we had not changed the lives of the molds, we would have incurred $1.6 million in additional depreciation expense during fiscal 2004.

     Impairment of assets. We periodically evaluate our property, plant and equipment, goodwill and other intangible assets for potential impairment. Management’s judgments regarding the existence of impairment indicators are based on market conditions and operational performance of the business. Future events could cause management to conclude that impairment indicators exist and that property, plant and equipment, goodwill and other intangible assets may be impaired. Any resulting impairment loss could have a material adverse impact on our results of operations and financial condition. We identified the facility would not be utilized in the near term and recorded an impairment loss of $1.1 million during the fourth quarter of fiscal 2004 for the write down of our Sumter, South Carolina facility to fair market value based on a real estate appraisal performed by a third party. As part of our restructuring plan in fiscal 2004, we closed our Sumter, South Carolina plant and moved the operations primarily to our Kingsport, Tennessee plant. The Sumter plant is currently being used as a storage facility. We recorded an impairment loss of $0.2 million during fiscal 2003 for goodwill related to our purchase of the remaining 45% interest in Shanghai Portola Packaging Company Limited in March 2000.

     Impairment of goodwill. Effective September 1, 2001, we adopted SFAS No. 142 for existing goodwill and other identifiable assets and at August 31, 2002, we used the EBITDA multiplier methodology to measure goodwill by operating unit and reviewed it for impairment. Based on this review, we did not record an impairment loss during fiscal 2002. The effect of the adoption was to eliminate goodwill amortization expense of $2,639 in fiscal 2002. During the fourth quarter of fiscal 2004, we measured goodwill by operating unit and reviewed for impairment by utilizing the EBITDA multiplier methodology for United States – Closures, Canada, Mexico, China and Other, and used the discounted cash flows methodology for United States – CFT. Based on this review, we did not record an impairment loss during fiscal 2004.

17

     Income taxes. We estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheet. We then assess the likelihood that the deferred tax assets will be recovered from future taxable income, and, to the extent recovery is not likely, a valuation allowance is established. When an increase in this allowance within a period is recorded, we include an expense in the tax provision in the consolidated statements of operations. Management’s judgment is required in determining the provision (benefit) for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against the net deferred tax assets. Although realization is not assured, management believes that the deferred tax assets will be realized before expiration through the recognition of future taxable income, except where a valuation allowance has been provided. While the deferred tax assets for which valuation allowances have not been provided are considered realizable, actual amounts could be reduced if future taxable income is not achieved. We provided valuation allowances of $16.3 million and $4.0 million against net deferred tax assets as of August 31, 2004 and August 31, 2003, respectively.

     Foreign currency translation. Our foreign subsidiaries use the local currency as their functional currency. Assets and liabilities are translated at year-end exchange rates. Income and expense items are translated at average exchange rates for the relevant period. Translation gains and losses are not included in determining net income (loss) but are accumulated as a separate component of shareholders’ equity (deficit). Gains (losses) arising from foreign currency transactions and the revaluation of certain intercompany debt are included in determining net income (loss).

     Impact of equity issuances. We had two outstanding warrants to purchase shares of our Class A Common Stock, each redeemable at the option of the holder upon 60 days’ prior written notice to us. These warrants were redeemable through June 30, 2004 and June 30, 2008, respectively. The redemption prices of the warrants were based on the higher of the price per share of our common stock or an amount computed under formulas in the warrant agreements. Following the offering of $180.0 million of our 8¼% senior notes due 2012 on January 23, 2004, we offered to repurchase both of the warrants. During February 2004, one warrant holder agreed to our repurchase of 2,052,526 shares of our Class A Common Stock into which the warrant was convertible at a net purchase price of $5.19 1/3 per share. This new price was based upon a price per share of common stock of $5.80 that was agreed to with the holder, minus the warrant exercise price of 60-2/3 cents for each share of Class A Common Stock. The aggregate warrant repurchase price was $10.7 million and the funds were paid on February 23, 2004. We recognized a loss of $1.7 million on the transaction during the second quarter of fiscal 2004 due to having increased the deemed price of our common stock from $5.00 per share to $5.80 per share as agreed with the warrant holder. During March 2004, the second warrant holder agreed to our repurchase of 440,215 shares of our Class A Common Stock into which the warrant was convertible at a net repurchase price of $3.30 per share. This new price was based upon an agreed price per share of common stock of $5.80, minus the warrant exercise price of $2.50 for each share of Class A Common Stock. The aggregate warrant repurchase price was $1.5 million and the funds were paid on May 4, 2004. We recognized a loss of $0.2 million on the transaction during the second quarter of fiscal 2004 due to having increased the deemed price of our common stock from $5.00 per share to the agreed-upon price of $5.80 per share. Prior to the redemption of the warrants, the carrying value of the warrants totaled $10.2 million, which represented the estimated fair value of the instruments as determined by our management using the Black-Scholes pricing model. Prior to the redemption and in accordance with EITF Issue 00-19, the change in the price of the warrants of $57,000 and $58,000 was recognized as interest income during fiscal 2004 and 2003, respectively.

18

Results of operations

Fiscal year ended August 31, 2004 compared to fiscal year ended August 31, 2003

     Sales. Sales increased $27.2 million, or 12.6%, from $215.3 million for fiscal 2003 to $242.5 million for fiscal 2004. This increase was mainly attributable to our acquisition of PTI in September 2003, which contributed sales of $27.8 million during the fiscal year. Sales by our Canadian operations increased $4.4 million due to higher average selling prices and increased product sales, primarily in the bottle operations and, to a lesser extent, in the closure operations. Sales by our U.K. operations increased $4.7 million due primarily to increased product sales in the closure operations and, to a lesser extent, favorable foreign exchange rate changes. Sales by our China operations increased $3.0 million primarily due to increased product sales in the closure operations and, to a lesser extent, increased sales in our advanced molding division that produces plastic parts for the high technology market. Sales by our Mexico operations increased $1.4 million due to increased product sales in the closure operations due to stronger market demand, including incremental new volume from Mexico’s largest dairy. Sales by Allied Tool increased $0.9 million due to timing of orders and increased market share. In addition, our Austria operations that we established in fiscal 2004 contributed $0.4 million to sales. Offsetting these increases were decreased sales of $13.1 million in United States closures sales. The primary reasons for the decrease were reduced sales volumes due to a loss of customers, particularly in the high volume 38mm dairy closure market, pricing pressures from competitors affecting a number of customers and reduced sales volumes for certain higher priced and higher margin 110mm closures as compared to fiscal 2003 as the market shifted towards screw caps. The downward pressure on pricing stabilized toward the end of the fiscal year. U.S. equipment sales decreased $2.2 million due to lower customer orders as a result of weakness in the equipment market.

     During fiscal 2004, our top ten customers accounted for approximately 34% of our sales. During fiscal 2004 and 2003, no customer accounted for 10% of total sales.

     Gross profit. Gross profit decreased $7.7 million to $40.9 million for fiscal 2004 from $48.6 million for fiscal 2003 and decreased as a percentage of sales from 22.6% in fiscal 2003 to 16.8% in fiscal 2004. Gross profit decreased primarily due to margin decreases in the United States, United Kingdom and Mexico operations. In the United States, margins were negatively impacted by intense pricing pressures from competitors affecting a number of 38mm dairy products and customers, increases in resin prices, as we are generally obligated to delay price increases to contract customers from thirty to ninety days, increased production capacities brought on line by our competitors for products of ours that are no longer patent protected, and reduced sales volumes primarily for our 110mm product line which has both higher prices and higher margins. U.S. equipment margins decreased due to higher costs, primarily in materials and labor, as well as an increase in inventory reserves for slow-moving material. In the United Kingdom, margins were negatively impacted by increased competition and industry over capacity, which led to lower pricing, primarily in the dairy closure market and, to a lesser extent, by increases in resin prices. In Mexico, margins were negatively impacted primarily due to increased expenses related to the importation of a compression molded 38mm product produced in our Batavia, Illinois plant. The Mexico plant added capacity to produce this closure locally beginning in the fourth quarter of fiscal 2004. In addition, Mexico’s margins were negatively impacted due to pricing pressures from competitors affecting a number of high volume closure products. These margin decreases in the U.S., U.K. and Mexico were partially offset by increases in gross profit related to our acquisition of PTI in September 2003. In addition, as of September 1, 2003, we changed the depreciable lives of our molds from three years to five years. If we had not changed the lives of the molds, we would have incurred $1.6 million in additional depreciation expense during fiscal 2004, which would have had a negative impact on gross profit (see Note 6 of the Notes to Consolidated Financial Statements).

     In addition, we incurred one-time relocation and plant consolidation expenses of $1.9 million related to the consolidation of seven manufacturing facilities into five facilities in the U.S. closures operations. We also incurred one-time facility refurbishment costs of $0.5 million related to the acquisition of PTI’s plant in Woonsocket, Rhode Island. These expenses were charged to cost of sales for fiscal 2004.

     Overall, fiscal 2004 direct materials, labor and overhead costs represented 39.4%, 18.0% and 25.8% of sales, respectively, compared to fiscal 2003 percentages of 36.9%, 15.6% and 24.9%. Direct material costs as a percentage of sales increased for fiscal 2004 from fiscal 2003 primarily due to increased resin prices. In addition, direct materials, labor and overhead costs increased as a percentage of sales in fiscal 2004 compared to fiscal 2003 due to the decrease in volume of higher margin products noted above.

19

     Selling, general and administrative expenses. Selling, general and administrative expenses increased $1.6 million from $29.3 million in fiscal 2003 to $30.9 million in fiscal 2004 and decreased as a percentage of sales from 13.6% for fiscal 2003 to 12.7% for fiscal 2004. Expenses increased $2.7 million as a result of the PTI acquisition. In addition, $0.6 million of expenses were incurred for new international operations located in Austria and the Czech Republic. These increases were partially offset by reductions of personnel in our U.S. corporate offices and closure operations and, to a lesser extent, lower U.S. sales commission expense.

     Research and development expenses. Research and development expenses increased $1.5 million from $4.7 million in fiscal 2003 to $6.2 million in fiscal 2004, and increased as a percentage of sales from 2.2% in fiscal 2003 to 2.6% in fiscal 2004. Expenses increased $1.2 million as a result of the PTI acquisition. The remaining increases were due primarily to increased prototype expenses related to new products and increased patent legal expenses.

     Loss (gain) on sale of property, plant and equipment. We recognized a net gain of $1.6 million on the sale of property, plant and equipment during fiscal 2004, due to the sale of our manufacturing buildings in Chino and San Jose, California, compared to a net loss of $30,000 incurred during the same period of fiscal 2003.

     Fixed asset impairment charge. We identified the facility would not be utilized in the near term and recognized an asset impairment loss of $1.1 million related to our Sumter, South Carolina building during the fourth quarter of fiscal 2004. As part of our restructuring plan in fiscal 2004, we closed our Sumter, South Carolina plant and moved the operations primarily to our Kingsport, Tennessee plant. The Sumter plant is currently being used as a storage facility and we have written the building down to its fair market value of $0.9 million.

     Amortization of intangibles. Amortization of intangibles (consisting of amortization of patents and technology licenses, tradename, covenants not-to-compete and customer relationships) increased $0.3 million to $1.2 million for fiscal 2004 from $0.9 million in fiscal 2003. This increase was primarily due to the amortization of PTI intangible assets acquired in September 2003.

     Restructuring costs. During fiscal 2004, we incurred restructuring charges of $3.8 million for employee severance costs related to the closing and relocation of our three plants in Chino and San Jose, California and Sumter, South Carolina and reductions in our workforce in research and development and selling, general and administrative staffs. The operations from the two California plants have been relocated to a new facility located in Tolleson, Arizona, a suburb of Phoenix. The move was completed during the third quarter of fiscal 2004. The operations from the South Carolina plant were relocated in the first quarter of fiscal 2004 primarily to our existing facility in Kingsport, Tennessee as well as to other domestic facilities. As of August 31, 2004, approximately $2.7 million had been charged against the restructuring reserve for the employee severance costs. Management anticipates the reserve balance of $1.4 million will be paid within twelve months from the end of fiscal 2004. We expect to incur additional restructuring charges in fiscal 2005 as we continue our efforts to become one of the most cost effective and efficient producers in our industry.

     (Loss) income from operations. Due to the effect of the factors summarized above, income from operations decreased $13.8 million to a loss of $0.8 million for fiscal 2004 from income of $13.0 million for fiscal 2003.

     Other (income) expense. Other (income) expense includes interest income, interest expense, amortization of debt issuance costs, minority interest expense, equity income of unconsolidated affiliates, foreign currency transaction (gain) and loss, and loss on warrant redemption.

     Interest income increased $0.1 million to $0.2 million during fiscal 2004 from $0.1 million in fiscal 2003, primarily due to interest earned on $7.9 million of cash held in an investment account with respect to the pending self-tender offer for our common stock. Interest expense increased by $3.3 million to $15.8 million in fiscal 2004 from $12.5 million in fiscal 2003 primarily due to the issuance in January 2004 of $180.0 million in aggregate principal amount of 8¼% senior notes due 2012. Due to the 30-day call notice and timing of the repurchase of the $110.0 million in aggregate principal amount of 10¾% senior notes due 2005, we paid approximately 30 days of duplicative interest on the $110.0 million in aggregate principal amount of 10¾% senior notes due 2005 and accrued 30 days of interest on the $180.0 million in aggregate principal amount of 8¼% senior notes due 2012. In addition, the interest expense is $0.8 million higher per quarter due to the increase in the aggregate principal amount of outstanding senior notes from $110.0 million to $180.0 million, which is partially offset by the decrease in interest rates from 10¾% to 8¼%.

20

     Amortization of debt issuance costs totaled $2.5 million in fiscal 2004 compared with $0.8 million in fiscal 2003. We wrote off financing fees related to the $110.0 million in aggregate principal amount of 10¾% senior notes due 2005. In addition, amortization expense increased due to debt issuance costs capitalized related to the financing of the $180.0 million in aggregate principal amount of 8¼% senior notes due 2012 and the fourth amendment of our senior secured credit facility due 2009.

     We recognized a gain of $1.0 million on foreign exchange transactions for fiscal 2004 compared to a gain of $0.3 million in fiscal 2003.

     During fiscal 2004, we repurchased two warrants to purchase our Class A common stock and incurred a loss on the redemption of $1.9 million during the second quarter of fiscal 2004.

     Income tax provision. The income tax provision for fiscal 2004 was $1.2 million on loss before income taxes of $(19.4) million, compared to an income tax provision of $2.1 million in fiscal 2003 on income before income taxes of $0.3 million. Our effective tax rate differs from the U.S. statutory rate principally due to providing a valuation allowance against net deferred tax assets in our domestic jurisdictions and the reversal of a valuation allowance in fiscal 2004 that was provided in prior years for our China operations.

     Net loss. Net loss was $20.6 million in fiscal 2004 compared to a net loss of $1.7 million in fiscal 2003.

Fiscal year ended August 31, 2003 compared to fiscal year ended August 31, 2002

     Sales. Sales increased $4.5 million, or 2.2%, from $210.8 million for fiscal 2002 to $215.3 million for fiscal 2003. The increase in sales for fiscal 2003 from fiscal 2002 was mainly attributable to increased sales of $4.6 million in Canada, $3.3 million in the United Kingdom and $0.4 million in Mexico primarily due to increased unit pricing as a result in increased resin prices, and increased volume growth due to increased market share. Offsetting these increases were decreased sales of $3.8 million in our United States operations due to decreased sales volume with certain customers, as well as dairy customer consolidation, which resulted in lower selling prices for certain products.

     During fiscal 2003, our top ten customers accounted for approximately 38% of our sales and no customer accounted for 10% of total sales. During fiscal 2002, one customer accounted for approximately 10% of total sales.

     Gross profit. Gross profit decreased $5.0 million to $48.6 million for fiscal 2003 from $53.6 million for fiscal 2002 and decreased as a percentage of sales from 25.4% in fiscal 2002 to 22.6% in fiscal 2003. The margin decrease occurred primarily in the United States, Canada and United Kingdom operations, and was primarily due to increases in resin prices, increased sales of lower margin products, dairy customer consolidation, (which resulted in lower selling prices for certain products), increased competition affecting certain products due to the expiration of patents previously held by us, and, to a lesser extent, increased employee costs.

     Overall, fiscal 2003 direct materials, labor and overhead costs represented 36.9%, 15.6% and 24.9% of sales, respectively, compared to fiscal 2002 percentages of 33.8%, 15.1% and 25.7%. Direct materials costs as a percentage of sales increased for fiscal 2003 from fiscal 2002 due to increased resin prices.

     Selling, general and administrative expenses. Selling, general and administrative expense decreased from $30.8 million in fiscal 2002 to $29.3 million in fiscal 2003 and decreased as a percentage of sales from 14.6% for fiscal 2002 to 13.6% for fiscal 2003. These decreases were primarily due to decreased incentive compensation costs and decreased bad debt expense, offset in part by increased consulting costs.

     Research and development expenses. Research and development expenses were $4.7 million and $3.1 million in fiscal 2003 and 2002, and increased as a percentage of sales from 1.5% in fiscal 2002 to 2.2% in fiscal 2003. The increase in research and development expenses was due primarily to an increase in prototype expenses related to new products and, to a lesser extent, to increased consulting and employee costs.

     Loss (gain) on sale of property, plant and equipment. We recognized a net loss of $30,000 on the sale of property, plant and equipment during fiscal 2003, compared to a gain of $20,000 recognized on the sale of property, plant and equipment during the same period in fiscal 2002.

21

     Amortization of intangibles. Amortization of intangibles (consisting of amortization of patents, acquisition costs, technology, trade name and covenants not-to-compete) decreased $0.5 million, or 28.4%, to $1.1 million for fiscal 2003 from $1.6 million in fiscal 2002. This decrease was due to certain intangibles related to the acquisitions of Portola Allied and Portola Consumer being fully amortized in March 2002 and June 2002, respectively, offset by an impairment loss of $0.2 million included in amortization expense in fiscal 2003.

     Restructuring costs. During the second quarter of fiscal 2003, we announced a restructuring plan to reduce our work force. During fiscal 2003, we incurred restructuring charges of $0.4 million for employee severance costs. The restructuring resulted in the termination of nine employees in general and administration, two employees in customer service, one employee in research and development and two employees in sales. As of August 31, 2003, approximately $0.3 million had been charged against the restructuring reserve for the employee severance costs.

     Income from operations. Due to the effect of the factors summarized above, income from operations decreased $5.2 million, or 28.2%, to $13.0 million for fiscal 2003 from $18.2 million for fiscal 2002 and decreased as a percentage of sales from 8.6% in fiscal 2002 to 6.1% in fiscal 2003.

     Other (income) expense. Other (income) expense includes interest income, interest expense, amortization of debt issuance costs, minority interest expense, equity (income) loss of unconsolidated affiliates, income on dissolution of a joint venture, income on recovery of a note receivable and other expense, net.

     Interest income decreased $1.0 million to $0.1 million during fiscal 2003 from $1.1 million in fiscal 2002, primarily due to $0.8 million of interest income recognized in fiscal 2002 with respect to a promissory note payable to us by Sand Hill Systems, Inc. (the “SHS Note”) in connection with a related party transaction described in “Related party transactions” and Note 15 of the Notes to Consolidated Financial Statements. In addition, we recognized income of $58,000 as a result of the change in the fair market value of our outstanding warrants as of August 31, 2003 as compared to $151,000 as of August 31, 2002. Interest expense decreased by $0.8 million to $12.5 million in fiscal 2003 from $13.3 million in fiscal 2002. This decrease was primarily due to the decrease in borrowings on the revolving credit facility and the effect of a decrease in the LIBOR rate. Amortization of debt issuance costs totaled $0.8 million in both fiscal 2003 and 2002.

     In fiscal 2002, we recognized income of $0.5 million on the dissolution of a joint venture (see Note 2 of the Notes to Consolidated Financial statements) and recognized income of $1.1 million on the recovery with respect to the SHS Note. (See Note 15 of the Notes to Consolidated Financial Statements).

     Income tax provision. The income tax provision for fiscal 2003 was $2.1 million on income before income taxes of $0.3 million, compared to an income tax provision of $2.2 million in fiscal 2002 on income before income taxes of $6.8 million. Our effective tax rate differs from the U.S. statutory rate principally due to providing a valuation allowance against net deferred tax assets in certain foreign jurisdictions and for a portion of our domestic jurisdictions.

     Net (loss) income. Net loss was $1.7 million in fiscal 2003 compared to net income of $4.6 million in fiscal 2002.

Liquidity and capital resources

Fiscal year ended August 31, 2004 compared to fiscal year ended August 31, 2003

     In recent years, we have relied primarily upon cash from operations and borrowings from financial institutions to finance our operations and fund capital expenditures and acquisitions. At August 31, 2004, we had cash and cash equivalents of $12.2 million, an increase of $7.9 million from August 31, 2003. Of the $12.2 million, we had allocated $7.9 million for our repurchase of our common stock in connection with our pending tender offer for shares of our common stock, which was authorized under the terms of the indenture relating to the $180.0 million in aggregate principal amount of our 8¼% senior notes due 2012. The amount allocated for such repurchase is now $2.5 million (see the last paragraph under “Financing Activities” below). On October 27, 2004, we extended the tender offer through at least January 15, 2005. Excluding the $7.9 million in cash allocated for the repurchase of shares as of August 31, 2004, cash increased by $56,000 to $4.3 million at August 31, 2004.

22

     Operating activities. Net cash (used in) provided by operations totaled $(0.2) million and $14.3 million in fiscal 2004 and 2003, respectively. Net cash used in operations for fiscal 2004 was principally the result of our net loss, largely offset by non-cash charges for depreciation and amortization and an aggregate of $6.8 million of non-cash items included in other (income) expense. See Notes 2 and 15 of the Notes to Consolidated Financial Statements. Working capital (current assets less current liabilities) increased $22.5 million to $32.9 million as of August 31, 2004 from $10.4 million as of August 31, 2003. $7.9 million of the increase consisted of cash allocated for our repurchase of shares of our common stock under our pending tender offer and $9.0 million of the increase was due to the elimination of the current portion of the liability for our warrants due to our repurchase of the Class A Common Stock warrants in the second and third quarters of fiscal 2004 and the remainder was due to the acquisition of PTI. These increases in working capital were offset by a decrease in operating cash.

     Investing activities. Cash used in investing activities was $53.2 million in fiscal 2004 as compared to $10.6 million in fiscal 2003. In fiscal 2004, cash used in investing activities consisted primarily of $36.6 million for the acquisition of PTI, including transaction costs, $22.2 million for additions to property, plant and equipment and $1.1 million for intangible and other assets, offset in part by $6.6 million in proceeds from sale of property, plant and equipment. During fiscal 2004, we completed sales of our manufacturing facilities in Chino and San Jose, California at net sales prices of $3.3 million and $3.2 million, and recognized gains of $1.0 million and $0.6 million, respectively.

     Our total capital expenditures for fiscal 2004 totaled $22.2 million. This amount was substantially greater than the level of capital expenditures in preceding years. The increase in capital expenditures was primarily due to costs associated with the U.S. consolidation of seven domestic closure facilities into five, expansion of our operations in China to produce certain of PTI’s products, leasehold improvement costs associated with our leased facility in the Czech Republic and our purchase of assets from a producer of dairy closures in the U.K. (See Note 2 of the Notes to Consolidated Financial Statements). Our projected total capital expenditures for fiscal 2005 are expected to be more consistent with previous years.

     Financing activities. At August 31, 2004, we had total indebtedness of $199.5 million, $180.0 million of which was attributable to our 8¼% senior notes due 2012. Of the remaining indebtedness, $19.4 million was attributable to our senior secured credit facility and $0.1 million was principally comprised of capital lease obligations.

     On September 19, 2003, we entered into an amendment to the credit agreement that provided our senior secured credit facility in connection with our purchase of PTI, increasing the credit facility to $54.0 million, subject to a borrowing base of eligible receivables and inventory plus net property and equipment. The amended agreement also contained covenants similar to those in the amended, restated senior secured credit agreement existing at February 28, 2003. An unused fee was payable under the facility based on the total commitment amount less the balance outstanding plus the average daily aggregate amount of outstanding letter of credit liability, at the rate of 0.50% per annum. Interest payable was based on, at our election, either the Bank Prime Loan rate plus 1.00% or the LIBOR loan rate plus 2.50%.

     On January 23, 2004, we completed an offering of $180.0 million in aggregate principal amount of 8¼% senior notes due February 1, 2012. Interest payments of approximately $7.4 million are due semi-annually on February 1 and August 1 of each year. Interest began accruing January 23, 2004, and the first interest payment was made on August 1, 2004. The indenture under which the senior notes were issued contains covenants and provisions that restrict, among other things, our ability to: (i) incur additional indebtedness or issue preferred stock, (ii) incur liens on our property, (iii) make investments, (iv) enter into guarantees and other contingent obligations, (v) merge or consolidate with or acquire another person or engage in other fundamental changes, (vi) engage in certain sales of assets and subsidiary stock, (vii) engage in certain transactions with affiliates, (viii) engage in sale/leaseback transactions (ix) engage in any business other than a related business (x) make restricted payments, and (xi) declare or pay dividends.

23

     Concurrently with the offering of $180.0 million in aggregate principal amount of our 8¼% senior notes on January 23, 2004, we amended our credit agreement by entering into an amended and restated five-year senior revolving credit agreement that provided a secured credit facility of up to $50.0 million, maturing on January 23, 2009. We entered into an amendment to this agreement on May 21, 2004 and a limited waiver and second amendment to this credit agreement on November 24, 2004 (the “November 24 Amendment”). The amended and restated credit agreement contains covenants and provisions that restrict, among other things, our ability to: (i) redeem warrants and repurchase stock, except during the first year, (ii) incur additional indebtedness, (iii) incur liens on our property, (iv) make investments, (v) enter into guarantees and other contingent obligations, (vi) merge or consolidate with or acquire another person or engage in other fundamental changes, or in certain sales of assets, (vii) engage in certain transactions with affiliates, (viii) make restricted junior payments, and (viii) declare or pay dividends. In addition, we must meet a quarterly fixed charge coverage ratio as defined in the November 24 Amendment. The fixed charge coverage ratio as revised in the November 24 Amendment equaled 0.95 to 1.0 for the measurement period ended on August 31, 2004. For the fourth quarter and fiscal year ended 2004, we were in compliance with the fixed charge coverage ratio. An unused fee is payable under the facility based on the total commitment amount less the average daily aggregate amount of outstanding liability, at the rate of 0.50% per annum. In addition, interest payable is based on, at our election, either the Bank Prime Loan rate plus 1.00% or the LIBOR loan rate plus 2.50% determined by a pricing table based on the outstanding credit facility balance.

     Our senior secured credit agreement as amended and the indenture governing our 8¼% senior notes contain a number of significant restrictions and covenants as discussed above. While the November 24 Amendment reduced important fixed charge coverage ratios under the secured credit agreement favorably to us, it requires improvements in this ratio from current levels beginning with the quarter ending November 30, 2005. Adverse changes in our operating results or other negative developments, such as significant increases in interest rates or in resin prices, severe shortages of resin supply or decreases in sales of our products could result in non-compliance with these and other financial covenants in our senior secured credit agreement. If we violate these covenants and are unable to obtain waivers from our lender, we would be in default under the indenture and our secured credit agreement, and our lenders could accelerate our obligations thereunder. If our indebtedness is accelerated, we may not be able to repay these debts or borrow sufficient funds to refinance them. Even if we are able to obtain new financing, it may not be on commercially reasonable terms, or terms that are acceptable to us. If our expectations of future operating results are not achieved, or our debt is in default for any reason, our business, financial condition and results of operations would be materially and adversely affected. In addition, complying with these covenants may make it more difficult for us to successfully execute our business strategy and compete against companies who are not subject to such restrictions.

     Pursuant to an Offer to Purchase dated March 5, 2004, we offered to purchase up to 1,319,663 shares of our common stock, representing approximately 11% of our outstanding shares of common stock, at a purchase price of $5.80 per share in cash. Stockholders as of March 5, 2004 are eligible to tender their shares of our common stock. We subsequently extended the offer three times, most recently on October 27, 2004, when we extended the offer through January 15, 2005. We have the right to amend the terms of the tender offer further. Under the terms of the indenture governing our senior notes, a self-tender is permitted any time provided it is completed prior to March 31, 2005. Under the terms of the November 24 Amendment, however, we are limited to purchasing a number of our shares having a maximum aggregate value of $2.5 million, subject to certain conditions concerning future performance. Accordingly, the number of shares that can be purchased if the self-tender is completed is substantially less than the number originally offered to be purchased.

     Cash and cash equivalents. In May 2004, appraisals of our property, plant and equipment assets in the U.S., Canada and the U.K. were completed. At that time, the value of these assets was included in the borrowing base of our revolving credit line, and that had the effect of increasing our borrowing capacity by approximately $15.0 million as well as increasing our minimum availability requirement from $3.0 million to $5.0 million since the loan arrangements were completed. As of August 31, 2004, however, continuing sales declines and increased costs of raw materials, among other factors, had adversely affected our financial condition. We had $12.2 million in cash and cash equivalents as of August 31, 2004, of which $7.9 million was allocated for our self-tender offer, and our unused borrowing capacity under the senior secured credit facility was approximately $13.5 million after deducting a minimum availability requirement of $5.0 million.

24

     We believe that our existing financial resources, together with our current and anticipated results of operations, will be adequate for the foreseeable future to service our secured and long-term debt, to meet our applicable debt covenants and to fund our other liquidity needs, but for the reasons stated above, we cannot assure you that this will be the case. In this respect we note that trends for the past two years in our sales, competitive pressures and costs of raw materials have not been favorable. Elements of our financial performance, including run-rate, are likely to remain at currently depressed levels relative to historical performance during fiscal 2005. Further, while we believe that these trends have stabilized, and we expect favorable results from our continuing efforts at reducing costs and implementing manufacturing and organizational efficiencies, we cannot assure you that substantial improvements will occur during fiscal 2005.

Fiscal year ended August 31, 2003 compared to fiscal year ended August 31, 2002

     Operating activities. Net cash provided by operations totaled $14.3 million and $24.4 million in fiscal 2003 and 2002, respectively. Net cash provided by operations for fiscal 2003 was principally the result of non-cash charges for depreciation and amortization offset, in small part, by our net loss. Net cash provided by operations for fiscal 2002 was the result of net income plus non-cash charges for depreciation and amortization, offset by an aggregate of $2.7 million of non-cash items included in other (income) expense. See Notes 2 and 15 of the Notes to Consolidated Financial Statements. Working capital decreased $7.7 million to $10.4 million as of August 31, 2003 from $18.1 million as of August 31, 2002, primarily due to the re-classification of warrants with a carrying value of $9.0 million as current due to their expiration in June 2004, in addition to increases in accounts payable and a decrease in inventory, offset in part by an increase in accounts receivable.

     Investing activities. Cash used in investing activities was $10.6 million in fiscal 2003 as compared to $11.0 million in fiscal 2002, and consisted primarily of additions to property, plant and equipment of $11.1 million and $10.5 million in fiscal 2003 and 2002, respectively. Cash used in investing activities was reduced by $0.1 million and $0.4 million in fiscal 2003 and 2002, respectively, by proceeds from the sale of property, plant and equipment.

     Financing activities. At August 31, 2003, we had total indebtedness of $127.2 million, $110.0 million of which was attributable to our 10¾% senior notes due 2005. Of the remaining indebtedness, $6.6 million was attributable to our senior credit facility and $0.3 million was principally composed of capital lease obligations. In addition, our total indebtedness at August 31, 2003 included redeemable warrants with a carrying value of $10.3 million. See Note 10 of the Notes to Consolidated Financial Statements for additional information on the redeemable warrants.

     Cash and cash equivalents. At August 31, 2003, we had $4.3 million in cash and cash equivalents as well as borrowing capacity of approximately $34.2 million under the $50.0 million revolving credit facility, less a minimum availability requirement of $3.0 million.

Off-balance sheet arrangements

     We own a 50% interest in Capsnap Europe Packaging GmbH (“CSE”). CSE is an unconsolidated, 50% owned Austrian joint venture company that sells five-gallon closures and bottles that are produced by Portola Packaging Limited (UK). CSE has a 50% ownership interest in Watertek, a joint venture Turkish company, which produces and sells five-gallon water bottles and closures for the European and Middle Eastern market places. Watertek is the owner of a 50% interest in a Greek company, Cap Snap Hellas, that is selling our products in Greece. In 2003, CSE acquired all of the stock of Semopac, a French producer of five gallon polycarbonate bottles, for a note having a principal amount of approximately $3.0 million and a three-year term. Our portion of the results of these joint venture operations is reflected in other (income) expense, net. See “Contractual Obligations” and Note 9 of the Notes to Consolidated Financial Statements.

25

Contractual obligations

     The following sets forth our contractual obligations as of August 31, 2004:

	Payments Due by Period
			Less
			than 1		1 - 3		3 - 5		After 5
	Total		Year		Years		Years		Years
Contractual Obligations:	(dollars in thousands)
Long-Term Debt, including current portion:
Senior Notes (1)	$	180,000		—		—		—	$	180,000
Revolver (2)	$	19,349		—		—	$	19,349		—
Capital Lease Obligations (3)	$	135	$	82	$	53		—		—
Operating Lease Obligations (4)	$	35,274	$	4,053	$	6,169	$	5,488	$	19,564
Guarantees (5)	$	1,569		—	$	426		—	$	1,143

(1)	On January 23, 2004, we completed an offering of $180.0 million in aggregate principal amount of senior notes that mature on February 1, 2012 and bear interest at 8¼% per annum. Interest payments of approximately $7.4 million are due semi-annually on February 1 and August 1 of each year. Interest began accruing January 23, 2004 and the first interest payment commenced August 1, 2004. The indenture governing the senior notes contains certain restrictive covenants and provisions.
(2)	Concurrently with the offering of $180.0 million in aggregate principal amount of our 8¼% senior notes due 2012 on January 23, 2004, we entered into an amended and restated five-year senior revolving credit facility of up to $50.0 million. We entered into amendments to this senior secured credit facility on May 21, 2004 and November 24, 2004. The amended and restated credit facility contains covenants and provisions that restrict, among other things, our ability to: (i) redeem warrants and repurchase stock, except during the first year, (ii) incur additional indebtedness, (iii) incur liens on our property, (iv) make investments, (v) enter into guarantees and other contingent obligations, (vi) merge or consolidate with or acquire another person or engage in other fundamental changes, or in certain sales of assets, (vii) engage in certain transactions with affiliates, (viii) make restricted junior payments, and (viii) declare or pay dividends. In addition, we must meet a quarterly fixed charge ratio. The fixed charge coverage ratio as revised in the November 24 Amendment equaled 0.95 to 1.0 for the measurement period ended on August 31, 2004. For the fourth quarter and fiscal year ended 2004, we were in compliance with the fixed charge coverage ratio. An unused fee is payable on the facility based on the total commitment amount less the average daily aggregate amount of outstanding liability, at the rate of 0.50% per annum. In addition, interest payable is based on at our election, either the Bank Prime Loan rate plus 1.00% or the LIBOR loan rate plus 2.50% determined by a pricing table based on the outstanding credit facility balance.
(3)	We acquired certain machinery and office equipment under non-cancelable capital leases.
(4)	We lease certain office, production and warehouse facilities under operating lease agreements expiring on various dates through 2021. Under the terms of the facilities’ leases, we are responsible for common area maintenance expenses, which include taxes, insurance, repairs and other operating costs. Base rent expense for fiscal 2004 was $4.3 million.

26

(5)

We issued a letter of credit in October 1999, expiring December 2010, that guarantees $0.3 million of a loan related to the purchase of machinery for CSE’s 50% owned Turkish joint venture, Watertek. CSE is an unconsolidated, 50% owned Austrian joint venture that sells five-gallon water bottles and closures that are produced by Portola Packaging Limited (UK). We extended the expiration date of a letter of credit in February 2004, that now expires in February 2007, and that guarantees a loan of $0.4 million for the purchase of machinery by CSE. These guarantee agreements are in Eurodollars and were valued using a conversion rate as of August 31, 2004.

In November 2000, our Mexican consolidated subsidiary entered into a ten-year lease for a building in Guadalajara, Mexico commencing in May 2001. Our Mexican operations relocated to the new building during May 2001. We guaranteed approximately $0.6 million in future lease payments relating to the lease as of May 31, 2004. In April 2004, we amended the lease of our Mexican building to allow for construction of a 20,000 square foot expansion to our existing facilities. Construction of this expansion began in the third quarter of fiscal 2004 and was completed in September 2004, at which time the amended lease became effective. At the time the expansion was completed, we guaranteed approximately $0.2 million in additional future lease payments related to the amended lease.

Related party transactions

     We enter into certain related party transactions throughout the course of our business. In connection with the financing transactions related to the $180.0 million offering of our 8¼% senior notes due 2012, we paid fees of $5.0 million to JPMorgan Securities, Inc. (Robert Egan, one of our directors, is a senior advisor to JPMorgan Partners, an affiliate of JP Morgan Securities, Inc.), $1.1 million to The Breckenridge Group (of which Larry Williams, one of our directors, is a principal), $0.4 million to Tomlinson Zisko LLP and $30,000 to Timothy Tomlinson (Mr. Tomlinson was one of our directors until February 29, 2004, and he is a partner in Tomlinson Zisko LLP), and $69,000 to Themistocles Michos (our Vice President, General Counsel and Secretary) for services rendered. We also repurchased a warrant from JPMorgan Partners for $10.7 million, resulting in the recognition of a loss totaling $1.7 million. In addition, we paid fees to The Breckenridge Group, Tomlinson Zisko LLP and Themistocles Michos for services rendered related to operational matters. Mr. Tomlinson resigned from the Board on February 29, 2004.

     Related party sales of $9.6 million and $2.8 million for the fiscal 2004 and 2003, respectively, consisted primarily of closures produced by our U.K. operations that were sold to our joint venture, CSE. There have been no other significant additional related party transactions from those disclosed in “Item 13. — Certain Relationships and Related Transactions” and Note 15 of Notes to Consolidated Financial Statements.

Raw material price volatility

     Most of our closures are priced based in part on the cost of the plastic resins from which they are produced. Historically, we have been able to pass on increases in resin prices directly to our customers, subject to delays because of contractual provisions, although that practice has proven more difficult in the past three years because of increased price competition in the beverage related markets. PTI has only one contract with a customer that allows price increases due to increases in raw material costs.

Seasonality

     Our sales and earnings reflect a slightly seasonal pattern as a result of greater sales volumes during the summer months. As such, 47% and 48% of sales occurred in the first half of the year (September through February) while 53% and 52% of sales were generated in the second half (March through August) of fiscal 2004 and 2003, respectively.

Income taxes

     The relationship of income tax expense to income before income taxes is affected primarily by not providing a benefit for losses generated in certain foreign jurisdictions and a portion of our domestic operations and, in fiscal 2001, by non-deductible goodwill arising from our acquisitions. See Note 13 of the Notes to Consolidated Financial Statements.

27

Recent accounting pronouncements

Effective September 1, 2002, we adopted SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. The adoption of SFAS No. 143 had no impact on our financial statements for fiscal 2004.

Effective September 1, 2002, we adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supercedes or amends existing accounting literature related to the impairment and disposal of long-lived assets. SFAS No. 144 requires long-lived assets to be tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable from future cash flows of the particular asset group or there is an expectation that it is more likely than not that a long-lived group will be sold or otherwise disposed of before the end of its previously estimated useful life. We identified the facility would not be utilized in the near term and recognized an impairment charge of $1.1 million on the building in Sumter, South Carolina during fiscal 2004 (Note 4).

Effective September 1, 2002, we adopted SFAS No. 146, “Accounting for Exit or Disposal Activities.” The standard requires companies to recognize costs associated with exit or disposal activities when incurred rather than at the date of a commitment to an exit or to a disposal plan. Examples of costs covered by the standard include (1) costs to terminate contracts that are not capital leases; (2) costs to consolidate facilities or relocate employees; and (3) termination benefits provided to employees who are involuntarily terminated under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. Previous accounting guidance was provided by EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 replaces EITF 94-3 and was to be applied prospectively to exit or disposal activities initiated after December 31, 2002. During fiscal 2004 and 2003, we incurred restructuring charges of $3.8 million and $0.4 million, respectively, which were determined in accordance with the provisions of SFAS No. 146 (Note 4).

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 became effective for any guarantees that are issued or modified after December 31, 2002. The recognition provisions of FIN 45 did not have a material impact on our results of operations or financial condition for fiscal 2004, as there were no new guarantees or significant modifications of existing guarantees during fiscal 2004.

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities-an interpretation of ARB No. 51” (“FIN 46”). FIN 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 became effective January 31, 2003 for newly created and existing variable interest entities. On October 8, 2003, the FASB issued FASB Staff Position No. 46-e, which allows public entities that meet certain criteria to defer the effective date for applying the provisions of FIN 46 to interests held by the public entity in certain variable interest entities or potential variable interest entities until the end of the first interim or annual period ending after December 15, 2003. On December 24, 2003, the FASB extended the effective date to our first interim period ending December 15, 2004. Management is currently analyzing the impact of FIN 46 as it relates to our joint ventures to determine if the joint ventures’ financial statement will need to be consolidated with our consolidated financial statements.

Effective April 1, 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amended SFAS No. 133 for certain decisions made by the Board as part of the Derivatives Implementation Group (DIG) process and further clarifies the accounting and reporting standards for derivative instruments, including derivatives embedded in other contracts and for hedging activities. The provisions of this statement are to be prospectively applied effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of this statement did not have a material impact on our results of operations or financial condition for fiscal 2004.

28

Effective May 1, 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. On November 7, 2003, the FASB issued FASB Staff Position No. 150-3, which allows entities, who meet certain criteria, to defer the effective date for periods beginning after December 15, 2004. The adoption of this statement did not have a material impact on our results of operations or financial condition.

29

Risk Factors

The following risk factors may cause actual results to differ materially from those in any forward-looking statements contained in such business description or elsewhere in this report or made in the future by us or our representatives:

Risks related to our outstanding indebtedness

Our level of indebtedness could limit cash flow available for our operations and could adversely affect our ability to obtain additional financing.

     As of August 31, 2004, our total indebtedness was approximately $199.5 million. $180.0 million of this amount represented the aggregate principal amount of our 8¼% senior notes due 2012, $19.4 million represented funds drawn down under our senior secured credit facility and $0.1 million was principally composed of capital leases. Moreover, we have a total shareholders’ deficit of $46.5 million. Our level of indebtedness could restrict our operations and make it more difficult for us to fulfill our obligations under our senior notes. Among other things, our indebtedness may:

• limit our ability to obtain additional financing for working capital, capital expenditures, strategic acquisitions and general corporate purposes;

• require us to dedicate all or a substantial portion of our cash flow to service our debt, which will reduce funds available for other business purposes, such as capital expenditures or acquisitions;

• limit our flexibility in planning for or reacting to changes in the markets in which we compete;

• place us at a competitive disadvantage relative to our competitors with less indebtedness;

• render us more vulnerable to general adverse economic and industry conditions; and

• make it more difficult for us to satisfy our financial obligations.

     Nonetheless, we and our subsidiaries may still be able to incur substantially more debt. The terms of our senior secured credit facility and the indenture governing our 8¼% senior notes permit additional borrowings and such borrowings may be secured debt.

Our ability to service our debt and meet our cash requirements depends on many factors, some of which are beyond our control.

     Our ability to satisfy our obligations will depend on our future operating performance and financial results, which will be subject, in part, to factors beyond our control, such as interest rates and general economic, financial and business conditions. If we are unable to generate sufficient cash flow to service our debt, we may be required to:

• refinance all or a portion of our debt;

• obtain additional financing;

• sell certain of our assets or operations;

• reduce or delay capital expenditures; or

• revise or delay our strategic plans.

     If we are required to take any of these actions, it could have a material adverse effect on our business, financial condition and results of operations. In addition, we cannot assure you that we would be able to take any of these actions, that these actions would enable us to continue to satisfy our capital requirements or that these actions would be permitted under the terms of our various debt instruments, including the indenture governing our 8¼% senior notes.

30

The covenants in our senior secured credit facility and the indenture governing our 8¼% senior notes impose restrictions that may limit our operating and financial flexibility.

     Our senior secured credit facility and the indenture governing our 8¼% senior notes contain a number of significant restrictions and covenants that limit our ability and our subsidiaries’ ability to:

• incur liens and debt or provide guarantees in respect of obligations of any other person;

• issue redeemable preferred stock and subsidiary preferred stock;

• make redemptions and repurchases of capital stock;

• make loans, investments and capital expenditures;

• prepay, redeem or repurchase debt;

• engage in mergers, consolidations and asset dispositions;

• engage in sale/leaseback transactions and affiliate transactions;

• change our business, amend certain debt and other material agreements, and issue and sell capital stock of subsidiaries; and

• make distributions to shareholders.

     Future adverse changes in our operating results or other negative developments, such as increases in interest rates or in resin prices, shortages of resin supply or decreases in sales of our products, could result in our being unable to comply with the fixed charge coverage ratio and other financial covenants in our senior secured credit facility. If we fail to comply with any of our loan covenants in the future and are unable to obtain waivers from our lenders, we could be declared in default under these agreements, and our lenders could accelerate our obligations thereunder. If our indebtedness is accelerated, we may not be able to repay our debt or borrow sufficient funds to refinance it. Even if we are able to obtain new financing, it may not be on commercially reasonable terms, or terms that are acceptable to us. If our expectations of future operating results are not achieved, or our debt is in default for any reason, our business, financial condition and results of operations would be materially and adversely affected. In addition, complying with these covenants may make it more difficult for us to successfully execute our business strategy and compete against companies who are not subject to such restrictions.

Our 8¼% senior notes are effectively subordinated to all of our secured debt, and if a default occurs, we may not have sufficient funds to fulfill our obligations under the notes.

     Our 8¼% senior notes are not secured by any of our assets. The indenture governing the senior notes permits us to incur certain secured indebtedness, including indebtedness under our senior secured credit facility. If we become insolvent or are liquidated, or if payment under the credit facility or other secured indebtedness is accelerated, the lenders under the credit facility and the holders of any other secured indebtedness would be entitled to exercise the remedies available to them as secured creditors under applicable laws and pursuant to instruments governing such indebtedness. Accordingly, such secured indebtedness would have a prior claim on the collateral and would effectively be senior to the senior notes to the extent that the value of such collateral is sufficient to satisfy the indebtedness secured thereby. To the extent that the value of such collateral is not sufficient to satisfy the secured indebtedness, amounts remaining outstanding on such indebtedness would be entitled to share with holders of senior notes and other claims on us with respect to any of our other assets. In either event, because the senior notes are not secured by any of our assets, it is possible that there will be insufficient assets remaining from which claims of the holders of the senior notes could be satisfied. In addition, we cannot assure you that the guarantees from our subsidiary guarantors, or any guarantee delivered by a restricted subsidiary formed in the future, would not be subject to avoidance by another creditor as a fraudulent transfer or for other reasons. Our unrestricted subsidiaries do not guarantee our obligations under the senior notes. Upon liquidation of any unrestricted subsidiary, such obligations would be effectively subordinated to claims of such subsidiary’s creditors upon its assets. It is likely that this will also be the case for other unrestricted subsidiaries that we may form in the future. See Note 17 of Notes to Consolidated Financial Statements of this Form 10-K/A for additional information regarding our restricted and unrestricted subsidiaries.

31

We may be unable to purchase our 8¼% senior notes upon a change of control.

     Upon a change of control of Portola (as defined in the indenture governing our 8¼% senior notes), each holder of senior notes will have certain rights to require us to repurchase all or a portion of such holder’s senior notes. If a change of control were to occur, we cannot assure you that we would have sufficient funds to pay the repurchase price for all senior notes tendered by the holders thereof. In addition, a change of control would constitute a default under our senior secured credit facility and, since indebtedness under the credit facility effectively ranks senior in priority to indebtedness under the senior notes, we would be obligated to repay indebtedness under the credit facility in advance of indebtedness under our senior notes. Our repurchase of senior notes as a result of the occurrence of a change of control may be prohibited or limited by, or create an event of default under, the terms of other agreements relating to borrowings that we may enter into from time to time, including agreements relating to secured indebtedness. Failure by us to make or consummate a change of control offer would constitute an immediate event of default under the indenture governing the senior notes, thereby entitling the trustee or holders of at least 25% in principal amount of the then outstanding senior notes to declare all of the senior notes to be due and payable immediately; provided that so long as any indebtedness permitted to be incurred pursuant to the senior secured credit facility is outstanding, such acceleration shall not be effective until the earlier of (i) an acceleration of any such indebtedness under the credit facility or (ii) five business days after receipt by us of written notice of such acceleration. In the event all of the senior notes are declared due and payable, our ability to repay the senior notes would be subject to the limitations referred to above.

Risks related to our business

We have only recently completed the integration of PTI with the beverage product elements of our company, and we may not realize the anticipated benefits of this acquisition on a timely basis or at all.

     The integration of PTI with our other operations is substantially completed. Nonetheless, we may not realize the expected operating efficiencies, growth opportunities and other benefits of the transaction that we anticipated at the time of the acquisition or may realize them later than planned. Our management was not initially experienced in the sales and marketing of CFT products, and we depend significantly on the sales and marketing capabilities of inherited PTI management. Although most of PTI’s management have continued in the roles they performed prior to the acquisition, we cannot assure you that they will continue to do so in the future.

     The integration of PTI’s accounting records and systems into our own information and reporting systems has resulted in adjustments to PTI’s historical financial statements. We filed a form 8-K/A with the SEC on February 9, 2004 amending historical financial statements of PTI to adjust the amount of revenue and cost of sales previously reported on a Form 8-K/A filed with the SEC on December 4, 2003.

We may be subject to pricing pressures and credit risks due to consolidation in our customers’ industries, and we do not have long-term contracts with most of our customers.

     The dairy, bottled water and fruit juice industries, which constitute our largest customer base from a revenue perspective, have experienced consolidations through mergers and acquisitions in recent years, and this trend may continue. We could experience additional customer concentration, and our results of operations would be increasingly sensitive to changes in the business of customers that represent an increasingly large portion of our sales, or any deterioration of their financial condition. During fiscal 2004, our top ten customers accounted for approximately 34% of our sales. Consolidation has resulted in pricing pressures, as larger customers often have been able to make greater pricing and other demands over us.

     We do not have firm long-term contracts covering a majority of our sales. Although customers that are not under firm contracts provide indications of their product needs and purchases on a periodic basis, they generally purchase our products on an order-by-order basis, and the relationship, as well as particular orders, can be terminated at any time. The loss or significant decrease in business or a change in the procurement practices of any of our major customers may produce pricing pressures that could have a material adverse effect on our business, results of operations and financial condition.

32

We are subject to competition in our markets.

     We face direct competition in each of our product lines from a number of companies, many of which have financial and other resources that are substantially greater than ours. We are experiencing significant competition from existing competitors with entrenched positions, and we may encounter new competitors with respect to our existing product lines as well as with respect to new products we might introduce. We have experienced a negative impact due to competitor pricing, and this impact has accelerated during the past and current fiscal years. Further, numerous well-capitalized competitors might expand their product offerings, either through internal product development or acquisitions of our direct competitors. Such competitors could introduce products or establish prices for their products in a manner that could adversely affect our ability to compete. Additionally, from time to time, we also face direct competition from bottling companies, carton manufacturers and other food and beverage providers that elect to produce their own closures rather than purchase them from outside sources.

We are subject to the risk of changes in resin prices.

     Our products are molded from various plastic materials, primarily low density polyethylene (“LDPE”) resin. LDPE resin, which is a broadly traded commodity, accounts for a significant portion of our cost of sales for closures. Plastic resins, including LDPE, are subject to substantial price fluctuations resulting from shortages in supply and changes in the prices of natural gas, crude oil and other petrochemical products from which resins are produced, as well as other factors. Instability in the world markets for petroleum and natural gas could materially adversely affect the price and timely availability of raw materials. We have contracts with our three principal resin suppliers that provide for the adjustment of prices payable by us depending on periodic increases or decreases in published indices of national resin bulk pricing. Accordingly, the effects of resin pricing on us to a certain extent lag the market. Unprecedented significant resin price increases experienced during fiscal 2003 and 2004 have materially and adversely affected our gross margins and operating results. In the event that significant increases in resin prices continue in the future, we may not be able to pass such increases on to customers promptly in whole or in part. Such inability to pass on such increases, or delays in passing them on, would continue to have a material adverse effect on our sales and margins on a current or delayed basis. Most of our sales are either made to customers on a purchase order basis, which provide us with no assurance that we can pass on price increases to these customers, or pursuant to contracts that generally allow only quarterly price adjustments, which could delay our ability to pass on price increases to these customers, if at all. Moreover, even if the full amount of such price increases were passed on to customers, the increases would have the effect of reducing our gross margins. On the other hand, if resin prices decrease, customers typically would expect rapid pass-through of the decrease, and we cannot assure you that we would be able to maintain our gross margins.

     We may not be able to arrange for sources of resin from our regular vendors or alternative sources in the event of an industry-wide general shortage of resins used by us, or a shortage or discontinuation of certain types of grades of resin purchased from one or more of our suppliers.

We are capital constrained, which has reduced our ability to make capital expenditures and has limited our flexibility in operating our business.

     At August 31, 2004, we had cash and cash equivalents of $12.2 million. A significant portion of our cash and cash equivalents and cash from operations must be used to service our significant debt obligations, which includes $7.4 million in semi-annual interest payments with respect to our 8¼% senior notes. In addition, our senior secured credit facility and the indenture governing our 8¼% senior notes contain a number of significant restrictions and covenants that limit our ability and our subsidiaries’ ability to incur further indebtedness or make capital expenditures. We would also likely encounter difficulties in raising capital through an equity offering, particularly as a company whose stock is not publicly traded. As a result of our current financial position, we are limited in our ability to allocate equipment and other resources to meet emerging market and customer needs and from time to time are unable to take advantage of sales opportunities for new products. Similarly, we are sometimes unable to implement cost-reduction measures that might be possible if we able to bring on line more efficient plant and equipment. These limitations in operating our business could adversely affect our operating results and growth prospects.

33

The integration of future acquisitions may result in substantial costs, delays and other problems.

     We may not be able to successfully integrate future acquisitions, if any, without substantial costs, delays or other problems. Future acquisitions would require us to expend substantial managerial, operating, financial and other resources to integrate any new businesses. The costs of such integration could have a material adverse effect on our operating results and financial condition. Such costs would likely include non-recurring acquisition costs, investment banking fees, recognition of transaction-related obligations, plant closing and similar costs and various other acquisition-related costs. In addition, each transaction inherently carries an unavoidable level of risk regarding the actual condition of the acquired business, regardless of the investigation we may conduct beforehand. Until we assume operating control of such businesses, we may not be able to ascertain the actual value or understand the potential liabilities of the acquired entities. If and when we acquire a business, we would likely be subject to risks including:

• the possibility that it would be difficult to integrate the operations into our existing operations;

• the possibility that we had acquired substantial undisclosed liabilities;

• the risks of entering markets, producing products or offering services for which we had no prior experience;

• the potential loss of customers of the acquired business; and

• the possibility we might be unable to recruit managers with the necessary skills to supplement or replace the incumbent management of the acquired business.

     We may not be successful in overcoming these risks.

We depend on new business development, international expansion and acquisitions.

     We believe that growth has slowed in the domestic markets for our traditional beverage products and that, in order to increase our sales, we must continue to develop new products in the markets we currently serve and new products in different markets, to make acquisitions and to expand in our international markets. Developing new products, expanding into new markets and identifying and completing acquisitions will require a substantial investment and involve additional risks. We cannot assure you that our efforts to achieve such development and expansion or to identify and complete potential acquisitions will be successful. Expansion poses risks and potential adverse effects on our operating results, such as the diversion of management’s attention, the loss of key personnel and the risks of unanticipated problems and liabilities. We may be unsuccessful in making acquisitions because of capital constraints and because, our senior credit facility imposes significant restrictions on our ability to make investments in or acquire other companies.

Difficulties presented by non-U.S. economic, political, legal, accounting and business factors could negatively affect our interests and business efforts

Approximately 46% of our sales for fiscal 2004 were derived from shipments to destinations outside of the United States or from our operations outside the United States. We intend to expand such exports and our international operations and customer base. Our sales outside of the United States generally involve longer payment cycles from customers than our United States sales. Our operations outside the United States require us to comply with the legal requirements of foreign jurisdictions and expose us to the political consequences of operating in foreign jurisdictions. Our operations outside the United States are also subject to the following potential risks:

• difficulty in managing and operating such operations because of distance, and, in some cases, language and cultural differences;

• fluctuations in the value of the U.S. dollar that could increase or decrease the effective price of our products sold in U.S. dollars and might have a material adverse effect on sales or costs, require us to raise or lower our prices or affect our reported sales or margins in respect of sales conducted in foreign currencies;

• difficulty entering new international markets due to greater regulatory barriers than those of the United States and differing political systems;

• increased costs due to domestic and foreign customs and tariffs, adverse tax legislation, imposition or

34

increases of withholding and other taxes on remittances and other payments by subsidiaries;

• credit risk or financial condition of local customers and distributors;

• potential difficulties in staffing and labor disputes;

• risk of nationalization of private enterprises;

• government embargoes or foreign trade restrictions such as anti-dumping duties;

• increased costs of transportation or shipping;

• ability to obtain supplies from foreign vendors and ship products internationally during times of crisis or otherwise;

• difficulties in protecting intellectual property;

• increased worldwide hostilities;

• potential imposition of restrictions on investments; and

• local political, economic and social conditions such as hyper-inflationary conditions and political instability.

     Any further expansion of our international operations would increase these and other risks. As we enter new geographic markets, we may encounter competition from the primary participants in those markets that may have significantly greater market knowledge and that may have substantially greater resources than we do. In addition, we conduct some of our international operations through joint venture arrangements in which our operational and financial control of the business are limited.

Adverse weather conditions could adversely impact our financial results.

     Weather conditions around the world can have a significant impact on our sales. Unusually cool temperatures during a hot weather season in one or more of our markets have adversely affected, and could again adversely affect, sales of our products in those markets.

We are subject to risks that our intellectual property may not be adequately protected, and we may be adversely affected by the intellectual property rights of others.

     We rely on a combination of patents and trademarks, licensing agreements and unpatented proprietary know-how and trade secrets to establish and protect our intellectual property rights. We enter into confidentiality agreements with customers, vendors, employees, consultants and potential acquisition candidates to protect our know-how, trade secrets and other proprietary information. However, these measures and our patents and trademarks may not afford complete protection of our intellectual property and it is possible that third parties may copy or otherwise obtain and use our proprietary information and technology without authorization or otherwise infringe on our intellectual property rights. We cannot assure you that our competitors will not independently develop equivalent or superior know-how, trade secrets or production methods.

     We are involved in litigation from time to time in the course of our business to protect and enforce our intellectual property rights, and third parties from time to time initiate litigation against us asserting that our business infringes or violates their intellectual property rights. We cannot assure you that our intellectual property rights have the value that we believe them to have or that our products will not be found to infringe upon the intellectual rights of others. Further, we cannot assure you that we will prevail in any such litigation, or that the results or costs of any such litigation will not have a material adverse effect on our business. Any litigation concerning intellectual property could be protracted and costly and is inherently unpredictable and could have a material adverse effect on our business and results of operations regardless of its outcome.

35

     We are currently a defendant in a suit filed by Blackhawk Molding Co., Inc. on August 28, 2003 in the U.S. District Court for the Northern District of Illinois, Eastern Division. Blackhawk Molding alleges that a “single-stick” label attached to our five-gallon caps have caused our caps to infringe a patent held by it and is seeking damages. The ultimate outcome of this action or any litigation is uncertain. An unfavorable outcome in this action could result in our sustaining material damages. In addition, any litigation concerning intellectual property could be protracted and costly and could have a material adverse effect on our business and results of operations regardless of its outcome.

     A number of our patents relating to one of our closure product lines have expired in recent years. We believe that such expirations have, to varying effect, adversely affected our margins as competitors who have become free to imitate our designs have begun to compete aggressively against us in the pricing of certain products. These adverse effects will only be partially ameliorated to the extent that we continue to obtain new patents.

     The laws of certain countries in which our products or technology are or may be licensed may not protect our intellectual property rights to the same extent as the laws of the United States. The protection offered by the patent laws of foreign countries may be less protective than the United States patent laws.

Defects in our products could result in litigation and harm our reputation.

     Many of our products are used to cap beverage and food products. From time to time in the past, we and other producers of similar products have received complaints from customers and end-consumers claiming that such products might cause or almost caused injury to the end-consumer. In some instances, such claims have alleged defects in manufacture or faulty design of our closures. In the event an end-consumer suffers a harmful accident, we could incur substantial costs in responding to complaints or litigation. Further, if any of our products were found to be defective, we could incur damages and significant costs in correcting any defects, lose sales and suffer damage to our reputation.

Our customers’ products could be contaminated through tampering, which could harm our reputation and business.

     Terrorist activities could result in contamination or adulteration of our customers’ products, as our products are tamper resistant but not tamper proof. We cannot assure you that a disgruntled employee or third party could not introduce an infectious substance into packages of our finished products, either at our manufacturing plants or during shipment of our products. Were our products or our customers’ products to be tampered with in a manner not readily capable of detection, we could experience a material adverse effect to our reputation, business, operations and financial condition.

Changes to government regulations affecting our products could harm our business.

     Our products are subject to governmental regulation, including regulation by the Federal Food and Drug Administration and other agencies in the United States and elsewhere. A change in government regulation could adversely affect our business. We cannot assure you that federal, state or foreign authorities will not issue regulations in the future that could materially increase our costs of manufacturing certain of our products. Our failure to comply with applicable laws and regulations could subject us to civil remedies, including fines, injunctions, recalls, or seizures as well as potential criminal sanctions, which could have a material adverse effect on us.

Our business may be adversely affected by compliance obligations or liabilities under environmental, health and safety laws and regulations.

     We are subject to federal, state, local and foreign environmental and health and safety laws and regulations that could result in liability, affect ongoing operations and increase capital costs and operating expenses in order to maintain compliance with such requirements. Some of these laws and regulations provide for strict and joint and several liability regarding contaminated sites. Such sites may include properties currently or formerly owned or operated by us and properties to which we disposed of, or arranged to dispose of, wastes or hazardous substances. Based on the information presently known to us, we do not expect environmental costs or contingencies to have a material adverse effect on us. We may, however, be affected by hazards or other conditions presently unknown to us. In addition, we may become subject to new requirements pursuant to evolving environmental, and health and safety, laws and regulations. Accordingly, we cannot assure you that we will not incur material environmental costs or liabilities in the future.

36

We depend upon key personnel.

     We believe that our future success depends upon the knowledge, ability and experience of our personnel. The loss of key personnel responsible for managing Portola or for advancing our product development could adversely affect our business and financial condition.

The integration of future acquisitions may result in substantial costs, delays and other problems.

     We may not be able to successfully integrate future acquisitions, if any, without substantial costs, delays or other problems. Future acquisitions would require us to expend substantial managerial, operating, financial and other resources to integrate any new businesses. The costs of such integration could have a material adverse effect on our operating results and financial condition. Such costs would likely include non-recurring acquisition costs, investment banking fees, recognition of transaction-related obligations, plant closing and similar costs and various other acquisition-related costs. In addition, each transaction inherently carries an unavoidable level of risk regarding the actual condition of the acquired business, regardless of the investigation we may conduct beforehand. Until we assume operating control of such businesses, we may not be able to ascertain the actual value or understand the potential liabilities of the acquired entities. If and when we acquire a business, we would likely be subject to risks including:

• the possibility that it would be difficult to integrate the operations into our existing operations;

• the possibility that we had acquired substantial undisclosed liabilities;

• the risks of entering markets, producing products or offering services with which we had no prior experience;

• the potential loss of customers of the acquired business; and

• the possibility we might be unable to recruit managers with the necessary skills to supplement or replace the incumbent management of the acquired business.

     We may not be successful in overcoming these risks.

We are controlled by Jack L. Watts, the Chairman of our Board of Directors and Chief Executive Officer, and J.P. Morgan Partners 23A SBIC, LLC, an affiliate of J.P. Morgan Securities Inc., and their interests may conflict with those of our other security holders.

     Jack L. Watts (the Chairman of our Board of Directors and our Chief Executive Officer), and J.P. Morgan Partners 23A SBIC, LLC (an affiliate of J.P. Morgan Securities Inc., one of the initial purchasers of our 8¼% senior notes) own a majority of our common stock. Robert Egan, a member of our Board of Directors, is a Senior Advisor to J.P. Morgan Partners, LLC and a Partner of J.P. Morgan Entertainment Partners, LLC, each of which is an affiliate of J.P. Morgan Partners 23A SBIC, LLC. The interests of Mr. Watts, Mr. Egan and J.P. Morgan Partners 23A SBIC, LLC may not in all cases be aligned with the interests of our security holders. We currently have two independent directors on our Board of Directors. However, for most of fiscal 2004 there was only one independent director (as defined under the federal securities laws) on our Board of Directors. Our Board of Directors, Audit Committee and Compensation Committee have not met, including at such times when they have considered issues of importance to us, the standard “independence” requirements that would be applicable if our equity securities were traded on NASDAQ or the New York Stock Exchange. We have engaged in a number of related party transactions. For example, from 1999 through 2002, we engaged in several transactions with Sand Hill Systems, Inc., an entity in which Mr. Watts and other of our officers and directors had a financial interest. See “Item 13—Certain Relationships and Related Transactions” and Note 15 of the Notes to Consolidated Financial Statements.

37

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The following discussion about our market risk exposure involves forward-looking statements. Actual results could differ materially from those projected in any forward-looking statements. We are exposed to market risk related to changes in interest rates, foreign currency exchange rates, credit risk and resin prices. We do not use derivative financial instruments for speculative or trading purposes.

Interest Rate Sensitivity

     We are exposed to market risk from changes in interest rates on long-term debt obligations. We manage such risk through the use of a combination of fixed and variable rate debt. Currently, we do not use derivative financial instruments to manage our interest rate risk.

     The following table provides information about our debt obligations that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related interest rates by expected maturity dates.

	August 31,
	2005			2006			2007			2008		2009		Thereafter			Total
	(dollars in thousands)
Liabilities:
Long-Term Debt, including current portion:
Fixed Rate—Notes		—			—			—			—		—	$	180,000		$	180,000
Average Interest Rate		—			—			—			—		—		8.25	%		—
Variable Rate—Revolver (a)		—			—			—			—	$	19,349		—		$	19,349
Fixed Rate—Term	$	82		$	42		$	11			—		—		—		$	135
Average Interest Rate		5.15	%		1.54	%		2.45	%		—		—		—			—

(a) Average interest is equal to, at our election, either the Bank Prime Loan rate plus 1.00% or LIBOR Loan rate plus 2.50% determined by a pricing table based on the outstanding credit facility balance. At August 31, 2004, the Bank Prime Loan rate was 4.50% and the LIBOR Loan rate was 1.51%.

	Fair Value August 31,
	2004		2003
	(dollars in thousands)
Liabilities:
Long–Term Debt, including current portion:
Fixed Rate—$180 million Senior Notes	$	156,600		—
Fixed Rate—$110 million Senior Notes		—	$	113,644
Variable Rate—Revolver	$	19,349	$	6,561
Fixed Rate—Notes	$	135	$	372

Exchange Rate Sensitivity

     Our foreign subsidiaries use the local currency as their functional currency. Assets and liabilities are translated at month-end exchange rates. Items of income and expense are translated at average exchange rates. Translation gains and losses are not included in determining net income (loss) but are accumulated as a separate component of shareholders’ equity (deficit). Gains (losses) arising from foreign currency transactions are included in determining net income (loss). During fiscal 2004, we incurred a gain of $968,000 arising from foreign currency transactions. To date, we have not entered into any foreign currency forward exchange contracts or other derivative financial instruments relative to foreign currency exchange rates.

38

Credit Risk Sensitivity

     Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, and trade receivables. Our cash and cash equivalents are concentrated primarily in several United States banks. At times, such deposits may be in excess of insured limits. Management believes that the financial institutions which hold our financial instruments are financially sound and, accordingly, minimal credit risk exists with respect to these financial instruments.

     Our products are principally sold to entities in the beverage and food industries in the United States, Canada, the United Kingdom, Mexico, China, Australia, New Zealand and throughout Europe. Ongoing credit evaluations of customers’ financial condition are performed and collateral is generally not required. We maintain reserves for potential credit losses which, on a historical basis, have not been significant. There were no customers that accounted for 10% or more of sales for fiscal 2004.

Resin Price Sensitivity

     The majority of our products are molded from various plastic resins that comprise a significant portion of our cost of sales. These resins are subject to substantial price fluctuations, resulting from shortages in supply, changes in prices in petrochemical products and other factors. During fiscal 2004 we experienced unprecedented significant increases in resin prices. In the past, we generally have been able to pass on increases in resin prices directly to our customers after delays required in many cases because of governing contractual provisions. Significant increases in resin prices coupled with an inability to promptly pass such increases on to customers could have a material adverse impact on us. The significant resin price increases we experienced during fiscal 2003 and 2004 materially and adversely affected our gross margins and operating results for those periods. We experienced a decrease in gross margins due to the impact of the resin increases during fiscal 2004. See “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.”

39

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

	Page in
	Form 10-K/A
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm		41
Consolidated Balance Sheets as of August 31, 2004 and 2003		42
Consolidated Statements of Operations for the Years Ended August 31, 2004, 2003 and 2002, as amended		43
Consolidated Statements of Cash Flows for the Years Ended August 31, 2004, 2003 and 2002		44
Consolidated Statements of Shareholders’ Equity (Deficit) for the Years Ended August 31, 2004, 2003 and 2002		45
Notes to Consolidated Financial Statements		46
INDEX TO FINANCIAL STATEMENT SCHEDULE
Schedule II—Valuation and Qualifying Accounts		100

40

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Portola Packaging, Inc. and Subsidiaries:

     In our opinion, the accompanying consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Portola Packaging, Inc. and its Subsidiaries (the Company) at August 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2004 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     As discussed in Note 7 to the Consolidated Financial Statements, the Company changed its method of accounting for long-lived asset impairments, goodwill and other intangible assets in fiscal 2002.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Pittsburgh, Pennsylvania

November 3, 2004, except for the fifth paragraph of Note 8
and the second paragraph of Note 18 as to which the
date is November 24, 2004

41

Portola Packaging, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share data)

August 31,	2004			2003
Assets
Current assets:
Cash and cash equivalents	$	12,249		$	4,292
Accounts receivable, net of allowance for doubtful accounts of $1,204 and $1,244, respectively		31,223			28,948
Inventories		17,857			11,306
Other current assets		4,737			3,309
Deferred income taxes		1,573			1,363
Total current assets		67,639			49,218
Property, plant and equipment, net		78,666			66,004
Goodwill		19,824			10,468
Debt issuance costs, net of accumulated amortization of $2,045 and $4,500, respectively		9,748			1,585
Trademarks, net of accumulated amortization of $360 and $320, respectively		5,000			40
Customer relationships, net of accumulated amortization of $123 in 2004		2,477			—
Patents, net of accumulated amortization of $7,653 and $7,072, respectively		2,005			2,548
Covenants not-to compete and other intangible assets, net of accumulated amortization of $896 and $408, respectively		1,192			448
Other assets		2,674			2,462
Total assets	$	189,225		$	132,773
Liabilities, minority interest and shareholders’ equity (deficit)
Current liabilities:
Current portion of long-term debt	$	82		$	287
Current portion of redeemable warrants to purchase Class A Common Stock		—			9,025
Accounts payable		22,268			15,291
Book overdraft		674			—
Accrued liabilities		6,895			6,457
Accrued compensation		3,611			2,781
Accrued interest		1,238			4,928
Total current liabilities		34,768			38,769
Long-term debt, less current portion		199,402			116,646
Redeemable warrants to purchase Class A Common Stock		—			1,277
Deferred income taxes		1,318			1,848
Other long-term obligations		215			385
Total liabilities		235,703			158,925
Minority interest		—			47
Commitments and contingencies (Note 9)
Shareholders’ equity (deficit):
Class A convertible Common Stock of $.001 par value:
Authorized: 5,203 shares; Issued and outstanding: 2,135 shares in 2004 and 2003		2			2
Class B, Series 1, Common Stock of $.001 par value:
Authorized: 17,715 shares; Issued and outstanding: 8,603 shares in 2004 and 8,600 shares in 2003		8			8
Class B, Series 2, convertible Common Stock of $.001 par value:
Authorized: 2,571 shares; Issued and outstanding: 1,170 shares in 2004 and 2003		1			1
Additional paid-in capital		6,593			6,582
Notes receivable from shareholders		—			(161	)
Accumulated other comprehensive loss		(1,727	)		(1,882	)
Accumulated deficit		(51,355	)		(30,749	)
Total shareholders’ equity (deficit)		(46,478	)		(26,199	)
Total liabilities, minority interest and shareholders’ equity (deficit)	$	189,225		$	132,773

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

42

Portola Packaging, Inc. and Subsidiaries
Consolidated Statements of Operations, as Amended
(in thousands)

Year ended August 31, as amended	2004			2003			2002
Sales	$	242,507		$	215,315		$	210,757
Cost of sales		201,650			166,689			157,133
Gross profit		40,857			48,626			53,624
Selling, general and administrative		30,867			29,307			30,844
Research and development		6,209			4,729			3,069
(Gain) loss from sale of property, plant and equipment		(1,582	)		30			(20	)
Fixed asset impairment charge		1,120			—			—
Amortization of intangibles		1,233			903			1,551
Goodwill impairment charge		—			207			—
Restructuring costs		3,809			405			—
		41,656			35,581			35,444
(Loss) income from operations		(799	)		13,045			18,180
Other (income) expense:
Interest income		(212	)		(120	)		(1,083	)
Interest expense		15,843			12,544			13,251
Amortization of debt issuance costs		2,545			777			756
Minority interest expense		5			73			113
Equity income of unconsolidated affiliates, net		(625	)		(415	)		(340	)
Foreign currency transaction (gain) loss		(968	)		(348	)		285
Loss on warrant redemption		1,867			—			—
Income on dissolution of joint venture		—			—			(475	)
Income on recovery of investments		—			—			(1,103	)
Other (income) expense, net		159			194			(39	)
		18,614			12,705			11,365
(Loss) income before income taxes		(19,413	)		340			6,815
Income tax provision		1,193			2,071			2,242
Net (loss) income	$	(20,606	)	$	(1,731	)	$	4,573

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

43

Portola Packaging, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)

Year ended August 31,	2004			2003			2002
Cash flows from operating activities:
Net (loss) income	$	(20,606	)	$	(1,731	)	$	4,573
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		18,185			17,966			19,290
Amortization of debt issuance costs		2,545			777			756
Deferred income taxes		(740	)		(473	)		(199	)
(Gain) loss on property and equipment dispositions		(1,582	)		30			(20	)
Fixed asset impairment charge		1,120			—			—
Goodwill impairment charge		—			207			—
Provision for doubtful accounts		263			417			567
Provision for excess and obsolete inventories		(642	)		(31	)		45
Provision for restructuring		3,809			405			—
Minority interest expense		5			73			113
Equity income of unconsolidated affiliates, net		(625	)		(415	)		(340	)
Interest income on warrants		(57	)		(58	)		(151	)
Loss on warrant redemption		1,867			—			—
Income on dissolution of joint venture		—			—			(475	)
Income on recovery of investment		—			—			(1,940	)
Changes in working capital:
Accounts receivable		2,476			(3,321	)		3,270
Inventories		(843	)		1,942			1,794
Other current assets		(833	)		808			420
Accounts payable		5,502			464			(2,444	)
Accrued liabilities and compensation		(6,536	)		(2,766	)		(977	)
Accrued interest		(3,691	)		—			9
Net cash (used in) provided by operating activities		(383	)		14,294			24,291
Cash flows from investing activities:
Additions to property, plant and equipment		(22,150	)		(11,081	)		(10,488	)
Proceeds from sale of property, plant and equipment		6,637			114			404
Payment for Tech Industries, Inc.		(35,917	)		—			—
Payment of transaction costs for Tech Industries, Inc.		(633	)		—			—
Additions to intangible assets		(501	)		(117	)		(427	)
Decrease (increase) in notes receivable from shareholders		161			(3	)		114
Decrease (increase) in other assets		(635	)		505			(530	)
Net cash used in investing activities		(53,038	)		(10,582	)		(10,927	)
Cash flows from financing activities:
Borrowings under Senior Notes due 2012		180,000			—			—
Redemption of Senior Notes due 2005		(110,000	)		—			—
Repayments (borrowings) under revolver, net		12,788			(3,220	)		(11,105	)
Payments for warrant redemption		(12,112	)		—			—
Payment of debt issuance costs		(9,785	)		—			—
Increase in book overdraft		674			—			—
Repayments of long-term debt arrangements		(348	)		(398	)		(612	)
Issuance of common stock		11			12			9
Payments on other long-term obligations		(82	)		(181	)		(346	)
Distributions to minority owners		(57	)		(83	)		(81	)
Net cash provided by (used in) financing activities		61,089			(3,870	)		(12,135	)
Effect of exchange rate changes on cash and cash equivalents		289			(116	)		22
(Decrease) increase in cash and cash equivalents		7,957			(274	)		1,251
Cash and cash equivalents at beginning of year		4,292			4,566			3,315
Cash and cash equivalents at end of year	$	12,249		$	4,292		$	4,566

See Note 16 for supplemental cash flow disclosures.

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

44

Portola Packaging, Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity (Deficit)
(in thousands)

					Class B
	Class A				Series 1					Series 2					Additional			Notes receivable			Accumulated other						Total			Total
															paid-in			from			comprehensive			Accumulated			shareholders'			comprehensive
	Shares		Amount		Shares			Amount		Shares			Amount		capital			shareholders			income (loss)			deficit			equity (deficit)			income (loss)
Balance, August 31, 2001		2,135	$	2		9,098		$	8		1,171		$	1	$	9,161		$	(272	)	$	(2,592	)	$	(33,591	)	$	(27,283	)
Repayment of promissory note with stock						(524	)				(1	)				(2,625	)											(2,625	)
Issuance of common stock						2										9												9
Exercise of stock options						21										25												25
Decrease in notes receivable from shareholders																			114									114
Net income																									4,573			4,573		$	4,573
Other comprehensive income																						274						274			274
Balance, August 31, 2002		2,135		2		8,597			8		1,170			1		6,570			(158	)		(2,318	)		(29,018	)		(24,913	)	$	4,847
Issuance of common stock						3										12												12
Increase in notes receivable from shareholders																			(3	)								(3	)
Net loss																									(1,731	)		(1,731	)	$	(1,731	)
Other comprehensive income																						436						436			436
Balance, August 31, 2003		2,135		2		8,600			8		1,170			1		6,582			(161	)		(1,882	)		(30,749	)		(26,199	)	$	(1,295	)
Issuance of common stock						3										11												11
Decrease in notes receivable from shareholders																			161									161
Net loss																									(20,606	)		(20,606	)	$	(20,606	)
Other comprehensive income																						155						155			155
Balance, August 31, 2004		2,135	$	2		8,603		$	8		1,170		$	1	$	6,593		$	—		$	(1,727	)	$	(51,355	)	$	(46,478	)	$	(20,451	)

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

45

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

1. Summary of significant accounting policies:

Nature of operations:

Portola Packaging, Inc. and Subsidiaries (the “Company” or “PPI” or “Portola”) designs, manufactures and markets tamper-evident plastic closures and related equipment used for packaging applications in dairy, fruit juice, bottled water, sport drinks, institutional foods and other non-carbonated beverage products. The Company’s Canadian subsidiary also designs, manufactures and markets a wide variety of plastic bottles for use in the dairy, fruit juice and bottled water industries. The Company’s Mexican and United Kingdom subsidiaries also manufacture five-gallon polycarbonate water bottles. The Company has production facilities throughout the United States, Canada, the United Kingdom, the Czech Republic, Mexico and China. The Company also has facilities in the United States and Europe through joint venture agreements. In addition, the Company entered the cosmetics, fragrance and toiletries (“CFT”) market with the acquisition of Tech Industries, which was subsequently renamed Portola Tech International (“PTI”) (Note 2).

Principles of consolidation:

The consolidated financial statements of the Company include the financial statements of Portola Packaging, Inc. and all of its subsidiaries. Joint venture investments are accounted for by the equity method. All material intercompany accounts and transactions between consolidated entities have been eliminated.

Revenue recognition:

The Company recognizes revenue when title, ownership and risk of loss pass to the customer and collectibility is probable.

Cash equivalents:

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Accounts receivable and allowance for doubtful accounts:

Trade accounts receivable are recorded at the invoice amount and do not bear interest. The Company provides credit to its customers in the normal course of business, performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses. The allowance for doubtful accounts related to trade receivables is determined based on two methods. The amounts calculated from each of these methods are combined to determine the total amount reserved. First, an evaluation of specific accounts is conducted when information is available indicating that a customer may not be able to meet its financial obligations. Judgments are made in these specific cases based on available facts and circumstances, and a specific reserve for that customer may be recorded to reduce the receivable to the amount that is expected to be collected. These specific reserves are re-evaluated and adjusted as additional information is received that impacts the amount reserved. Second, a general reserve is established for all customers based on historical collection and write-off experience. The collectibility of trade receivables could be significantly reduced if default rates are greater than expected or if an unexpected material adverse change occurs in a major customer’s ability to meet its financial obligations.

46

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

Inventories:

Cap and bottle related inventories are stated at the lower of cost (first-in, first-out method) or market and equipment related inventories are stated at the lower of cost (average cost method) or market.

Property, plant and equipment:

Property, plant and equipment are stated at cost and depreciated on the straight-line basis over their estimated useful lives. The cost of maintenance and repairs is charged to income as incurred. Leasehold improvements are amortized on a straight-line basis over their useful lives or the lease term, whichever is shorter. When assets are disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gains or losses are included in the results of operations. During fiscal year 2004, the Company capitalized interest of $176 related to construction in progress projects that once placed in service is being depreciated over 10 years.

Intangible assets:

Patents, licenses, technology, tradenames, covenants not-to-compete and customer lists are valued at cost and are amortized on a straight-line basis over the lesser of their remaining useful or contractual lives (generally two to sixteen years).

Goodwill, representing the excess of cost over the net tangible and identifiable intangible assets, recorded in connection with acquisitions by the Company of Northern Engineering & Plastics Corp. (“Pennsylvania Nepco”), Portola Packaging Canada Ltd., Portola Packaging Limited (“Portola Packaging Ltd. (U.K.)”), Portola Packaging Inc. Mexico, S.A. de C.V. (“PPI Mexico”), Shanghai Portola Packaging Company Limited (“PPI China”) and the assets of Allied Tool, Inc., acquired by Portola Allied Tool, Inc. (“Portola Allied”), was amortized on a straight-line basis over periods ranging from three to twenty-five years through August 31, 2001. Effective September 1, 2001, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 eliminates the amortization of goodwill as well as intangible assets with indefinite useful lives, and requires annual testing for impairment. During the fourth quarter of fiscal 2004, the Company measured goodwill by operating unit and reviewed for impairment by utilizing the EBITDA multiplier methodology for United States – Closures, Canada, Mexico, China and Other, and used the discounted cash flows methodology for United States – CFT. See Recent Accounting Pronouncements below and Note 7.

Debt issuance costs:

Debt issuance costs are amortized using the straight-line method over the term of the related loans.

Research and development expenditures:

Research and development expenditures are generally charged to operations as incurred.

Income taxes:

The Company accounts for income taxes under the liability method, which requires that deferred taxes be computed annually on an asset and liability basis and adjusted when new tax laws or rates are enacted. Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established where necessary to reduce deferred tax assets to the amount expected to be realized.

47

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

Accounting for stock-based compensation:

At August 31, 2003, the Company had several stock-based compensation plans (Note 11). The Company accounts for those plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees, and related Interpretations.” The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.” Accordingly, no compensation expense has been recognized for the Company’s stock plans. Had compensation expense for the stock plans been determined based on the fair value at the grant date for options granted in fiscal 2004, 2003 and 2002 consistent with the provisions of SFAS No. 123, the pro forma net income (loss) would have been reported as follows:

	2004			2003			2002
Net income (loss) as reported	$	(20,606	)	$	(1,731	)	$	4,573
Deduct total compensation cost deferred under fair value based method for all awards, net of tax		10			120			223
Net income (loss)—pro forma	$	(20,616	)	$	(1,851	)	$	4,350

These pro forma results are not necessarily representative of the effects on reported net income (loss) for future years.

Concentrations of credit risk and other risks and uncertainties:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. The Company’s cash and cash equivalents are concentrated primarily in several United States banks, as well as in banks in Canada, Mexico, China, the Czech Republic and the United Kingdom. At times, such deposits may be in excess of insured limits. Management believes that the financial institutions that hold the Company’s financial instruments are financially sound and, accordingly, minimal credit risk exists with respect to these financial instruments.

The Company’s products are principally sold to entities in the beverage and food industries in the United States, Canada, the United Kingdom, Mexico, China, Australia, New Zealand and throughout Europe. Ongoing credit evaluations of customers’ financial condition are performed and collateral is not required. The Company maintains reserves for potential credit losses, which, on a historical basis, have not been significant. There were no customers that accounted for more than 10% of sales for fiscal 2004 or 2003. During fiscal 2002, one United States customer accounted for approximately 10% of sales and owed the Company $1,600 as of August 31, 2002.

The majority of the Company’s products are molded from various plastic resins, which comprise a significant portion of the Company’s cost of sales. These resins are subject to substantial price fluctuations, resulting from shortages in supply, changes in prices in petrochemical products and other factors. During the past three years, the Company incurred increases in resin prices. The Company passes the majority of these increases on to its customers depending upon the competitive environment and contractual terms for customers with contracts. Significant increases in resin prices coupled with an inability to promptly pass such increases on to customers could have a material adverse impact on the Company. Resin price increases had a negative impact on the Company during the last three years.

Use of estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

48

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

Foreign currency translation:

The Company’s foreign subsidiaries use the local currency as their functional currency. Assets and liabilities are translated at year end exchange rates. Items of income and expense are translated at average exchange rates for the relevant year. Translation gains and losses are not included in determining net income (loss) but are accumulated as a separate component of shareholders’ equity (deficit). Gains (losses) arising from foreign currency transactions are included in determining net income (loss). Gains (losses) arising from foreign currency transactions for fiscal 2004, 2003 and 2002 totaled $968, $348 and $(285), respectively, and are included in “Other (income) expense” in the accompanying amended consolidated statements of operations. To date, the Company has not entered into any foreign currency forward exchange contracts or other derivative financial instruments relative to foreign currency exchange rates. In addition, the Company has two guarantee agreements in Eurodollars that were valued using a conversion rate as of August 31, 2004 (Note 9).

Carrying value of long-lived assets:

Long-lived assets, including property, plant and equipment and other intangible assets, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in relation to the operating performance and future undiscounted cash flows of the underlying assets. Adjustments are made if the sum of expected future cash flows is less than book value. Based on an appraisal from a third party and management’s assessment of the carrying values of such long-lived assets, the Company identified the facility would not be utilized in the near term and recognized an impairment charge of $1,120 on the building in Sumter, South Carolina during the fourth quarter of fiscal 2004. No impairment charge was recognized during fiscal 2003.

Fair value of financial instruments:

Carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts payable and other liabilities, approximate fair value due to their short maturities. Based on borrowing rates currently available to the Company for loans with similar terms, the carrying value of long-term debt except for the 8¼% senior notes due 2012, approximates fair value. The fair value of the senior notes was estimated to be approximately $156,600 as of August 31, 2004 (Note 8).

Recent accounting pronouncements:

Effective September 1, 2002, the Company adopted SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. The adoption of SFAS No. 143 had no impact on the Company’s financial statements for fiscal 2004.

Effective September 1, 2002, the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supercedes or amends existing accounting literature related to the impairment and disposal of long-lived assets. SFAS No. 144 requires long-lived assets to be tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable from future cash flows of the particular asset group or there is an expectation that it is more likely than not that a long-lived group will be sold or otherwise disposed of before the end of its previously estimated useful life. The Company identified the facility would not be utilized in the near term and recognized an impairment charge of $1,120 on the building in Sumter, South Carolina during fiscal 2004 (Note 4).

49

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

Effective September 1, 2002, the Company adopted SFAS No. 146, “Accounting for Exit or Disposal Activities.” The standard requires companies to recognize costs associated with exit or disposal activities when incurred rather than at the date of a commitment to an exit or to a disposal plan. Examples of costs covered by the standard include (1) costs to terminate contracts that are not capital leases; (2) costs to consolidate facilities or relocate employees; and (3) termination benefits provided to employees who are involuntarily terminated under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. Previous accounting guidance was provided by EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 replaces EITF 94-3 and was to be applied prospectively to exit or disposal activities initiated after December 31, 2002. During fiscal 2004 and 2003, the Company incurred restructuring charges of $3,809 and $405, respectively, which were determined in accordance with the provisions of SFAS No. 146 (Note 4).

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 became effective for any guarantees that are issued or modified after December 31, 2002. The recognition provisions of FIN 45 did not have a material impact on the Company’s results of operations or financial condition for fiscal 2004 as there were no new guarantees or significant modifications of existing guarantees during fiscal 2004.

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities-an interpretation of ARB No. 51” (“FIN 46”). FIN 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 became effective January 31, 2003 for newly created and existing variable interest entities. On October 8, 2003, the FASB issued FASB Staff Position No. 46-e, which allows public entities, that meet certain criteria, to defer the effective date for applying the provisions of FIN 46 to interests held by the public entity in certain variable interest entities or potential variable interest entities until the end of the Company’s first interim or annual period ending after December 15, 2003. On December 24, 2003, the FASB extended the effective date to the first interim period ending December 15, 2004. Management is currently analyzing the impact of FIN 46 as it relates to the Company’s joint ventures to determine if the joint ventures’ financial statement will need to be consolidated with the Company’s consolidated financial statements.

Effective April 1, 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amended SFAS No. 133 for certain decisions made by the Board as part of the Derivatives Implementation Group (DIG) process and further claries the accounting and reporting standards for derivative instruments including derivatives embedded in other contracts and for hedging activities. The provisions of this statement are to be prospectively applied effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of this statement did not have a material impact on the Company’s results of operations or financial condition for fiscal 2004.

Effective May 1, 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. On November 7, 2003, the FASB issued FASB Staff Position No. 150-3, which allows entities, who meet certain criteria, to defer the effective date for periods beginning after December 15, 2004. The adoption of this statement did not have a material impact on the Company’s results of operations or financial condition.

50

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

Reclassifications:

Certain prior year balances have been reclassified to conform with the current year financial statement presentation. In addition, the Company has reclassified the (gain) loss from the sale of property, plant and equipment and the fixed asset impairment charge. Accordingly, these items have now been included in income from operations and are no longer stated below income from operations within the amended consolidated statements of operations and within the amended supplemental condensed consolidated statements of operations presented in Note 17.

2. New business activity:

Acquisition of Assets:

In March 2004, the Company purchased certain machinery and equipment for production of dairy closures, together with certain inventory and accounts receivable from a producer of 38mm plastic closures for the dairy market in the United Kingdom. The purchase price was approximately $4,117 using a U.S. dollar to British pound exchange rate of 1.83. This machinery and equipment has been utilized primarily in the U.K. and, to a lesser extent, in other Portola facilities outside of the U.K.

Acquisition of Tech Industries:

On September 19, 2003, the Company acquired all of the issued and outstanding capital stock of Tech Industries, Inc., and in concurrent transactions, Tech Industries, Inc. acquired all of the issued and outstanding stock of Tech Industries U.K. Ltd. and certain land, buildings and fixtures leased and used by Tech Industries Inc. in its manufacturing operations (collectively “Tech Industries”). The Company paid cash of approximately $35,686 from borrowings under its credit facility to purchase Tech Industries. A final working capital adjustment of $231 was paid in November 2003. There are no other contingent payments due. Tech Industries is a manufacturer of plastic closures and containers for the CFT industries. Tech Industries (now PTI) is a wholly owned subsidiary of PPI and is designated as a restricted subsidiary under the indenture relating to the Company’s 8¼% Senior Notes due 2012 and senior secured credit facility (Note 8).

The acquisition of Tech Industries was accounted for using the purchase method of accounting pursuant to which the purchase price at closing was allocated to the tangible and intangible assets and liabilities assumed based on their estimated fair values. The purchase price allocation was made based upon independent valuations. The operating results of Tech Industries have been included in PPI’s consolidated financial statements since September 19, 2003.

The $9,163 goodwill was assigned to United Closure – CFT segment and the total amount of goodwill is expected to be deductible for tax purposes.

51

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

The following represents the allocation of the purchase price of $35,917 plus $633 in transaction costs.

Intangible asset—trademark and trade name(indefinite life)	$	5,000
Intangible asset—website(5 year weighted average useful life)		400
Intangible asset—customer relationships(20 year weighted average useful life)		2,600
Intangible asset – covenants not-to-compete(5 year weighted average useful life)		374
Property, plant and equipment		12,468
Goodwill		9,163
Current assets acquired		9,058
Current liabilities assumed		(2,513	)
Total purchase price	$	36,550

The following presents unaudited pro forma information assuming that the Tech Industries acquisition had occurred at the beginning of fiscal 2004 and 2003:

August 31,	2004			2003
Pro forma sales	$	244,610		$	249,249
Pro forma net loss	$	(20,588	)	$	(599	)

On September 19, 2003, the Company entered into an amendment to its amended and restated senior secured credit facility, increasing the availability under the credit facility to $54,000 in connection with its purchase of Tech Industries, subject to a borrowing base and covenants similar to those in the amended and restated senior secured credit facility existing at August 31, 2003 (Note 8).

Other:

On September 1, 2004, the Company formed a wholly owned subsidiary, Portola Packaging (ANZ) Limited, under the laws of New Zealand. Portola ANZ was formed to manage sales of the Company’s products in New Zealand and Australia and to facilitate the growth of operations in the region.

During November 2003, the Company formed a wholly owned subsidiary, Portola s.r.o., under the laws of the Czech Republic. The Company purchased land in fiscal 2004.

On June 30, 2003, the Company formed a wholly owned subsidiary, Portola GmbH (“Portola Austria”). Portola Austria was formed to manage sales of the Company’s products on the European continent and to facilitate the growth of European operations.

On May 15, 2003, the Company formed a wholly owned subsidiary and holding company, Portola Ltd. (“PLtd”). The Company’s European operations have been consolidated under the management of PLtd. PLtd now owns the equity interest in Portola Packaging Ltd. (U.K.).

In February 2000, the Company incorporated an e-commerce company, Buyerlink Networks, Inc. The name of that corporation was subsequently changed to BLN Acquisition Corporation (“BLN”). Effective as of July 2000, the Company sold the assets of that corporation to Sand Hill Systems, Inc. (“SHS”) in exchange for an unsecured promissory note in the principal amount of $1,500. The Company fully reserved against non-payment of that note on August 31, 2000. SHS merged with Neptune Technologies in April 2001, and as a result, the promissory note was converted into SHS convertible preferred stock (Note 15). Effective June 1, 2002, the assets of SHS were sold, and SHS’s stock became worthless.

52

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

During fiscal 1999, the Company entered into a joint venture with Kimex Group, LLC (“Kimex”) to form Sterling Containers, LLC (“Sterling”), a 50% owned company that produced and sold five-gallon PET water bottles out of one of the Company’s domestic plants. During fiscal 2002, the Company dissolved the partnership. Kimex agreed to forgive debt of $475, which was recognized in other (income) expense included in the Consolidated Statements of Operations, as amended.

3. Other comprehensive (income) loss:

Other comprehensive (income) loss consisted of cumulative foreign currency translation adjustments of $(155), $(436) and $(274) for fiscal 2004, 2003 and 2002, respectively.

4. Restructuring:

The Company incurred restructuring costs of $3,809, primarily relating to its U.S. Closures segment, during fiscal 2004 related to the closing and relocation of three plants in San Jose and Chino, California and Sumter, South Carolina, as well as a reduction of work force in the research and development and selling, general and administrative staffs. At August 31, 2004, accrued restructuring costs amounted to $1,391 for employee severance costs. As of August 31, 2004, approximately $2,684 had been charged against the restructuring reserve for the employee severance costs. Management anticipates the majority of the accrual balance will be paid within twelve months from year end. The operations from the two California plants have been relocated to a new facility located in Tolleson, Arizona, a suburb of Phoenix. The Company entered into a fifteen-year lease commencing December 1, 2003 for the Tolleson, Arizona facility. During the third quarter of fiscal 2004, the Company completed the sale of its manufacturing facility in Chino, California at a net sales price of $3,300 and recognized a gain of $1,000. In July 2004, the Company also completed the sale of its manufacturing facility in San Jose, California at a net sales price of approximately $3,200 and recognized a gain of $600 in the fourth quarter of fiscal 2004. The operations from the South Carolina plant have been relocated primarily to the Company’s existing facility in Kingsport, Tennessee as well as to other facilities within the Company. In connection with the relocation, the Company identified the facility would not be utilized in the near term and recognized an impairment charge of $1,120 on the plant building in South Carolina in the fourth quarter of fiscal 2004.

During the second quarter of fiscal 2003, the Company implemented a restructuring plan to reduce its work force. During fiscal 2003, the Company incurred restructuring charges of $405 for employee severance costs, which were determined in accordance with the provisions of SFAS No. 146. The restructuring resulted in the termination of nine employees in general and administration, two employees in customer service, one employee in research and development and two employees in sales.

5. Inventories:

August 31,	2004		2003
Raw materials	$	9,439	$	5,785
Work in process		773		528
Finished goods		7,645		4,993
	$	17,857	$	11,306

53

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

6. Property, plant and equipment:

August 31,	2004			2003
Assets (asset lives in years):
Buildings and land (35)	$	13,898		$	17,962
Machinery and equipment (5-10)		162,897			161,160
Leasehold improvements (10-35)		9,527			6,022
		186,322			185,144
Less accumulated depreciation		(107,656	)		(119,140	)
	$	78,666		$	66,004

Depreciation expense charged to operations was $16,952, $17,062 and $17,739 for the fiscal 2004, 2003 and 2002, respectively.

Management performed a detailed analysis and also researched industry averages concerning the average life of molds. The Company concluded that the mold lives for the Company should be five years based on its findings. As of September 1, 2003, the Company changed the depreciable lives of its molds from three years to five years. If the Company had not changed the lives of the molds, it would have incurred $1,579 in additional depreciation expense during fiscal 2004.

During the fourth quarter of fiscal 2004, the Company identified the facility would not be utilized in the near term and recognized an asset impairment loss of $1.1 million related to its Sumter, South Carolina building based on a real estate appraisal performed by a third party. As part of its restructuring plan in fiscal 2004, the Company closed its Sumter, South Carolina plant and moved the operations primarily to its Kingsport, Tennessee plant. The Sumter plant is currently being used as a storage facility.

7. Goodwill and intangible assets:

As of August 31, 2004 and 2003, goodwill and accumulated amortization by segment category (Note 14) consisted of the following:

	August 31, 2004					August 31, 2003
	Gross					Gross
	carrying		Accumulated			carrying		Accumulated
	amount		amortization			amount		amortization
Goodwill:
United States - Closures	$	12,585	$	(6,667	)	$	12,585	$	(6,667	)
United States - CFT		9,163		—			—		—
Canada		4,706		(1,315	)		4,437		(1,239	)
Mexico		3,801		(2,534	)		3,801		(2,534	)
China		—		—			392		(392	)
Other		449		(364	)		449		(364	)
Total consolidated	$	30,704	$	(10,880	)	$	21,664	$	(11,196	)

Effective September 1, 2001, the Company adopted SFAS No. 142 for existing goodwill and other identifiable assets and at August 31, 2002, the Company used the EBITDA multiplier methodology to measure goodwill by operating unit and reviewed it for impairment. Based on this review, the Company did not record an impairment loss during fiscal 2002. The effect of the adoption was to eliminate goodwill amortization expense of $2,639 in fiscal 2002. During the fourth quarter of fiscal 2004, the Company measured goodwill by operating unit and reviewed for impairment by utilizing the EBITDA multiplier methodology for United States – Closures, Canada, Mexico, China and Other, and used the discounted cash flows methodology for United States – CFT. Based on this review, the Company did not record an impairment loss during fiscal 2004.

54

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

The change in the gross carrying amount and accumulated amortization for Canada from August 31, 2003 to August 31, 2004 was due to foreign currency translation. The Company performed its annual review for impairment and recorded no impairment charge for fiscal 2004. During fiscal 2003, the Company recognized $207 for impairment losses related to PPI China’s goodwill.

In connection with the adoption of SFAS No. 142, effective September 1, 2001, the Company reassessed the useful lives and the classification of its identifiable intangible assets and determined that they continue to be appropriate. The components of the Company’s intangible assets are as follows:

	August 31, 2004					August 31, 2003
	Gross					Gross
	carrying		Accumulated			carrying		Accumulated
	amount		amortization			amount		amortization
Amortizable intangible assets:
Patents	$	9,658	$	(7,653	)	$	9,620	$	(7,072	)
Debt issuance costs		11,793		(2,045	)		6,085		(4,500	)
Customer relationships		2,600		(123	)		—		—
Covenants not-to-compete		829		(405	)		455		(243	)
Technology		550		(226	)		150		(75	)
Trademarks		360		(360	)		360		(320	)
Other		709		(265	)		251		(90	)
Total amortizable intangible assets	$	26,499	$	(11,077	)	$	16,921	$	(12,300	)
Non-amortizable intangible assets:
Trademarks		5,000		—			—		—
Total amortizable intangible assets	$	31,499	$	(11,077	)	$	16,921	$	(12,300	)

The gross carrying amounts and accumulated amortization may fluctuate between periods due to foreign currency translation. In addition, amortization expense for the net carrying amount of intangible assets, including debt issuance costs, at August 31, 2004 was $3,778 for fiscal 2004 and is estimated to be $2,527 for fiscal 2005, $2,360 in fiscal 2006, $2,013 in fiscal 2007, $1,919 in fiscal 2008, $1,485 in fiscal 2009 and $5,118 in the remaining fiscal years thereafter.

8. Debt:

Debt:

August 31,	2004			2003
Senior notes	$	180,000		$	110,000
Senior revolving credit facility		19,349			6,561
Capital lease obligations		59			302
Other		76			70
		199,484			116,933
Less: Current portion long-term debt		(82	)		(287	)
	$	199,402		$	116,646

55

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

Senior notes:

On October 2, 1995, the Company completed an offering of $110,000 in aggregate principal amount of 10.75% senior notes that were due October 1, 2005. Interest payments of approximately $5,913 were paid semi-annually on April 1 and October 1 of each year, commencing on April 1, 1996. The Company redeemed all of these senior notes in February 2004.

On January 23, 2004, the Company completed an offering of $180,000 in aggregate principal amount of senior notes that mature on February 1, 2012 and bear interest at 8¼% per annum. Interest payments of $7,425 are due semi-annually on February 1 and August 1 of each year. Interest began accruing January 23, 2004 and the first interest payment date commenced on August 1, 2004. The senior notes’ indenture contains covenants and provisions that restrict, among other things, the Company’s ability to: (i) incur additional indebtedness or issue preferred stock, (ii) incur liens on its property, (iii) make investments, (iv) enter into guarantees and other contingent obligations, (v) merge or consolidate with or acquire another person or engage in other fundamental changes, (vi) engage in certain sales of assets and subsidiary stock, (vii) engage in certain transactions with affiliates, (viii) engage in sale/leaseback transactions (ix) engage in any business other than a related business (x) make restricted payments, and (xi) declare or pay dividends.

The following table sets forth the uses of funds in connection with the $180,000 senior notes offering:

Redemption of 10.75% senior notes due 2005	$	110,000
Payment of accrued interest on 10.75% senior notes due 2005		4,664
Pay down of senior secured credit facility		36,729
		151,393
Warrant redemption and distribution on February 23, 2004		10,659
Warrant redemption and distribution on May 4, 2004		1,453
Potential stock tender and distribution to be paid on or after January 15, 2005 (Note 18)		7,888
		20,000
Transaction fees and expenses for senior notes and credit facility		8,607
	$	180,000

Senior revolving credit facility:

Concurrently with the offering of $110,000 in aggregate principal amount of 10.75% senior notes in October 1995, the Company entered into a five-year senior revolving credit facility of up to $35,000. On September 29, 2000, the Company entered into a new four-year amended and restated senior secured credit facility for operating purposes in the amount of $50,000 subject to a borrowing base of eligible receivables and inventory, plus property, plant and equipment, net, which served as collateral for the line. The credit facility, which was due to expire on August 31, 2004, contained covenants and provisions that restricted, among other things, the Company’s ability to: (i) incur additional indebtedness, (ii) incur liens on its property, (iii) make investments, (iv) enter into guarantees and other contingent obligations, (v) merge or consolidate with or acquire another person or engage in other fundamental changes, or in certain sales of assets, (vi) engage in certain transactions with affiliates, (vii) make restricted junior payments, and (viii) declare or pay dividends. An unused fee was payable on the facility based on the total commitment amount less the balance outstanding at the rate of 0.35% per annum. In addition, interest payable was based on, at the Company’s election, either the Bank Prime Loan rate plus 1.00% or the LIBOR Loan rate plus 2.50% determined by a pricing table based on total indebtedness to EBITDA.

56

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

On September 19, 2003, the Company entered into a consent and first amendment to the amended and restated senior secured credit facility in connection with the Company’s purchase of Tech Industries, Inc., increasing the amount available under the credit facility to $54,000, subject to a borrowing base and covenants similar to those in the amended and restated senior secured credit facility existing at August 31, 2003. An unused fee was payable on the facility based on the total commitment amount less the average daily aggregate amount of outstanding liability, at the rate of 0.50% per annum. Interest payable was based on, at the Company’s election, either the Bank Prime Loan rate plus 1.00% or the LIBOR loan rate plus 2.50%.

Concurrently with the offering of $180,000 in aggregate principal amount of 8¼% senior notes on January 23, 2004, the Company entered into an amended and restated five-year senior revolving credit facility of up to $50,000, maturing on January 23, 2009. The Company entered into an amendment to this senior secured credit facility on May 21, 2004 and a limited waiver and second amendment to this senior secured credit facility on November 24, 2004 (the “November 24 Amendment”). The amended and restated credit facility contains covenants and provisions that restrict, among other things, the Company’s ability to: (i) redeem warrants and repurchase stock, except during the first year, (ii) incur additional indebtedness, (iii) incur liens on its property, (iv) make investments, (v) enter into guarantees and other contingent obligations, (vi) merge or consolidate with or acquire another person or engage in other fundamental changes, or in certain sales of assets, (vii) engage in certain transactions with affiliates, (viii) make restricted junior payments, and (viii) declare or pay dividends. In addition, the Company must meet a quarterly fixed charge coverage ratio. The fixed charge coverage ratio as revised in the November 24 Amendment equaled 0.95 to 1.0 for the measurement period ended on August 31, 2004 and for the fourth quarter. At the end of fiscal 2004, the Company was in compliance with the revised fixed charge coverage ratio. Failure to comply with the fixed charge coverage ratio covenant in the future could cause an Event of Default under the senior secured credit facility, at which time the Company could be declared to be in default under that agreement and all outstanding borrowings would become currently due and payable. The Company’s future compliance with the fixed charge coverage ratio covenant is dependent upon the Company's achieving its projected operating results in fiscal 2005. The Company currently believes that it will attain its projected results and that it will be in compliance with the fixed charge coverage covenant throughout fiscal 2005. However, if the Company does not achieve these projected results and all outstanding borrowings become currently due and payable, the Company’s liquidity would be negatively affected. An unused fee is payable on the facility based on the total commitment amount less the average daily aggregate amount of outstanding liability, at the rate of 0.50% per annum. In addition, interest payable is based on, at the Company’s election, either the Bank Prime Loan rate plus 1.00% or the LIBOR loan rate plus 2.50% determined by a pricing table based on the outstanding credit facility balance. At August 31, 2004, the Bank Prime Loan rate and the LIBOR Loan rate were 4.5% and 1.51%, respectively.

Capital lease obligations:

The Company acquired certain machinery and office equipment under noncancelable capital leases. Property, plant and equipment includes the following items held under capital lease obligations:

August 31,	2004			2003
Equipment	$	1,152		$	1,152
Less accumulated depreciation		(422	)		(302	)
	$	730		$	850

57

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

Aggregate maturities of long–term debt:

The aggregate maturities of long–term debt as of August 31, 2004 were as follows:

Fiscal years ending August 31,
2005	$	82
2006		42
2007		11
2008		—
2009		19,349
Thereafter		180,000
	$	199,484

9. Commitments and contingencies:

Legal:

The Company is currently a defendant in a suit filed by Blackhawk Molding Co., Inc. on August 28, 2003 in the U.S. District Court for the Northern District of Illinois, Eastern Division. Blackhawk Molding alleges that a “single-stick” label attached to the Company’s five-gallon caps causes the Company’s caps to infringe a patent held by it and is seeking damages. The Company has answered the complaint denying all allegations and asserting that its product does not infringe the Blackhawk patent and that the patent is invalid. Fact discovery has been completed, and discovery pertaining to the parties’ experts has not yet been commenced. The Court has completed the first phase of claim construction. The ultimate outcome of this action or any litigation is uncertain. An unfavorable outcome in this action could result in the Company sustaining material damages. In addition, any litigation concerning intellectual property could be protracted and costly and could have a material adverse effect on the Company’s business and results of operations regardless of its outcome.

In the normal course of business, except for the Blackhawk litigation mentioned above, the Company is subject to various legal proceedings and claims. Based on the facts currently available, management believes that the ultimate amount of liability beyond reserves provided, if any, for any such pending actions will not have a material adverse effect on the Company’s financial position.

Commitments and contingencies:

The Company leases certain office, production and warehouse facilities under operating lease agreements expiring on various dates through 2021. Under the terms of the facilities’ leases, the Company is responsible for common area maintenance expenses, which include taxes, insurance, repairs and other operating costs.

At August 31, 2004, future minimum rental commitments under agreements with terms in excess of twelve months were as follows:

Fiscal years ending August 31,
2005	$	4,053
2006		3,284
2007		2,885
2008		2,766
2009		2,722
Thereafter		19,564
	$	35,274

Base rent expense for fiscal 2004, 2003 and 2002 totaled $4,332, $3,340 and $3,365, respectively.

58

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

The Company issued a letter of credit in October 1999, expiring in December 2010, that guarantees $343 of a loan related to the purchase of machinery for Capsnap Europe Packaging GmbH’s (“CSE”) 50% owned Turkish joint venture, Watertek. CSE is an unconsolidated, 50% owned Austrian joint venture that sells five-gallon water bottles and closures that are produced by its United Kingdom subsidiary and its joint venture partner in CSE. The Company also extended the expiration date of a letter of credit in February 2004, that now expires February 2007, that guarantees a loan of $426 for the purchase of machinery by CSE. These guarantee agreements are in Eurodollars and were valued using a conversion rate as of August 31, 2004.

In November 2000, the Company’s Mexican consolidated subsidiary entered into a ten-year lease for a building in Guadalajara, Mexico commencing in May 2001. The Company’s Mexican operations relocated to the new building during May 2001. The Company guaranteed approximately $600 in future lease payments relating to this lease as of May 31, 2004. In April 2004, the Company amended the lease of its Mexican building to allow for construction of a 20,000 square foot expansion to the Company’s existing facilities. Construction of this expansion began in the third quarter of fiscal 2004 and was completed in September 2004, at which time the amended lease became effective. At the time the expansion was completed, the Company guaranteed approximately $200 in additional future lease payments related to the amended lease.

10. Redeemable warrants:

The Company had two outstanding warrants to purchase shares of its Class A Common Stock, each redeemable at the option of the holder upon 60 days’ prior written notice to the Company. These warrants were redeemable through June 30, 2004 and June 30, 2008, respectively. The redemption prices of the warrants were based on the higher of the price per share of the Company’s common stock or an amount computed under formulas in the warrant agreements. Following the offering of $180,000 in aggregate principal amount of its 8¼% senior notes due 2012 on January 23, 2004, the Company offered to repurchase both of the warrants. During February 2004, one warrant holder agreed to the Company’s repurchase of 2,052,526 shares of its Class A Common Stock into which the warrant was convertible at a net purchase price of $5.19 1/3 per share. This new price was based upon a price per share of common stock of $5.80 that was agreed to with the holder, minus the warrant exercise price of 60-2/3 cents for each share of Class A Common Stock. The aggregate warrant repurchase price was $10,659 and the funds were paid on February 23, 2004. The Company recognized a loss of $1,639 on the transaction during the second quarter of fiscal 2004 due to having increased the deemed price of its common stock from $5.00 per share to $5.80 per share as agreed with the warrant holder. During March 2004, the second warrant holder agreed to the Company’s repurchase of 440,215 shares of its Class A Common Stock into which the warrant was convertible at a net repurchase price of $3.30 per share. This new price was based upon an agreed price per share of common stock of $5.80, minus the warrant exercise price of $2.50 for each share of Class A Common Stock. The aggregate warrant repurchase price was $1,453 and the funds were paid on May 4, 2004. The Company recognized a loss of $228 on the transaction during the second quarter of fiscal 2004 due to having increased the deemed price of its common stock from $5.00 per share to the agreed-upon price of $5.80 per share. Prior to the redemption of the warrants, the carrying value of the warrants totaled $10,245, which represented the estimated fair value of the instruments as determined by the Company’s management using the Black-Scholes pricing model. Prior to the redemption and in accordance with EITF Issue 00-19, changes in the price of the warrants of $57,000 and $58,000 was recognized as interest income during fiscal 2004 and 2003, respectively.

11. Shareholders’ equity (deficit):

Class A and B common stock:

The Company has authorized 5,203,000 shares of Class A Common Stock, the holders of which are not entitled to elect members of the Board of Directors. In the event of an aggregate public offering exceeding $10,000, the Class A Common Stock and Class B, Series 2, Common Stock will automatically convert into Class B, Series 1 Common Stock, based on a one to one ratio. The holders of the Class B Common Stock have the right to elect members of the Board of Directors, with the holders of Series 1 having one vote per share, and the holders of Series 2 having a number of votes equal to the number of shares into which the Series 2 shares are convertible into Series 1 shares.

59

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

In the event of a liquidation or dissolution in which the value of the Company is less than $1.75 per share of common stock, the holders of Class B, Series 2 will receive 60% of the proceeds until they have received $1.75 per share. All other amounts available for distribution shall be distributed to the Class B, Series 1 and Series 2 holders pro rata based on the number of shares outstanding. If the value of the Company is greater than or equal to $1.75 per share, the holders of all classes of Common Stock are entitled to a pro rata distribution based on the number of shares outstanding.

The Company is required to reserve shares of Class B, Series 1 Common Stock for the conversion of Class A Common Stock and Class B, Series 2 Common Stock into Class B, Series 1 Common Stock.

2002 stock option plan:

The Company’s 2002 Stock Option Plan (the “2002 Plan”) was adopted by the Company’s Board of Directors in December 2001 and by the Company’s stockholders in January 2002. A total of 5,000,000 shares of Class B Common Stock, Series 1 have been reserved for issuance under the 2002 Plan. Options may be granted under the 2002 Plan to employees, officers, directors, consultants and other independent contractors and service providers of the Company, or of any subsidiary or parent of the Company. Options granted under the 2002 Plan may be incentive stock options within the meaning of Section 422 of the Code, or non-statutory options; however, only employees of the Company, or a parent or subsidiary of the Company, may be granted incentive options. Generally, options under the 2002 Plan expire ten years after the date of grant (or five years in the case of any option granted to a person holding more than 10% of the total combined voting power of all classes of stock of the Company or of any parent or subsidiary of the Company).

The exercise price of an option granted under the 2002 Plan may not be less than 85% with respect to a non-statutory option or 100% with respect to an incentive option of the fair market value of the Company’s Class B Common Stock, Series 1 on the date of grant, except that for an incentive option granted to a person holding more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary of the Company, the exercise price must be not less than 110% of such fair market value. Options generally become exercisable as to 20% of the shares one year after the vesting start date and an additional 5% of the shares for each full quarter thereafter that the optionee renders services to the Company.

The 2002 Plan may be administered by the Board of Directors or by a Compensation Committee appointed by the Board, which has discretion to select optionees and to establish the terms and conditions for the options, subject to the provisions of the 2002 Plan.

All stock option plans:

At August 31, 2004, the Company had reserved 2,866,200, 3,500,000 and 5,000,000 shares of Class B, Series 1 Common Stock for issuance under the Company’s 1988, 1994 and 2002 stock option plans, respectively. Under all three plans, stock options are granted by the Board of Directors at prices not less than 85% of fair market value of the Company’s Class B Common Stock, Series 1 at the date of grant for non-statutory options and not less than 100% of the fair market value of the Company’s Class B Common Stock, Series 1 at the date of grant for incentive options, except that for an incentive option granted to a person holding more than 10% of the total combined voting power of all classes of the Company or any parent or subsidiary of the Company, the exercise price must be not less than 110% of such fair market value.

60

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

Aggregate option activity is as follows:

				Options outstanding
	Available			Number of			Weighted average
	for grant			shares			exercise price
Balances, August 31, 2001		970,000			2,592,000			$	5.47
Reservation of shares		5,000,000			—
Granted		(250,000	)		250,000			$	5.00
Exercised		—			(43,000	)		$	2.50
Canceled		2,078,000			(2,106,000	)		$	5.72
Balances, August 31, 2002		7,798,000			693,000			$	4.73
Reservation of shares		130,000			—
Granted		(2,326,000	)		2,326,000			$	5.04
Exercised		—			—				—
Canceled		142,000			(162,000	)		$	4.63
Balances, August 31, 2003		5,744,000			2,857,000			$	4.99
Reservation of shares		—			—
Granted		—			—				—
Exercised		—			—				—
Canceled		432,000			(432,000	)		$	4.97
Balances, August 31, 2004		6,176,000			2,425,000			$	4.99

At August 31, 2004, 2003 and 2002, vested options to purchase approximately 2,016,000, 2,048,000 and 444,000 shares, respectively, were unexercised.

Effective March 1, 2002, the Company cancelled 1,857,296 options outstanding under its 1994 Stock Option Plan, as amended, in connection with the tender by the holders of such options pursuant to a stock option exchange program conducted by the Company during February 2002. The options tendered for cancellation represented approximately 96% of the options eligible to participate in the stock option exchange program. Approximately seven months from the date of cancellation, new options were granted to persons eligible to participate in the Company’s stock option exchange program during fiscal 2003.

The following table summarizes information about fixed stock options outstanding at August 31, 2004:

	Options outstanding						Options exercisable
			Weighted
			average		Weighted				Weighted
			remaining		average				average
	Number		contractual life		exercise		Number		exercise
Range of exercise prices	outstanding		(years)		price		exercisable		price
$3.75-$4.95		266		1.53	$	4.51		266	$	4.51
$5.00		1,932		7.97	$	5.00		1,539	$	5.00
$5.25-$6.25		227		7.64	$	5.52		211	$	5.52
		2,425						2,016

The fair value of each option grant is estimated at the date of grant using the Black-Scholes pricing model with the following weighted average assumptions for grants in fiscal 2003 and 2002:

	2003			2002
Risk-Free Interest Rate		2.98	%		4.33	%
Expected Life	5 years			5 years
Volatility		n/a			n/a
Dividend Yield		—			—

There were no grants made during fiscal 2004. The weighted average fair value per share of those options granted in fiscal 2003 and 2002 was $4.32 and $4.05, respectively.

61

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

12. Employee benefit plans:

The Company maintains a defined contribution plan. To be eligible, employees of the Company must be 21 or older and not covered by a collective bargaining agreement. Eligible employees may begin to defer amounts the first of the month following the month of hire, but do not receive a match from the Company until they have completed one year of service. Employer matching contributions amounted to approximately $242, $266 and $351 for the years ended August 31, 2004, 2003 and 2002, respectively.

In fiscal 1996, the Board of Directors approved an Employee Stock Purchase Plan (the “ESPP”) under which 750,000 shares of Class B, Series 1 Common Stock have been reserved for issuance to employees meeting minimum employment criteria. The ESPP was terminated effective December 31, 2003. Employees were able to participate through payroll deductions in amounts related to their base compensation. The fair value of shares made available to any employee for purchase under the ESPP could not exceed $25 in any calendar year. The participant’s purchase price was 85% of the lower of the fair market value at the beginning or the end of the offering period. Shares purchased under the ESPP were issued by the Company once a year, at calendar year end. In fiscal 2004, 2003 and 2002, 2,560, 2,833 and 2,205 shares were issued to employees under the ESPP at an annual aggregate purchase price of $11, $12 and $9 respectively. As of August 31, 2004, the Company had issued a total of 39,392 shares under the ESPP at an aggregate purchase price of $182. The Company did not recognize compensation expense related to the ESPP during fiscal 2004, 2003 and 2002.

13. Income taxes:

Income tax provision (benefit) for fiscal 2004, 2003 and 2002 consisted of the following:

August 31,	2004			2003			2002
Current:
Federal	$	(153	)	$	—		$	—
State		(29	)		—			16
Foreign		2,115			2,544			2,425
		1,933			2,544			2,441
Deferred:
Federal		(271	)		(1,165	)		70
State		1			(343	)		(18	)
Foreign		(470	)		1,035			(251	)
		(740	)		(473	)		(199	)
	$	1,193		$	2,071		$	2,242

The reconciliation setting forth the differences between the effective tax rate of the Company and the U.S. federal statutory tax rate is as follows:

Year ended August 31,	2004			2003			2002
Federal statutory rate (benefit)		(34.0	)%		34.0	%		34.0	%
State taxes, net of federal income tax benefit		(1.2	)		—			—
Effects of foreign operations		(2.5	)		—			—
Nondeductible expenses		(1.1	)		26.5			1.8
Change in valuation allowance		45.0			550.1			1.1
Other		(0.1	)		(1.5	)		(4.0	)
Effective income tax rate		6.1	%		609.1	%		32.9	%

Full valuation allowances have been established against net deferred tax assets in the Company’s domestic jurisdictions. In addition, the Company reversed a valuation allowance in fiscal 2004 that was provided in prior years for its China operations.

62

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

The components of the net deferred tax liabilities are as follows:

August 31,	2004			2003
Deferred tax assets:
Federal and state credits	$	3,509		$	465
Accounts receivable		227			234
Inventories		(488	)		317
Intangible assets		1,540			1,452
Net operating loss—foreign		1,165			1,295
Net operating loss—domestic		13,432			6,857
Accrued liabilities and other		2,114			(1,128	)
Total gross assets		21,499			9,492
Less: valuation allowance		(16,319	)		(3,989	)
Total assets		5,180			5,503
Deferred tax liabilities:
Property, plant and equipment		4,925			5,988
Total liabilities		4,925			5,988
Net deferred tax (assets) liabilities	$	(255	)	$	485

At August 31, 2004, the Company had a net operating loss carryforward of approximately $39,411 available to offset future U.S. federal income taxes that expire on various dates through August 31, 2024.

14. Segment information:

The Company’s reportable operating businesses are organized primarily by geographic region. The Company’s United Kingdom, Canada and Mexico operations produce both closure and bottle product lines. The Company’s United States operations produce closure products and CFT jars. The Company’s China operations produce closure products and also manufacture plastic parts for the high-tech industry. The Company evaluates the performance of, and allocates resources to, regions based on earnings before interest, taxes, depreciation and amortization expenses. Certain Company businesses and activities, including the equipment division and its operating subsidiary Portola Allied Tool, Inc., do not meet the definition of a reportable operating segment and have been aggregated into “Other.” The accounting policies of the segments are consistent with those policies used by the Company as a whole.

The table below presents information about reported segments for fiscal 2004, 2003 and 2002:

	2004		2003		2002
Revenues
United States – Closures and Corporate	$	103,299	$	116,866	$	121,295
United States – CFT		27,759		—		—
Canada		34,874		30,449		25,868
United Kingdom		41,753		37,042		33,752
Mexico		16,047		14,652		14,242
China		5,647		2,669		2,720
Other		13,128		13,637		12,880
Total Consolidated	$	242,507	$	215,315	$	210,757

Intersegment revenues totaling $12,237, $9,940 and $10,602 have been eliminated from the segment totals presented above for fiscal 2004, 2003 and 2002, respectively.

The tables below presents a reconciliation of income (loss) to total EBITDA for fiscal 2004, 2003 and 2002, respectively:

63

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

	United
	States –			United
	Closures &			States -					United
For Fiscal 2004	Corporate			CFT			Canada		Kingdom		Mexico			China			Other
Net income (loss)	$	(22,317	)	$	(1,777	)	$	2,198	$	2,769	$	(137	)	$	1,248		$	(2,590	)
Add:
Interest expense		12,274			2,308			209		712		168			58			114
Tax (benefit) expense		(451	)		—			1,065		1,221		(59	)		(583	)		—
Depreciation and amortization		11,230			1,482			1,342		2,890		607			289			345
Amortization of debt issuance costs		2,526			—			19		—		—			—			—
EBITDA	$	3,262		$	2,013		$	4,833	$	7,592	$	579		$	1,012		$	(2,131	)

	United
	States -			United
	Closures &			States -				United
For Fiscal 2003	Corporate			CFT		Canada		Kingdom		Mexico		China			Other
Net income (loss)	$	(6,990	)		—	$	1,948	$	3,081	$	633	$	(375	)	$	(28	)
Add:
Interest expense		11,780			—		329		246		108		59			22
Tax (benefit) expense		(1,531	)		—		1,140		1,918		426		—			118
Depreciation and amortization		12,806			—		1,224		2,646		595		325			370
Amortization of debt issuance costs		759			—		18		—		—		—			—
EBITDA	$	16,824			—	$	4,659	$	7,891	$	1,762	$	9		$	482

	United
	States -			United
	Closures &			States -				United
For Fiscal 2002	Corporate			CFT		Canada		Kingdom		Mexico			China		Other
Net income (loss)	$	(564	)		—	$	253	$	3,102	$	1,654		$	56	$	72
Add:
Interest expense		11,968			—		550		391		250			78		14
Tax (benefit) expense		397			—		835		1,121		(225	)		—		114
Depreciation and amortization		13,189			—		1,578		2,596		597			674		656
Amortization of debt issuance costs		739			—		17		—		—			—		—
EBITDA	$	25,729			—	$	3,233	$	7,210	$	2,276		$	808	$	856

64

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

The table below presents revenues by product line for the fiscal 2004, 2003 and 2002:

	2004		2003		2002
Revenues:
Closures	$	162,139	$	162,443	$	168,850
CFT		27,575		—		—
Bottles		31,948		28,643		23,609
Equipment		12,144		14,435		12,712
Other		8,701		9,794		5,586
Total	$	242,507	$	215,315	$	210,757

During fiscal 2004 and 2003, there were no customers that accounted for 10% of total sales. During fiscal 2002, one United States customer accounted for approximately 10% of sales and owed the Company $1,600 as of August 31, 2002.

The following is a breakdown of revenue and long-lived assets by geographic region as of and for fiscal 2004, 2003 and 2002:

	2004		2003		2002
Revenue:
United States	$	143,764	$	130,503	$	134,175
Foreign		98,743		84,812		76,582
Total	$	242,507	$	215,315	$	210,757
Long–lived assets:
United States	$	88,266	$	59,678	$	65,540
Foreign		33,315		23,877		24,225
Total	$	121,581	$	83,555	$	89,765

15. Related party transactions:

On July 1, 1999, the Company entered into an agreement with SHS to provide a total of $3,500 in support services to SHS, then a wholly owned subsidiary. The agreement terminated September 30, 1999, when the services provided under the agreement reached an aggregate value of $3,500, including approximately $1,500 in a mark-up of the cost of the services rendered. In consideration for those services, the Company received a promissory note in the principal amount of $3,500 from SHS that bore interest at a rate equal to the base rate charged under the Company’s senior revolving credit facility less one-half of one percent. In September 1999, Portola IV LLC, a limited liability company (“LLC”), acquired an ownership interest in SHS in exchange for assuming the obligations of SHS under the note. Certain of the members of the LLC (the “Members”) were at the same time officers of the Company. The LLC secured payment of the note by pledging 500,000 shares of the Class B Common Stock of the Company that had been contributed to the LLC by the Members to capitalize the LLC (the “Portola Shares”). The note provided that all outstanding principal and interest amounts due thereunder were payable in full on the earlier date of July 1, 2003, or the occurrence of one of certain events, including the sale of all or substantially all of the assets of SHS. At May 31, 2002, the Company (and a wholly owned consolidated subsidiary) had a combined 6% equity ownership in SHS, which it accounted for under the cost method. Effective June 1, 2002, the assets of SHS were sold, effectively liquidating SHS, with no assets available for distribution to the stockholders of SHS. On August 22, 2002, the LLC transferred the Portola Shares to the Company in lieu of foreclosure and in payment of all amounts due under the note. The Company’s carrying basis for its investment in SHS and the promissory note due from SHS was $560 at August 22, 2002. As a result of the share transfer, the Company recognized income from the recovery of the investment and interest income of approximately $1,103 and $800, respectively.

65

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

Effective July 1, 2000, the Company sold the assets of a wholly owned e-commerce subsidiary, BLN, to SHS in exchange for a non-interest bearing, unsecured promissory note for $1,500, which was fully reserved for as of August 31, 2000. In conjunction with SHS’s merger with Neptune Technologies in April 2001, the note was converted into SHS convertible preferred stock. Effective June 1, 2002, the assets of SHS were sold, effectively liquidating the company, with no return to SHS’s shareholders.

The Company enters into certain related party transactions throughout the course of its business. In connection with the financing transactions related to the $180,000 offering of its 8¼% senior notes due 2012, the Company paid fees of $5,000 to JPMorgan Securities, Inc. (Robert Egan, one of the Company’s directors, is a senior advisor to JPMorgan Partners, an affiliate of JP Morgan Securities, Inc.), $1,178 to The Breckenridge Group (of which Larry Williams, one of the Company’s directors, is a principal), $368 to Tomlinson Zisko LLP and $30 to Timothy Tomlinson (one of the Company’s directors until February 29, 2004, and a partner in Tomlinson Zisko LLP), and $69 to Themistocles Michos (the Company’s Vice President, General Counsel and Secretary) for services rendered. The Company also repurchased a warrant from JPMorgan Partners for $10,659, resulting in the recognition of a loss totaling $1,639. In addition, the Company paid fees to The Breckenridge Group, Tomlinson Zisko LLP and Themistocles Michos for services rendered related to operational matters. Mr. Tomlinson, who resigned from the Board on February 29, 2004, was a member of the Company’s Audit Committee until February 29, 2004 and also served as a member of its Compensation Committee until October 2003.

In addition to a base salary of $12, the Company paid $309, $234, and $182 for fiscal 2004, 2003 and 2002, respectively, to Themistocles Michos, the Company’s Vice President, General Counsel and current Secretary, for legal services rendered and expense reimbursement.

The Company paid $638, $314 and $410 in fiscal 2004, 2003 and 2002, respectively, to Tomlinson Zisko LLP for legal services rendered.

The Company paid $47 for fiscal 2004 and $42 for fiscal 2003 and 2002 to a corporation for management fees. Jack Watts, the Company’s chief executive officer, one of the Company’s directors and a significant shareholder of the Company is the sole shareholder of this corporation.

The Company had a note receivable from Mr. Watts at an interest rate equal to the Short Term Applicable Federal Rate and as of August 31, 2003, the balance due from Mr. Watts, including accrued and unpaid interest, amounted to $155. The principal and accrued interest was paid in May 2004. In addition, during fiscal 2002, the Company paid approximately $61 for travel and living expenses for Mr. Watts.

The Company sold products to and performed certain services for its non-consolidated affiliated companies totaling approximately $9,634, $2,756 and $6,496 for fiscal 2004, 2003 and 2002, respectively. The Company had trade receivables due from these non-consolidated affiliated companies, which amounted to $2,114 and $1,003 as of August 31, 2004 and 2003, respectively.

On November 1, 2001, the Company entered into a consulting agreement with Mr. Tomlinson. Pursuant to such agreement, the Company paid Mr. Tomlinson consulting fees and reimbursement of related expenses of approximately $60 in fiscal 2002.

16. Supplemental cash flow disclosures:

The Company paid $19,425, $12,430 and $13,072 in interest during fiscal 2004, 2003 and 2002, respectively.

The Company paid $3,166, $2,162 and $2,594 in income taxes during fiscal 2004, 2003 and 2002, respectively.

During fiscal 2002, the Company recognized $1,103 and $837, respectively, of other income and interest income on the recovery of a promissory note receivable (Note 15).

66

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

During fiscal 2002, the Company recognized other income of $475 for debt forgiveness on the dissolution of a joint venture (Note 2).

During fiscal 2004, 2003 and 2002, the Company wrote-off fully amortized intangible assets totaling approximately $392, $1,360 and $174, respectively.

During fiscal 2004, 2003 and 2002, the Company recorded a decrease in the value of stock purchase warrants of $57, $58 and $151, respectively.

During fiscal 2003, the Company acquired $32 of equipment under capital leases. No equipment was purchased under capital leases during fiscal 2004 and 2002.

17. Supplemental Condensed Consolidated Financial Statements:

On January 23, 2004, the Company completed the offering of $180,000 in aggregate principal amount of 8¼% Senior Notes due 2012 (the outstanding notes). The majority of the net proceeds of such offering were used to redeem all of the previously outstanding $110,000 in aggregate principal amount of 10¾% senior notes. In the fourth quarter of fiscal 2004, the Company exchanged the outstanding 8¼% Senior Notes for registered exchange notes having substantially the same terms. The exchange notes have the following guarantors, all of which are wholly owned subsidiaries of the Company and have provided guarantees that are full and unconditional and for which they are jointly and severally liable: Portola Allied Tool, Inc.; Portola Limited; Portola Packaging, Inc. Mexico, S.A. de C.V.; Portola Packaging Canada Ltd.; Portola Packaging Limited; and Tech Industries, Inc. The parent company was the issuer of the senior notes. In the registration statement filed in connection with the exchange offer, the Company supplied the following financial information for the above guarantor subsidiaries:

67

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

Supplemental Condensed Consolidated Balance Sheet
As of August 31, 2004

							Combined
				Combined			Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	7,955		$	2,708		$	1,586		$	—		$	12,249
Accounts receivable, net		18,254			17,928			1,655			(6,614	)		31,223
Inventories		6,522			10,160			1,175			—			17,857
Other current assets		3,579			2,037			694			—			6,310
Total current assets		36,310			32,833			5,110			(6,614	)		67,639
Property, plant and equipment, net		38,777			36,114			3,775			—			78,666
Goodwill		5,917			13,907			—			—			19,824
Debt issuance costs		9,728			20			—			—			9,748
Trademarks		—			5,000			—			—			5,000
Customer relationship		—			2,477			—			—			2,477
Investment in subsidiaries		18,772			13,514			1,069			70			33,425
Common stock of subsidiary		(1,267	)		(26,312	)		(4,457	)		—			(32,036	)
Other assets		3,935			675			(128	)		—			4,482
Total assets	$	112,172		$	78,228		$	5,369		$	(6,544	)	$	189,225
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	12,617			15,355			910			(6,614	)		22,268
Intercompany (receivables) payables		(65,599	)		59,118			6,481			—			—
Other current liabilities		6,836			4,386			784			494			12,500
Total current liabilities		(46,146	)		78,859			8,175			(6,120	)		34,768
Long-term debt, less current portion		199,359			—			43			—			199,402
Other long-term obligations		2,302			(123	)		(646	)		—			1,533
Total liabilities		155,515			78,736			7,572			(6,120	)		235,703
Other equity (deficit)		6,604			(262	)		10			(1,475	)		4,877
Accumulated equity (deficit)		(49,947	)		(246	)		(2,213	)		1,051			(51,355	)
Total shareholders’ equity (deficit)		(43,343	)		(508	)		(2,203	)		(424	)		(46,478	)
Total liabilities and equity (deficit)	$	112,172		$	78,228		$	5,369		$	(6,544	)	$	189,225

68

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

Supplemental Condensed Consolidated Balance Sheet
As of August 31, 2003

							Combined
				Combined			Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	496		$	2,871		$	925		$	—		$	4,292
Accounts receivable, net		15,352			13,701			945			(1,050	)		28,948
Inventories		6,247			4,655			404			—			11,306
Other current assets		3,734			478			460			—			4,672
Total current assets		25,829			21,705			2,734			(1,050	)		49,218
Property, plant and equipment, net		46,785			16,952			2,267			—			66,004
Goodwill		5,917			4,551			—			—			10,468
Debt issuance costs		1,548			37			—			—			1,585
Investment in subsidiaries		18,772			13,202			896			70			32,940
Common stock of subsidiary		(1,267	)		(26,313	)		(4,457	)		—			(32,037	)
Other assets		4,506			59			30			—			4,595
Total assets	$	102,090		$	30,193		$	1,470		$	(980	)	$	132,773
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Current portion of redeemable warrants to purchase Class A Common Stock	$	9,025		$	—		$	—		$	—		$	9,025
Accounts payable		6,872			8,951			518			(1,050	)		15,291
Intercompany (receivables) payables		(23,986	)		21,404			2,582			—			—
Other current liabilities		10,098			3,603			752			—			14,453
Total current liabilities		2,009			33,958			3,852			(1,050	)		38,769
Long-term debt, less current portion		116,612			—			34			—			116,646
Other long-term obligations		3,337			173			(442	)		489			3,557
Total liabilities		121,958			34,131			3,444			(561	)		158,972
Other equity (deficit)		7,224			(372	)		(838	)		(1,464	)		4,550
Accumulated equity (deficit)		(27,092	)		(3,566	)		(1,136	)		1,045			(30,749	)
Total shareholders’ equity (deficit)		(19,868	)		(3,938	)		(1,974	)		(419	)		(26,199	)
Total liabilities and equity (deficit)	$	102,090		$	30,193		$	1,470		$	(980	)	$	132,773

69

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

Supplemental Condensed Consolidated Statements of Operations, as Amended
For the fiscal year ended August 31, 2004

							Combined
				Combined			Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Sales	$	120,053		$	125,331		$	9,360		$	(12,237	)	$	242,507
Cost of sales		100,382			105,142			6,463			(10,337	)		201,650
Gross profit		19,671			20,189			2,897			(1,900	)		40,857
Selling, general and administrative		21,164			8,251			3,352			(1,900	)		30,867
Research and development		4,511			1,592			106			—			6,209
(Gain) loss on sale of assets		(1,582	)		—			—			—			(1,582	)
Fixed asset impairment change		1,120			—			—			—			1,120
Amortization of intangibles		960			273			—			—			1,233
Restructuring costs		3,283			465			61			—			3,809
(Loss) income from operations		(9,785	)		9,608			(622	)		—			(799	)
Interest income		(204	)		(10	)		2			—			(212	)
Interest expense		15,790			44			9			—			15,843
Amortization of debt issuance costs		2,526			19			—			—			2,545
Loss on warrant redemption		1,867			—			—			—			1,867
Foreign currency transaction (gain) loss		(1,434	)		481			(5	)		(10	)		(968	)
Intercompany interest (income) expense		(3,515	)		3,354			161			—			—
Other (income) expense, net		(665	)		172			28			4			(461	)
(Loss) income before income taxes		(24,150	)		5,548			(817	)		6			(19,413	)
Income tax (benefit) expense		(452	)		2,227			(582	)		—			1,193
Net (loss) income	$	(23,698	)	$	3,321		$	(235	)	$	6		$	(20,606	)

70

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

Supplemental Condensed Consolidated Statements of Operations, as Amended
For the fiscal year ended August 31, 2003

							Combined
				Combined			Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Sales	$	133,221		$	86,183		$	5,851		$	(9,940	)	$	215,315
Cost of sales		103,291			68,906			2,270			(7,778	)		166,689
Gross profit		29,930			17,277			3,581			(2,162	)		48,626
Selling, general and administrative		22,641			5,277			3,551			(2,162	)		29,307
Research and development		4,484			245			—			—			4,729
(Gain) loss on sale of assets		30												30
Amortization of intangibles		899			4			207			—			1,110
Restructuring costs		398			7			—			—			405
(Loss) income from operations		1,478			11,744			(177	)		—			13,045
Interest income		(83	)		(31	)		(6	)		—			(120	)
Interest expense		12,524			17			3			—			12,544
Amortization of debt issuance costs		759			18			—			—			777
Foreign currency transaction (gain) loss		—			1,107			9			(1,464	)		(348	)
Intercompany interest (income) expense		(744	)		666			78			—			—
Other (income) expense, net		(750	)		878			(349	)		73			(148	)
Income (loss) before income taxes		(10,228	)		9,089			88			1,391			340
Income tax (benefit) expense		(1,532	)		3,485			118			—			2,071
Net income (loss)	$	(8,696	)	$	5,604		$	(30	)	$	1,391		$	(1,731	)

71

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

Supplemental Condensed Consolidated Statements of Operations, as Amended
For the fiscal year ended August 31, 2002

				Combined			Combined
	Parent			Guarantor			Non-Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Sales	$	138,016		$	77,852		$	5,491		$	(10,602	)	$	210,757
Cost of sales		99,171			63,429			2,542			(8,009	)		157,133
Gross profit		38,845			14,423			2,949			(2,593	)		53,624
Selling, general and administrative		24,880			5,640			2,917			(2,593	)		30,844
Research and development		2,845			224			—			—			3,069
(Gain) loss on sale of assets		(20	)		—			—			—			(20	)
Amortization of intangibles		1,346			205			—			—			1,551
(Loss) income from operations		9,794			8,354			32			—			18,180
Interest income		(1,025	)		(49	)		(9	)		—			(1,083	)
Interest expense		13,163			85			3			—			13,251
Amortization of debt issuance costs		734			22			—			—			756
Income on dissolution of joint venture		(475	)		—			—			—			(475	)
Income on recovery of investments		(1,103	)		—									(1,103	)
Foreign currency transaction (gain) loss		—			284			1			—			285
Intercompany interest (income) expense		(1,189	)		1,106			83			—			—
Other (income) expense, net		(704	)		621			(294	)		111			(266	)
Income (loss) before income taxes		393			6,285			248			(111	)		6,815
Income tax (benefit) expense		397			1,731			114			—			2,242
Net income (loss)	$	(4	)	$	4,554		$	134		$	(111	)	$	4,573

72

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

Supplemental Condensed Consolidated Statements of Cash Flows
For the fiscal year ended August 31, 2004

							Combined
				Combined			Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash flow from operations	$	(13,529	)	$	10,661		$	2,646		$	—		$	(222	)
Additions to property, plant and equipment		(11,359	)		(12,019	)		(1,855	)		3,083			(22,150	)
Payment for Tech Industries		(36,550	)		—			—			—			(36,550	)
Proceeds from the sale of property, plant and equipment		6,629			8			—			—			6,637
Other		1,746			246			(45	)		(3,083	)		(1,136	)
Net cash used in investing activities		(39,534	)		(11,765	)		(1,900	)		—			(53,199	)
Borrowings under Senior Notes due 2012		180,000			—			—			—			180,000
Payments of Senior Notes due 2005		(110,000	)		—			—			—			(110,000	)
Payments for warrant redemption		(12,112	)		—			—			—			(12,112	)
Payments of debt issuance costs		(9,785	)		—			—			—			(9,785	)
Borrowings under revolver, net		12,788			—			—			—			12,788
Book overdraft		—			674			—			—			674
Other		(369	)		—			(107	)		—			(476	)
Net cash provided by financing activities		60,522			674			(107	)		—			61,089
Effect of exchange rate changes on cash		—			267			22			—			289
Increase (decrease) in cash		7,459			(163	)		661			—			7,957
Cash and cash equivalents at beginning of year		496			2,871			925			—			4,292
Cash and cash equivalents at end of year	$	7,955		$	2,708		$	1,586		$	—		$	12,249

73

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

Supplemental Condensed Consolidated Statements of Cash Flows
For the fiscal year ended August 31, 2003

							Combined
				Combined			Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash flow from operations	$	11,135		$	3,703		$	(547	)	$	—		$	14,291
Additions to property, plant and equipment		(8,963	)		(2,986	)		(713	)		1,581			(11,081	)
Other		1,162			129			792			(1,581	)		502
Net cash provided by (used in) investing activities		(7,801	)		(2,857	)		79			—			(10,579	)
(Repayments) borrowings under revolver, net		(3,220	)		—			—			—			(3,220	)
Other		(281	)		(100	)		(269	)		—			(650	)
Net cash provided by (used in) financing activities		(3,501	)		(100	)		(269	)		—			(3,870	)
Effect of exchange rate changes on cash		—			(112	)		(4	)		—			(116	)
Increase (decrease) in cash and cash equivalents		(167	)		634			(741	)		—			(274	)
Cash and cash equivalents at beginning of year		663			2,237			1,666			—			4,566
Cash and cash equivalents at end of year	$	496		$	2,871		$	925		$	—		$	4,292

74

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

Supplemental Condensed Consolidated Statements of Cash Flows
For the fiscal year ended August 31, 2002

							Combined
				Combined			Non-
	Parent			Guarantor			Guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Cash flow from operations	$	19,827		$	4,621		$	(43	)	$	—		$	24,405
Additions to property, plant and equipment		(7,188	)		(3,569	)		(644	)		913			(10,488	)
Other		(1,136	)		(17	)		1,513			(913	)		(553	)
Net cash provided by (used in) investing activities		(8,324	)		(3,586	)		869			—			(11,041	)
(Repayments) borrowings under revolver, net		(11,105	)		—			—			—			(11,105	)
Other		(377	)		(526	)		(127	)		—			(1,030	)
Net cash provided by (used in) financing activities		(11,482	)		(526	)		(127	)		—			(12,135	)
Effect of exchange rate changes on cash		—			21			1			—			22
Increase (decrease) in cash as cash equivalents		21			530			700			—			1,251
Cash and cash equivalents at beginning of year		642			1,707			966			—			3,315
Cash and cash equivalents at end of year	$	663		$	2,237		$	1,666		$	—		$	4,566

75

Portola Packaging, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share data)

18. Subsequent events:

Pursuant to an Offer to Purchase dated March 5, 2004, the Company offered to purchase up to 1,319,663 shares of its common stock, representing approximately 11% of its outstanding shares of common stock, at a purchase price of $5.80 per share in cash. Stockholders as of March 5, 2004 are eligible to tender their shares of the Company’s common stock. The Company subsequently extended the offer three times, most recently on October 27, 2004, when it extended the offer through January 15, 2005. The Company has the right to amend the terms of the tender offer further. Under the terms of the indenture governing the Company’s senior notes, a self-tender is permitted any time provided it is completed prior to March 31, 2005. Under the terms of the November 24 Amendment, however, the Company was limited to purchasing a number of its shares having a maximum aggregate value of $2.5 million, subject to certain conditions concerning future performance. Accordingly, the number of shares that can be purchased if the self-tender is completed is substantially less than the number originally offered to be purchased.

Concurrently with the offering of $180.0 million in aggregate principal amount of the Company’s 8¼% senior notes on January 23, 2004, the Company amended its credit agreement by entering into an amended and restated five-year senior revolving credit agreement that provided a secured credit facility of up to $50.0 million, maturing on January 23, 2009. The Company entered into further amendments to this credit agreement on May 21, 2004 and November 24, 2004.

76

Item 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     Not applicable.

Item 9A. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

     We carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of August 31, 2004, the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level in timely alerting them to material information relating to Portola (including its consolidated subsidiaries) required to be included in our Exchange Act filings.

Changes in internal control over financial reporting

     During the quarter ended August 31, 2004, there were no significant changes in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on effectiveness of controls and procedures

     Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Portola have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Item 9B. OTHER INFORMATION

     On November 24, 2004, we entered into a Limited Waiver and Second Amendment to Fourth Amended and Restated Credit Agreement (the “Limited Waiver and Amendment”) with General Electric Capital Corporation. The Limited Waiver and Amendment reduced the quarterly fixed charge coverage ratio with which we must comply to 0.95 to 1.0 for measurement periods ended on or before August 31, 2004, 0.89 to 1.0 for measurement periods ending on or before November 30, 2004, 0.75 to 1.0 for measurement periods ending on or before February 28 or May 31, 2005, 0.86 for measurement periods ending on or before August 31, 2005, 1.05 for measurement periods ending on or before November 30, 2005 and 1.1 thereafter. In addition, the Limited Waiver and Amendment reduced the number of shares we may purchase in our pending self-tender offer, limiting us to purchasing a number of our shares having a maximum aggregate value of $2.5 million, subject to certain conditions concerning future performance.

77

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Management

     Our directors and executive officers and their ages as of November 19, 2004 are as follows:

Name	Age		Title
Jack L. Watts		56	Chairman of the Board and Chief Executive Officer
James A. Taylor		58	President and Chief Operating Officer
Michael T. Morefield		48	Senior Vice President and Chief Financial Officer
M. Craig Akins		53	Vice President, U.S. Sales and Service
Frederick K. Janz		54	Managing Director, International Business Development
Richard D. Lohrman		51	Vice President, Engineering/R&D
E. Scott Merritt		49	Vice President, Corporate Services
Themistocles G. Michos		72	Vice President, General Counsel and Secretary
Robert Egan(1)		40	Director
Martin Imbler(1)(2)		56	Director
Larry C. Williams		55	Director
Debra Leipman-Yale(2)		48	Director

(1)	Member of the Compensation Committee.
(2)	Member of the Audit Committee.

     Jack L. Watts has been our Chairman of the Board and Chief Executive Officer since January 1986. From 1982 to 1985, he was Chairman of the Board of Faraday Electronics, a supplier of integrated circuits and board level microprocessors.

     James A. Taylor has been our President and Chief Operating Officer since July 1999. He joined us in July 1998 as Vice President and Chief Financial Officer. From February 1996 to July 1998, he was Vice President, Finance and Treasurer at Seagate Technology, Inc., an international manufacturer and distributor of computer disk drives. He joined Seagate Technology following its acquisition of Conner Peripherals, Inc. where he had been Vice President and Treasurer from December 1993 through February 1996. Conner also manufactured and distributed computer disk drives globally.

     Michael T. Morefield has been our Senior Vice President and Chief Financial Officer since October 2004. He has over twenty-four years of extensive global experience spanning over 20 countries in all facets of finance, accounting, administration and general management. Most recently, Mr. Morefield was Chief Financial Officer for Exelon Services, a subsidiary of the Fortune 500 company Exelon Inc. From 1999 to 2002, he was Vice President and Chief Financial Officer for United Plastics Group Inc., a global plastic injection molding manufacturer servicing the electronics, consumer, medical and automotive industries. Prior to that, he held CFO positions for a number of multinational manufacturing companies including United Plastics Group Inc., Schmalbach-Lubeca Holdings, Inc., White Cap, Inc. and Toyoda Machinery USA Inc.

     M. Craig Akins has been our Vice President of U.S. Sales and Service since March 2002. Mr. Akins was the Vice President of Sales for Consolidated Coca-Cola Bottling Company from 1999 until he left in 2002 and held various sales and sales management positions during his twenty-two years with Coca-Cola.

78

     Frederick K. Janz has been our Managing Director, International Business Development since June 2004. From February 2003 to June 2004, he was President, America Group and from June 2000 to February 2003, he was President, International Group. He joined us in April 1995 as Vice President of Pennsylvania Nepco. Prior to 1995, Mr. Janz was Vice President of the CMS Materials division of CMS Gilbreth, a leading supplier of decorated plastic packaging and application equipment. Mr. Janz also held several positions in Owens Illinois and Johnson Controls Plastics Division as Operations Manager and Regional Manufacturing Manager.

     Richard D. Lohrman has been our Vice President, Engineering/R&D since July 2002. He has twenty-five years of product development experience in the packaging field. Prior to joining Portola, Mr. Lohrman was Manager of Technology for the Closure and Specialty group of Owens-Illinois from 1996 to 2002. Mr. Lohrman also held a Vice President position in R&D for Zeller Plastik, Inc., a company owned by Crown Cork and Seal and was Vice President of Manufacturing for Betts Packaging.

     E. Scott Merritt has been our Vice President, Corporate Services since October 2001. He was the Vice President, U.S. Closures and Equipment from July 1999 to October 2001 and was the Vice President, U.S. Operations from July 1997 to July 1999. He was Vice President of Manufacturing Technology from April 1996 to July 1997. He was President and General Manager, Fitment Equipment from February 1995 until April 1996. From August 1992 to February 1995, he was an Advisor, General Assembly for New United Motor Manufacturing, Inc., an automobile manufacturing joint venture between General Motors and Toyota. From 1978 to August 1992, he was employed by General Motors of Canada, Ltd., where he held various positions, most recently as Manufacturing Superintendent, Components Plant.

     Themistocles G. Michos has been our Vice President and General Counsel since September 1996. He became Secretary during fiscal 2001. Prior to his association with us, he was and continues to be in private practice in San Francisco, California.

     Robert Egan is a Partner of J.P.Morgan Entertainment Partners (JPMEP) and a Senior Advisor to J.P.Morgan Partners. J.P.Morgan Partners is one of the largest private equity funds in the world. Previous to JPMEP, Mr. Egan was the President of Hudson River Capital LLC, a private equity fund that focused on investments in middle market companies. Prior to Hudson, Mr. Egan was a Principal and founding member of Chase Capital Partners, a predecessor to J.P.Morgan Partners. In addition, Mr. Egan has served as a Vice President of The Chase Manhattan Bank’s Merchant Banking Group.

     Martin Imbler is currently Chairman and co-founder of Riverbend Capital Resources Corporation. Prior to founding Riverbend in 2002, Mr. Imbler was President and CEO of Berry Plastics Corporation, a position he held from 1991 until 2002. Berry Plastics is a leading manufacturer of proprietary plastic packaging, serving a variety of markets in the United States and abroad. From 1987 to 1991, Mr. Imbler was President and CEO of Risdon Corporation, a manufacturer of metal and plastic packaging for the cosmetics industry. From 1973 to 1987, he held various executive positions with American Can Company, Conrail, Gulf Oil and The Boston Consulting Group. Previously, he was a Captain in the U.S. Army.

     Larry C. Williams has been one of our directors since January 1989. He co-founded The Breckenridge Group, Inc., an investment banking firm in Atlanta, Georgia, in April 1987 and is one of its principals.

     Debra Leipman-Yale joined the Board of Directors effective August 31, 2004. Debra has over twenty-five years of experience in marketing and general management of cosmetic, fragrance and toiletry products. She was most recently the Executive Vice President of Revlon, Inc. Prior to her position at Revlon Inc., she held senior positions at Clairol, Inc., a division of Bristol-Myers Squibb from 1983 to 2002, including President of Clairol International.

     Each director listed above was elected at our Annual Meeting of Shareholders held in March 2004, except for Debra Leipman-Yale who was elected by the Board of Directors effective August 31, 2004, and each will serve until his or her successor has been elected and qualified or until his or her earlier resignation or removal.

79

Audit Committee Matters

     Our Board of Directors has an Audit Committee that is responsible, among other things, for overseeing our accounting and financial reporting processes and audits of our financial statements. The Audit Committee is comprised solely of Mr. Imbler and Ms. Leipman-Yale. Our Board of Directors has determined that Mr. Imbler qualifies as an “audit committee financial expert,” and that both members are “independent” as defined in federal securities laws.

Section 16(a) Beneficial Ownership Reporting

     We do not have a class of equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934. Accordingly, no persons are presently required to file reports with the Securities and Exchange Commission pursuant to Section 16(a) of the Exchange Act.

Code of Ethics

     We have adopted a written code of ethics, the “Corporate Code of Conduct” (the “Code”), which is applicable to all of our officers and employees. We have not determined that the Code complies with the requirements of a “code of ethics” within the meaning of Item 406(b) of Regulation S-K. We believe that our current Code is sufficient to assure the honest and ethical conduct of our officers and employees.

     In accordance with the rules and regulations of the Securities and Exchange Commission, a copy of the Code has been filed as an exhibit to this Form 10-K/A. We intend to disclose any changes in or waivers from the Code by filing a Form 8-K.

80

Item 11. EXECUTIVE COMPENSATION

Executive Compensation

     The following table summarizes all compensation awarded to, earned by or paid for services rendered to us in all capacities during fiscal 2004, 2003 and 2002 by our Chief Executive Officer and our four other most highly compensated executive officers during fiscal 2004 (together, the “Named Officers”).

Summary compensation table

									Long-term
									compensation
									awards
	Annual compensation								Securities
							Other annual		underlying		All other
Name and principal position	Year		Salary		Bonus(1)		compensation		options(6)		compensation
Jack L. Watts(2)(3)		2004	$	366,128	$	100,000	$	46,500		—	$	50,000
Chairman of the Board and		2003		350,260		—		41,800		200,000		—
Chief Executive Officer		2002		361,770		183,750		41,800		—		152,465
James A. Taylor		2004		281,249		—		—		—		—
President and Chief		2003		252,400		—		—		337,500		—
Operating Officer		2002		262,252		168,750		—		—		—
M. Craig Akins(4)		2004		204,231		—		—		—		—
Vice President, U.S. Sales		2003		192,308		—		—		—		—
and Services		2002		88,462		—		25,000		110,000		—
Frederick K. Janz		2004		200,769		—		—		—		—
Managing Director,		2003		176,539		—		—		115,000		—
International Business Development		2002		178,462		67,500		—		—		—
Richard D. Lohrman(5)		2004		188,750		32,083		—		—		—
Vice President,		2003		161,827		19,808		—		—		—
Engineering/R&D		2002		28,558		—		30,000		75,000		—

(1)	With respect to each fiscal year, bonuses are accrued each quarter for services rendered during the quarter and are generally paid within thirty days after the quarter has ended. With respect to fiscal 2002, all bonuses related to profit sharing distributions.
(2)	With respect to each fiscal year, other annual compensation represents consulting fees with respect to Mr. Watts paid to PPI Management Corporation, a company of which Mr. Watts is the controlling shareholder and the sole employee.
(3)	With respect to fiscal 2004, all other compensation represents forgiveness of $50,000 principal and interest on a note receivable from Mr. Watts. With respect to fiscal 2002, all other compensation represents forgiveness of $91,875 of principal and interest on the same note receivable and $60,590 of reimbursed living expenses incurred while Mr. Watts was overseeing our operations in the United Kingdom.
(4)	Mr. Akins joined us in March 2002 and received a $25,000 signing bonus, which is reflected in other annual compensation.
(5)	Mr. Lohrman joined us in July 2002 and received a $30,000 signing bonus, which is reflected in other annual compensation.
(6)	With respect to fiscal 2003, all of the underlying stock options granted were related our stock option exchange program, except for Messrs. Merritt and Janz, who received 8,200 and 27,500 shares, respectively. The shares received through the exchange program were originally issued under the 1994 Stock Option Plan.

81

     There were no individual grants of stock options made during fiscal 2004 to the Named Officers.

Aggregated option exercises in fiscal 2004 and fiscal year end option values

					Number of securities				Value of unexercised
	Shares				underlying unexercised				in-the-money options at
	acquired on		Value		options at August 31, 2004				August 31, 2004(1)
Name	exercise		Realized		Exercisable		Unexercisable		Exercisable		Unexercisable
Jack L. Watts		—		n/a		285,000		15,000		—		—
James A. Taylor		—		n/a		320,000		17,500		—		—
M. Craig Akins		—		n/a		49,500		60,500		—		—
Frederick K. Janz		—		n/a		125,825		19,175		—		—
Richard D. Lohrman		—		n/a		158,310		10,290		—		—

(1) The value of an “in-the-money” option represents the difference between the estimated fair market value of the underlying common stock at August 31, 2004 of $5.80 per share, as determined by our Board of Directors, minus the exercise price of the option. As of August 31, 2004, none of the options held by the individuals listed above was “in-the-money.”

Director compensation

     During fiscal 2004, Mr. Timothy Tomlinson, who resigned from the Board of Directors in February 2004, and Mr. Williams each received compensation for their services as a director in the amount of $4,250 per quarter and $2,000 for each meeting of the Board attended and also were reimbursed for reasonable expenses in attending Board meetings. Ms. Debra Leipman-Yale was elected to the Board of Directors effective August 31, 2004 and received no compensation for fiscal 2004. During fiscal 2004, Mr. Williams received a fee for his services as a member of the Audit Committee of the Board in the amount of $4,000, paid on a quarterly basis, and Mr. Imbler received a fee for his services as a member of the Compensation Committee of the Board of Directors in the amount of $4,000, paid on a quarterly basis. Messrs. Egan and Watts received no compensation for serving on the Board or any of its committees.

Employment and change of control arrangements

     Certain of the stock option agreements entered into pursuant to the 2002 Stock Option Plan and the 1994 Stock Option Plan provide for acceleration of vesting of options governed thereby in the event of a “change in control,” as defined in such stock option agreements. In this regard, the stock options granted during fiscal 2002 and 2001 to Larry Williams, M. Craig Akins, James A. Taylor and Jack L. Watts, provide for acceleration of vesting upon a change in control of Portola. Stock options granted to certain of these individuals in prior fiscal years also provide for acceleration of vesting upon a change in control.

Compensation committee interlocks and insider participation

     The members of the Compensation Committee of our Board of Directors for fiscal year 2004 were Martin Imbler and Robert Egan.

     For a description of transactions between us and members of the Compensation Committee and entities affiliated with such members, please see “Certain Relationships and Related Transactions” under Item 13 of this Report on Form 10-K/A and Note 15 of the Notes to Consolidated Financial Statements included under Item 8 of this Report on Form 10-K/A.

Board compensation committee report on executive compensation

     The Compensation Committee of the Board of Directors is responsible for establishing the base salary and incentive cash bonus programs for our executive officers and administering certain other compensation programs for such individuals, subject in each instance to approval by the full Board. The Compensation Committee also has the exclusive responsibility for the administration of our stock option plans.

82

     The fundamental policy of the Compensation Committee is to provide our chief executive officer (“CEO”), president and chief operating officer (“COO”) and vice presidents with competitive compensation opportunities based upon their contribution to our financial success and their personal performance. It is the Compensation Committee’s objective to have a substantial portion of each officer’s compensation contingent upon our performance as well as upon his or her own level of performance. The Committee also believes our executive compensation programs should enable us to attract and retain strong performers. These programs are designed to motivate the senior management team to achieve or exceed key objectives by making individual compensation directly dependent on our achievement of financial goals as well as attaining very high customer satisfaction survey targets, and by providing significant rewards for exceeding those goals. The Committee believes that strong financial performance and customer satisfaction, on a sustained basis, is the surest way for us to positively affect long-term stockholder return.

     Compensation program considerations.

     We take the following factors into consideration in designing various executive compensation programs:

1.	Compensation position and comparative framework.
	In order to attract and retain the talent that it needs to meet corporate objectives, our executive compensation programs are designed to deliver overall cash compensation and employee benefits competitive with comparable manufacturing companies. Bonuses are tied closely to corporate performance, such that actual awards are made only if our performance meets or exceeds objectives established for Customer Satisfaction Surveys and EBITDA, less any capital expenditures. These awards thus may vary considerably according to the overall performance of our company.
	In fiscal 2004, we compiled and analyzed competitive market compensation information from Radford Executive Salary Survey data using the Benchmark Survey Data that includes both private and publicly held companies, and compared the results to our executives’ compensation.
2.	Mix of Compensation.
	The compensation package for the CEO, President and COO, and other vice presidents is comprised of three elements; (i) base salary, which reflects individual performance and is designed primarily to be competitive with salary levels in the industry, (ii) annual variable performance awards payable in cash and tied to our achievement of financial and customer satisfaction targets, and (iii) long-term stock-based incentive awards that strengthen the mutuality of interests between the executive officers and our stockholders. As an executive officer’s level of responsibility increases, it is the intent of the Compensation Committee to have a greater portion of his or her total compensation be dependent upon the performance of our company and stock price appreciation rather than base salary.
	Several of the more important factors that the Compensation Committee considered in establishing the components of each executive officer’s compensation package for fiscal are summarized below. Additional factors were also taken into account, and the Compensation Committee may in its discretion apply entirely different factors, particularly different measures of financial performance, in setting executive compensation for future fiscal years.

a) Base Salary. The base salary for each officer is determined on the basis of the following factors: experience, personal performance, the average salary levels in effect for comparable positions within and without the industry and internal comparability considerations. The weight given to each of these factors differs from individual to individual, as the Compensation Committee deems appropriate. In selecting comparable companies for the purposes of maintaining competitive compensation, the Compensation Committee considers many factors, including geographic location, growth rate, annual revenue and profitability, and market capitalization. The Compensation Committee also considers companies outside the industry that may compete with us in recruiting executive talent.

83

b)	Annual Incentive Compensation. Bonuses are earned by each executive officer primarily on the basis of our achievements of certain corporate financial performance goals established for each fiscal year, as well as reaching or exceeding pre-established customer satisfaction ratings each quarter. For fiscal 2004, the criteria for determination of payment of bonuses was based on the following factors: (i) our EBITDA performance net of capital expenditures relative to the target established by the Compensation Committee, and (ii) our meeting the targets established on the Customer Satisfaction Survey, also established by the Compensation Committee. Based upon the achievement of these targets, other than with respect to Messrs. Watts and Lohrman, bonuses were not paid to executive officers for fiscal 2004.
c)	Deferred Compensation Plan. We maintain a deferred compensation plan, pursuant to which certain members of management (including the executive officers) may elect to defer a portion of his or her annual compensation and bonus payments. The participant’s funds are invested among various funds designated by the plan administrator and currently may not be invested in our stock or other of our securities. Upon the death or retirement of a participant, the funds attributable to the participant (including any earnings on contributions) are distributed to the participant or the participant’s beneficiary in a lump sum or in quarterly installments until fully distributed.
d)	Long-Term Compensation. Long-term incentives are provided through stock option grants. The grants are designed to align the interests of each executive officer with those of the stockholders and provide each executive officer with a significant incentive to manage us from the perspective of an owner with an equity stake in the business. Each grant allows the executive officer to acquire shares of our common stock at a fixed price per share (the Board established price on the grant date) over a specified period of time (up to ten years). The fixed price per share for Mr. Watts’ options is 110% of fair market value at the date of issuance, while the fixed price per share for options held by our other executive officers is 100% of fair market value at the date of issuance. Options granted generally become exercisable at the rate of 20% of the shares subject thereto one year from the grant date and as to approximately 5% of the shares subject to the option at the end of each three-month period thereafter such that the option is fully exercisable five years from the grant date, contingent upon the executive officer’s continued employment with us. Accordingly, the option will provide the maximum return to the executive officer only if the executive officer remains employed by us for the five-year vesting period, and then only if the Board established price of the underlying shares of common stock appreciates over the option term. The number of shares of common stock subject to each grant is set at a level intended to create a meaningful opportunity for stock ownership based on the executive officer’s current position with us, the base salary associated with that position, the average size of comparable awards made to executive officer’s in similar positions within the industry, the executive officer’s potential for increased responsibility and promotion over the option term, and the executive officer’s personal performance in recent periods. The Compensation Committee also takes into account the number of vested and unvested options held by the executive officer in order to maintain an appropriate level of equity incentive for that executive officer. However, the Compensation Committee does not adhere to any specific guidelines as to the relative option holdings of our executive officers. None of our executive officers received option grants in fiscal 2004.

3.

Compensation of the Chief Executive Officer.

The compensation of the Chief Executive Officer is reviewed annually on the same basis as discussed above for all executive officers. Mr. Jack L. Watts’ base salary for fiscal 2004 was approximately $366,128. Mr. Watts’ base salary was established in part by comparing the base salaries of chief executive officers at other companies of similar size. Mr. Watts’ base salary was at the approximate median of the base salary range for chief executive officers of comparative companies. Mr. Watts received a bonus of $100,000 during fiscal 2004 based on performance and comparable industry rates of compensation.

84

4.	Compensation of the President and Chief Operating Officer.
	The compensation of the President and Chief Operating Officer is also reviewed annually on the same basis as discussed above for all executive officers. Mr. James A. Taylor’s base salary for fiscal 2004 was approximately $281,249. Mr. Taylor’s base salary was established in part by comparing the base salaries of president and chief operating officers at other companies of similar size. Mr. Taylor’s base salary was at the approximate median of the base salary range for president and chief operating officers of comparative companies. Mr. Taylor did not receive a bonus during fiscal 2004.
5.	Compensation Limitations.
	Under Section 162(m) of the Internal Revenue Code, and regulations adopted thereunder by the Internal Revenue Service, publicly held companies may be precluded from deducting certain compensation paid to certain executive officers in excess of $1.0 million in a year. The regulations exclude from this limit performance-based compensation and stock options provided certain requirements, such as stockholder approval, are satisfied. We believe that our 1988, 1994, and 2002 Stock Option Plans qualify for the exclusions. We do not currently anticipate taking action necessary to qualify our executive annual cash bonus plans for the exclusion.

85

Item 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

     The following table sets forth certain information with respect to beneficial ownership of each class of our voting securities as of October 31, 2004 by (i) each person known by us to be the beneficial owner of more than 5% of such class, (ii) each director, (iii) each Named Officer and (iv) all executive officers and directors as a group. Our equity securities are privately held and no class of our voting securities is registered pursuant to Section 12 of the Securities Exchange Act of 1934.

	Shares of Class A					Shares of Class B
	common stock					common stock
	beneficially owned(1)					beneficially owned(2)
Name of beneficial owner	Number(3)		Percent(3)			Number(3)		Percent(3)
Suez Equity Investors, L.P.(4)		2,134,992		100.0	%		—		—
SEI Associates(4)		2,134,992		100.0			—		—
Robert Egan(5)		—		—			2,387,048		24.4	%
J.P. Morgan Partners 23A (formerly Chase Manhattan Capital Corporation)(6)		—		—			2,387,048		24.4
Jack L. Watts(7)		—		—			3,614,446		35.9
Gary L. Barry(8)		—		—			607,965		6.2
James A. Taylor(9)		—		—			327,500		3.2
Frederick K. Janz(10)		—		—			134,113		1.4
M. Craig Akins (11)		—		—			60,500		*
Larry C. Williams(12)		—		—			86,942		*
Richard Lohrman(13)		—		—			33,750		*
Martin Imbler(14)		—		—			6,500		*
Debra Leipman-Yale(15)		—		—			—		—
All executive officers and directors as a group (12 persons)(16)		—		—			6,816,664		62.9	%

*	Less than 1%
(1)	As of October 31, 2004, there were 2,134,992 shares of Class A Common Stock issued and outstanding. The Class A Common Stock is non-voting and each share of Class A Common Stock may be converted into one share of Class B Common Stock, Series 1 in the event that shares of Class B Common Stock, Series 1 shall be sold in a firm commitment public offering in which the aggregate public offering price is equal to or greater than $10.0 million or there is a capital reorganization or reclassification of our capital stock. See Note 11 of Notes to Consolidated Financial Statements.
(2)	Our Class B Common Stock, Series 1 carry voting rights of one vote per share. Holders of Class B Common Stock, Series 2 have a number of votes equal to the number of shares of Class B Common Stock, Series 1 into which such holder’s shares of Class B Common Stock, Series 2 is then convertible. The Class B Common Stock, Series 2 has a liquidation preference equal to $0.60 on each distributed dollar in the event that the value of our assets available for distribution is less than $1.75 per share. Each share of Class B Common Stock, Series 2 is convertible at any time at the option of the holder into that number of shares of Class B Common Stock, Series 1 that results from dividing the Conversion Price (as defined in our certificate of incorporation) by $1.75 and will be automatically converted into one such share (i) in the event that shares of Class B Common Stock, Series 1 shall be sold in a firm commitment public offering in which the aggregate public offering price is equal to or greater than $10 million or (ii) immediately prior to the effectiveness of a merger or consolidation in which Portola is not the surviving entity and in which the value of the property to be received by the stockholders shall be not less than $1.75 per share. As of October 31, 2004, there were 9,772,761 shares of Class B Common Stock issued and outstanding, consisting of 8,602,366 shares of Class B Common Stock, Series 1 and 1,170,395 shares of Class B Common Stock, Series 2. See Note 11 of Notes to Consolidated Financial Statements.

86

(3)	In accordance with the rules of the SEC, shares are beneficially owned by the person who has or shares voting or investment power with respect to such shares. Unless otherwise indicated below, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Shares of common stock issuable upon exercise of outstanding options identified in the footnotes to this table and exercisable on October 31, 2004 or within 60 days thereafter are included, and deemed to be outstanding and to be beneficially owned by the person holding such option for the purpose of computing the percentage ownership of such person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
(4)	Represents 2,028,242 shares held by Suez Equity Investors, L.P. and 106,750 shares held by SEI Associates, an affiliate of Suez Equity Investors, L.P. The address of both Suez Equity Investors, L.P. and SEI associates is 712 5th Avenue, 24th Floor, New York, New York 10019.
(5)	Mr. Egan is a principal of JPMorgan Partners (formerly Chase Capital Partners), an affiliate of JPMorgan Partners 23A (formerly Chase Manhattan Capital Corporation). Includes (i) 1,552,333 shares of Class B Common Stock, Series 1 held of record by JPMorgan Partners 23A and affiliates (of which 149,047 shares are held by Archery Partners and 99,800 shares held by Baseball Partners) and 10,000 shares of Class B Common Stock, Series 1 subject to options held by JPMorgan Partners Global 2001 SBIC, LLC, an affiliate of JPMorgan Partners 23A, that are exercisable within 60 days of October 31, 2004, and (ii) 9,000 shares of Class B Common Stock, Series 1 subject to options held by JPMorgan Partners 23A that are exercisable within 60 days of October 31, 2004. Also includes 726,095 shares of Class B Common Stock, Series 2 held of record by JPMorgan Partners 23A, 39,620 shares of Class B Common Stock, Series 2 held of record by Archery Partners and 50,000 shares of Class B Common Stock, Series 2 held of record by Baseball Partners, both affiliates of JPMorgan Partners 23A. Mr. Egan disclaims beneficial ownership of the 1,569,333 shares of Class B Common Stock, Series 1 owned by JPMorgan Partners 23A and affiliates, and the 815,715 shares of Class B Common Stock, Series 2 owned by JPMorgan Partners 23A and affiliates. The address of this shareholder is 1221 Avenue of the Americas, New York, New York 10017.
(6)	With respect to Class B Common Stock, Series 1, includes (i) 149,047 shares held by Archery Partners, (ii) 99,800 shares held by Baseball Partners, and (iii) (a) 10,000 shares subject to options held by JPMorgan Partners Global 2001 SBIC, LLC, an affiliate of JPMorgan Partners 23A, that are exercisable within 60 days of October 31, 2004 and (b) 9,000 shares subject to options held by JPMorgan Partners 23A that are exercisable within 60 days of October 31, 2004. With respect to Class B Common Stock, Series 2, includes 39,620 shares held of record by Archery Partners and 50,000 shares held of record by Baseball Partners, such entities being affiliates of JPMorgan Partners 23A. The address of this shareholder is 1221 Avenue of the Americas, New York, New York 10017.
(7)	Includes 290,000 shares subject to options that are exercisable within 60 days of October 31, 2004. Also includes 424,474 shares held of record by LJL Cordovan Partners, L.P., of which Mr. Watts is the general partner, and 10,000 shares held of record by the Watts Family Foundation, of which Mr. Watts is the President and a Trustee. The shares listed do not include 55,332 shares held in the names of trusts for the benefit of Mr. Watts’ children, due to the fact that Mr. Watts does not exercise voting or investment control over such trusts. Mr. Watts’ address is 898A Faulstich Court, San Jose, California 95112.
(8)	Mr. Barry’s address is 885 Portola Road, Portola Valley, California 94028.
(9)	Composed entirely of shares subject to options that are exercisable within 60 days of October 31, 2004. Mr. Taylor’s address is 898A Faulstich Court, San Jose, California 95112.
(10)	Includes 131,275 shares subject to options that are exercisable within 60 days of October 31, 2004. Mr. Janz’s address is 322 Bunker Hollow Road, Doylestown, Pennsylvania 18901
(11)	Includes 60,500 shares subject to options that are exercisable within 60 days of October 31, 2004. Mr. Akins’ address is 898A Faulstich Court, San Jose, California 95112.

87

(12)	Includes 35,000 shares subject to options that are exercisable within 60 days of October 31, 2004. Excludes shares held in the individual names of three other principals of The Breckenridge Group, Inc., of which Mr. Williams is a principal. Mr. Williams’ address is Resurgens Plaza, Suite 2100, 945 East Paces Ferry Road, Atlanta, Georgia 30326.
(13)	Includes 33,750 shares subject to options that are exercisable within 60 days of October 31, 2004. Mr. Lohrman’s address is 951 Douglas Road, Batavia, IL 60510.
(14)	Includes 6,500 shares subject to options that are exercisable within 60 days of October 31, 2004. Mr. Imbler’s address is 5901 Lincoln Avenue, Evansville, IN 47715
(15)	Ms. Leipman-Yale’s address is 18 Fawn Lane, Armonk, NY 10504.
(16)	Includes the shares shown in footnotes 5, 7, and 9 through 15. Includes 1.064,390 shares subject to options that are exercisable within 60 days of October 31, 2004.

Equity compensation plan Information

	Year Ended August 31, 2004
					Number of Securities
	Number of Securities		Weighted Average		Remaining Available for
	to be Issued upon		Exercise Price of		Future Issuance Under Equity
	Exercise of		Outstanding Options,		Compensation Plans
	Outstanding Options,		Warrants and		(Excluding Securities
Plan Category	Warrants and Rights(a)		Rights(b)		Reflected in Column(a))(c)
Equity compensation plans approved by security holders(1)		2,015,929	$	3.91		6,176,424

(1) All such plans involve only our Class B, Series 1 Common Stock.

88

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Loans and transactions with senior management and other employees

     In January 1992, we loaned Jack L. Watts, our Chairman of the Board and Chief Executive Officer, $250,000 represented by a secured promissory note. The note plus accrued interest was originally due in January 1993, and originally accrued interest at a rate equal to 2% above the borrowing rate on our revolving credit facility. In January 1997, the rate was changed to equal the Short Term Applicable Federal Rate, compounded annually. In December 2002, our Board of Directors agreed to extend until January 17, 2006, the due date of all principal and accrued interest owing to us. Also, in November 2003 and December 2001, our Board of Directors agreed to have us forgive the repayment of certain principal and interest amounts due on the note totaling approximately $50,000 and $92,000, respectively. Mr. Watts paid all remaining outstanding principal and interest due under the loan on May 20, 2004. In addition, during fiscal 2002, we paid approximately $61,000 for travel and living expenses for Mr. Watts.

Transactions with officers and directors

     In addition to a base salary of $12,000, we incurred fees of $286,000 and expenses of $23,000 in fiscal 2004 to our Vice President, General Counsel and current Secretary, Themistocles G. Michos, for legal services rendered.

Transactions with entities affiliated with officers and directors

     In connection with the financing transactions related to the $180.0 million offering of our 8¼% senior notes due 2012, we paid fees of $5,000,000 to JPMorgan Securities, Inc. (Robert Egan, one of our directors, is a senior advisor to JPMorgan Partners, an affiliate of JP Morgan Securities, Inc.), $1,178,000 to The Breckenridge Group (of which Larry Williams, one of our directors, is a principal), $368,000 to Tomlinson Zisko LLP and $30,000 to Timothy Tomlinson (one of our directors until February 29, 2004, and a partner in Tomlinson Zisko LLP), and $69,000 to Themistocles Michos (our Vice President, General Counsel and Secretary) for services rendered. We also repurchased a warrant from JPMorgan Partners for $10,659,000, resulting in the recognition of a loss totaling $1,639,000.

     From time to time, we use the services of the law firm of Tomlinson Zisko LLP, of which Timothy Tomlinson is a general partner. For legal services rendered during fiscal 2004, we incurred an aggregate of fees and expenses of $638,000 to Tomlinson Zisko, which includes the $368,000 paid in connection with the $180.0 million offering of our 8¼% senior notes due 2012 discussed above.

     On March 1, 2003, we entered into a consulting agreement with The Breckenridge Group, Inc, of which Larry Williams is a principal, for certain investment advisory and banking services. Pursuant to such agreement, as discussed above, we paid to The Breckenridge Group $1,178,000 during fiscal 2004 in connection with the financing transactions related to the $180 million offering of our 8¼% senior notes due 2012 discussed above. Mr. Williams was a member of our Audit Committee until August 31, 2004 and was also a member of our Compensation Committee until October 2003.

     In June 1994, Chase Manhattan Capital Corporation, now known as J.P. Morgan Partners 23A SBIC LLC (“JPMorgan Partners 23A”), purchased shares of our Class B Common Stock, Series 1 from us and certain of our insiders, and shares of our Class B Common Stock, Series 2 from Robert Fleming Nominees, Ltd., now known as Chase Nominees Limited (“RFNL”). In connection with these purchases, JPMorgan Partners 23A, RFNL and (G.E. Capital (formerly Heller Financial, Inc.), the lender under a credit facility entered into with us, received certain demand and piggyback registration rights. In addition, JPMorgan Partners 23A became a participant in an earlier agreement between us and RFNL under which (i) we have the right of first offer to purchase any shares of our capital stock that either RFNL or JPMorgan Partners 23A proposes to sell to any non-related party and (ii) each shareholder has a right of first offer to purchase any Class B Common Stock, Series 1 that we propose to sell. JPMorgan Partners 23A is also a party to certain shareholders agreements providing for certain rights of first refusal as described below under the heading “Shareholders Agreements.” In addition, the parties to these shareholders agreements have granted to JPMorgan Partners 23A certain co-sale rights to participate in the sale by any such shareholders of more than 25% of the outstanding shares of our common stock. One of the shareholders agreements also provides that we are prohibited from (i) entering into any merger, consolidation or repurchase of capital stock, (ii) making certain amendments to our Bylaws or Certificate of Incorporation or (iii) entering into certain other significant transactions, without the approval of JPMorgan Partners 23A. Pursuant to that agreement, Jack L. Watts, RFNL and their permitted transferees have agreed to vote their shares in favor of a nominee of JPMorgan Partners 23A as one of our directors. Mr. Egan is JPMorgan Partners 23A’s current nominee.

89

     On July 1, 1999, we entered into an agreement with Sand Hill Systems, Inc. (“SHS”), then a wholly-owned unrestricted subsidiary, to provide a total of $3.5 million in support services to SHS. The agreement terminated on September 30, 1999, when the services provided under the agreement reached an aggregate value of $3.5 million, including approximately $1.5 million in a mark-up of the cost of the services rendered. In consideration for those services, we received a promissory note in the principal amount of $3.5 million from SHS, bearing interest at a rate equal to the base rate charged under our senior revolving credit facility less one-half of one percent. In September 1999, Portola IV LLC, a limited liability company (“LLC”), acquired an ownership interest in SHS in exchange for assuming the obligations of SHS under the note. Certain of the members of the LLC (the “Members”) were at the same time our officers or directors, including Jack L. Watts, Laurie D. Bassin, Timothy Tomlinson and Larry Williams. The LLC secured payment of the note by pledging 500,000 shares of our Class B Common Stock that had been contributed to the LLC by the Members to capitalize the LLC (the “Portola Shares”). The note provided that all outstanding principal and interest amounts due thereunder were payable in full on the earlier date of July 1, 2003 or the occurrence of one of certain events, including the sale of all or substantially all of the assets of SHS. At May 31, 2002, we (and a wholly owned consolidated subsidiary) had a combined 6% equity ownership in SHS, which we accounted for under the cost method. Effective June 1, 2002, the assets of SHS were sold, effectively liquidating SHS, with no assets available for distribution to the stockholders of SHS. On August 22, 2002, the LLC transferred the Portola Shares to us in lieu of foreclosure and in payment of all amounts due under the note. See Note 15 of Notes to Consolidated Financial Statements.

     Effective July 1, 2000, our wholly owned unrestricted e-commerce subsidiary, BLN, sold its shares to SHS in exchange for a non-interest bearing, unsecured promissory note for $1.5 million, which was fully reserved for as of August 31, 2000. In conjunction with SHS’s merger with Neptune Technologies in April 2001, the note was converted into SHS convertible preferred stock. Effective June 1, 2002, the assets of SHS were sold, effectively liquidating the company, with no return to shareholders.

Shareholders agreements

     A majority of our shares, including shares held by Jack L. Watts and his affiliates, are subject to shareholders agreements under which we have a right of first refusal in the event of a proposed transfer of such shares of our common stock to a transferee not related to the shareholder. In the event we do not exercise our right of first refusal, the other shareholders that are parties to the agreements have similar first refusal rights.

90

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Fees

     The aggregate fees billed by PricewaterhouseCoopers LLP for the audit of our annual financial statements included in our annual report on Form 10-K and Form 10-K/A, the reviews of our financial statements included in our quarterly reports on Form 10-Q, services provided related to the Company’s 144A bond offering and related required regulatory filings were approximately $729,000 and $283,000 for the years ended August 31, 2004 and 2003, respectively.

Audit-Related Fees

     The aggregate fees billed by PricewaterhouseCoopers LLP for assurance and related services was approximately $32,000 that were related to the performance of the opening balance sheet audit of the Company’s acquisition in the first quarter of 2004. The aggregate fees billed by PricewaterhouseCoopers LLP for due diligence services was $5,609 for the year ended August 31, 2003.

Tax Fees

     The aggregate fees billed for tax compliance, tax advice and tax planning rendered by PricewaterhouseCoopers LLP were approximately $103,000 and $110,000 for the years ended August 31, 2004 and 2003, respectively.

All Other Fees

     There were no aggregate fees billed for any other non-audit services rendered by PricewaterhouseCoopers LLP to us for the years ended August 31, 2004 and 2003, respectively.

     All non-audit services require an engagement letter to be signed prior to commencing any services. The engagement letter must detail the fee estimates and the scope of services to be provided. The current polity of our audit committee is that the audit committee must be informed of the non-audit services in advance of the engagement and the audit committee’s responsibilities in this regard may not be delegated to management.

91

PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

     (a)(1) The following financial statements of Portola Packaging, Inc. and the Report of Independent Registered Public Accounting Firm are filed herewith:

	Page in
	Form 10-K/A
Report of Independent Registered Public Accounting Firm		41
Consolidated Balance Sheets as of August 31, 2004 and 2003		42
Consolidated Statements of Operations for the Years Ended August 31, 2004, 2003 and 2002, as amended		43
Consolidated Statements of Cash Flows for the Years Ended August 31, 2004, 2003 and 2002		44
Consolidated Statements of Shareholders’ Equity (Deficit) for the Years Ended August 31, 2004, 2003 and 2002		45
Notes to Consolidated Financial Statements		46

     (a)(2) Financial Statement Schedules. The following financial statement schedule is filed herewith and should be read in conjunction with the consolidated financial statements:

	Page in
	Form 10-K/A
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule		99
Schedule II—Valuation and Qualifying Accounts		100

     All other schedules are omitted because they are not applicable or the required information is shown on the consolidated financial statements or notes thereto.

(a)(3) Exhibits. The following exhibits are filed as part of, or incorporated by reference into, this Form 10-K/A:

Exhibit
Number	Exhibit Title
3.01	Certificate of Incorporation (filed with Secretary of State of Delaware on April 29, 1994, as amended and filed with Secretary of State of Delaware on October 4, 1995)(1)
3.02	Bylaws(2)
4.01	Indenture, dated as of January 23, 2004, by and among the Registrant, the Subsidiary Guarantors listed thereto and U.S. Bank National Association, as trustee (including form of Note)(3)
4.02	Form of Stock Certificate evidencing ownership of Registrant’s Class B Common Stock, Series 1(4)
10.01	Shareholders Agreement, dated as of June 23, 1988, by and among the Registrant, Chase Manhattan Investment Holdings, Inc. and certain shareholders and warrant holders, amended by Amendment to Shareholders Agreement, dated as of May 23, 1989, further amended by Second Amendment to Shareholders Agreement, dated November 29, 1989, and further amended by Amendment to Shareholders Agreement, dated as of June 30, 1994(5)*
10.02	Shareholders Agreement, dated as of June 30, 1994, by and among the Registrant, Chase Manhattan Capital Corporation, and certain shareholders and warrant holders(6)*
10.03	First Offer Agreement, dated as of October 17, 1990, by and among the Registrant, Chase Manhattan Investment Holdings, Inc., Chase Manhattan Capital Corporation and Robert Fleming Nominees, Ltd., as amended by Amendment to First Offer Agreement, dated as of June 30, 1994(7)
10.04	Director’s Agreement, dated September 1, 1989, by and between the Registrant and Larry C. Williams, as amended by Amendment to Director’s Agreement, dated January 16, 1990 and Amendment Number Two to Director’s Agreement, dated August 31, 1991(8)*

92

Exhibit
Number	Exhibit Title
10.05	Stock Purchase Agreement, dated October 17, 1990, by and among the Registrant, Robert Fleming Nominees, Ltd., Jack Watts, John Lemons and LJL Cordovan Partners(9)*
10.06	Stock Purchase Agreement, dated as of June 30, 1994, by and among the Registrant, Jack L. Watts, LJL Cordovan Partners, Robert Fleming Nominees, Ltd., Chase Manhattan Capital Corporation and certain other selling shareholders(10)*
10.07	Form of Subscription Agreement by and between the Registrant and the related director or officer (said form being substantially similar to the form of Subscription Agreement utilized by the Registrant for certain officers and directors of the Registrant)(11)*
10.08	Form of Indemnification Agreement by and between the Registrant and the related director or officer (said form being substantially similar to the form of Indemnification Agreement utilized by the Registrant for certain officers and directors of the Registrant)(12)*
10.09	Stock Purchase Agreement, dated as of June 9, 1995, by and among the Registrant, Oakley T. Hayden Corp., Lyn Leigers as Executor of the Estate of Oakley T. Hayden, Chase Manhattan Capital Corporation and Heller Financial, Inc.(13)*
10.10	Stock Purchase Agreement, dated October 10, 1995, by and among the Registrant, Jack L. Watts, John L. Lemons, Mary Ann Lemons, LJL Cordovan Partners, L.P., Robert Fleming Nominees, Ltd., Suez Equity Investors, L.P. and SEI Associates(14)*
10.11	Amendment to Investors’ Rights Agreements, dated as of October 10, 1995, by and among the Registrant, Jack L. Watts, John L. Lemons, Mary Ann Lemons, LJL Cordovan Partners, L.P., Robert Fleming Nominees, Ltd., Suez Equity Investors, L.P., SEI Associates and Chase Manhattan Capital Corporation(15)*
10.12	Third Amended and Restated Registration Rights Agreement, dated as of October 10, 1995, by and among the Registrant, Heller Financial, Inc., Chase Manhattan Capital Corporation, Robert Fleming Nominees, Ltd., Suez Equity Investors, L.P. and SEI Associates(16)*
10.13	1994 Stock Option Plan, as amended, and related documents(17)*
10.14	Form of Indemnification Agreement by and between the Registrant and the related director or officer(18)*
10.15	Form of Amendment to Indemnification Agreement by and between the Registrant and certain directors and officers of the Registrant(19)*
10.16	Registrant’s Management Deferred Compensation Plan Trust Agreement(20)*
10.17	Registrant’s Management Deferred Compensation Plan(21)*
10.18	Fourth Amended and Restated Credit Agreement, dated as of January 16, 2004, by and among Registrant, as Borrower, General Electric Capital Corporation, as Agent, and the other financial institutions that are a party thereto, as Lenders(22)
10.19	2002 Stock Option Plan and Related Materials(23)
10.20	Stock Purchase Agreement, dated as of September 1, 2003, by and among the Registrant, Tech Industries, Inc. and the shareholders of Tech Industries, Inc.(24)
10.21	Stock Purchase Agreement, dated as of September 1, 2003, by and among the Registrant, Tech Industries UK Ltd. and the shareholders of Tech Industries UK Ltd.(25)
10.22	Equity Purchase Agreement, dated as of September 1, 2003, by and among the Registrant and the partners of Fairmount Realty Associates(26)

93

Exhibit
Number	Exhibit Title
10.23	Equity Purchase Agreement, dated as of September 1, 2003, by and among the Registrant and the partners of 84 Fairmount Street Limited Partnership(27)
10.24	Closing Agreement, dated as of September 19, 2003, by and among the Registrant, the shareholders of Tech Industries, Inc., the shareholders of Tech Industries UK Ltd. and the partners of Fairmount Realty Associates and 84 Fairmount Street Limited Partnership(28)
10.25	Amendment No. 1 to Fourth Amended and Restated Credit Agreement, dated as of May 21, 2004, by and among the Registrant, as Borrower, General Electric Capital Corporation, as Agent, and the other financial institutions that are a party thereto, as Lenders(29)
10.26	Employment Agreement with Michael T. Morefield
10.29	Limited Waiver and Second Amendment to Fourth Amended and Restated Credit Agreement Among Portola Packaging, Inc. and General Electric Capital Corporation
10.30	Option to Renew
10.31	Second Amendment to Lease Agreement between Santa Maria Industrial Partners, L.P. and Portola Packaging, Inc.
10.32	Lease between Cabot Industrial Properties, L.P., Landlord, and Portola Packaging, Inc., Tenant
14.01	Corporate Code of Ethics
21.01	Subsidiaries of the Registrant
23.01	Consent of PricewaterhouseCoopers LLP
24.01	Power of Attorney (30)
31.01	Certification of Jack L. Watts, Principal Executive Officer of Portola Packaging, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02	Certification of James A. Taylor, Principal Executive Officer of Portola Packaging, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.03	Certification of Michael T. Morefield, Chief Financial Officer of Portola Packaging, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01	Certification of Jack L. Watts, Chief Executive Officer of Portola Packaging, Inc. and Michael T. Morefield, Chief Financial Officer of Portola Packaging, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Denotes a management contract or a compensatory plan or arrangement
(1)	Incorporated herein by reference to the exhibit with the same number included in the Registrant’s Quarterly Report on Form 10-Q for the period ended November 30, 1995, as filed with the Securities and Exchange Commission on January 16, 1996.
(2)	Incorporated herein by reference to the exhibit with the same number included in the Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on August 1, 1995.

94

(3)	Incorporated herein by reference to exhibit 4.01 included in Amendment No. 1 to the Registrant’s Registration Statement on Form S-4/A (Commission File No. 334-115862), as filed with the Securities and Exchange Commission on June 25, 2004.
(4)	Incorporated herein by reference to the exhibit with the same number included in the Registrant’s Quarterly Report on Form 10-Q for the period ended November 30, 1996, as filed with the Securities and Exchange Commission on January 13, 1997.
(5)	Incorporated herein by reference to exhibit 10.02 included on the Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on August 1, 1995.
(6)	Incorporated herein by reference to exhibit 10.03 included on the Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on August 1, 1995.
(7)	Incorporated herein by reference to exhibit 10.07 included in the Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on August 1, 1995.
(8)	Incorporated herein by reference to exhibit 10.13 included in the Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on August 1, 1995.
(9)	Incorporated herein by reference to exhibit 10.15 included in the Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on August 1, 1995.
(10)	Incorporated herein by reference to exhibit 10.16 included in the Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on August 1, 1995.
(11)	Incorporated herein by reference to exhibit 10.20 included in the Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on August 1, 1995.
(12)	Incorporated herein by reference to exhibit 10.21 included in the Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on August 1, 1995.
(13)	Incorporated herein by reference to exhibit 10.22 included in pre-effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on September 25, 1995.
(14)	Incorporated herein by reference to exhibit 10.25 included in the Registrant’s Quarterly Report on Form 10-Q for the period ended November 30, 1995, as filed with the Securities and Exchange Commission on January 16, 1996.
(15)	Incorporated herein by reference to exhibit 10.26 included in the Registrant’s Quarterly Report on Form 10-Q for the period ended November 30, 1995, as filed with the Securities and Exchange Commission on January 16, 1996.
(16)	Incorporated herein by reference to exhibit 10.27 included in the Registrant’s Quarterly Report on Form 10-Q for the period ended November 30, 1995, as filed with the Securities and Exchange Commission on January 16, 1996.

95

(17)	Incorporated herein by reference to exhibit 4.03 to the Registrant’s Registration Statement on Form S-8 (Commission File No. 333-82125), as filed with the Securities and Exchange Commission on July 1, 1999, as amended by Post-Effective Amendment thereto, as filed with the Securities and Exchange Commission on May 15, 2001.
(18)	Incorporated herein by reference to exhibit 10.37 included in the Registrant’s Annual Report on Form 10-K for the period ended August 31, 1996, as filed with the Securities and Exchange Commission on November 25, 1996.
(19)	Incorporated herein by reference to exhibit 10.38 included in the Registrant’s Annual Report on Form 10-K for the period ended August 31, 1996, as filed with the Securities and Exchange Commission on November 25, 1996.
(20)	Incorporated herein by reference to exhibit 10.43 included in the Registrant’s Quarterly Report on Form 10-Q for the period ended November 30, 1996, as filed with the Securities and Exchange Commission on January 13, 1997.
(21)	Incorporated herein by reference to exhibit 10.44 with the same number included in Post-Effective Amendment No. 2 to Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on March 11, 1997.
(22)	Incorporated herein by reference to exhibit 10.03 included in the Registrant’s Quarterly Report on Form 10-Q for the period ended February 29, 2004, as filed with the Securities and Exchange Commission on April 9, 2004.
(23)	Incorporated herein by reference to exhibit 10.34 included in the Registrant’s Quarterly Report on Form 10-Q for the period ended May 31, 2002, as filed with the Securities and Exchange Commission on July 3, 2002.
(24)	Incorporated herein by reference to exhibit 2.01 included in the Registrant’s Report on Form 8-K, as filed with the Securities and Exchange Commission on October 6, 2003.
(25)	Incorporated herein by reference to exhibit 2.02 included in the Registrant’s Report on Form 8-K, as filed with the Securities and Exchange Commission on October 6, 2003.
(26)	Incorporated herein by reference to exhibit 2.03 included in the Registrant’s Report on Form 8-K, as filed with the Securities and Exchange Commission on October 6, 2003.
(27)	Incorporated herein by reference to exhibit 2.04 included in the Registrant’s Report on Form 8-K, as filed with the Securities and Exchange Commission on October 6, 2003.
(28)	Incorporated herein by reference to exhibit 2.05 included in the Registrant’s Report on Form 8-K, as filed with the Securities and Exchange Commission on October 6, 2003.
(29)	Incorporated herein by reference to exhibit 10.34 included in the Registrant’s Registration Statement on Form S-4 (Commission File No. 334-115862), as filed with the Securities and Exchange Commission on May 25, 2004.
(30)	Incorporated herein by reference to signature page included in the Registrant’s Report on Form 10-K, as filed with the Securities and Exchange Commission on November 29, 2004.

96

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized.

		PORTOLA PACKAGING, INC.,
		a Delaware corporation
		/s/ Michael T. Morefield
		Michael T. Morefield
December 13, 2004	By:	Senior Vice President and Chief Financial Officer

97

Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act

     We have not sent to our security holders either (1) an annual report covering fiscal 2004 or (2) any proxy materials with respect to an annual or special meeting of our security holders. To the extent that we send such an annual report or proxy material to our security holders subsequent to the filing of this Annual Report on Form 10-K/A, we will supplementally furnish to the Commission for its information four copies of any such materials sent to our security holders when such materials are sent to security holders. Any such material shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any of our filings, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

98

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Shareholders of
Portola Packaging, Inc. and Subsidiaries:

     Our audits of the consolidated financial statements referred to in our report dated November 3, 2004, except for the fifth paragraph of Note 8 and the second paragraph of Note 18 as to which the date is November 24, 2004, appearing on page 41 of this Form 10-K/A also included an audit of the financial statement schedule listed in Item 15(a) (2) of this Form 10-K/A. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Pittsburgh, Pennsylvania

November 3, 2004

99

PORTOLA PACKAGING, INC.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(in thousands)

Allowance for	Beginning		Additions/							Ending
Doubtful Accounts	Balance		Expenses		Other(1)			Deductions(2)		Balance
August 31, 2004		1,244		159		223			422		1,204
August 31, 2003		1,151		460		(263	)		104		1,244
August 31, 2002		1,160		567		(119	)		457		1,151

Allowance for Investment
In/Advances to	Beginning		Additions/						Ending
Unconsolidated Affiliates	Balance		Expenses		Other		Deductions		Balance
August 31, 2004		—		—		—		—		—
August 31, 2003		120		—		—		120		—
August 31, 2002		3,000		—		—		2,880		120

Allowance for Obsolete	Beginning		Additions/						Ending
Inventory	Balance		Expenses		Other		Deductions(3)		Balance
August 31, 2004		253		1,033		—		391		895
August 31, 2003		311		665		—		723		253
August 31, 2002		355		464		45		553		311

Deferred Tax	Beginning		Additions/						Ending
Valuation Allowance	Balance		Expenses		Other		Deductions		Balance
August 31, 2004		3,989		12,329		—		—		16,318
August 31, 2003		1,058		2,931		—		—		3,989
August 31, 2002		981		77		—		—		1,058

(1)	Recoveries
(2)	Write-off of bad debts
(3)	Disposal of obsolete inventory

100

EXHIBIT INDEX

Exhibit
Number	Exhibit Title
3.01	Certificate of Incorporation (filed with Secretary of State of Delaware on April 29, 1994, as amended and filed with Secretary of State of Delaware on October 4, 1995)(1)
3.02	Bylaws(2)
4.01	Indenture, dated as of January 23, 2004, by and among the Registrant, the Subsidiary Guarantors listed thereto and U.S. Bank National Association, as trustee (including form of Note)(3)
4.02	Form of Stock Certificate evidencing ownership of Registrant’s Class B Common Stock, Series 1(4)
10.01	Shareholders Agreement, dated as of June 23, 1988, by and among the Registrant, Chase Manhattan Investment Holdings, Inc. and certain shareholders and warrant holders, amended by Amendment to Shareholders Agreement, dated as of May 23, 1989, further amended by Second Amendment to Shareholders Agreement, dated November 29, 1989, and further amended by Amendment to Shareholders Agreement, dated as of June 30, 1994(5)*
10.02	Shareholders Agreement, dated as of June 30, 1994, by and among the Registrant, Chase Manhattan Capital Corporation, and certain shareholders and warrant holders(6)*
10.03	First Offer Agreement, dated as of October 17, 1990, by and among the Registrant, Chase Manhattan Investment Holdings, Inc., Chase Manhattan Capital Corporation and Robert Fleming Nominees, Ltd., as amended by Amendment to First Offer Agreement, dated as of June 30, 1994(7)
10.04	Director’s Agreement, dated September 1, 1989, by and between the Registrant and Larry C. Williams, as amended by Amendment to Director’s Agreement, dated January 16, 1990 and Amendment Number Two to Director’s Agreement, dated August 31, 1991(8)*
10.05	Stock Purchase Agreement, dated October 17, 1990, by and among the Registrant, Robert Fleming Nominees, Ltd., Jack Watts, John Lemons and LJL Cordovan Partners(9)*
10.06	Stock Purchase Agreement, dated as of June 30, 1994, by and among the Registrant, Jack L. Watts, LJL Cordovan Partners, Robert Fleming Nominees, Ltd., Chase Manhattan Capital Corporation and certain other selling shareholders(10)*
10.07	Form of Subscription Agreement by and between the Registrant and the related director or officer (said form being substantially similar to the form of Subscription Agreement utilized by the Registrant for certain officers and directors of the Registrant)(11)*
10.08	Form of Indemnification Agreement by and between the Registrant and the related director or officer (said form being substantially similar to the form of Indemnification Agreement utilized by the Registrant for certain officers and directors of the Registrant)(12)*
10.09	Stock Purchase Agreement, dated as of June 9, 1995, by and among the Registrant, Oakley T. Hayden Corp., Lyn Leigers as Executor of the Estate of Oakley T. Hayden, Chase Manhattan Capital Corporation and Heller Financial, Inc.(13)*
10.10	Stock Purchase Agreement, dated October 10, 1995, by and among the Registrant, Jack L. Watts, John L. Lemons, Mary Ann Lemons, LJL Cordovan Partners, L.P., Robert Fleming Nominees, Ltd., Suez Equity Investors, L.P. and SEI Associates(14)*
10.11	Amendment to Investors’ Rights Agreements, dated as of October 10, 1995, by and among the Registrant, Jack L. Watts, John L. Lemons, Mary Ann Lemons, LJL Cordovan Partners, L.P., Robert Fleming Nominees, Ltd., Suez Equity Investors, L.P., SEI Associates and Chase Manhattan Capital Corporation(15)*

101

Exhibit
Number	Exhibit Title
10.12	Third Amended and Restated Registration Rights Agreement, dated as of October 10, 1995, by and among the Registrant, Heller Financial, Inc., Chase Manhattan Capital Corporation, Robert Fleming Nominees, Ltd., Suez Equity Investors, L.P. and SEI Associates(16)*
10.13	1994 Stock Option Plan, as amended, and related documents(17)*
10.14	Form of Indemnification Agreement by and between the Registrant and the related director or officer(18)
10.15	Form of Amendment to Indemnification Agreement by and between the Registrant and certain directors and officers of the Registrant(19)*
10.16	Registrant’s Management Deferred Compensation Plan Trust Agreement(20)*
10.17	Registrant’s Management Deferred Compensation Plan(21)*
10.18	Fourth Amended and Restated Credit Agreement, dated as of January 16, 2004, by and among Registrant as Borrower, General Electric Capital Corporation, as Agent, and the other financial institutions that are a party thereto, as Lenders(22)
10.19	2002 Stock Option Plan and Related Materials(23)*
10.20	Stock Purchase Agreement, dated as of September 1, 2003, by and among the Registrant, Tech Industries, Inc. and the shareholders of Tech Industries, Inc.(24)
10.21	Stock Purchase Agreement, dated as of September 1, 2003, by and among the Registrant, Tech Industries UK Ltd. and the shareholders of Tech Industries UK Ltd.(25)
10.22	Equity Purchase Agreement, dated as of September 1, 2003, by and among the Registrant and the partners of Fairmount Realty Associates(26)
10.23	Equity Purchase Agreement, dated as of September 1, 2003, by and among the Registrant and the partners of 84 Fairmount Street Limited Partnership(27)
10.24	Closing Agreement, dated as of September 19, 2003, by and among the Registrant, the shareholders of Tech Industries, Inc., the shareholders of Tech Industries UK Ltd. and the partners of Fairmount Realty Associates and 84 Fairmount Street Limited Partnership(28)
10.25	Amendment No. 1 to Fourth Amended and Restated Credit Agreement, dated as of May 21, 2004, by and among the Registrant, as Borrower, General Electric Capital Corporation, as Agent, and the other financial institutions that are a party thereto, as Lenders(29)
10.26	Employment Agreement with Michael T. Morefield
10.29	Limited Waiver and Second Amendment to Fourth Amended and Restated Credit Agreement Among Portola Packaging, Inc. and General Electric Capital Corporation
10.30	Option to Renew
10.31	Second Amendment to Lease Agreement between Santa Maria Industrial Partners, L.P. and Portola Packaging, Inc.
10.32	Lease between Cabot Industrial Properties, L.P., Landlord, and Portola Packaging, Inc., Tenant
14.01	Corporate Code of Ethics
21.01	Subsidiaries of the Registrant

102

Exhibit
Number	Exhibit Title
23.01	Consent of PricewaterhouseCoopers LLP
24.01	Power of Attorney(30)
31.01	Certification of Jack L. Watts, Principal Executive Officer of Portola Packaging, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02	Certification of James A. Taylor, Principal Executive Officer of Portola Packaging, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.03	Certification of Michael T. Morefield, Chief Financial Officer of Portola Packaging, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01	Certification of Jack L. Watts, Chief Executive Officer of Portola Packaging, Inc. and Michael T. Morefield, Chief Financial Officer of Portola Packaging, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Denotes a management contract or compensating plan or arrangement
(1)	Incorporated herein by reference to the exhibit with the same number included in the Registrant’s Quarterly Report on Form 10-Q for the period ended November 30, 1995, as filed with the Securities and Exchange Commission on January 16, 1996.
(2)	Incorporated herein by reference to the exhibit with the same number included in the Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on August 1, 1995.
(3)	Incorporated herein by reference to exhibit 4.01 included in Amendment No. 1 to the Registrant’s Registration Statement on Form S-4/A (Commission File No. 334-115862), as filed with the Securities and Exchange Commission on June 25, 2004.
(4)	Incorporated herein by reference to the exhibit with the same number included in the Registrant’s Quarterly Report on Form 10-Q for the period ended November 30, 1996, as filed with the Securities and Exchange Commission on January 13, 1997.
(5)	Incorporated herein by reference to exhibit 10.02 included in the Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on August 1, 1995.
(6)	Incorporated herein by reference to exhibit 10.03 included in the Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on August 1, 1995.
(7)	Incorporated herein by reference to exhibit 10.07 included in the Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on August 1, 1995.
(8)	Incorporated herein by reference to exhibit 10.13 included in the Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on August 1, 1995.
(9)	Incorporated herein by reference to exhibit 10.15 included in the Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on August 1, 1995.

103

(10)	Incorporated herein by reference to exhibit 10.16 included in the Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on August 1, 1995.
(11)	Incorporated herein by reference to exhibit 10.20 included in the Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on August 1, 1995.
(12)	Incorporated herein by reference to exhibit 10.21 included in the Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on August 1, 1995.
(13)	Incorporated herein by reference to exhibit 10.22 included in pre-effective Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on September 25, 1995.
(14)	Incorporated herein by reference to exhibit 10.25 included in the Registrant’s Quarterly Report on Form 10-Q for the period ended November 30, 1995, as filed with the Securities and Exchange Commission on January 16, 1996.
(15)	Incorporated herein by reference to exhibit 10.26 included in the Registrant’s Quarterly Report on Form 10-Q for the period ended November 30, 1995, as filed with the Securities and Exchange Commission on January 16, 1996.
(16)	Incorporated herein by reference to exhibit 10.27 included in the Registrant’s Quarterly Report on Form 10-Q for the period ended November 30, 1995, as filed with the Securities and Exchange Commission on January 16, 1996.
(17)	Incorporated herein by reference to exhibit 4.03 to the Registrant’s Registration Statement on Form S-8 (Commission File No. 333-82125), as filed with the Securities and Exchange Commission on July 1, 1999, as amended by Post-Effective Amendment thereto, as filed with the Securities and Exchange Commission on May 15, 2001.
(18)	Incorporated herein by reference to exhibit 10.37 included in the Registrant’s Annual Report on Form 10-K for the period ended August 31, 1996, as filed with the Securities and Exchange Commission on November 25, 1996.
(19)	Incorporated herein by reference to exhibit 10.38 included in the Registrant’s Annual Report on Form 10-K for the period ended August 31, 1996, as filed with the Securities and Exchange Commission on November 25, 1996.
(20)	Incorporated herein by reference to exhibit 10.43 included in the Registrant’s Quarterly Report on Form 10-Q for the period ended November 30, 1996, as filed with the Securities and Exchange Commission on January 13, 1997.
(21)	Incorporated herein by reference to exhibit 10.44 with the same number included in Post-Effective Amendment No. 2 to Registrant’s Registration Statement on Form S-1 (Commission File No. 33-95318), as filed with the Securities and Exchange Commission on March 11, 1997.
(22)	Incorporated herein by reference to exhibit 10.03 included in the Registrant’s Quarterly Report on Form 10-Q for the period ended February 29, 2004, as filed with the Securities and Exchange Commission on April 9, 2004.
(23)	Incorporated herein by reference to exhibit 10.34 included in the Registrant’s Quarterly Report on Form 10-Q for the period ended May 31, 2002, as filed with the Securities and Exchange Commission on July 3, 2002.

104

(24)	Incorporated herein by reference to exhibit 2.01 included in the Registrant’s Report on Form 8-K, as filed with the Securities and Exchange Commission on October 6, 2003.
(25)	Incorporated herein by reference to exhibit 2.02 included in the Registrant’s Report on Form 8-K, as filed with the Securities and Exchange Commission on October 6, 2003.
(26)	Incorporated herein by reference to exhibit 2.03 included in the Registrant’s Report on Form 8-K, as filed with the Securities and Exchange Commission on October 6, 2003.
(27)	Incorporated herein by reference to exhibit 2.04 included in the Registrant’s Report on Form 8-K, as filed with the Securities and Exchange Commission on October 6, 2003.
(28)	Incorporated herein by reference to exhibit 2.05 included in the Registrant’s Report on Form 8-K, as filed with the Securities and Exchange Commission on October 6, 2003.
(29)	Incorporated herein by reference to exhibit 10.34 included in the Registrant’s Registration Statement on Form S-4 (Commission File No. 334-115862), as filed with the Securities and Exchange Commission on May 25, 2004.
(30)	Incorporated herein by reference to signature page included in the Registrant’s Report on Form 10-K, as filed with the Securities and Exchange Commission on November 29, 2004.

105

EX-10.26

EXHIBIT 10.26

Mr. Michael T. Morefield
6836 Bantry Court
Darien, IL 60561

Dear Mike:

     This letter will set forth the principal terms of the employment agreement between you and Portola Packaging, Inc. (the “Company”). If you agree, please sign a copy of this letter in the space provided below and return it to me.

1.   The Company is hereby employing you, and you are agreeing to accept employment with the Company as its Senior Vice President and Chief Financial Officer on the terms and conditions set forth in this letter. Your employment hereunder will commence as of the date set forth by your name below and will continue at will.

2.   You will be employed on a full-time basis, and you will be expected to perform services for the Company under its direction.

3.   Your starting salary will be Two Hundred Ten Thousand Dollars ($210,000.00) per annum (the “Base Salary”). The Company will also reimburse you for reasonable out-of-pocket expenses you incur in performing your duties.

4.   You will also be eligible to receive an annual bonus of up to thirty percent of your base salary, contingent on your performance and the attainment by the Company of business goals as provided in the Company’s executive bonus plan in effect from time to time and as prescribed by the Board of Directors. Depending on your performance and what might be provided in the Company’s executive bonus plan from time to time, the bonus may exceed thirty percent.

5.   You will be entitled to additional compensation during the Employment Term as follows:

          a.  Management will recommend to the Company’s Compensation Committee that you be granted options for 50,000 shares of the Company’s Common Stock under the Company’s current stock option plan. Such options will vest at the rate of twenty percent per year and will be fully vested in five years. Service for vesting will commence as of October 4, 2004. All options will vest upon a change of control of the Company as defined in the Company’s standard option agreement.

          b.  While we anticipate a sustained and successful relationship, should your employment be terminated by the Company during the first year other than for cause you will receive a lump sum severance payment equal to fifty percent of your Base Salary. Should your employment be terminated by the Company at any time after the first year other than for cause you will receive a lump sum severance payment equal to your Base Salary. In either case, your benefits will continue to be provided for the period of time represented by the severance amount. If you terminate your employment for your own convenience at any time after the date of this agreement, the Company will not be obligated to pay you any amount for severance, and all benefits will cease. “Cause” for this purpose shall mean (A) a material breach of this Agreement by you, but not through bad judgment or negligence, (B) an act or acts of dishonesty on your part resulting or intending to result directly or indirectly in gain or personal enrichment to which you were not legally entitled at the expense of the Company, (C) your habitual neglect of duties you are required to perform under this Agreement or (D) your committing fraud against the Company.

6.   Your employment with the Company is terminable at will and may be terminated by the Company for any reason at any time. Further, your employment will terminate immediately should you die during employment. In such event, the Company will pay the compensation earned by you before death but not yet paid to you to your estate.

7.   You will be eligible for all Portola’s benefits as described in the packet you have received from the undersigned.

8.   The following provisions shall apply in respect of the Company’s confidential information:

          a.  In connection with and in consideration for your employment as a key employee of the Company, you hereby confirm that the Company, together with any subsidiary it might have, may, from time to time, be required to enforce its rights to restrict dissemination of confidential information belonging to it by persons who are its employee or who have left its employ. You hereby confirm your fiduciary relationship between yourself and the Company and further acknowledge that the Company is required to protect trade secrets and other confidential information.

          b.  You further understand and agree that information is a trade secret or confidential information of the Company, and is proprietary to the Company, if it is (1) generated by the Company or for the Company through the exertion of effort or time for which it has paid, or committed expenditure of, its money, (2) protected as to secrecy by the Company, (3) not generally known in the industry and (4) has value in that it is or may give the Company competitive advantage. Also, you understand and agree that if the first knowledge of any information has come to you as an employee of the Company, and if this information is not generally known in the industry, that information is a trade secret or confidential information.

          c.  You acknowledge that the Company’s trade secrets and confidential information include but are not limited to customer lists and information concerning customers’ or clients’ products, requirements or financial information.

          d.  You agree that you will not use or divulge any trade secrets or confidential information of the Company for or on behalf of any other person, including but not limited to any present or future competitor of the Company, that you will use all such information only in connection with the performance of your duties for the

Company and will not use such trade secrets and confidential information for the purpose of competing with or aiding another person or party to compete with the Company at any time during or after your employment with the Company. Nothing in this Section shall be deemed to contravene or be in derogation of any other existing shopright, patent disclosure or any other similar agreement that you have entered into with the Company in the past or that may be or come into effect between you and the Company or any of its predecessors in interest or that you may enter into with the Company in the future. All files, records, documents, drawings, specifications, equipment and similar items relating to the business of the Company, whether prepared by you or otherwise coming into your possession, shall remain the exclusive property of the Company and shall not be removed under any circumstances from the premises where the work of the Company is being carried on without prior written consent of the Company.

          e.  For so long as you remain employed by the Company, you agree that you will not, directly or indirectly, either as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer or director, or in any other individual or representative capacity, engage or participate in any business in which the Company from may engage from time to time. You are not, however, prohibited from owning or purchasing any corporate securities which are publicly traded.

You will be required in due course to enter into other agreements affecting confidential information, inventions and the like that are standard for all executives of the Company.

9.   The provisions of this Agreement shall inure to the benefit of and be binding upon the heirs, successors and assigns of both you and the Company. You can not, however, assign any of your rights or obligations hereunder except with the prior written consent of the Company.

10.   All notices required to be given under this Agreement shall be in writing and shall be deemed to have been given on the date of delivery if delivered personally, or immediately upon mailing, if mailed, to the party to whom notice is to be given by first class mail, with all postage

and other charges fully prepaid, and properly addressed to the other party at its respective address appearing above or on the signature page of this Agreement. An address may be changed by the appropriate party’s giving notice of such change of address to the other party.

11.   This Agreement shall be construed in accordance with and governed by the laws of the State of California. If any term of this Agreement or application thereof shall be invalid or unenforceable the remainder of this Agreement shall remain in full force and effect. Each party hereto agrees to perform any further acts and to execute and deliver any further documents which may be reasonably necessary and appropriate to carry out the provisions of this Agreement.

12.   This Agreement constitutes the full and complete understanding and agreement between you and the Company and supersedes all prior understandings, contracts and agreements except as expressly stated above. Any waiver, modification or amendment of any provision of this Agreement shall be effective only if in writing and signed by both you and the Company.

Thank you for joining Portola. We look forward to working with you for our mutual benefit.

	Very truly yours, PORTOLA PACKAGING, INC.
	Jack Watts Chairman & CEO
Signed and Agreed:    /s/ Jack Watts	Date:    October 4, 2004

EX-10.29

Exhibit 10.29

LIMITED WAIVER AND SECOND AMENDMENT TO
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT

This Limited Wavier and Second Amendment to Fourth Amended and Restated Credit Agreement (this “Agreement”) is entered into this 24th day of November, 2004 among PORTOLA PACKAGING, INC., a Delaware corporation, as Borrower, and GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation (“GECC”), for itself, as Agent, Issuing Lender and Lender.

W I T N E S S E T H:

WHEREAS, Borrower and GECC, as Agent, Issuing Lender and Lender, are parties to that certain Fourth Amended and Restated Credit Agreement dated as of January 16, 2004 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”);

WHEREAS, the Events of Default listed on Exhibit A hereto (the “Specified Defaults”) have occurred and are continuing under the Credit Agreement; and

WHEREAS, Agent has agreed to waive the Specified Defaults, and the parties have agreed to amend the Credit Agreement, in each case upon the terms and conditions set forth herein.

NOW THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein and in the Credit Agreement, the parties agree as follows:

     Definitions. Capitalized terms used herein without definition and defined in the Credit Agreement are used herein as defined therein.

     Limited Waiver. Subject to the satisfaction of the conditions precedent set forth in Section 4 hereof, Agent and Lenders hereby waive the Specified Defaults; provided that such waiver shall be limited precisely as written and shall not be deemed or otherwise construed to constitute a waiver of any other Default or Event of Default or to prejudice any right, power or remedy which Agent and Lenders may now have or may have in the future under or in connection with the Credit Agreement or any other Loan Document (after giving effect to this Agreement), all of which rights, powers and remedies are hereby expressly reserved by Agent and Lenders.

     Amendments to Credit Agreement. Subject to the satisfaction of the terms and conditions set forth herein, the amendments to the Credit Agreement set forth in this Section 3 shall become effective as of the date hereof.

     Section 3.3(I) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

     “(I) Investments made after the Closing Date in Persons, including Subsidiaries, principally engaged in similar lines of business to that of Borrower or Borrower’s existing Restricted Subsidiaries that are Loan Parties as of the Closing Date (including the packaging or product integrity business) not to exceed the sum of (1) $10,000,000 plus (2) the aggregate net cash proceeds from the issuance of capital stock or other equity securities of Borrower after the Closing Date which are contributed as additional paid-in capital to Borrower and are at all times prior to the making of any such Investment held by Borrower in a segregated account and not co-mingled with any other funds of Borrower or its Subsidiaries (less all of such net cash proceeds used or otherwise segregated to repurchase Senior Notes or capital stock or other equity securities of Borrower or applied for other purposes) in aggregate amount at any one time outstanding (measured by the fair market value of such Investment as of the date made); provided, that no such Investment shall be made following the Second Amendment Date unless Fixed Charge Coverage exceeds 1.20 to 1.00 as of the most recently ended fiscal quarter for which information is then available; and”

     Section 3.5(A) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

     “(A) During the period from the Second Amendment Date to the last day of the first Loan Year, Borrower may redeem shares of its capital stock with proceeds received by Borrower from its issuance of the Senior Notes in an aggregate amount not exceeding $2,500,000 which are at all times prior to any such repurchase or redemption held by Borrower in a segregated account and not co-mingled with any other funds of Borrower or its Subsidiaries so long as:

     (i) Agent shall have received the financial information set forth in subsection 4.5(A) for the fiscal quarter ending November 30, 2004;

     (ii) no Default or Event of Default is then in existence or would be created as a result thereof; and

     (iii) after giving effect to such repurchase or redemption, Availability is not less than $10,000,000.”

     Section 4.2 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

     “4.2 Fixed Charge Coverage. Borrower shall not permit the Fixed Charge Coverage for any twelve (12) month period ending on the last day of each fiscal quarter set forth below to be less than the ratio set forth below for such period.

Date	Ratio
August 31, 2004		0.95 to 1.00
November 30, 2004		0.89 to 1.00
February 28, 2005		0.75 to 1.00
May 31, 2005		0.75 to 1.00
August 31, 2005		0.86 to 1.00
November 30, 2005		1.05 to 1.00
February 28, 2006 and the last day of each fiscal quarter thereafter		1.10 to 1.00

     Section 4.3 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

     “4.3 Unfinanced Capital Expenditure Limits. Borrower and its Restricted Subsidiaries on a Consolidated basis shall not make Capital Expenditures during any fiscal year, commencing with the 2005 fiscal year, that exceed $13,500,000 in the aggregate for such fiscal year (the “CapEx Limit”); provided that Borrower and its Restricted Subsidiaries may make Unfinanced Capital Expenditures during any fiscal year in excess of the CapEx Limit (but in no event in excess of $16,000,000 in the aggregate for such fiscal year) so long as, as of the date such Unfinanced Capital Expenditures are made, Fixed Charge Coverage as of the most recently ended fiscal quarter for which information is then available exceeds 1.10 to 1.00, calculated on a pro forma basis after giving effect to such Unfinanced Capital Expenditures and all other Unfinanced Capital Expenditures made by Borrower and its Restricted Subsidiaries following the last day of such fiscal quarter.”

     Section 4.4 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

     “4.4 Maintenance of Minimum Availability. Borrower shall maintain an aggregate Availability of at least (a) $3,000,000 at all times other than during a Fixed Asset Draw Period or a Minimum Fixed Charge Coverage Period and (b) $5,000,000 at all times during a Fixed Asset Draw Period or a Minimum Fixed Charge Coverage Period.”

     Each of the following definitions set forth in Section 10.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

     “EBITDA“ means, for any period, the sum (without duplication) of the following for Borrower and its Restricted Subsidiaries on a Consolidated basis: (a) Net Income for the period, (b) any provision for (or less any benefit from) income and franchise taxes included in the determination of Net Income, (c) interest expense deducted in the determination of Net Income, (d) amortization and depreciation deducted in determining Net Income, (e) losses (or less gains) from Asset Dispositions or other non-cash items included in the determination of Net Income (excluding sales, expenses or losses related to current assets), (f) extraordinary losses (or less gains), as defined under GAAP, net of related tax effects, included in the determination of Net Income, (g) non-recurring restructuring charges approved by Requisite Lenders, including (i) for Borrower’s 2004 fiscal year, severance and relocation costs not exceeding $5,151,000 in the aggregate incurred in connection with (A) relocating operations from Borrower’s facilities in California to its facility in Tolleson, Arizona, (B) relocating operations from Borrower’s South Carolina facility to its facilities in Kingsport, Tennessee and elsewhere, (C) restructuring the operations of Tech Industries and (D) additional reductions in Borrower’s overall employee headcount, and (ii) in addition to the severance and relocation costs specified in the preceding clause (i), for Borrower’s 2004 and 2005 fiscal years, severance costs not exceeding $1,200,000 in the aggregate incurred in connection with reductions in Borrower’s overall employee headcount, in each case to the extent such charges are deducted in determining Net Income for such period, (h) non-recurring charges not exceeding $1,867,000 incurred by Borrower in fiscal year 2004 in connection with the repurchase of the Chase Warrant and the Heller Warrant with proceeds received by Borrower from its issuance of the Senior Notes to the extent such charges are deducted in determining Net Income for such period and (i) a one-time non-recurring non-cash charge not exceeding $1,200,000 incurred by Borrower in fiscal year 2004 in connection with the write-down of the book value of the Sumter Property to the extent such charge is deducted in determining Net Income for such period. To the extent EBITDA is being calculated for any period which includes any of the following months, EBITDA for such months shall be deemed to be as follows: January 2003, $2,501,000; February 2003, $3,048,000; March 2003, $2,910,000; April 2003, $3,147,000; May 2003, $4,587,000; June 2003, $4,277,000; July 2003, $3,571,000; August 2003, $5,348,000; September 2003, $2,928,000; October 2003, $2,201,000; and November 2003, $2,770,000.

     “Operating Cash Flow” means, for any period (a) EBITDA for such period, less (b) Unfinanced Capital Expenditures for such period, excluding Unfinanced Capital Expenditures made during Fiscal Years 2004 and 2005 in connection with projects undertaken by any of the Mexican Restricted Subsidiary, Portola GmbH or Portola s.r.o. or with Greiner AG or its affiliates (in an aggregate amount not to exceed $4,000,000 during fiscal year 2004 and $2,700,000 during Fiscal Year 2005), less (c) all Investments made in cash by Borrower or any of its Restricted Subsidiaries during such period (other than Investments made in Borrower by a Restricted Subsidiary of Borrower), less (d) Other Capitalized Costs, excluding Other Capitalized Costs with respect to Borrower’s acquisition of Tech Industries and Borrower’s acquisition of Berry Plastics’ dairy cap product line in March 2004. “Other Capitalized Costs,” means the gross amount capitalized, for such period, as long term assets (net of cash received in respect of long term assets), other than (i) Capital Expenditures and (ii) fees and expenses capitalized with respect to the Related Transactions or the transactions under the Existing Credit Agreement.

     “Unfinanced Capital Expenditures” means, for any period (a) Capital Expenditures for such period, less (b) the portion of such Capital Expenditures financed (i) under capital leases or other Indebtedness (Indebtedness, for this purpose, does not include drawings under the Revolving Loan) or (ii) with Net Proceeds of the sale of the Chino Property, the Sumter Property and the Faulstich Property so long as such sale complies with the requirements of Sections 3.7(b)(ii), (iii), (iv) and (v) of the Credit Agreement, less (c) Capital Expenditures not exceeding $3,269,000 with respect to Borrower’s acquisition of Berry Plastics’ dairy cap product line in March 2004.

     Section 10.1 of the Credit Agreement is further amended by adding each of the following definitions in their proper alphabetical order:

     “Minimum Fixed Charge Coverage Period” means any period during which Fixed Charge Coverage as of the last day of the most recent fiscal quarter for which information is then available is less than or equal to 1.10 to 1.00.

     “Second Amendment Date” means November 24, 2004.

     Schedule 1.2 to the Credit Agreement is hereby amended and restated in its entirety to read as set forth in Schedule 1.2 attached hereto.

     Exhibit 4.5(C) to the Credit Agreement is hereby amended and restated in its entirety to read as set forth in Exhibit 4.5(C) attached hereto.

     Conditions. The effectiveness of this Agreement is subject to Borrower’s satisfaction of the following conditions on or before the date hereof in a manner satisfactory to the Agent:

     Executed Agreement. Executed signature pages for this Agreement signed by Agent, Lenders and Borrower shall have been delivered to the Agent.

     Continuation of Representations and Warranties. After giving effect to the replacement Schedules delivered herewith, the representations and warranties made by the Loan Parties contained in the Credit Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the date hereto with the same effect as if made on and as of the date hereof (except to the extent such representations and warranties expressly relate to an earlier date).

     No Existing Default. As of the date hereof and after giving effect to this Agreement, no Default or Event of Default shall have occurred and be continuing or shall result from the consummation of the transactions contemplated hereunder.

     Amendment Fee. The Borrower shall have paid to Agent an amendment fee equal to $75,000.

     Repayment of Revolving Loans. Borrower shall have applied at least $5,400,000 of the proceeds received by Borrower from its issuance of the Senior Notes against the outstanding balance of the Revolving Loans.

     Representations and Warranties of Borrower. Borrower represents and warrants that:

          (i) the execution, delivery and performance by the Borrower of this Agreement have been duly authorized by all necessary corporate action and this Agreement is a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms;

          (ii) each of the representations and warranties contained in the Credit Agreement is true and correct in all material respects on and as of the date hereof as if made on the date hereof, except to the extent that such representations and warranties expressly relate to an earlier date; and

          (iii) neither the execution, delivery and performance of this Agreement nor the consummation of the transactions contemplated hereby does or shall contravene, result in a breach of, or violate (i) any provision of any Loan Party’s certificate or articles of incorporation or bylaws, (ii) any law or regulation, or any order or decree of any court or government instrumentality, or (iii) any indenture, mortgage, deed of trust, lease, agreement or other instrument to which any Loan Party or any of its Subsidiaries is a party or by which any Loan Party or any of its Subsidiaries or any of their property is bound.

     Reference To And Effect Upon The Credit Agreement.

          (i) Except as specifically provided herein, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed.

          (ii) The execution, delivery and effectiveness of this Agreement shall not operate as a waiver of any right, power or remedy of Agent or any Lender under the Credit Agreement or any Loan Document, nor constitute a waiver of any provision of the Credit Agreement or any Loan Document, except as specifically set forth herein.

          (iii) This Agreement shall be deemed to be a Loan Document.

     Costs And Expenses. Borrower agrees to reimburse Agent on the date hereof for all fees, costs and expenses, including the fees, costs and expenses of counsel or other advisors for advice, assistance, or other representation in connection with this Agreement.

     Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF ILLINOIS.

     Headings. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purposes.

     Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed an original, but all such counterparts shall constitute one and the same instrument.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto hereupon set their hands as of the date first written above.

PORTOLA PACKAGING, INC.
By:	/s/ Michael T. Morefield
Title: Senior Vice President and Chief Financial Officer

[Signature Page to Limited Waiver and Second Amendment]

GENERAL ELECTRIC CAPITAL CORPORATION, as Agent, Issuing Lender and Lender
By:	/s/ Woodrow Broaders
Title: Authorized Signatory

[Signature Page to Limited Waiver and Second Amendment]

CONSENT AND REAFFIRMATION (SUBSIDIARY GUARANTORS)

Each of the undersigned hereby (i) acknowledges receipt of a copy of the foregoing Waiver and Fourth Amendment to Credit Agreement; (ii) consents to Borrower’s execution and delivery thereof; (iii) affirms that nothing contained therein shall modify in any respect whatsoever its guaranty of the obligations of Borrower to Agent and Lenders and reaffirms that such guaranty is and shall continue to remain in full force and effect and that each Loan Document to which it is a party or otherwise bound and all Collateral encumbered thereby will continue to guaranty or secure, as the case may be, to the fullest extent possible, the payment and performance of all obligations under or in respect of such guaranty and such other Loan Documents; and (iv) confirms that, as of the date hereof, it does not have, and hereby waives, remises and releases any claims or causes of action of any kind against Agent or any of the Lenders or any of their officers, directors, employees, agents, attorneys, or any of the Lenders or any of their officers, directors, employees, agents, attorneys or representatives, or against any of their respective predecessors, successors, or assigns relating in any way to any event, circumstance, action, or omission relative to any of the Loan Documents or any transaction contemplated thereby, from the beginning of time through the date hereof. Although each of the undersigned has been informed of the matters set forth herein and has acknowledged and consented to same, each of the undersigned understands that Agent and Lenders have no obligation to inform it of such matters in the future or to seek its acknowledgment or consent to future Agreements or waivers, and nothing herein shall create such a duty.

[Signature Page Follows]

IN WITNESS WHEREOF, the undersigned have executed this Limited Waiver and Second Amendment on and as of the date of such Agreement.

PORTOLA PACKAGING LTD.
By:	/s/ James A. Taylor
Name:	James A. Taylor
Title:	Chief Operating Officer

PORTOLA PACKAGING CANADA LTD.
By:	/s/ Michael T. Morefield
Name:	Michael T. Morefield
Title:	Senior VP and Chief Financial Officer

PORTOLA ALLIED TOOL, INC.
By:	/s/ Michael T. Morefield
Name:	Michael T. Morefield
Title:	Senior VP and Chief Financial Officer

PORTOLA PACKAGING LIMITED
By:	/s/ James A. Taylor
Name:	James A. Taylor
Title:	Chief Operating Officer

PORTOLA PACKAGING, INC. MEXICO S.A. DE C.V.
By:	/s/ James A. Taylor
Name:	James A. Taylor
Title:	Chief Operating Officer

ATLANTIC PACKAGING SALES LLC
By:	/s/ Michael T. Morefield
Name:	Michael T. Morefield
Title:	Senior VP and Chief Financial Officer

TECH INDUSTRIES, INC.
By:	/s/ Michael T. Morefield
Name:	Michael T. Morefield
Title:	Senior VP and Chief Financial Officer

PORTOLA LIMITED
By:	/s/ Michael T. Morefield
Name:	Michael T. Morefield
Title:	Senior VP and Chief Financial Officer

EXHIBIT A
TO
LIMITED WAIVER AND SECOND AMENDMENT

SPECIFIED DEFAULTS

For purposes of this Agreement, “Specified Defaults” refers to the fact that, under that certain Post Closing Matters Agreement, dated as of January 23, 2004, between Borrower and Agent, Borrower was required to deliver, but failed to deliver, to Agent, prior to         , 2004, executed Bank Agency Agreements, in form and substance acceptable to Agent, with respect to all accounts of Borrower and its Restricted Subsidiaries at (i) Canadian Imperial Bank of Commerce and (ii) Union Bank of California, N.A. Agent acknowledges that Agent has received fully executed copies of both such Bank Agency Agreements.

The definition of “Specified Defaults” set forth in this Exhibit A shall be limited precisely as written and shall not include any other Default or Event of Default, including, without limitation, any Event of Default arising out of any other failure by the Borrower to comply with any of the financial covenants described above.

SCHEDULE 1.2

PRICING TABLE

Average Daily
Availability for
Calculation Period	Index Rate Margin			LIBOR Margin
£$12,500,000		1.25	%		2.75	%
>$12,500,000		1.00	%		2.50	%

Notwithstanding the foregoing, from and after the Second Amendment Date, the LIBOR Margin shall be 2.75% and the Index Rate Margin shall be 1.25% until such time as Agent shall have received a Compliance Certificate reflecting Fixed Charge Coverage as of the last day of any fiscal quarter ending on or after November 30, 2004 of greater than 1.10 to 1.00. Commencing on the first Adjustment Date thereafter, the Index Rate Margin and LIBOR Margin shall be calculated in accordance with Section 1.2 of the Credit Agreement.

2

EX-10.30

Exhibit 10.30

OPTION TO RENEW

The Original Option To Renew dated November 15, 2001, is hereby amended as indicated in underlined bold print below.

     Pursuant to Article XXXIV, Section 34.1 “Option to Extend” of the Lease Agreement between B&B Investments, Inc. (“Landlord”) and Portola Packaging, Inc. (“Tenant”) relating to the property at 951 Douglas Road, Batavia, IL dated July 23, 1992, and in consideration of the Landlord completing, at the expense of the Landlord, an Office Expansion Project (“Project”) totaling $227,188.00, the Tenant hereby notifies the Landlord of its intent to exercise its OPTION TO EXTEND for the First Extension Term of five (5) years.

     This five (5) year extension, as provided in the aforementioned Lease agreement, shall commence upon the day following the last day of the original term of this Lease from August 6, 2008 to August 5, 2013.

     The Rent paid by the Tenant to the Landlord for the five (5) year extension period above shall be equal to:

Base Rent	$40,068.91 per calendar Month ($480,826.92 per Year)
Project	$2,764.41 per calendar Month ($33,172.92 per Year)
Total Rent	$42,833.32 per calendar Month ($513,998.84 per Year)

     Furthermore, in consideration of the Landlord completing the “Project”, the Tenant agrees to pay each month to the Landlord, in addition to the base rent of $37,511.32 per calendar Month (as provided in Exhibit “D” of the original Lease), the amount of $2,764.41 per calendar Month. The new Base Rent for the remainder of the original Lease term through August 5, 2008, shall be:

Base Rent	$37,511.32 per calendar Month ($450,135.84 per Year)
Project	$2,764.41 per calendar Month ($33,172.92 per Year)
Total Rent	$40,275.73 per Calendar Month ($483,308.76 per Year)

     The additional $2,764.41 per calendar Month shall be added to the Base Rent of $37,511.32 commencing with the lease payment due for March 1, 2002.

     The Landlord shall pay the General Contractor directly for any and all work completed as agreed, and shall warrant to the Tenant that all work performed shall be free of any and all liens or encumbrances against the Tenant.

Agreed:
	Landlord	Date	Tenant	Date

Amendment to Lease Agreement

This amendment modifies the Lease Agreement between B&B Investments, Inc. (“Landlord”) and Portola Packaging, Inc. (“Tenant”) relating to the property at 951 Douglas Road, Batavia, IL dated July 23, 1992, as follows:

Article XXXIV Option to Renew

     Section 34.1 and sub-para (a) of the lease between Landlord and Tenant currently reads:

     Section 34.1. Tenant is hereby granted the right to extend the term of this lease for two (2) consecutive terms of five (5) years each commencing on the day immediately following the expiration of the original term (“the First Extension Term”) and on the day following the the expiration of the First Extension Term (the “Second Extension Term”) subject to the following conditions:

     (a) Tenant serves written notice on Landlord of its intent to extend not more than three hundred sixty five (365) days prior to the expiration of the original term and not less than two hundred seventy (270) days prior to the expiration of the original term or First Extension Term; as applicable.

     Section 34.1, sub-para (a) of the lease between Landlord and Tenant is hereby amended to now read:

The first paragraph remains unchanged

     Section 34.1. Tenant is hereby granted to the right to extend the term of this lease for two (2) consecutive terms of five (5) years each commencing on the day immediately following the expiration of the original term (“the First Extension Term”) and on the day following the the expiration of the First Extension Term (the “Second Extension Term”) subject to the following conditions:

     Section 34.1, Sub-Paragraph (a) is amended to now read:

     (a)Tenant serves written notice on Landlord of its intent to extend not less than two hundred seventy (270) days prior to the expiration of the original term or First Extension Term; as applicable.

Section 34.1, Sub-Paragraphs (b), (c), (d) and (e) remain unchanged

     This amendment modifies only the above mentioned specific terms, and all other terms and conditions of this agreement shall remain in full force and effect as originally agreed. This lease agreement is hereby amended as described above through signature below of the authorized agents of the Landlord and Tenant and shall be effective this    day of    , of the year    .

Landlord:		Tenant:
Signature	Date	Signature	Date
Print Name		Print Name
Title		Title

EX-10.31

Exhibit 10.31

SECOND AMENDMENT TO LEASE AGREEMENT

     THIS SECOND AMENDMENT TO LEASE AGREEMENT (this “Amendment”) is made as of this 1st day of March, 2004, by and between Santa Maria Industrial Partners, L.P. (“Landlord”), represented herein by Raymond E. Flores, Jr., its legal representative, and Portola Packaging Inc., Mexico, S.A. de C.V. (“Tenant”), represented herein by Mr. Ernesto Green, its legal representative.

RECITALS

     A. Landlord and Tenant have entered into a certain Lease Agreement dated as of November 6, 2000, as amended by a certain First Amendment to Lease Agreement dated as of May 9, 2002 (collectively, the “Lease”) with respect to premises at Guadalajara Technology Park, Zapopan, Jalisco, Mexico (the “Premises”).

     B. Landlord’s legal representative has the authority to represent Landlord in connection with this Amendment and the Lease pursuant to the power of attorney or other documents attached hereto as Exhibit A. Tenant’s legal representative has the authority to represent Tenant in connection with this Amendment and the Lease pursuant to the power of attorney or other documents included in Exhibit B, and Guarantor has the necessary power and authority to execute and deliver this Amendment.

     C. The parties desire to modify the Lease in certain respects as hereinafter provided.

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

     1. Terms. All capitalized terms used herein which are not otherwise defined shall have the respective meanings set forth in the Lease.

     2. Expansion of Building. The parties have agreed that Landlord will construct a 20,000 square foot expansion of the Building (the “Expansion”) upon that parcel of land identified on Exhibit C attached hereto which is contiguous to the Land and contains approximately 2,933 square meters (the “Expansion Land”) and that the Expansion and Expansion Land will become part of the Premises, all as provided in this Amendment. The Expansion Land is the same parcel as the “Expansion Land” described in Section 17 of the Lease. Therefore, Section 17 of the Lease (which refers to the Expansion Land) is hereby deleted in its entirety and the words “Intentionally Omitted” substituted therefor.

1

     3. Landlord’s Work Relating to Expansion.

     A. Attached hereto as Exhibit D are final plans and specifications (collectively, the “Final Expansion Drawings and Specifications”) for the construction of the Expansion, which Final Expansion Drawings and Specifications Landlord and Tenant have approved.

     B. Changes to the Final Expansion Drawings and Specifications shall only be made by written change orders in the form of Exhibit G to the Lease signed by Landlord and Tenant. In the event Tenant wishes to make changes to the Final Expansion Drawings and Specifications, Tenant shall submit a written request to Landlord stating with specificity the requested modifications. Tenant will pay for any increases in Landlord’s costs of construction as well as any additional costs incurred in revising the Final Expansion Drawings and Specifications on account of such requested modification. Landlord will provide to Tenant a good faith estimate of any such additional costs and, after receiving such estimate, Tenant shall have the right to decline to proceed with such modifications by notice given within 3 days after receipt of such estimate (with Tenant obligated to pay, within 5 business days after receipt of an invoice, the reasonable costs incurred by or on behalf of Landlord in preparing such estimate). Any delays in the work attributable to such modification will not extend the Expansion Commencement Date, unless the parties expressly agree otherwise in the applicable change order.

     C. Landlord shall construct or cause the construction of the improvements comprising the Expansion in accordance with the Final Expansion Drawings and Specifications and is targeting Substantial Completion of such improvements by September 1, 2004 ( the date of Substantial Completion of the Expansion, the “Expansion Commencement Date”). Base Rent will be increased (as provided below) to reflect inclusion of the Expansion into the Premises as of the Expansion Commencement Date. The Expansion Commencement Date will be subject to extension, on a day to day basis, (i) by the period of any delays in the work attributable to a change order, (ii) by the period of any delays attributable to Tenant, or (iii) by any delay in the execution of this Amendment beyond April 9, 2004. Notwithstanding the foregoing, the obligation to pay increased Base Rent will not be delayed on account of any delay in the Expansion Commencement Date attributable to any act or omission of Tenant or any agent, contractor or representative of Tenant.

     D. Landlord shall notify Tenant of the anticipated date of Substantial Completion of the Expansion and the scheduled date on which Tenant shall meet with Landlord to inspect the work by notice given at least five (5) days prior to the date of Substantial Completion stated therein. During such inspection, Landlord and Tenant will agree upon any incomplete items, and, within five (5) days after Tenant’s inspection of the work, Tenant shall submit to Landlord a punch-list of those incomplete items. Landlord shall complete such punch-list items within thirty (30) days after receipt of the punch list. Tenant’s possession of the Expansion shall be conclusive as to Tenant's acceptance of the Expansion as of the Expansion Commencement Date and acknowledgement that the Expansion is in the condition required by the Final Expansion Drawings and Specifications, except as to incomplete items as set forth on the punch list.

     4. Definitions. The following definitions as set forth in Section 1 of the Lease are deleted as of the applicable dates set forth below and the following substituted therefor:

2

From and after the date hereof:

“Landlord’s Notice Address” shall mean Calz. del Valle Ote. No. 110, Piso 2, San Pedro Garza Garcia, Nuevo Leon, Mexico, C.P. 66220 with a copy to (i) 518 Seventeenth Street, Suite 1700, Denver Colorado 80202, U.S.A., (ii) Reynolds Law, P.C., 34 S. Broadway, White Plains, NY 10601, U.S.A., and (iii) Ira Chaplik — General Counsel, Equity International Properties, Ltd., 2 North Riverside Plaza, Suite 700, Chicago, Illinois 60606, U.S.A.

“Land” shall mean that certain real property on which the Building is situated, located in the City of Zapopan and State of Jalisco, a description of which is attached hereto as Exhibit A and which includes, without limitation, the Expansion Land.

From and after the Expansion Commencement Date:

“Base Rent” shall mean the base rent payable by Tenant during the remainder of the Term, subject to escalation as provided in Section 3B, as follows (amounts set forth below are in currency of the United States of America):

		PAYMENTS
DATES	ANNUAL	MONTHLY	MONTHLY/PSF
Expansion Commencement Date through Expiration Date	US$512,775.56	US$42,731.30	US$0.5341

“Building” shall mean that certain building and other improvements having a street address of Paseo del Pacifico #471, Guadalajara Technology Park, and containing approximately 80,000 square feet.

“Expiration Date” shall mean the last day of the calendar month in which the ten (10) year anniversary of the Expansion Commencement Date occurs.

“Term” shall mean the period commencing on the Commencement Date and ending on the Expiration Date, being approximately ten (10) years from the Expansion Commencement Date.

     5. Base Rent Escalation. The revised Base Rent figure set forth in Paragraph 4 above incorporates cumulative CPI Charges from the Commencement Date through the anticipated Expansion Commencement Date of September 1, 2004 (in the event the Expansion Commencement Date is different, the parties will reflect the revised Base Rent amount in a letter agreement or Lease amendment). As a result, the parties agree to reset CPI Charges and the calculation thereof as of the Expansion Commencement Date. Specifically, as of the Expansion Commencement Date, Section 3(B) of the Lease is hereby modified by deleting the words “Commencement Date” each time they appear and substituting therefor the words “Expansion Commencement Date.”

3

     6. Events of Default. Section 15 of the Lease is hereby deleted in its entirety and the following substituted therefor:

     15. Events of Default.

(A) Tenant Default. In addition to any other event specified in this Lease as an event of default, the occurrence of any one or more of the following events during the Term shall constitute an event of default hereunder by Tenant (each, an “Event of Default”): (1) Tenant fails to pay any sum when due hereunder and such failure is not remedied within five (5) days after written notice thereof from Landlord to Tenant; or (2) Tenant fails to perform any of the other covenants, terms or conditions of this Lease to be performed by Tenant (other than any monetary default), and, unless expressly provided elsewhere in this Lease, such default shall continue for fifteen (15) days after written notice thereof from Landlord to Tenant, or, in the case of a default which cannot with due diligence be cured within fifteen (15) days, Tenant fails to commence such cure promptly within such fifteen (15) day period and thereafter diligently prosecute such cure to completion; or (3) Tenant or Guarantor files a voluntary petition in bankruptcy or becomes insolvent within the meaning of any applicable bankruptcy code (the “Code”), or a petition is filed against Tenant or Guarantor under the Code and is not dismissed with prejudice within sixty (60) days after filing, or Tenant files any petition or answer seeking reorganization or similar relief under any bankruptcy or other applicable law, or seeks or consents to the appointment of a receiver or other custodian for any substantial part of Tenant’s properties or any part of the Premises; or (4) Guarantor shall default beyond any applicable notice and/or grace period under the Guaranty; or (5) the Premises shall be effectively abandoned by Tenant for a period of ten (10) days; or (6) a lien or claim is filed against the Premises arising out of any work performed by or on behalf of Tenant and Tenant fails to discharge such lien or remedy such claim within thirty (30) days after the filing thereof.

(B) Landlord Default. In the event Landlord shall fail to perform any covenant required to by performed by Landlord under the terms and provisions of this Lease and such failure shall continue unremedied or uncorrected for a period of thirty (30) days after notice to Landlord (which notice shall be simultaneously delivered to any mortgagee of which Tenant has been given notice), or, in the case of a default which cannot with due diligence be cured within 30 days, Landlord fails to commence such cure promptly within such 30 days period and thereafter diligently prosecute such cure to completion, Tenant may pursue any remedies available to Tenant as hereinafter provided, but only after Landlord’s mortgagee, if any, shall have been given an additional reasonable period of time to cure such breach.

(C) Remedies. Upon the occurrence of an Event of Default or, after the passage of any applicable grace or cure period, a Landlord default, the non-defaulting party shall have the right to pursue any remedies available to it under Laws including, without limitation, the right of specific performance or payment of damages to the extent permitted by Laws. In addition, the non-defaulting party shall have the right to rescind this Lease upon thirty (30) days’ prior notice without the necessity of judicial intervention, the parties specifying that such agreement is a commissary pact (“Pacto Comisorio Expreso”) pursuant to Laws and applicable case law. In such case and notwithstanding any such rescission, the party

4

terminating this Agreement shall retain and does not waive its rights to pursue any and all claims it may have against the defaulting party on account of such default.

     7. Arbitration. Section 25 of the Lease is hereby deleted in its entirety and the following substituted therefor:

25.  ARBITRATION. Except for disputes, controversies or claims relating specifically to (i) the Drawings and Specifications or the performance of Landlord’s work as provided above, (ii) the repair and maintenance of the Premises, or (iii) any Alterations (collectively, the “Arbitral Claims”), any dispute, controversy or claim arising out of or related to this Lease or a breach hereof, shall be resolved under the jurisdiction of the competent courts in the area where the Premises is located to which the parties hereby expressly agree to submit, waiving any other jurisdiction which might be applicable by reason of their present or future domiciles or otherwise.

All Arbitral Claims shall be resolved by arbitration in the event that the parties, despite their good faith efforts, are not able to resolve any such dispute within 60 days after it arises. The arbitration shall be in accordance with the procedural rules of the American Arbitration Association. There shall be one (1) arbitrator selected by the parties who shall be experienced in law and knowledgeable in the area of commercial real estate, and if the parties are not able to select an arbitrator within 30 days after a notice of arbitration is filed, the American Arbitration Association shall appoint an arbitrator from a panel of experienced arbitrators meeting the criteria set forth above and accredited by the American Arbitration Association. The arbitration, including the rendering of the award, shall take place in New York, New York, United States of America. The language to be used in the arbitration shall be English, except that the arbitral award shall be issued in both English and Spanish. The arbitral award shall be valid and binding and judgment upon the award of arbitrators may be entered and enforced through any competent court in the area where the Premises is located.

     8. Amendment of Guaranty. The Guaranty is hereby amended by substituting the amount “US$808,600” for “$595,000” in the two places such amount appears in the first paragraph of the Guaranty.

     9. No Other Modification. Except as modified by this Amendment, the Lease and all covenants, agreements, terms and conditions thereof (including, without limitation, provisions relating to the authority shall remain in full force and effect and are hereby in all respects ratified and confirmed.

5

     IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written.

LANDLORD:
Santa Maria Industrial Partners, L.P.
By:
TENANT:
Portola Packaging Inc., Mexico, S.A. de C.V.
By:	[illegible]
Agreed and Acknowledged:
GUARANTOR:
Portola Packaging, Inc.
By:	[illegible]

Exhibits
A.	Landlord’s Power of Attorney
B.	Tenant’s Power of Attorney
C.	Description of Additional Land
D.	Final Expansion Drawings and Specifications

6

EX-10.32

Exhibit 10.32

LEASE

CABOT INDUSTRIAL PROPERTIES, L.P.,
Landlord,

and
PORTOLA PACKAGING, INC.,
Tenant

Table of Contents

		Page
1.	USE AND RESTRICTIONS ON USE	1
2.	TERM	1
3.	RENT	2
4.	RENT ADJUSTMENTS	2
5.	SECURITY DEPOSIT	4
6.	ALTERATIONS	4
7.	REPAIR	5
8.	LIENS	6
9.	ASSIGNMENT AND SUBLETTING	6
10.	INDEMNIFICATION	7
11.	INSURANCE	7
12.	WAIVER OF SUBROGATION	8
13.	SERVICES AND UTILITIES	8
14.	HOLDING OVER	8
15.	SUBORDINATION	8
16.	RULES AND REGULATIONS	9
17.	REENTRY BY LANDLORD	9
18.	DEFAULT	9
19.	REMEDIES	10
20.	TENANT'S BANKRUPTCY OR INSOLVENCY.	12
21.	QUIET ENJOYMENT	13
22.	CASUALTY	13
23.	EMINENT DOMAIN	14
24.	SALE BY LANDLORD	14
25.	ESTOPPEL CERTIFICATES	14
26.	SURRENDER OF PREMISES	14
27.	NOTICES	15
28.	TAXES PAYABLE BY TENANT	15
29.	RELOCATION OF TENANT	15
30.	DEFINED TERMS AND HEADINGS	16
31.	TENANT'S AUTHORITY	16
32.	FINANCIAL STATEMENTS AND CREDIT REPORTS	16
33.	COMMISSIONS	16
34.	TIME AND APPLICABLE LAW	16
35.	SUCCESSORS AND ASSIGNS	16
36.	ENTIRE AGREEMENT	16
37.	EXAMINATION NOT OPTION	16

-i-

Table of Contents
(continued)

		Page
38.	RECORDATION	16
39.	OPTION TO EXTEND	17
40.	RIGHT OF FIRST OFFER	17
41.	FORCE MAJEURE	18
42.	LIMITATION OF LANDLORD'S LIABILITY	18

EXHIBIT A — FLOOR PLAN DEPICTING THE PREMISES

EXHIBIT A-1 — SITE PLAN DEPICTING THE PREMISES

EXHIBIT B — INITIAL ALTERATIONS

EXHIBIT C — COMMENCEMENT DATE MEMORANDUM

EXHIBIT D — RULES AND REGULATIONS

EXHIBIT E — HAZARDOUS MATERIALS

EXHIBIT F — LIST OF HAZARDOUS MATERIALS

-ii-

MULTI-TENANT INDUSTRIAL NET LEASE

REFERENCE PAGES

BUILDING:	4 South 84th Avenue, Tolleson, Arizona
LANDLORD:	Cabot Industrial Properties, L.P., a Delaware limited partnership
LANDLORD’S ADDRESS:	c/o RREEF Management Company
	2201 East Camelback Road, Suite 230B
	Phoenix, Arizona 85016
WIRE INSTRUCTIONS AND/OR ADDRESS FOR RENT PAYMENT:	Cabot Industrial Properties, L.P. (Lock Box #6)
	75 Remittance Dr., Suite 1431
	Chicago, IL. 60675-1431
LEASE REFERENCE DATE:	June 5, 2003
TENANT:	Portola Packaging, Inc., a Delaware corporation
TENANT’S NOTICE ADDRESS:
(a) As of beginning of Term:	4 South 84th Avenue, Suite 200
	Tolleson, Arizona
	Attn: Plant Manager
(b) Prior to beginning of Term (if different):	890 Faulstich Court
	San Jose, CA 95112
	Attn: Dennis Berg
PREMISES ADDRESS:	4 South 84th Avenue, Suite 200
	Tolleson, Arizona 85353
PREMISES RENTABLE AREA:	Approximately 115,000 sq. ft. (for outline of Premises see Exhibit A)
USE:	Operation of a plastics manufacturing business, and the office uses related thereto
SCHEDULED COMMENCEMENT DATE:	November 1, 2003
TERM OF LEASE:	Fifteen (15) years plus the Commencement Month (as defined below), beginning on the Commencement Date and ending on the Termination Date. The period from the Commencement Date to the last day of the same month is the “Commencement Month.”
TERMINATION DATE:	The last day of the one hundred and eightieth (180th) full calendar month after (if the Commencement Month is not a full calendar month), or from and including (if the Commencement Month is a full calendar month), the

iii

Commencement Month

ANNUAL RENT and MONTHLY INSTALLMENT OF RENT(Article 3):	Months	Annual Rent*		Monthly Rent*
	1-6	$	266,928.00	$	22,244.00
	7-30	$	611,928.00	$	50,994.00
	31-60	$	639,528.00	$	53,294.00
	61-90	$	680,928.00	$	56,744.00
	91-120	$	722,328.00	$	60,194.00
	121-150	$	763,728.00	$	63,644.00
	151-180	$	818,928.00	$	68,244.00

	If the Commencement Date is other than the first(1st ) day of a calendar month, the Monthly Installment of Rent due for the Commencement Month shall be owed by Tenant on the Commencement Date (and, assuming funds are available, taken fromthe Security Deposit on or about that date, per Article 3.1), prorated based upon a monthly rent amount of $50,994.00.
	*plus applicable sale and transaction privilege taxes
	Note: The foregoing figures are subject to adjustment, per Article 3.1 of the Lease
INITIAL ESTIMATED MONTHLY INSTALLMENT	$10,120.00
OF RENT ADJUSTMENTS (Article 4)
	Notwithstanding any contrary language in the Lease, Tenant shall not be obligated to pay its Proportionate Share of Expenses and Taxes for the first six (6) full calendar months of the Term of the Lease (but Tenant shall owe its Proportionate Share of Expenses and Taxes for the Commencement Month,which charge [assuming funds are available] shall be taken from the Security Deposit, per Article 3.1, on or about the Commencement Date)
TENANT’S PROPORTIONATE SHARE:	48.73%, based on the Premises square footage of 115,000 divided by the Project square footage of 236,007
SECURITY DEPOSIT:	$900,000.00, which figure is subject to reduction to $100,000.00 in accordance with Article 3.1 of the Lease
ASSIGNMENT/SUBLETTING FEE	$500.00
REAL ESTATE BROKER DUE COMMISSION:	CB Richard Ellis, Inc. and Trammell Crow
TENANT’S SIC CODE:	3089

AMORTIZATION RATE: 10 %

The Reference Pages information is incorporated into and made a part of the Lease. In the event of any conflict between any Reference Pages information and the Lease, the Lease shall control. This Lease includes Exhibits A through D, all of which are made a part of this Lease.

LANDLORD:		TENANT:
CABOT INDUSTRIAL PROPERTIES, L.P.,		PORTOLA PACKAGING, INC., a
		Delaware corporation
a Delaware limited partnership
By:	RREEF Management Company, a Delaware	By:
corporation, its Authorized Agent
		Name:
Name:
	Bret C. Borg, CPM
Title: District Manager		Title:
Dated: May ____, 2003		Dated: May ____, 2003

LEASE

     By this Lease Landlord leases to Tenant and Tenant leases from Landlord the Premises in the Building as set forth and described on the Reference Pages. The Premises are depicted on the floor plan attached hereto as Exhibit A, and the Building is depicted on the site plan attached hereto as Exhibit A-1. Landlord and Tenant agree that said Exhibit A and Exhibit A-1 is an estimate only and that the parties shall amend this Lease to attach the final Exhibit A and Exhibit A-1 once same has been finalized, which shall occur prior to the commencement of construction pursuant to Exhibit B. The Reference Pages, including all terms defined thereon, are incorporated as part of this Lease.

1. USE AND RESTRICTIONS ON USE.

     1.1 The Premises are to be used solely for the purposes set forth on the Reference Pages. Landlord represents, to the best of its knowledge without any duty of inquiry or investigation, that as of the Lease Reference Date the Building and Premises comply with all governmental laws, ordinances, and regulations applicable to the Building and its occupancy. Landlord shall promptly comply with all governmental orders and directions for the correction, prevention and abatement of any violation in the Building or appurtenant land, caused or permitted by, or resulting from the obligations of Landlord, all at Landlord’s sole expense. Tenant shall not do or permit anything to be done in or about the Premises which will in any way materially obstruct or interfere with the rights of other tenants or occupants of the Building or materially injure, annoy, or disturb them, or allow the Premises to be used for any, unlawful or objectionable purpose, or commit any waste. Tenant shall not do, permit or suffer in, on, or about the Premises the sale of any alcoholic liquor without the written consent of Landlord first obtained. Tenant shall comply with all governmental laws, ordinances and regulations applicable to the use of the Premises and its occupancy and shall promptly comply with all governmental orders and directions for the correction, prevention and abatement of any violations in the Premises, the Building or appurtenant land, caused or permitted by, or resulting from the specific use by, Tenant of the Premises, all at Tenant’s sole expense. Tenant shall not do or permit anything to be done on or about the Premises or bring or keep anything into the Premises which will in any way materially increase the rate of, invalidate or prevent the procuring of any insurance protecting against loss or damage to the Building or any of its contents by fire or other casualty or against liability for damage to property or injury to persons in or about the Building or any part thereof. Tenant’s obligations, liabilities and responsibilities in regard to the handling, use, manufacture, storage or disposal of Hazardous Materials (as defined in Exhibit E) are set forth in Exhibit E.

     1.2 Tenant and its agents, contractors, employees, licensees or invitees (collectively, the “Tenant Entities”) will be entitled to the non-exclusive use of the common areas of the Building as they exist from time to time during the Term, including the parking facilities, subject to Landlord’s rules and regulations (which rules and regulations shall apply uniformly to all tenants at the Building) regarding such use. However, in no event will Tenant or the Tenant Entities park more vehicles in the parking facilities than Tenant’s Proportionate Share of the total parking spaces available for common use (provided that the number of total parking spaces allocable to Tenant shall at no time be less than the number of total parking spaces allocable to Tenant on the Lease Reference Date). The foregoing shall not be deemed to provide Tenant with an exclusive right to any parking spaces or any guaranty of the availability of any particular parking spaces or any specific number of parking spaces (provided that the number of total parking spaces allocable to Tenant shall at no time be less than the number of total parking spaces allocable to Tenant on the Lease Reference Date).

2. TERM.

     2.1 The Term of this Lease shall begin on the date (“Commencement Date”) that Landlord shall tender possession of the Premises to Tenant (as defined in Section 7 of Exhibit B), and shall terminate on the date as shown on the Reference Pages (“Termination Date”), unless sooner terminated by the provisions of this Lease. Landlord shall tender possession of the Premises with all the work, if any, to be performed by Landlord pursuant to Exhibit B to this Lease substantially completed. Tenant shall deliver a punch list of items not completed or which need repair within thirty (30) days after Landlord tenders possession of the Premises and Landlord agrees to proceed with due diligence to complete or repair, as applicable, such items. Tenant shall, at Landlord’s request, execute and deliver a memorandum agreement provided by Landlord in the form of Exhibit C attached hereto, setting forth the actual Commencement Date, Termination Date and, if necessary, a revised rent schedule. Should Tenant fail to do so within thirty (30) days after Landlord’s request, the information set forth in such memorandum provided by Landlord shall be conclusively presumed to be agreed and correct.

     2.2 The general contractor being retained to construct the Initial Improvements (as defined in Exhibit B) shall provide the parties with a time line indicating, among other things, the date by which it intends to complete the Initial Improvements. Promptly after receipt of the time line, Landlord and Tenant shall meet to mutually agree upon the date by

1

which they expect the Initial Improvements to be completed (which date is, for the purposes of this Section 2.2, referred to as the “New Scheduled Commencement Date”). In the event of the inability of Landlord to deliver possession of the Premises by the New Scheduled Commencement Date for any reason, Landlord shall not be liable for any damages resulting from such inability, but Tenant shall not be liable for any rent until the time when Landlord can, after notice to Tenant, deliver possession of the Premises to Tenant. No such failure to give possession by the New Scheduled Commencement Date shall affect the other obligations of Tenant under this Lease, except that if Landlord is unable to deliver possession of the Premises within one hundred twenty (120) days after the New Scheduled Commencement Date (other than as a result of strikes, shortages of materials, holdover tenancies or similar matters beyond the reasonable control of Landlord such as a Tenant Delay (as defined below and in Paragraph 4 of Exhibit B and Tenant is notified by Landlord in writing as to such delay), Tenant shall have the option to terminate this Lease unless said delay is a result of: (a) Tenant’s failure to agree to plans and specifications and/or construction cost estimates or bids; (b) Tenant’s request for materials, finishes or installations other than Landlord’s standard except those, if any, that Landlord shall have expressly agreed to furnish without extension of time agreed by Landlord; (c) Tenant’s material change in any plans or specifications; or, (d) performance or completion by a party employed by Tenant (each of the foregoing, a “Tenant Delay”). To be effective, Tenant must exercise said right of termination within ten (10) business days after the end of said one hundred twenty (120) day period, as said period may be extended as otherwise provided herein. If any delay in the Commencement Date is the result of a Tenant Delay, the Commencement Date shall be the date that Landlord would have tendered possession of the Premises to Tenant but for such Tenant Delay.

     2.3 In the event Landlord permits Tenant, or any agent, employee or contractor of Tenant, to enter, use or occupy the Premises prior to the Commencement Date, such entry, use or occupancy shall be subject to all the provisions of this Lease other than the payment of Rent and Tenant’s Proportionate Share of Expenses and Taxes, including, without limitation, Tenant’s compliance with the insurance requirements of Article 11. Said early possession shall not advance the Termination Date.

     2.4 Landlord shall be responsible for ensuring that a railroad service to and from the Premises is available within six (6) months of the Commencement Date. In the event that railroad service is not available to the Premises on or before the Commencement Date, Landlord shall pay to Tenant as negotiated and agreed upon liquidated damages for such failure an amount equal to Eight Hundred Dollars ($800) per day for each day after the Commencement Date until railroad service to and from the Premises is available. Any sums paid to Tenant under the foregoing sentence shall be deemed to be negotiated and agreed upon liquidated damages paid to Tenant by reason of Landlord’s failure to ensure the availability of railroad service to and from the Premises, the parties hereby agreeing that said amount is a reasonable forecast of just compensation for the harm that may be caused to Tenant as a result of Landlord’s failure to ensure the availability of railroad service to and from the Premises and that Tenant’s harm in the event of such failure would be incapable of accurate estimation or very difficult to accurately estimate. If railroad service is not available to and from the Premises within six (6) months of the Commencement Date, then Tenant shall a one-time right to cancel and terminate the Lease, which right of cancellation must be exercised by Tenant giving written notice thereof to Landlord within ten (10) business days of the end of said six (6) month period. The six (6) month period referenced herein shall be extended as the result of strikes, shortages of materials, or similar matters beyond the reasonable control of Landlord such as a Tenant Delay (as defined in Section 2.2 above and in Paragraph 4 of Exhibit B).

3. RENT.

     3.1 Tenant agrees to pay to Landlord the Annual Rent in effect from time to time by paying the Monthly Installment of Rent then in effect on or before the first day of each full calendar month during the Term, except that the first full month’s rent shall be paid upon the execution of this Lease. The Monthly Installment of Rent in effect at any time shall be one-twelfth (1/12) of the Annual Rent in effect at such time. Rent for any period during the Term which is less than a full month shall be a prorated portion of the Monthly Installment of Rent based upon the number of days in such month. Said rent shall be paid to Landlord, without deduction or offset and without notice or demand, at the Rent Payment Address, as set forth on the Reference Pages, or to such other person or at such other place as Landlord may from time to time designate in writing. If an Event of Default occurs, Landlord may require by notice to Tenant that all subsequent rent payments be made by an automatic payment from Tenant’s bank account to Landlord’s account, without cost to Landlord. Tenant must implement such automatic payment system prior to the next scheduled rent payment or within ten (10) business days after Landlord’s notice, whichever is later. Unless specified in this Lease to the contrary, all amounts and sums payable by Tenant to Landlord pursuant to this Lease shall be deemed additional rent. Notwithstanding anything to the contrary set forth herein,

2

Landlord acknowledges that the first Eight Hundred Thousand Dollars ($800,000.00) due from Tenant under the Lease (whether defined or referenced as a Monthly Installment of Rent, Tenant’s Proportionate Share of Expenses and/or Taxes, additional rent, or otherwise) shall be taken by Landlord from Tenant’s Security Deposit of Nine Hundred Thousand Dollars ($900,000.00), such that, over time and absent any Event of Default by Tenant under the Lease, the Security Deposit will be reduced to One Hundred Thousand Dollars ($100,000.00)

     }3.2 Tenant recognizes that late payment of any rent or other sum due under this Lease will result in administrative expense to Landlord, the extent of which additional expense is extremely difficult and economically impractical to ascertain. Tenant therefore agrees that if rent or any other sum is not paid within five (5) days after Landlord gives Tenant written notice of Tenant’s alleged failure to pay same when due and payable pursuant to this Lease, a late charge shall be imposed in an amount equal to the greater of: (a) Fifty Dollars ($50.00), or (b) four percent (4%) of the unpaid rent or other payment. The amount of the late charge to be paid by Tenant shall be reassessed and added to Tenant’s obligation for each successive month until paid. The provisions of this Section 3.2 in no way relieve Tenant of the obligation to pay rent or other payments on or before the date on which they are due, nor do the terms of this Section 3.2 in any way affect Landlord’s remedies pursuant to Article 19 of this Lease in the event said rent or other payment is unpaid after date due.

4. RENT ADJUSTMENTS.

     4.1 For the purpose of this Article 4, the following terms are defined as follows:

            4.1.1 Lease Year: Each calendar year falling partly or wholly within the Term.

            4.1.2 Expenses: All costs of operation, maintenance, repair, replacement and management of the Building, as determined in accordance with generally accepted accounting principles, consistently applied, including the following costs by way of illustration, but not limitation: water and sewer charges; insurance charges of or relating to all insurance policies and endorsements deemed by Landlord to be reasonably necessary or desirable and relating in any manner to the protection, preservation, or operation of the Building or any part thereof; utility costs, including, but not limited to, the cost of heat, light, power, steam, gas; waste disposal; the cost of janitorial services; the cost of security and alarm services (including any central station signaling system); costs of cleaning, repairing, replacing and maintaining the common areas, including parking and landscaping, window cleaning costs; labor costs; costs and expenses of managing the Building including management and/or administrative fees; air conditioning maintenance costs; elevator maintenance fees and supplies; material costs; equipment costs including the cost of maintenance, repair and service agreements and rental and leasing costs; purchase costs of equipment; current rental and leasing costs of items which would be capital items if purchased; tool costs; licenses, permits and inspection fees; wages and salaries of employees employed solely at the Building; employee benefits and payroll taxes; any sales, use or service taxes incurred in connection therewith. In addition, Landlord shall be entitled to recover, as additional rent (which, along with any other capital expenditures constituting Expenses, Landlord may either include in Expenses or cause to be billed to Tenant along with Expenses and Taxes but as a separate item), Tenant’s Proportionate Share of: (i) an allocable portion of the cost of capital improvement items which are reasonably calculated to reduce operating expenses; (ii) the cost of fire sprinklers and suppression systems and other life safety systems; and (iii) other capital expenses which are required under any governmental laws, regulations or ordinances which were not applicable to the Building at the time it was constructed; but the costs described in this sentence shall be amortized over the reasonable life of such expenditures in accordance with such reasonable life and amortization schedules as shall be determined by Landlord in accordance with generally accepted accounting principles, with interest on the unamortized amount at one percent (1%) in excess of the Wall Street Journal prime lending rate announced from time to time. Expenses shall not include any of the following: (i) depreciation or amortization of the Building or equipment in the Building except as provided herein; (ii) loan principal or interest payments or other financing costs; (iii) costs of alterations of other tenants’ premises; (iv) leasing commissions; (v) interest expenses on borrowings; .(vi) advertising costs; (vii) general overhead and administrative expenses of Landlord, including, without limitation, accounting and legal expenses; (viii) costs of negotiating or enforcing other leases; (ix) costs of correcting structural defects in or inadequacy of the structural design and/or construction of the Building; (x) expenses directly resulting from the gross negligence or willful misconduct of Landlord, its agents, employees or contractors; (xi) direct expenses for which Landlord is reimbursed by other sources (such as warranties, insurance or other tenants); (xii) any bad debt loss, rent loss or reserves for bad debt or rent loss; (xiii) the expense of extraordinary services provided to other tenants in the Building; (xiv) costs incurred by Landlord due to the violation by Landlord of the terms and conditions of any lease of space in the Building; or (xv) insurance costs specified by Landlord’s insurance carrier as being caused by the use, acts or omissions of any other tenant of the Building or by the nature of such other tenant’s occupancy which create an extraordinary or unusual risk.

3

            4.1.3 Taxes: Real estate taxes and any other taxes, charges and assessments which are levied with respect to the Building or the land appurtenant to the Building, or with respect to any improvements, fixtures and equipment or other property of Landlord, real or personal, located in the Building and used in connection with the operation of the Building and said land, any payments to any ground lessor in reimbursement of tax payments made by such lessor; and all fees, expenses and costs incurred by Landlord in investigating, protesting, contesting or in any way seeking to reduce or avoid increase in any assessments, levies or the tax rate pertaining to any Taxes to be paid by Landlord in any Lease Year but only to the extent of actual tax savings. Taxes shall not include any corporate franchise, or estate, inheritance or net income tax, or tax imposed upon any transfer by Landlord of its interest in this Lease or the Building or any taxes to be paid by Tenant pursuant to Article 28.

     4.2 Tenant shall pay as additional rent for each Lease Year Tenant’s Proportionate Share of Expenses and Taxes incurred for such Lease Year. As long as Tenant is not in default under any of the terms, covenants, conditions, provisions and agreements to be kept and performed by Tenant under this Lease beyond any applicable cure period, in no event shall Tenant’s Proportionate Share of Controllable Expenses increase by more than five percent (5%) from the previous Lease Year, calculated cumulatively over the Term of the Lease (applied on a pro-rata basis based upon the number of months of the Term which fall within the Lease Year, if applicable). “Controllable Expenses” shall be defined as all Expenses exclusive of utility charges, union negotiated labor wages, and insurance premiums. (Although separately defined herein, for purposes of clarification, it is understood that Taxes are not a part of “Controllable Expenses” and are therefore excluded from the 5% limitation on increases due from Tenant.) There shall be no cap on non-Controllable Expenses. By way of example, assume Controllable Expenses for the first Lease Year of $100.00. In the second Lease Year, Controllable Expenses would be the lesser of (i) Tenant’s Proportionate Share of Controllable Expenses for the second Lease Year, or (ii) $105.00 ($100.00 plus 5%, which would be the Cap Amount). In the third Lease Year, Controllable Expenses would be the lesser of (i) Tenant’s Proportionate Share of Controllable Expenses for the third Lease Year, or (ii) $110.25 ($105.00 plus 5%). In the fourth Lease Year, Controllable Expenses would be the lesser of (i) Tenant’s Proportionate Share of Controllable Expenses for the fourth Lease Year, or (ii) $115.76 ($110.25 plus 5%).

     4.3 The annual determination of Expenses shall be made by Landlord and shall be binding upon Landlord and Tenant, subject to the provisions of this Section 4.23. During the Term, Tenant or Tenant’s accountants may review, at Tenant’s sole cost and expense, the books and records supporting such determination in an office of Landlord, or Landlord’s agent, such office to be located in the greater Phoenix metropolitan area, during normal business hours, upon giving Landlord five (5) days advance written notice within sixty (60) days after receipt of such determination, but in no event more often than once in any one (1) year period, subject to execution of a confidentiality agreement acceptable to Landlord and Tenant or Tenant’s accountants. If Tenant fails to object to Landlord’s determination of Expenses within ninety (90) days after receipt, or if any such objection fails to state the reason for the objection, Tenant shall be deemed to have approved such determination and shall have no further right to object to or contest such determination. In the event that during all or any portion of any Lease Year or Base Year, the Building is not fully rented and occupied Landlord shall make an appropriate adjustment in occupancy-related Expenses for such year for the purpose of avoiding distortion of the amount of such Expenses to be attributed to Tenant by reason of variation in total occupancy of the Building, by employing consistent and sound accounting and management principles to determine Expenses that would have been paid or incurred by Landlord had the Building been at least ninety-five percent (95%) rented and occupied, and the amount so determined shall be deemed to have been Expenses for such Lease Year.

     4.4 Prior to the actual determination thereof for a Lease Year, Landlord may from time to time estimate Tenant’s liability for Expenses and/or Taxes due under this Lease for the Lease Year or portion thereof. Landlord will give Tenant written notification of the amount of such estimate and Tenant agrees that it will pay, by increase of its Monthly Installments of Rent due in such Lease Year, additional rent in the amount of such estimate. Any such increased rate of Monthly Installments of Rent pursuant to this Section 4.3 shall remain in effect until further written notification to Tenant pursuant hereto.

     4.5 When the above mentioned actual determination of Tenant’s liability for Expenses and/or Taxes is made for any Lease Year and when Tenant is so notified in writing, then:

            4.5.1 If the total additional rent Tenant actually paid pursuant to Section 4.2 on account of Expenses and/or Taxes for the Lease Year is less than Tenant’s liability for Expenses and/or Taxes, then Tenant shall pay such deficiency to Landlord as additional rent in one lump sum within thirty (30) days of receipt of Landlord’s bill therefor; and

4

            4.5.2 If the total additional rent Tenant actually paid pursuant to Section 4.2 on account of Expenses and/or Taxes for the Lease Year is more than Tenant’s liability for Expenses and/or Taxes, then Landlord shall credit the difference against the then next due payments to be made by Tenant under this Article 4, or, if the Lease has terminated, refund the difference in cash.

     4.6 If the Commencement Date is other than January 1 or if the Termination Date is other than December 31, Tenant’s liability for Expenses and Taxes for the Lease Year in which said Date occurs shall be prorated based upon a three hundred sixty-five (365) day year.

5. SECURITY DEPOSIT. Tenant shall deposit the Security Deposit with Landlord upon the execution of this Lease. Subject to the terms and conditions set forth in Section 3.1 above, said sum shall be held by Landlord as security for the faithful performance by Tenant of all the terms, covenants and conditions of this Lease to be kept and performed by Tenant and not as an advance rental deposit or as a measure of Landlord’s damage in case of Tenant’s default. Notwithstanding Section 3.1 above,if Tenant defaults with respect to any provision of this Lease beyond any applicable cure period, Landlord may use any part of the Security Deposit for the payment of any rent or any other sum in default beyond any applicable cure period, or for the payment of any amount which Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant’s default. If any portion is so used, Tenant shall within five (5) business days after written demand therefor, deposit with Landlord an amount sufficient to restore the Security Deposit to its original amount (as adjusted pursuant to Section 3.1 above) and Tenant’s failure to do so shall be a material breach of this Lease. Except to such extent, if any, as shall be required by law, Landlord shall not be required to keep the Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on such deposit. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, the Security Deposit or any balance thereof shall be returned to Tenant at such time after termination of this Lease when Landlord shall have determined that all of Tenant’s obligations under this Lease have been fulfilled.

Notwithstanding anything to the contrary set forth herein, at any time during the term of the Lease Tenant shall have the right to convert One Hundred Thousand Dollars ($100,000.00) of the Security Deposit to an unconditional and irrevocable letter of credit (the “Letter of Credit”), which Letter of Credit shall: (i) be in form and substance reasonably satisfactory to Landlord, (ii) name Landlord as beneficiary, (iii) expressly allow Landlord to draw upon it at any time from time to time by delivering to the issuer notice that Landlord is entitled to draw thereunder, (iv) be drawable on an FDIC-insured financial institution reasonably satisfactory to Landlord, and (v) be redeemable in the state of Arizona. If Tenant does not provide Landlord with a substitute Letter of Credit complying with all of the requirements hereof at least ten (10) days before the stated expiration date of the then current Letter of Credit, then Landlord shall have the right to draw upon the current Letter of Credit and hold the funds drawn as all or part of the Security Deposit (as the case may be). If Tenant defaults under this Lease beyond any applicable cure period, Landlord may use any part of the Letter of Credit or Security Deposit (at Landlord’s option) to pay or perform any obligation of Tenant under this Lease, or to compensate Landlord for any loss or damage resulting from any default. Within fifteen (15) business days of Tenant’s tender of a Letter of Credit which complies with all of the foregoing terms and conditions, Landlord shall return up to One Hundred Thousand Dollars ($100,000.00) of the security deposit to Tenant. The exact amount to be returned to Tenant shall be equal to the amount set forth in the Letter of Credit (up to $100,000.00) less any portion thereof which Landlord has applied, or has the right to apply, in accordance with this Article 5.

6. ALTERATIONS.

     6.1 Except for those, if any, specifically provided for in Exhibit B to this Lease, and any minor alterations, additions or improvements which do not, in the aggregate, exceed $20,000.00 in any calendar year and which do not affect the structural integrity of the Building or the Premises, or which do not require modification to the systems servicing the Building, Tenant shall not make or suffer to be made any alterations, additions, or improvements, including, but not limited to, the attachment of any fixtures or equipment in, on, or to the Premises or any part thereof or the making of any improvements as required by Article 7, without the prior written consent of Landlord. If Tenant is authorized by the foregoing sentence to make an alteration, addition or improvement without the prior written consent of Landlord, Tenant must still provide Landlord with prior written notice of the work which is to be performed and the anticipated cost thereof. When applying for such consent, Tenant shall, if requested by Landlord, furnish complete plans and specifications for such alterations, additions and improvements. Landlord’s consent shall not be unreasonably withheld with respect to alterations which (i) are not structural in nature, (ii) are not visible from the exterior of the Building, (iii) do not affect or require modification of the Building’s electrical, mechanical, plumbing, HVAC or other systems, and (iv) in aggregate do not cost more than $5.00 per rentable square foot of that portion of the Premises affected by the alterations in question. Nothing

5

contained herein shall allow Tenant to make any alterations, additions or improvements to the exterior of the Building or the common areas without Landlord’s prior written consent.

     6.2 In the event Landlord consents to the making of any such alteration, addition or improvement by Tenant, the same shall be made by using a contractor reasonably approved by Landlord, at Tenant’s sole cost and expense.

     6.3 All alterations, additions or improvements proposed by Tenant shall be constructed in accordance with all government laws, ordinances, rules and regulations, using Building standard materials where applicable, and Tenant shall, prior to construction, provide the additional insurance required under Article 11 in such case, and also all such assurances to Landlord as Landlord shall reasonably require to assure payment of the costs thereof, including but not limited to, notices of non-responsibility, waivers of lien, surety company performance bonds and funded construction escrows and to protect Landlord and the Building and appurtenant land against any loss from any mechanic’s, materialmen’s or other liens. Tenant shall pay in addition to any sums due pursuant to Article 4, any increase in real estate taxes attributable to any such alteration, addition or improvement for so long, during the Term, as such increase is ascertainable; at Landlord’s election said sums shall be paid in the same way as sums due under Article 4. Landlord may, as a condition to its consent to any particular alterations or improvements, require Tenant to deposit with Landlord the amount reasonably estimated by Landlord as sufficient to cover the cost of removing such alterations or improvements and restoring the Premises, to the extent required under Section 26.2

7. REPAIR.

     7.1 Landlord shall have no obligation to alter, remodel, improve, repair, decorate or paint the Premises, except as specified in Exhibit B if attached to this Lease and except that Landlord shall repair and maintain the structural portions of the roof, foundation and walls of the Building. By taking possession of the Premises, Tenant accepts them as being in good order, condition and repair and in the condition in which Landlord is obligated to deliver them, except as set forth in the punch list to be delivered pursuant to Section 2.1. It is hereby understood and agreed that no representations respecting the condition of the Premises or the Building have been made by Landlord to Tenant, except as specifically set forth in this Lease. Landlord shall not be liable for any failure to make any repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice of the need of such repairs or maintenance is given to Landlord by Tenant.

     7.2 Tenant shall at its own cost and expense keep and maintain all parts of the Premises and such portion of the Building and improvements as are within the exclusive control of Tenant in good condition, promptly making all necessary repairs and replacements, whether ordinary or extraordinary, with materials and workmanship of the same character, kind and quality as the original (including, but not limited to, repair and replacement of all fixtures installed by Tenant, water heaters serving the Premises, windows, glass and plate glass, doors, exterior stairs, skylights, any special office entries, interior walls and finish work, floors and floor coverings, heating and air conditioning systems serving the Premises, electrical systems and fixtures, sprinkler systems, dock boards, truck doors, dock bumpers, plumbing fixtures, and performance of regular removal of trash and debris). Tenant as part of its obligations hereunder shall keep the Premises in a clean and sanitary condition. Tenant will, as far as possible keep all such parts of the Premises from deterioration (other than due to ordinary wear and tear) and from falling temporarily out of repair, and upon termination of this Lease in any way Tenant will yield up the Premises to Landlord in good condition and repair, normal wear and tear, loss by fire or other casualty excepted (but not excepting any damage to glass). Tenant shall, at its own cost and expense, repair any damage to the Premises or the Building resulting from and/or caused in whole or in part by the negligence or misconduct of Tenant, its agents, employees, contractors, invitees, or any other person entering upon the Premises as a result of Tenant’s business activities or caused by Tenant’s default hereunder.

     7.3 Except as provided in Article 22, there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant’s business arising from the making of any repairs, alterations or improvements in or to any portion of the Building or the Premises or to fixtures, appurtenances and equipment in the Building. Except to the extent, if any, prohibited by law, Tenant waives the right to make repairs at Landlord’s expense under any law, statute or ordinance now or hereafter in effect unless Landlord fails to make said repair within a reasonable time after written notice of such failure to Landlord provided, however, that such failure shall not be an event of default if such failure could not reasonably be cured within thirty (30) days after Landlord’s receipt of said notice but Landlord has commenced the repair within such thirty (30) day period and thereafter is diligently pursuing such repair to completion.

6

     7.4 Tenant shall, at its own cost and expense, enter into a regularly scheduled preventive maintenance/service contract with a maintenance contractor approved by Landlord for servicing all heating and air conditioning systems and equipment serving the Premises (and a copy thereof shall be furnished to Landlord). The service contract must include all services suggested by the equipment manufacturer in the operation/maintenance manual and must become effective within thirty (30) days of the date Tenant takes possession of the Premises. Should Tenant fail to do so, Landlord may, upon notice to Tenant, enter into such a maintenance/ service contract on behalf of Tenant or perform the work and in either case, charge Tenant the cost thereof along with a reasonable amount for Landlord’s overhead.

     7.5 Landlord shall coordinate any repairs and other maintenance of any railroad tracks serving the Building and, if Tenant uses such rail tracks, Tenant shall reimburse Landlord or the railroad company from time to time upon demand, as additional rent, for its share of the costs of such repair and maintenance and for any other sums specified in any agreement to which Landlord or Tenant is a party respecting such tracks, such costs to be borne proportionately by all tenants in the Building using such rail tracks, based upon the actual number of rail cars shipped and received by such tenant during each calendar year during the Term.

8. LIENS. Tenant shall keep the Premises, the Building and appurtenant land and Tenant’s leasehold interest in the Premises free from any liens arising out of any services, work or materials performed, furnished, or contracted for by Tenant, or obligations incurred by Tenant. In the event that Tenant fails, within ten (10) business days following Tenant receipt of written notice of the imposition of any such lien, to either cause the same to be released of record or provide Landlord with insurance against the same issued by a major title insurance company or such other protection against the same as Landlord shall reasonably accept (such failure to constitute an Event of Default), Landlord shall have the right to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All such sums paid by Landlord and all expenses incurred by it in connection therewith shall be payable to it by Tenant within five (5) business days of Landlord’s demand .

9. ASSIGNMENT AND SUBLETTING.

     9.1 Tenant shall not have the right to assign or pledge this Lease or to sublet the whole or any part of the Premises whether voluntarily or by operation of law, or permit the use or occupancy of the Premises by anyone other than Tenant, and shall not make, suffer or permit such assignment, subleasing or occupancy without the prior written consent of Landlord, such consent not to be unreasonably withheld, and said restrictions shall be binding upon any and all assignees of the Lease and subtenants of the Premises. In the event Tenant desires to sublet, or permit such occupancy of, the Premises, or any portion thereof, or assign this Lease, Tenant shall give written notice thereof to Landlord at least thirty (30) days but no more than sixty (60) days prior to the proposed commencement date of such subletting or assignment, which notice shall set forth the name of the proposed subtenant or assignee, the relevant terms of any sublease or assignment and copies of financial reports and other relevant financial information of the proposed subtenant or assignee. Notwithstanding anything to the contrary set forth herein, Tenant shall have the right to assign the Lease or sublet all or a portion of the Premises to an affiliate of Tenant or to a successor to all or substantially all of Tenant’s assets, in any of which events Tenant shall remain liable to Landlord for performance of its obligations hereunder (with the understanding that in the event of a sale of all of Tenant’s assets, Tenant shall only remain liable to Landlord if the underlying transaction is proven to be a sham, fraudulent or otherwise not entered into in good faith by Tenant).

     9.2 Notwithstanding any assignment or subletting, permitted or otherwise, Tenant shall at all times remain directly, primarily and fully responsible and liable for the payment of the rent specified in this Lease and for compliance with all of its other obligations under the terms, provisions and covenants of this Lease. Upon the occurrence of an Event of Default, if the Premises or any part of them are then assigned or sublet, Landlord, in addition to any other remedies provided in this Lease or provided by law, may, at its option, collect directly from such assignee or subtenant all rents due and becoming due to Tenant under such assignment or sublease and apply such rent against any sums due to Landlord from Tenant under this Lease, and no such collection shall be construed to constitute a novation or release of Tenant from the further performance of Tenant’s obligations under this Lease.

     9.4 In the event that Tenant sells, sublets, assigns or transfers this Lease, Tenant shall pay to Landlord as additional rent an amount equal to fifty percent (50%) of any Increased Rent (as defined below), less the Costs Component (as defined below), when and as such Increased Rent is received by Tenant. As used in this Section, “Increased Rent” shall mean the excess of (i) all rent and other consideration which Tenant is entitled to receive solely by reason of any sale, sublease, assignment or other transfer of this Lease, over (ii) the rent otherwise payable by Tenant under this Lease at such time. For purposes of the foregoing, any consideration received by Tenant in form other than cash shall be valued at its fair

7

market value as determined by Landlord in good faith. The “Costs Component” is that amount which, if paid monthly, would fully amortize on a straight-line basis, over the entire period for which Tenant is to receive Increased Rent, the reasonable costs incurred by Tenant for leasing commissions and tenant improvements in connection with such sublease, assignment or other transfer.

     9.5 Notwithstanding any other provision hereof, it shall be considered reasonable for Landlord to withhold its consent to any assignment of this Lease or sublease of any portion of the Premises if at the time of either Tenant’s notice of the proposed assignment or sublease or the proposed commencement date thereof, there shall exist any uncured default of Tenant or matter which will become a default of Tenant with passage of time unless cured, or if the proposed assignee or sublessee is an entity: (a) with which Landlord is already in negotiation; (b) is already an occupant of the Building unless Landlord is unable to provide the amount of space required by such occupant; (c) is a governmental agency; (d) is incompatible with the character of occupancy of the Building; (e) with which the payment for the sublease or assignment is determined in whole or in part based upon its net income or profits; or (f) would subject the Premises to a use which would: (i) involve increased personnel or wear upon the Building; or (ii) violate any exclusive right granted to another tenant of the Building; or (iii) require any addition to or modification of the Premises or the Building in order to comply with building code or other governmental requirements; or, (iv) be highly likely to involve a violation of the Tenant’s obligations under Exhibit E. Tenant expressly agrees that for the purposes of any statutory or other requirement of reasonableness on the part of Landlord, Landlord’s refusal to consent to any assignment or sublease for any of the reasons described in this Section 9.4, shall be conclusively deemed to be reasonable.

     9.6 Upon any request to assign or sublet, Tenant will pay to Landlord the Assignment/Subletting Fee plus, on demand, a sum equal to all of Landlord’s reasonable costs actually incurred, including reasonable attorney’s fees, incurred in investigating and considering any proposed or purported assignment or pledge of this Lease or sublease of any of the Premises but in no event more than $1,000.00, regardless of whether Landlord shall consent to, refuse consent, or determine that Landlord’s consent is not required for, such assignment, pledge or sublease. Any purported sale, assignment, mortgage, transfer of this Lease or subletting which does not comply with the provisions of this Article 9 shall be void.

     9.7 If Tenant is a corporation, limited liability company, partnership or trust, any transfer or transfers of or change or changes within any twelve (12) month period in the number of the outstanding voting shares of the corporation or limited liability company, the general partnership interests in the partnership or the identity of the persons or entities controlling the activities of such partnership or trust resulting in the persons or entities owning or controlling a majority of such shares, partnership interests or activities of such partnership or trust at the beginning of such period no longer having such ownership or control shall be regarded as equivalent to an assignment of this Lease to the persons or entities acquiring such ownership or control and shall be subject to all the provisions of this Article 9 to the same extent and for all intents and purposes as though such an assignment.

10. INDEMNIFICATION. None of the Landlord Entities shall be liable and Tenant hereby waives all claims against them for any damage to any property or any injury to any person in or about the Premises or the Building by or from any cause whatsoever (including without limiting the foregoing, rain or water leakage of any character from the roof, windows, walls, basement, pipes, plumbing works or appliances, the Building not being in good condition or repair, gas, fire, oil, electricity or theft), except to the extent caused by or arising from the gross negligence or willful misconduct of Landlord or its agents, employees or contractors. Tenant shall protect, indemnify and hold the Landlord Entities harmless from and against any and all loss, claims, liability or costs (including court costs and attorney’s fees) incurred by reason of (a) any damage to any property (including but not limited to property of any Landlord Entity) or any injury (including but not limited to death) to any person occurring in, on or about the Premises or the Building to the extent that such injury or damage shall be caused by or arise from any actual or alleged act, neglect, fault, or omission by or of Tenant or any Tenant Entity to meet any standards imposed by any duty with respect to the injury or damage; (b) the conduct or management of any work or thing whatsoever done by the Tenant in or about the Premises or from transactions of the Tenant concerning the Premises; (c) Tenant’s failure to comply with any and all governmental laws, ordinances and regulations applicable to the condition or use of the Premises or its occupancy; or (d) any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of the Tenant to be performed pursuant to this Lease. The indemnity provisions set forth in the preceding sentence shall not apply to any loss, claim, liability or cost in the event of the gross negligence or willful misconduct of Landlord, its agents, employees or contractors. The provisions of this Article shall survive the termination of this Lease with respect to any claims or liability accruing prior to such termination.

8

11. INSURANCE.

     11.1 Tenant shall keep in force throughout the Term: (a) a Commercial General Liability insurance policy or policies to protect the Landlord Entities against any liability to the public or to any invitee of Tenant or a Landlord Entity incidental to the use of or resulting from any accident occurring in or upon the Premises with a limit of not less than $1,000,000 per occurrence and not less than $2,000,000 in the annual aggregate, or such larger amount as Landlord may prudently require from time to time, covering bodily injury and property damage liability and $1,000,000 products/completed operations aggregate; (b) Business Auto Liability covering owned, non-owned and hired vehicles with a limit of not less than $1,000,000 per accident; (c) insurance protecting against liability under Worker’s Compensation Laws with limits at least as required by statute; (d) Employers Liability with limits of $1,000,000 each accident, $1,000,000 disease policy limit, $1,000,000 disease—each employee; (e) All Risk or Special Form coverage protecting Tenant against loss of or damage to Tenant’s alterations, additions, improvements, carpeting, floor coverings, panelings, decorations, fixtures, inventory and other business personal property situated in or about the Premises to the full replacement value of the property so insured, (f) Business Interruption Insurance for 100% of the 12 months actual loss sustained, and (g) Excess Liability in the amount of $5,000,000.

     11.2 The aforesaid policies shall (a) be provided at Tenant’s expense; (b) name the Landlord Entities as additional insureds (General Liability) and loss payee (Property¬Special Form); (c) be issued by an insurance company with a minimum Best’s rating of “A:VII” during the Term; and (d) provide that said insurance shall not be canceled unless thirty (30) days prior written notice (ten days for non-payment of premium) shall have been given to Landlord; a certificate of Liability insurance on ACORD Form 25 and a certificate of Property insurance on ACORD Form 27 shall be delivered to Landlord by Tenant upon the Commencement Date and at least thirty (30) days prior to each renewal of said insurance.

     Whenever Tenant shall undertake any alterations, additions or improvements in, to or about the Premises (“Work”) the aforesaid insurance protection must extend to and include injuries to persons and damage to property arising in connection with such Work, without limitation including liability under any applicable structural work act, and such other insurance as Landlord shall require; and the policies of or certificates evidencing such insurance must be delivered to Landlord prior to the commencement of any such Work.11.4 Landlord shall maintain such insurance on the Building as is customary of owners of similarly situated buildings in the greater Phoenix metropolitan area, in an amount no less than the full replacement value of the Building with such policies to be issued by an insurance company with a minimum Best’s rating of “A:VII” during the Term.

12. WAIVER OF SUBROGATION. So long as their respective insurers so permit, Tenant and Landlord hereby mutually waive their respective rights of recovery against each other for any loss insured by fire, extended coverage, All Risks or other insurance now or hereafter existing for the benefit of the respective party but only to the extent of the net insurance proceeds payable under such policies. Each party shall obtain any special endorsements required by their insurer to evidence compliance with the aforementioned waiver.

13. SERVICES AND UTILITIES. Tenant shall pay for all water, gas, heat, light, power, telephone, sewer, sprinkler system charges and other utilities and services used on or from the Premises, together with any taxes, penalties, and surcharges or the like pertaining thereto and any maintenance charges for utilities. Tenant shall furnish all electric light bulbs, tubes and ballasts, battery packs for emergency lighting and fire extinguishers. If any such services are not separately metered to Tenant, Tenant shall pay such proportion of all charges jointly metered with other premises as determined by Landlord, in its sole discretion, to be reasonable. Any such charges paid by Landlord and assessed against Tenant shall be immediately payable to Landlord within five (5) business days following demand therefor and shall be additional rent hereunder. Tenant will not, without the written consent of Landlord, which consent not to be unreasonably conditioned, withheld or delayed, contract with a utility provider to service the Premises with any utility, including, but not limited to, telecommunications, electricity, water, sewer or gas, which is not previously providing such service to other tenants in the Building. Landlord shall in no event be liable for any interruption or failure of utility services on or to the Premises unless caused by the gross negligence or willful misconduct of Landlord, its agents, employees or contractors.

14. HOLDING OVER. Tenant shall pay Landlord for each day Tenant retains possession of the Premises or part of them after termination of this Lease by lapse of time or otherwise at the rate (“Holdover Rate”) which shall be One Hundred Fifty Percent (150%) of the amount of the Annual Rent for the last period prior to the date of such termination plus all Rent Adjustments under Article 4, prorated on a daily basis, and also pay all damages sustained by Landlord by reason of such retention. If Landlord gives notice to Tenant of Landlord’s election to such effect, such holding over shall constitute renewal

9

of this Lease for a period from month to month or one (1) year, whichever shall be specified in such notice, in either case at the Holdover Rate, but if the Landlord does not so elect, no such renewal shall result notwithstanding acceptance by Landlord of any sums due hereunder after such termination; and instead, a tenancy at sufferance at the Holdover Rate shall be deemed to have been created. In any event, no provision of this Article 14 shall be deemed to waive Landlord’s right of reentry or any other right under this Lease or at law.

15. SUBORDINATION; NON-DISTURBANCE. Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, subject to the terms hereof, this Lease shall be subject and subordinate at all times to ground or underlying leases and to the lien of any mortgages or deeds of trust now or hereafter placed on, against or affecting the Building, Landlord’s interest or estate in the Building, or any ground or underlying lease; provided, however, that if the lessor, mortgagee, trustee, or holder of any such mortgage or deed of trust elects to have Tenant’s interest in this Lease be superior to any such instrument, then, by notice to Tenant, this Lease shall be deemed superior, whether this Lease was executed before or after said instrument. Notwithstanding the foregoing, Tenant covenants and agrees to execute and deliver within ten (10) days of Landlord’s request such further instruments evidencing such subordination or superiority of this Lease as may be required by Landlord. The foregoing subordination is contingent upon the lender or ground lessor agreeing that, so long as Tenant is not in default hereunder beyond any applicable cure period, such lender or ground lessor shall not disturb Tenant’s use and possession of the Premises.

16. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with all the rules and regulations as set forth in Exhibit D to this Lease and all reasonable and non-discriminatory modifications of and additions to them from time to time put into effect by Landlord. Landlord shall not be responsible to Tenant for the non-performance by any other tenant or occupant of the Building of any such rules and regulations, provided that Landlord shall uniformly enforce same against all tenants or occupants of the Building.

17. REENTRY BY LANDLORD.

     17.1 Landlord reserves and shall at all times have the right, upon reasonable advance written notice to Tenant (but in no event greater than forty-eight (48) hours in advance, with no notice being required in the event of an emergency) to re-enter the Premises to inspect the same, to show said Premises to prospective purchasers, mortgagees or tenants (but, as to prospective tenants, only during the last six (6) months of the Term), and to alter, improve or repair the Premises and any portion of the Building, without abatement of rent, and may for that purpose erect, use and maintain scaffolding, pipes, conduits and other necessary structures and open any wall, ceiling or floor in and through the Building and Premises where reasonably required by the character of the work to be performed, provided entrance to the Premises shall not be blocked thereby, and further provided that the business of Tenant shall not be interfered with unreasonably.. In the event that Landlord damages any portion of any wall or wall covering, ceiling, or floor or floor covering within the Premises, Landlord shall repair or replace the damaged portion to match the original as nearly as commercially reasonable but shall not be required to repair or replace more than the portion actually damaged. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant’s business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned by any action of Landlord authorized by this Article 17 except to the extent caused by the gross negligence or willful misconduct of Landlord, its agents or employees.

     17.2 For each of the aforesaid purposes, Landlord shall at all times have and retain a key with which to unlock all of the doors in the Premises, excluding Tenant’s vaults and safes or special security areas (designated in advance), and Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency to obtain entry to any portion of the Premises. As to any portion (other than designated special security areas) to which access cannot be had by means of a key or keys in Landlord’s possession, Landlord is authorized to gain access by such means as Landlord shall elect and the reasonable cost of repairing any damage occurring in doing so shall be borne by Tenant and paid to Landlord within five (5) business days of Landlord’s demand.

18. DEFAULT.

     18.1 Except as otherwise provided in Article 20, the following events shall be deemed to be Events of Default under this Lease:

            18.1.1 Tenant shall fail to pay when due any sum of money becoming due to be paid to Landlord under this Lease, whether such sum be any installment of the rent reserved by this Lease, any other amount treated as additional rent under this Lease, or any other payment or reimbursement to Landlord required by this Lease, whether or not treated as

10

additional rent under this Lease, and such failure shall continue for a period of five (5) business days after written notice that such payment was not made when due, but if any such notice shall be given, for the twelve (12) month period commencing with the date of such notice, the failure to pay within five (5) business days after due any additional sum of money becoming due to be paid to Landlord under this Lease during such period shall be an Event of Default, without notice.

            18.1.2 Tenant shall fail to comply with any term, provision or covenant of this Lease which is not provided for in another Section of this Article and shall not cure such failure within twenty (20) days (forthwith, if the failure involves a hazardous condition) after written notice of such failure to Tenant provided, however, that such failure shall not be an event of default if such failure could not reasonably be cured during such twenty (20) day period, Tenant has commenced the cure within such twenty (20) day period and thereafter is diligently pursuing such cure to completion, but the total aggregate cure period shall not exceed ninety (90) days.

            18.1.3 Tenant shall fail to vacate the Premises immediately upon termination of this Lease, by lapse of time or otherwise, or upon termination of Tenant’s right to possession only.

            18.1.4 Tenant shall become insolvent, admit in writing its inability to pay its debts generally as they become due, file a petition in bankruptcy or a petition to take advantage of any insolvency statute, make an assignment for the benefit of creditors, make a transfer in fraud of creditors, apply for or consent to the appointment of a receiver of itself or of the whole or any substantial part of its property, or file a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws, as now in effect or hereafter amended, or any other applicable law or statute of the United States or any state thereof.

            18.1.5 A court of competent jurisdiction shall enter an order, judgment or decree adjudicating Tenant bankrupt, or appointing a receiver of Tenant, or of the whole or any substantial part of its property, without the consent of Tenant, or approving a petition filed against Tenant seeking reorganization or arrangement of Tenant under the bankruptcy laws of the United States, as now in effect or hereafter amended, or any state thereof, and such order, judgment or decree shall not be vacated or set aside or stayed within sixty (60) days from the date of entry thereof.

19. REMEDIES.

     19.1 Except as otherwise provided in Article 20, upon the occurrence of any of the Events of Default described or referred to in Article 18, Landlord shall have the option to pursue any one or more of the following remedies without any notice or demand whatsoever, concurrently or consecutively and not alternatively:

            19.1.1 Landlord may, at its election, terminate this Lease or terminate Tenant’s right to possession only, without terminating the Lease.

            19.1.2 Upon any termination of this Lease, whether by lapse of time or otherwise, or upon any termination of Tenant’s right to possession without termination of the Lease, Tenant shall surrender possession and vacate the Premises immediately, and deliver possession thereof to Landlord, and Tenant hereby grants to Landlord full and free license to enter into and upon the Premises in such event and to repossess Landlord of the Premises as of Landlord’s former estate and to expel or remove Tenant and any others who may be occupying or be within the Premises and to remove Tenant’s signs and other evidence of tenancy and all other property of Tenant therefrom without being deemed in any manner guilty of trespass, eviction or forcible entry or detainer, and without incurring any liability for any damage resulting therefrom, Tenant waiving any right to claim damages for such re-entry and expulsion, and without relinquishing Landlord’s right to rent or any other right given to Landlord under this Lease or by operation of law.

            19.1.3 Upon any termination of this Lease, whether by lapse of time or otherwise, Landlord shall be entitled to recover as damages, all rent, including any amounts treated as additional rent under this Lease, and other sums due and payable by Tenant on the date of termination, plus as liquidated damages and not as a penalty, an amount equal to the sum of: (a) an amount equal to the then present value of the rent reserved in this Lease for the residue of the stated Term of this Lease including any amounts treated as additional rent under this Lease and all other sums provided in this Lease to be paid by Tenant, minus the fair rental value of the Premises for such residue; (b) the value of the time and expense necessary to obtain a replacement tenant or tenants, and the estimated expenses described in Section 19.1.4 relating to recovery of the Premises, preparation for reletting and for reletting itself; and (c) the cost of performing any other covenants which would have otherwise been performed by Tenant.

11

            19.1.4 Upon any termination of Tenant’s right to possession only without termination of the Lease:

                        19.1.4.1 Neither such termination of Tenant’s right to possession nor Landlord’s taking and holding possession thereof as provided in Section 19.1.2 shall terminate the Lease or release Tenant, in whole or in part, from any obligation, including Tenant’s obligation to pay the rent, including any amounts treated as additional rent, under this Lease for the full Term, and if Landlord so elects Tenant shall continue to pay to Landlord the entire amount of the rent as and when it becomes due, including any amounts treated as additional rent under this Lease, for the remainder of the Term plus any other sums provided in this Lease to be paid by Tenant for the remainder of the Term.

                        19.1.4.2 Landlord shall use commercially reasonable efforts to relet the Premises or portions thereof to the extent required by applicable law. Landlord and Tenant agree that nevertheless Landlord shall at most be required to use only the same efforts Landlord then uses to lease premises in the Building generally and that in any case that Landlord shall not be required to give any preference or priority to the showing or leasing of the Premises or portions thereof over any other space that Landlord may be leasing or have available and may place a suitable prospective tenant in any such other space regardless of when such other space becomes available and that Landlord shall have the right to relet the Premises for a greater or lesser term than that remaining under this Lease, the right to relet only a portion of the Premises, or a portion of the Premises or the entire Premises as a part of a larger area, and the right to change the character or use of the Premises. In connection with or in preparation for any reletting, Landlord may, but shall not be required to, make repairs, alterations and additions in or to the Premises and redecorate the same to the extent Landlord deems necessary or desirable, and Tenant shall pay the cost thereof, together with Landlord’s expenses of reletting, including, without limitation, any commission incurred by Landlord, within five (5) days of Landlord’s demand. Landlord shall not be required to observe any instruction given by Tenant about any reletting or accept any tenant offered by Tenant unless such offered tenant has a credit-worthiness acceptable to Landlord and leases the entire Premises upon terms and conditions including a rate of rent (after giving effect to all expenditures by Landlord for tenant improvements, broker’s commissions and other leasing costs) all no less favorable to Landlord than as called for in this Lease, nor shall Landlord be required to make or permit any assignment or sublease for more than the current term or which Landlord would not be required to permit under the provisions of Article 9.

                        19.1.4.3 Until such time as Landlord shall elect to terminate the Lease and shall thereupon be entitled to recover the amounts specified in such case in Section 19.1.3, Tenant shall pay to Landlord upon demand the full amount of all rent, including any amounts treated as additional rent under this Lease and other sums reserved in this Lease for the remaining Term, together with the costs of repairs, alterations, additions, redecorating and Landlord’s expenses of reletting and the collection of the rent accruing therefrom (including reasonable attorney’s fees and broker’s commissions), as the same shall then be due or become due from time to time, less only such consideration as Landlord may have received from any reletting of the Premises; and Tenant agrees that Landlord may file suits from time to time to recover any sums falling due under this Article 19 as they become due. Any proceeds of reletting by Landlord in excess of the amount then owed by Tenant to Landlord from time to time shall be credited against Tenant’s future obligations under this Lease but shall not otherwise be refunded to Tenant or inure to Tenant’s benefit.

     19.2 Upon the occurrence of an Event of Default, Landlord may (but shall not be obligated to) cure such default at Tenant’s sole expense. Without limiting the generality of the foregoing, Landlord may, at Landlord’s option, enter into and upon the Premises if Landlord determines in its sole discretion that Tenant is not acting within a commercially reasonable time to maintain, repair or replace anything for which Tenant is responsible under this Lease or to otherwise effect compliance with its obligations under this Lease and correct the same, without being deemed in any manner guilty of trespass, eviction or forcible entry and detainer and without incurring any liability for any damage or interruption of Tenant’s business resulting therefrom and Tenant agrees to reimburse Landlord within five (5) days of Landlord’s demand as additional rent, for any expenses which Landlord may incur in thus effecting compliance with Tenant’s obligations under this Lease, plus interest from the date of expenditure by Landlord at the Wall Street Journal prime rate.

     19.3 Tenant understands and agrees that in entering into this Lease, Landlord is relying upon receipt of all the Annual and Monthly Installments of Rent to become due with respect to all the Premises originally leased hereunder over the full Initial Term of this Lease for amortization, including interest at the Amortization Rate. For purposes hereof, the “Concession Amount” shall be defined as the aggregate of all amounts forgone or expended by Landlord as free rent under the lease, under Exhibit B hereof for construction allowances (excluding therefrom any amounts expended by Landlord for Landlord’s Work, as defined in Exhibit B), and for brokers’ commissions payable by reason of this Lease. Accordingly, Tenant agrees that if this Lease or Tenant’s right to possession of the Premises leased hereunder shall be terminated as of any date (“Default Termination Date”) prior to the expiration of the full Initial Term hereof by reason of a default of Tenant, there

12

shall be due and owing to Landlord as of the day prior to the Default Termination Date, as rent in addition to all other amounts owed by Tenant as of such Date, the amount (“Unamortized Amount”) of the Concession Amount determined as set forth below; provided, however, that in the event that such amounts are recovered by Landlord pursuant to any other provision of this Article 19, Landlord agrees that it shall not attempt to recover such amounts pursuant to this Paragraph 19.3. For the purposes hereof, the Unamortized Amount shall be determined in the same manner as the remaining principal balance of a mortgage with interest at the Amortization Rate payable in level payments over the same length of time as from the effectuation of the Concession concerned to the end of the full Initial Term of this Lease would be determined.

     19.4 If, on account of any breach or default by Tenant in Tenant’s obligations under the terms and conditions of this Lease, it shall become necessary or appropriate for Landlord to employ or consult with an attorney or collection agency concerning or to enforce or defend any of Landlord’s rights or remedies arising under this Lease or to collect any sums due from Tenant, Tenant agrees to pay all costs and fees so incurred by Landlord, including, without limitation, reasonable attorneys’ fees and costs. TENANT EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY.

     19.5 Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies provided in this Lease or any other remedies provided by law (all such remedies being cumulative), nor shall pursuit of any remedy provided in this Lease constitute a forfeiture or waiver of any rent due to Landlord under this Lease or of any damages accruing to Landlord by reason of the violation of any of the terms, provisions and covenants contained in this Lease.

     19.6 No act or thing done by Landlord or its agents during the Term shall be deemed a termination of this Lease or an acceptance of the surrender of the Premises, and no agreement to terminate this Lease or accept a surrender of said Premises shall be valid, unless in writing signed by Landlord. No waiver by Landlord of any violation or breach of any of the terms, provisions and covenants contained in this Lease shall be deemed or construed to constitute a waiver of any other violation or breach of any of the terms, provisions and covenants contained in this Lease. Landlord’s acceptance of the payment of rental or other payments after the occurrence of an Event of Default shall not be construed as a waiver of such Default, unless Landlord so notifies Tenant in writing or if the Default were a failure of payment and such payment cures such Default even if made after the applicable cure period. Forbearance by Landlord in enforcing one or more of the remedies provided in this Lease upon an Event of Default shall not be deemed or construed to constitute a waiver of such Default or of Landlord’s right to enforce any such remedies with respect to such Default or any subsequent Default.

     19.7 Landlord shall have any statutory landlord’s lien rights granted by the laws of the State of Arizona.

     19.8 Any and all property which may be removed from the Premises by Landlord pursuant to the authority of this Lease or of law upon an Event of Default by Tenant, to which Tenant is or may be entitled, may be handled, removed and/or stored, as the case may be, by or at the direction of Landlord but at the risk, cost and expense of Tenant, and Landlord shall in no event be responsible for the value, preservation or safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all expenses incurred in such removal and all storage charges against such property so long as the same shall be in Landlord’s possession or under Landlord’s control. Any such property of Tenant not retaken by Tenant from storage within thirty (30) days after removal from the Premises shall, at Landlord’s option, be deemed conveyed by Tenant to Landlord under this Lease as by a bill of sale without further payment or credit by Landlord to Tenant.

     19.9 If more than three (3) Events of Default occur during the Term or any renewal thereof, Tenant’s renewal options, expansion options, purchase options and rights of first offer and/or refusal, if any are provided for in this Lease, shall be null and void.

     20. TENANT’S BANKRUPTCY OR INSOLVENCY.

     20.1 If at any time and for so long as Tenant shall be subjected to the provisions of the United States Bankruptcy Code or other law of the United States or any state thereof for the protection of debtors as in effect at such time (each a “Debtor’s Law”):

     20.1.1 Tenant, Tenant as debtor-in-possession, and any trustee or receiver of Tenant’s assets (each a “Tenant’s Representative”) shall have no greater right to assume or assign this Lease or any interest in this Lease, or to sublease any of the Premises than accorded to Tenant in Article 9, except to the extent Landlord shall be required to permit such assumption, assignment or sublease by the provisions of such Debtor’s Law. Without limitation of the generality of the foregoing, any right of any Tenant’s Representative to assume or assign this Lease or to sublease any of the Premises shall be subject to the conditions that:

13

                        20.1.1.1 Such Debtor’s Law shall provide to Tenant’s Representative a right of assumption of this Lease which Tenant’s Representative shall have timely exercised and Tenant’s Representative shall have fully cured any default of Tenant under this Lease.

                        20.1.1.2 Tenant’s Representative or the proposed assignee, as the case shall be, shall have deposited with Landlord as security for the timely payment of rent an amount equal to the larger of: (a) three (3) months’ rent and other monetary charges accruing under this Lease; and (b) any sum specified in Article 5; and shall have provided Landlord with adequate other assurance of the future performance of the obligations of the Tenant under this Lease. Without limitation, such assurances shall include, at least, in the case of assumption of this Lease, demonstration to the satisfaction of the Landlord that Tenant’s Representative has and will continue to have sufficient unencumbered assets after the payment of all secured obligations and administrative expenses to assure Landlord that Tenant’s Representative will have sufficient funds to fulfill the obligations of Tenant under this Lease; and, in the case of assignment, submission of current financial statements of the proposed assignee, audited by an independent certified public accountant reasonably acceptable to Landlord and showing a net worth and working capital in amounts determined by Landlord to be sufficient to assure the future performance by such assignee of all of the Tenant’s obligations under this Lease.

                        20.1.1.3 The assumption or any contemplated assignment of this Lease or subleasing any part of the Premises, as shall be the case, will not breach any provision in any other lease, mortgage, financing agreement or other agreement by which Landlord is bound.

                        20.1.1.4 Landlord shall have, or would have had absent the Debtor’s Law, no right under Article 9 to refuse consent to the proposed assignment or sublease by reason of the identity or nature of the proposed assignee or sublessee or the proposed use of the Premises concerned.

     21. QUIET ENJOYMENT. Landlord represents and warrants that it has full right and authority to enter into this Lease and that Tenant, while paying the rental and performing its other covenants and agreements contained in this Lease, shall peaceably and quietly have, hold and enjoy the Premises for the Term without hindrance or molestation from Landlord subject to the terms and provisions of this Lease. Landlord shall not be liable for any interference or disturbance by other tenants or third persons (other than Landlord’s agents, employees or contractors), nor shall Tenant be released from any of the obligations of this Lease because of such interference or disturbance.

22. CASUALTY

     22.1 In the event the Premises or the Building are damaged by fire or other cause and in Landlord’s reasonable estimation such damage can be materially restored within one hundred eighty (180) days, Landlord shall forthwith repair the same and this Lease shall remain in full force and effect, except that Tenant shall be entitled to a proportionate abatement in rent from the date of such damage. Such abatement of rent shall be made pro rata in accordance with the extent to which the damage and the making of such repairs shall interfere with the use and occupancy by Tenant of the Premises from time to time as mutually determined, in good faith, by Landlord and Tenant. Within forty-five (45) days from the date of such damage, Landlord shall notify Tenant, in writing, of Landlord’s reasonable estimation of the length of time within which material restoration can be made, and Landlord’s determination shall be binding on Tenant. For purposes of this Lease, the Building or Premises shall be deemed “materially restored” if they are in substantially the same condition as immediately before such damage.

     22.2 If such repairs cannot, in Landlord’s reasonable estimation, be made within one hundred eighty (180) days, Landlord and Tenant shall each have the option of giving the other, at any time within ninety (90) days after such damage, notice terminating this Lease as of the date of such damage. In the event of the giving of such notice, this Lease shall expire and all interest of the Tenant in the Premises shall terminate as of the date of such damage as if such date had been originally fixed in this Lease for the expiration of the Term. In the event that neither Landlord nor Tenant exercises its option to terminate this Lease, then Landlord shall repair or restore such damage, this Lease continuing in full force and effect, and the rent hereunder shall be proportionately abated as provided in Section 22.1.

     22.3 Landlord shall not be required to repair or replace any damage or loss by or from fire or other cause to any panelings, decorations, partitions, additions, railings, ceilings, floor coverings, office fixtures or any other property or improvements installed on the Premises by, or belonging to, Tenant. Any insurance which may be carried by Landlord or Tenant against loss or damage to the Building or Premises shall be for the sole benefit of the party carrying such insurance and under its sole control.

14

     22.4     In the event that Landlord should fail to complete such repairs and material restoration within sixty (60) days after the date estimated by Landlord therefor as extended by this Section 22.4, Tenant may at its option and as its sole remedy terminate this Lease by delivering written notice to Landlord, within fifteen (15) days after the expiration of said period of time, whereupon the Lease shall end on the date of such notice or such later date fixed in such notice as if the date of such notice was the date originally fixed in this Lease for the expiration of the Term; provided, however, that if construction is delayed because of changes, deletions or additions in construction requested by Tenant, strikes, lockouts, casualties, Acts of God, war, material or labor shortages, government regulation or control or other causes beyond the reasonable control of Landlord, the period for restoration, repair or rebuilding shall be extended for the amount of time Landlord is so delayed, but in no event more than an additional ninety (90) days.

     22.5     Notwithstanding anything to the contrary contained in this Article: (a) Landlord shall not have any obligation whatsoever to repair, reconstruct, or restore the Premises when the damages resulting from any casualty covered by the provisions of this Article 22 occur during the last twelve (12) months of the Term or any extension thereof or if the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises or Building requires that any insurance proceeds be applied to such indebtedness, but if Landlord determines not to repair such damages in either such case, Landlord shall notify Tenant and if such damages shall render any material portion of the Premises untenantable Tenant shall have the right to terminate this Lease by notice to Landlord within fifteen (15) days after receipt of Landlord’s notice; and (b) in the event the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises or Building requires that any insurance proceeds be applied to such indebtedness, then Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within fifteen (15) days after such requirement is made by any such holder, whereupon this Lease shall end on the date of such damage as if the date of such damage were the date originally fixed in this Lease for the expiration of the Term.

     22.6     In the event of any damage or destruction to the Building or Premises by any peril covered by the provisions of this Article 22, it shall be Tenant’s responsibility to properly secure the Premises and upon notice from Landlord to remove forthwith, at its sole cost and expense, such portion of all of the property belonging to Tenant or its licensees from such portion or all of the Building or Premises as Landlord shall request.

23.     EMINENT DOMAIN. If all or any substantial part of the Premises shall be taken or appropriated by any public or quasi-public authority under the power of eminent domain, or conveyance in lieu of such appropriation, either party to this Lease shall have the right, at its option, of giving the other, at any time within thirty (30) days after such taking, notice terminating this Lease, except that Tenant may only terminate this Lease by reason of taking or appropriation, if such taking or appropriation shall be so substantial as to materially interfere with Tenant’s use and occupancy of the Premises. If neither party to this Lease shall so elect to terminate this Lease, the rental thereafter to be paid shall be adjusted on a fair and equitable basis under the circumstances. In addition to the rights of Landlord above, if any substantial part of the Building shall be taken or appropriated by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, and regardless of whether the Premises or any part thereof are so taken or appropriated, Landlord shall have the right, at its sole option, to terminate this Lease. Landlord shall be entitled to any and all income, rent, award, or any interest whatsoever in or upon any such sum, which may be paid or made in connection with any such public or quasi-public use or purpose, and Tenant hereby assigns to Landlord any interest it may have in or claim to all or any part of such sums, other than any separate award which may be made with respect to Tenant’s trade fixtures and moving expenses; Tenant shall make no claim for the value of any unexpired Term.

24.     SALE BY LANDLORD. In event of a sale or conveyance by Landlord of the Building, the same shall operate to release Landlord from any future liability upon any of the covenants or conditions, expressed or implied, contained in this Lease in favor of Tenant, provided that such successor expressly assumes Landlord’s obligations hereunder in writing, and in such event Tenant agrees to look solely to the responsibility of the successor in interest of Landlord in and to this Lease. Except as set forth in this Article 24, this Lease shall not be affected by any such sale and Tenant agrees to attorn to the purchaser or assignee. If any security has been given by Tenant to secure the faithful performance of any of the covenants of this Lease, Landlord may transfer or deliver said security, as such, to Landlord’s successor in interest and thereupon Landlord shall be discharged from any further liability with regard to said security provided that such successor expressly assumes Landlord’s obligations hereunder in writing.

25.     ESTOPPEL CERTIFICATES. Within ten (10) business days following any written request which Landlord may make from time to time, Tenant shall execute and deliver to Landlord or mortgagee or prospective mortgagee a sworn statement certifying: (a) the date of commencement of this Lease; (b) the fact that this Lease is unmodified and in full force and effect (or, if there have been modifications to this Lease, that this lease is in full force and effect, as modified, and stating

15

the date and nature of such modifications); (c) the date to which the rent and other sums payable under this Lease have been paid; (d) the fact that there are no current defaults under this Lease by either Landlord or Tenant except as specified in Tenant’s statement; and (e) such other matters as may be reasonably requested by Landlord. Landlord and Tenant intend that any statement delivered pursuant to this Article 25 may be relied upon by any mortgagee, beneficiary or purchaser, and Tenant shall be liable for all loss, cost or expense resulting from the failure of any sale or funding of any loan caused by any material misstatement contained in such estoppel certificate which material misstatement is made by Tenant in bad faith and which is not corrected within ten (10) business days of receipt of written request that such correction be made. Tenant irrevocably agrees that if Tenant fails to execute and deliver such certificate within such ten (10) business day period Landlord or Landlord’s beneficiary or agent may execute and deliver such certificate on Tenant’s behalf, and that such certificate shall be fully binding on Tenant.

26.     SURRENDER OF PREMISES.

     26.1     Tenant shall arrange to meet Landlord for two (2) joint inspections of the Premises, the first to occur at least thirty (30) days (but no more than sixty (60) days) before the last day of the Term, and the second to occur not later than forty-eight (48) hours after Tenant has vacated the Premises. In the event of Tenant’s failure to arrange such joint inspections and/or participate in either such inspection, Landlord’s inspection at or after Tenant’s vacating the Premises shall be conclusively deemed correct for purposes of determining Tenant’s responsibility for repairs and restoration.

     26.2     All alterations, additions, and improvements in, on, or to the Premises made or installed by or for Tenant, including carpeting (collectively, “Alterations”), shall be and remain the property of Tenant during the Term. Upon the expiration or sooner termination of the Term, all Alterations shall become a part of the realty and shall belong to Landlord without compensation, and title shall pass to Landlord under this Lease as by a bill of sale. At the end of the Term or any renewal of the Term or other sooner termination of this Lease, Tenant will peaceably deliver up to Landlord possession of the Premises, together with all Alterations by whomsoever made, in the same conditions received or first installed, broom clean and free of all debris, excepting only ordinary wear and tear and damage by fire or other casualty. Notwithstanding the foregoing, if Landlord elects by notice given to Tenant at least ten (10) days prior to expiration of the Term, Tenant shall, at Tenant’s sole cost, remove any Alterations, including carpeting, so designated by Landlord’s notice, and repair any damage caused by such removal. Tenant must, at Tenant’s sole cost, remove upon termination of this Lease, any and all of Tenant’s furniture, furnishings, movable partitions of less than full height from floor to ceiling and other trade fixtures and personal property (collectively, “Personalty”). Personalty not so removed shall be deemed abandoned by the Tenant and title to the same shall thereupon pass to Landlord under this Lease as by a bill of sale, but Tenant shall remain responsible for the cost of removal and disposal of such Personalty, as well as any damage caused by such removal.

     26.3     All obligations of Tenant under this Lease not fully performed as of the expiration or earlier termination of the Term shall survive the expiration or earlier termination of the Term Upon the expiration or earlier termination of the Term, Tenant shall pay to Landlord the amount, as reasonably estimated by Landlord, necessary to repair and restore the Premises as provided in this Lease and/or to discharge Tenant’s obligation for unpaid amounts due or to become due to Landlord. All such amounts shall be used and held by Landlord for payment of such obligations of Tenant, with Tenant being liable for any additional costs upon demand by Landlord, or with any excess to be returned to Tenant after all such obligations have been determined and satisfied. Any otherwise unused Security Deposit shall be credited against the amount payable by Tenant under this Lease.

27.     NOTICES. Any notice or document required or permitted to be delivered under this Lease shall be addressed to the intended recipient, by fully prepaid registered or certified United States Mail return receipt requested, or by reputable independent contract delivery service furnishing a written record of attempted or actual delivery, and shall be deemed to be delivered when tendered for delivery to the addressee at its address set forth on the Reference Pages, or at such other address as it has then last specified by written notice delivered in accordance with this Article 27. Any such notice or document may also be personally delivered if a receipt is signed by and received from, the individual, if any, named in Tenant’s Notice Address.

28.     TAXES PAYABLE BY TENANT. In addition to rent and other charges to be paid by Tenant under this Lease, Tenant shall reimburse to Landlord, upon demand, any and all taxes payable by Landlord (other than income taxes) whether or not now customary or within the contemplation of the parties to this Lease: (a) upon, allocable to, or measured by or on the gross or net rent payable under this Lease, including without limitation any excise tax levied by the State, any political subdivision thereof, or the Federal Government with respect to the receipt of such rent; (b) upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy of the Premises or any portion

16

thereof, including any sales, use or service tax imposed as a result thereof; (c) upon or measured by the Tenant’s gross receipts or payroll or the value of Tenant’s equipment, furniture, fixtures and other personal property of Tenant or leasehold improvements, alterations or additions located in the Premises; or (d) upon this transaction or any document to which Tenant is a party creating or transferring any interest of Tenant in this Lease or the Premises. In addition to the foregoing, Tenant agrees to pay, before delinquency, any and all taxes levied or assessed against Tenant and which become payable during the term hereof upon Tenant’s equipment, furniture, fixtures and other personal property of Tenant located in the Premises.

29.     INTENTIONALLY DELETED.

30.     DEFINED TERMS AND HEADINGS. The Article headings shown in this Lease are for convenience of reference and shall in no way define, increase, limit or describe the scope or intent of any provision of this Lease. Any indemnification or insurance of Landlord shall apply to and inure to the benefit of all the following “Landlord Entities”, being Landlord, Landlord’s investment manager, and the trustees, boards of directors, officers, general partners, beneficiaries, stockholders, employees and agents of each of them. Any option granted to Landlord shall also include or be exercisable by Landlord’s trustee, beneficiary, agents and employees, as the case may be. In any case where this Lease is signed by more than one person, the obligations under this Lease shall be joint and several. The terms “Tenant” and “Landlord” or any pronoun used in place thereof shall indicate and include the masculine or feminine, the singular or plural number, individuals, firms or corporations, and their and each of their respective successors, executors, administrators and permitted assigns, according to the context hereof. The term “rentable area” shall mean the rentable area of the Premises or the Building as reasonably calculated by the Landlord on the basis of the plans and specifications of the Building including a proportionate share of any common areas. Landlord hereby represents and warrants to Tenant that, to its actual knowledge, the figures for the rentable square footage of the Premises and Tenant’s Proportionate Share shown on the Reference Pages are correct and Tenant hereby accepts and agrees to be bound by same; however, Landlord may adjust either or both figures if there is manifest error, addition or subtraction to the Building or any business park or complex of which the Building is a part, remeasurement or other circumstance reasonably justifying adjustment. The term “Building” refers to the structure in which the Premises are located and the common areas (parking lots, sidewalks, landscaping, etc.) appurtenant thereto. If the Building is part of a larger complex of structures, the term “Building” may include the entire complex, where appropriate (such as shared Expenses or Taxes) and subject to Landlord’s reasonable discretion.

31.     TENANT’S AUTHORITY. If Tenant signs as a corporation, partnership, trust or other legal entity each of the persons executing this Lease on behalf of Tenant represents and warrants that Tenant has been and is qualified to do business in the state in which the Building is located, that the entity has full right and authority to enter into this Lease, and that all persons signing on behalf of the entity were authorized to do so by appropriate actions. Tenant agrees to deliver to Landlord, simultaneously with the delivery of this Lease, a corporate resolution or other appropriate documentation reasonably acceptable to Landlord evidencing the due authorization of Tenant to enter into this Lease.

32.     FINANCIAL STATEMENTS AND CREDIT REPORTS. At Landlord’s request, Tenant shall deliver to Landlord a copy, certified by an officer of Tenant as being a true and correct copy, of Tenant’s most recent audited financial statement, or, if unaudited, certified by Tenant’s chief financial officer as being true, complete and correct in all material respects. Tenant hereby authorizes Landlord to obtain one or more credit reports on Tenant at any time, and shall execute such further authorizations as Landlord may reasonably require in order to obtain a credit report. Landlord agrees to hold all information obtained pursuant to this Article 32 strictly confidential.

33.     COMMISSIONS. Each of the parties represents and warrants to the other that it has not dealt with any broker or finder in connection with this Lease, except as described on the Reference Pages.

34.     TIME AND APPLICABLE LAW. Time is of the essence of this Lease and all of its provisions. This Lease shall in all respects be governed by the laws of the state in which the Building is located.

35.     SUCCESSORS AND ASSIGNS. Subject to the provisions of Article 9, the terms, covenants and conditions contained in this Lease shall be binding upon and inure to the benefit of the heirs, successors, executors, administrators and assigns of the parties to this Lease.

36.     ENTIRE AGREEMENT. This Lease, together with its exhibits, contains all agreements of the parties to this Lease and supersedes any previous negotiations. There have been no representations made by the Landlord or any of its representatives or understandings made between the parties other than those set forth in this Lease and its exhibits. This Lease may not be modified except by a written instrument duly executed by the parties to this Lease.

17

37.     EXAMINATION NOT OPTION. Submission of this Lease shall not be deemed to be a reservation of the Premises. Landlord shall not be bound by this Lease until it has received a copy of this Lease duly executed by Tenant and has delivered to Tenant a copy of this Lease duly executed by Landlord, and until such delivery Landlord reserves the right to exhibit and lease the Premises to other prospective tenants. Notwithstanding anything contained in this Lease to the contrary, Landlord may withhold delivery of possession of the Premises from Tenant until such time as Tenant has paid to Landlord any security deposit required by Article 5, the first month’s rent as set forth in Article 3 and any sum owed pursuant to this Lease.

38.     RECORDATION. Tenant shall not record or register this Lease or a short form memorandum hereof without the prior written consent of Landlord, and then shall pay all charges and taxes incident such recording or registration.

39.     OPTION TO EXTEND. Tenant shall, provided the Lease is in full force and effect and Tenant is not in default beyond any applicable cure period under any of the other terms and conditions of the Lease at the time of notification or commencement, have two (2) options to extend the term of this Lease for a period of five (5) years each, on the same terms and conditions as set forth in the Lease, except as modified by the terms, covenants and conditions as set forth below:

a.     If Tenant elects to exercise said option, then Tenant shall provide Landlord with written notice no earlier than the date which is two hundred ten (210) days prior to the expiration of the Term of this Lease, but no later than the date which is one hundred eighty (180) days prior to the expiration of theTerm of this Lease. If Tenant fails to provide such notice, Tenant shall have no right to extend or renew the term of the Lease.

b.     The Annual Rent and Monthly Installment of Rent in effect at the expiration of the then current Term of the Lease shall be increased to reflect one hundred percent (100%) of the current fair market rental for comparable space in the Building and in other similar buildings in the same rental market as of the date the extended term is to commence, taking into account the specific provisions of the Lease which will remain constant. Landlord shall advise Tenant of the new Annual Rent and Monthly Installment of Rent for the Premises no later than thirty (30) days after receipt of Tenant’s written request therefor. Said request shall be made no earlier than sixty (60) days prior to the first date on which Tenant may exercise its option under this Paragraph. Said notification of the new Annual Rent and Minimum Monthly Installment of Rent may include a provision for its escalation to provide for a change in fair market rental between the time of notification and the commencement of the extended term. In no event shall the Annual Rent and Monthly Installment of Rent for either extended period be less than the Annual Rent and Monthly Installment of Rent in effect at the end of the preceding period.

c.     This option is not transferable. The parties hereto acknowledge and agree that they intend that the aforesaid option to extend this Lease shall be “personal” to Tenant as set forth above and that in no other event will any assignee or sublessee have any rights to exercise the aforesaid option to extend without Landlord’s prior written consent.

d.     Should the extension options provided for above be exercised, Tenant shall have no further right to extend the term of the Lease. Should Tenant not exercise the first extension option, then Tenant shall have no further extension option.

40.      RIGHT OF FIRST OFFER. Subject to Subsection 40b below, and subject to any expansion or renewal options of any current tenant in the Building or the right of Landlord to extend the Lease of any current tenant in the Building (a “Prior Tenant”), Landlord hereby grants to Tenant for the initial term of the Lease a right of first offer for any space that is adjacent to the Premises (collectively, the “ROFO Space”), to be exercised in accordance with Subsection a below

a.     If any ROFO Space becomes available for lease to anyone other than a Prior Tenant, Landlord shall so notify Tenant (“Landlord’s ROFO Notice”) identifying the available ROFO Space (the “Subject ROFO Space”). Landlord’s ROFO Notice may be given up to twelve (12) months in advance of such availability and shall contain the terms upon which Landlord intends to offer the Subject ROFO Space for lease to the market. Tenant shall notify Landlord within ten (10) business days of receipt of Landlord’s ROFO Notice whether it desires to lease the Subject ROFO Space on the terms set forth in Landlord’s ROFO Notice. If Tenant does not notify Landlord within said 10-business day period that it will lease the Subject ROFO Space, Tenant shall be deemed to have refused the Subject ROFO Space. After any refusal, Tenant shall have no further right of first offer for such Subject ROFO Space and Landlord shall be free to lease such space to any party for any term and upon any terms it desires, provided same are not materially more favorable to the new tenant than those offered to Tenant. If Tenant exercises its right of first

18

offer with respect to the Subject ROFO Space, such space shall be added to the Premises for all purposes of this Lease for the remaining Term of the Lease (but in no event less than three (3) years) on (a) the terms specified in Landlord’s ROFO Notice, and (b) the terms of this Lease to the extent that they do not conflict with the terms specified in Landlord’s ROFO Notice, except that the terms of Landlord’s ROFO Notice shall not apply during any extended Term of the Lease but, instead, the terms of the Lease applying to the remainder of the Premises during the extended Term shall also apply to the Subject ROFO Space.

b. Tenant’s right of first offer is subject to the conditions that: (i) on the date that Tenant delivers its notice exercising its right of first offer, Tenant is not in default under this Lease after the expiration of any applicable notice and cure periods, and (ii) Tenant shall not have assigned the Lease, or sublet all of the Premises under a sublease which is in effect at any time during the period commencing with Tenant’s delivery of its notice and ending on the date the ROFO Space is added to the Premises.

c. Promptly after Tenant’s exercise of its right of first offer, Landlord shall prepare and deliver to Tenant an amendment to the Lease to reflect changes in the Premises, Base Rent, Tenant’s Proportionate Share and any other appropriate terms changed by the addition of the ROFO Space. Within fifteen (15) business days thereafter, Tenant shall execute and return the amendment for Landlord’s execution.

41.     FORCE MAJEURE. If any performance by Landlord hereunder is delayed due to any conditions, acts or circumstances beyond the control of Landlord including, without limitation, war, terrorism, strike, fire, labor disturbance, riot or civil commotion, act of government or any governmental agency, flood, earthquake, landslide, act of God, act of third parties or any other reason of force majeure, the time within which Landlord is required to complete such performance shall be extended for a period equal to the period of such delay.

42.     LIMITATION OF LANDLORD’S LIABILITY. Redress for any claim against Landlord under this Lease shall be limited to and enforceable only against and to the extent of Landlord’s interest in the Building. The obligations of Landlord under this Lease are not intended to be and shall not be personally binding on, nor shall any resort be had to the private properties of, any of its or its investment manager’s trustees, directors, officers, partners, beneficiaries, members, stockholders, employees, or agents, and in no case shall Landlord be liable to Tenant hereunder for any lost profits, damage to business, or any form of special, indirect or consequential damages.

LANDLORD:	TENANT:
CABOT INDUSTRIAL PROPERTIES, L.P., a Delaware limited partnership	PORTOLA PACKAGING, INC., a Delaware corporation
By: RREEF Management Company, a Delaware corporation, its Authorized Agent Name: ________________________           Bret C. Borg, CPM	By: ________________________ Name:
Title: District Manager	Title:
Dated: May ___, 2003	Dated: May ___, 2003

19

EXHIBIT A – FLOOR PLAN DEPICTING THE PREMISES

attached to and made a part of Lease bearing the
Lease Reference Date of June 5, 2003, between
Cabot Industrial Properties, L.P., as Landlord and
Portola Packaging, Inc., as Tenant

     Exhibit A is intended only to show the general layout of the Premises as of the beginning of the Term of this Lease. It does not in any way supersede any of Landlord’s rights set forth in Article 17 with respect to arrangements and/or locations of public parts of the Building and changes in such arrangements and/or locations. It is not to be scaled; any measurements or distances shown should be taken as approximate.

A-1

EXHIBIT A-1 – SITE PLAN

attached to and made a part of Lease bearing the
Lease Reference Date of June 5, 2003, between
Cabot Industrial Properties, L.P., as Landlord and
Portola Packaging, Inc., as Tenant

Exhibit A-1 is intended only to show the general layout of the Premises as of the beginning of the Term of this Lease. It does not in any way supersede any of Landlord’s rights set forth in Article 17 with respect to arrangements and/or locations of public parts of the Building and changes in such arrangements and/or locations. It is not to be scaled; any measurements or distances shown should be taken as approximate.

A-2

EXHIBIT B – INITIAL ALTERATIONS

attached to and made a part of Lease bearing the
Lease Reference Date of June 5, 2003, between
Cabot Industrial Properties, L.P., as Landlord and
Portola Packaging, Inc., as Tenant

     1.      INITIAL IMPROVEMENTS. Landlord shall cause plans and specifications (the “Plans”) of the improvements (the “Initial Improvements”, which shall be defined to exclude Tenant’s personal property, trade fixtures [such as, but not limited to, silos, molds, and processing equipment], equipment, furniture and inventory) to be prepared in sufficient detail to define the construction work necessary to implement the Initial Improvements pursuant to that certain floor plan dated April 14, 2003 (attached hereto as Exhibit “I”). Tenant shall have five (5) business days after receipt thereof to either provide comments to such Plans or to approve the same. Tenant shall be deemed to have approved such Plans if it does not timely provide comments on such Plans. If Tenant provides Landlord with comments to the Plans, Landlord shall provide revised Plans to Tenant incorporating Tenant’s comments within one (1) week after receipt of Tenant’s comments. Tenant shall within five (5) business days after receipt either provide comments to such revised Plans or approve the same. Tenant shall be deemed to have approved such revised Plans if it does not timely provide comments on such Plans. The process described above shall be repeated, if necessary, until the Plans have been finally approved by the parties. Landlord shall thereafter cause to be performed the Initial Improvements in the Premises in accordance with the final Plans. The parties shall cooperate to agree upon the final Plans as promptly as possible.

     The Plans for the Initial Improvements shall comply with all applicable governmental requirements. Landlord’s approval of any of the Plans (or any modifications or changes thereto) shall not impose upon Landlord or its agents or representatives any obligation with respect to the design of the Initial Improvements or the compliance of such Initial Improvements or the Plans with applicable governmental requirements.

     Landlord shall select a contractor to perform the construction of the Initial Improvements. Such contractor shall be selected by a competitive bid process contractors selected by Landlord, with consultation of Tenant. Landlord shall use commercially reasonable efforts to cause the Initial Improvements to be substantially completed, except for minor “Punch List” items, on or before the Scheduled Commencement Date specified in the Reference Pages, subject to Tenant Delay (as defined in Section 4 hereof) and force majeure (as defined in Article 41 of the Lease).

     Landlord, or an agent of Landlord, shall provide project management services in connection with the construction of the Initial Improvements and the Change Orders (hereinafter defined). Such project management services shall be performed for a fee of three percent (3%) of all costs related to the preparation of the Plans and the construction of the Initial Improvements and the Change Orders, and shall be paid (at Landlord’s discretion) from the Landlord’s Contribution and/or Financed Amount (as said terms are defined below).

     2.      CHANGE ORDERS. If, prior to the Commencement Date, Tenant shall require improvements or changes (individually or collectively, “Change Orders”) to the Premises in addition to, revision of or substitution for the Initial Improvements, Tenant shall deliver to Landlord for its approval plans and specifications for such Change Orders. If Landlord does not approve of the plans for Change Orders, Landlord shall advise Tenant of the revisions required. Tenant shall revise and redeliver the plans and specifications to Landlord within five (5) business days of Landlord’s advice or Tenant shall be deemed to have abandoned its request for such Change Orders. Tenant shall pay for all revisions of the Plans, and the construction of all Change Orders.

     3.      COST OF INITIAL IMPROVEMENTS AND CHANGE ORDERS. The parties anticipate that the Initial Improvements will cost approximately Four Million Dollars ($4,000,000.00). Landlord shall contribute up to Two Million Three Hundred Thousand Dollars ($2,300,000.00) (the “Landlord’s Contribution”) towards construction of the Initial Improvements. The costs and expenses in excess of Landlord’s Contribution, including those associated with any change(s) to the Plans and any construction resulting from such change(s), shall be the sole responsibility of Tenant. Landlord has no obligation to pay for the costs and expenses associated with construction of the Initial Improvements and any Change Orders to the extent said costs and expenses exceed the Landlord’s Contribution. If the cost of construction of the Initial

B-1

     Improvements (including any Change Orders) will result in a contract price which exceeds the Landlord’s Contribution, Landlord shall take the first One Hundred Fifty Thousand Dollars ($150,000.00) of such overage, plus ten percent (10%) thereof (to be held by Landlord to offset any unforeseen additional charges and refunded to Tenant in the event there are no unforeseen additional charges or if the cost thereof is less than the amount paid by Tenant), from the Security Deposit, in which event Tenant shall have the obligation (without any notice being required from Landlord) to restore by September 15, 2003 the amount of the Security Deposit so applied by Landlord. If the cost of construction of the Initial Improvements, including any Change Orders (together with the ten percent contingency amount thereon) result in an overage in excess of $150,000.00 above the amount of the Landlord’s Contribution, and said amount has been determined by Landlord and provided to Tenant in writing prior to September 1, 2003, then Tenant shall deposit such overage, plus ten percent (10%) thereof (to be held by Landlord to offset any unforeseen additional charges and refunded to Tenant in the event there are no unforeseen additional charges or the cost thereof is less than the amount paid by Tenant) (“the Overage Deposit”, which the parties initially estimate to be $1,688,500.00 [the $1,700,00.00 difference between the estimated cost of construction and the Landlord’s Contribution, less the $165,000.00 to be taken by Landlord from the Security Deposit {including the ten percent contingency}, plus ten percent {the contingency amount}of the $1,535,000.00 estimated balance remaining due]), to Landlord no later than September 5, 2003. If the amount of such overage is determined on or after September 1, 2003, then Tenant shall tender the Overage Deposit within ten (10) business days of its receipt of written notice from Landlord of the amount thereof. Landlord and Tenant hereby acknowledge and agree that the Overage Deposit may arise and be paid in one (1) or more installments as the cost of construction of the Initial Improvements are incurred (but in no event shall Tenant be required to pay any installment before September 1, 2003), and if paid in installments the Overage Deposit shall be the total of any and all such installments. Notwithstanding anything in the Lease to the contrary, Landlord and Tenant hereby acknowledge and agree that Landlord shall be responsible for paying the first $2,300,000.00 in construction costs with respect to the Initial Improvements and any Change Orders, that the first $150,000.00 in excess thereof shall be taken from Tenant’s Security Deposit (to be restored by Tenant by September 15, 2003), and that the balance of any cost in excess thereof shall then be taken from the Overage Deposit. Landlord and Tenant hereby each agree to use reasonable efforts to ensure that the foregoing sentence is included in any and all construction contracts entered into with respect to the Initial Improvements and any Change Orders. If Landlord expends less that the amount of Landlord’s Contribution, the difference between the amount of Landlord’s Contribution and the amount spent by Landlord shall be paid to Tenant within thirty (30) days after the Commencement Date.

     4.      COMMENCEMENT DATE DELAY. The Commencement Date shall be delayed until the Initial Improvements have been substantially completed (the “Completion Date”), except to the extent that the delay shall be caused by any one or more of the following (a “Tenant Delay”):

          (a)     Tenant’s request for Change Orders whether or not any such Change Orders are actually performed; or

          (b)     Contractor’s performance of any Change Orders; or

          (c)     Tenant’s request for materials, finishes or installations requiring unusually long lead times; or

          (d)     Tenant’s delay in reviewing, revising or approving plans and specifications beyond the periods set forth herein; or

          (e)     Tenant’s delay in providing information critical to the normal progression of the project. Tenant shall provide such information as soon as reasonably possible, but in no event longer than one week after receipt of such request for information from the Landlord; or

          (f)     Tenant’s delay in making payments to Landlord for the costs of any Change Orders; or

          (g)     Any other act or omission by Tenant, its agents, contractors or persons employed by any of such persons; or

B-2

          (h)     Any delay caused by any contractor(s) that Tenant has required that Landlord hire to perform certain portions of the construction of the Initial Improvements including, but not limited to, the following contractors: (i) Corbins Electric, (ii) Liqui-Chill, and (iii) the overhead crane contractor, which is to be determined by Tenant.

If the Commencement Date is delayed for any reason, then Landlord shall cause Landlord’s architect to certify the date on which the Initial Improvements would have been completed but for such Tenant Delay, or were in fact completed without any Tenant Delay.

     5.      ACCESS BY TENANT PRIOR TO COMMENCEMENT OF TERM. As long as, in the opinion of Landlord and the general contractor, such access will not interfere with completion of the Initial Improvements or delay the Commencement Date, Landlord shall permit Tenant and its agents to enter the Premises prior to the Commencement Date to install furniture and fixtures and to otherwise prepare the Premises for Tenant’s use and occupancy. This permission constitutes a license only, conditioned upon Tenant’s:

          (a)     working in harmony with Landlord and Landlord’s agents, contractors, workmen, mechanics and suppliers and with other tenants and occupants of the Building;

          (b)     obtaining in advance Landlord’s reasonable approval of the contractors proposed to be used by Tenant; and

          (c)     furnishing Landlord with such insurance as Landlord may reasonably require against liabilities which may arise out of such entry.

     Landlord shall not be liable in any way for any injury, loss or damage which may occur to any of Tenant’s property or installations in the Premises prior to the Commencement Date other than as a result of the gross negligence or willful misconduct of Landlord, its agents or employees. Tenant shall protect, defend, indemnify and save harmless Landlord from all liabilities, costs, damages, fees and expenses arising out of the activities of Tenant or its agents, contractors, suppliers or workmen in the Premises or the Building. The entry and occupation permitted under this Section shall be governed by all other terms of the Lease.

     6. MISCELLANEOUS. Terms used in this Exhibit B shall have the meanings assigned to them in the Lease. The terms of this Exhibit B are subject to the terms of the Lease.

     7. TENDER OF THE PREMISES. The Commencement Date shall be deemed to have occurred on the date that Landlord shall tender possession of the Premises to Tenant with the Initial Improvements having been substantially completed (which Commencement Date may be before the Scheduled Commencement Date set forth on the Reference Pages of the Lease or before the New Scheduled Commencement Date, as said term is defined in Section 2.2 of the Lease).

(Remainder of Page Left Blank Intentionally)

B-3

EXHIBIT C – COMMENCEMENT DATE MEMORANDUM

attached to and made a part of Lease bearing the
Lease Reference Date of June 5, 2003, between
Cabot Industrial Properties, L.P., as Landlord and
Portola Packaging, Inc., as Tenant

COMMENCEMENT DATE MEMORANDUM

     THIS MEMORANDUM, made as of ___, 20___, by and between ___ (“Landlord”) and ___(“Tenant”).

     Recitals

A.	Landlord and Tenant are parties to that certain Lease, dated for reference ___, 20___(the “Lease”) for certain premises (the “Premises”) consisting of approximately ___square feet at the building commonly known as ___.
B.	Tenant is in possession of the Premises and the Term of the Lease has commenced.
C.	Landlord and Tenant desire to enter into this Memorandum confirming the Commencement Date, the Termination Date and other matters under the Lease.

     NOW, THEREFORE, Landlord and Tenant agree as follows:

1.	The actual Commencement Date is ___.
2.	The actual Termination Date is ___.
3.	The schedule of the Annual Rent and the Monthly Installment of Rent set forth on the Reference Pages is deleted in its entirety, and the following is substituted therefor:

[insert rent schedule] __________________________________________________

4.      Capitalized terms not defined herein shall have the same meaning as set forth in the Lease.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date and year first above written.

LANDLORD:	TENANT:
By:
By: __________ DO_NOT_SIGN __________ Name: _______________________________ Title: ________________________________ Dated: _______________________________	By: __________ DO_NOT_SIGN__________ Name: _______________________________ Title: ________________________________ Dated: _______________________________

C-1

EXHIBIT D – RULES AND REGULATIONS

attached to and made a part of Lease bearing the
Lease Reference Date of June 5, 2003, between
Cabot Industrial Properties, L.P., as Landlord and
Portola Packaging, Inc., as Tenant

1.     No sign, placard, picture, advertisement, name or notice (collectively referred to as “Signs”) shall be installed or displayed on any part of the outside of the Building without the prior written consent of the Landlord which consent shall be in Landlord’s sole discretion. All approved Signs shall be printed, painted, affixed or inscribed at Tenant’s expense by a person or vendor approved by Landlord and shall be removed by Tenant at Tenant’s expense upon vacating the Premises. Landlord shall have the right to remove any Sign installed or displayed in violation of this rule at Tenant’s expense and without notice.

2.     If Landlord objects in writing to any curtains, blinds, shades or screens attached to or hung in or used in connection with any window or door of the Premises or Building, Tenant shall immediately discontinue such use. No awning shall be permitted on any part of the Premises. Tenant shall not place anything or allow anything to be placed against or near any glass partitions or doors or windows which may appear unsightly, in the opinion of Landlord, from outside the Premises.

3.     Tenant shall not alter any lock or other access device or install a new or additional lock or access device or bolt on any door of its Premises without the prior written consent of Landlord. Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys or other means of access to all doors.

4.     If Tenant requires telephone, data, burglar alarm or similar service, the cost of purchasing, installing and maintaining such service shall be borne solely by Tenant. No boring or cutting for wires will be allowed without the prior written consent of Landlord. Landlord shall direct electricians as to where and how telephone, data, and electrical wires are to be introduced or installed. The location of burglar alarms, telephones, call boxes or other office equipment affixed to the Premises shall be subject to the prior written approval of Landlord.

5.     Tenant shall not place a load upon any floor of its Premises, including mezzanine area, if any, which exceeds the load per square foot that such floor was designed to carry and that is allowed by law, which load limit shall be provided by Landlord to Tenant in writing. Heavy objects shall stand on such platforms as reasonably determined by Landlord to be necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such equipment or other property from any cause other than the gross negligence or willful misconduct of Landlord, its agents, employees or contractors, and all damage done to the Building by maintaining or moving such equipment or other property shall be repaired at the expense of Tenant.

6.     Tenant shall not install any radio or television antenna, satellite dish, loudspeaker or other device on the roof or exterior walls of the Building without Landlord’s prior written consent which consent shall be in Landlord’s sole discretion.

7.     Tenant shall not mark, drive nails, screw or drill into the partitions, woodwork, plaster or drywall (except for pictures and general office uses) or in any way deface the Premises or any part thereof. Tenant shall not affix any floor covering to the floor of the Premises or paint or seal any floors in any manner except as approved by Landlord. Tenant shall repair any damage resulting from noncompliance with this rule.

8.     No cooking shall be done or permitted on the Premises, except that Underwriters’ Laboratory approved microwave ovens or equipment for brewing coffee, tea, hot chocolate and similar beverages shall be permitted, provided that such equipment and use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations.

9.     Tenant shall not use any hand trucks except those equipped with the rubber tires and side guards, and may use such other material-handling equipment as Landlord may reasonably approve. Tenant shall not bring any other vehicles of any kind into the Building. Forklifts which operate on asphalt areas shall only use tires that do not damage the asphalt.

10.     Tenant shall not use the name of the Building or any photograph or other likeness of the Building in connection with or in promoting or advertising Tenant’s business except that Tenant may include the Building name in Tenant’s address.

D-1

11.     All trash and refuse shall be contained in suitable receptacles at locations approved by Landlord. Tenant shall not place in the trash receptacles any personal trash or material that cannot be disposed of in the ordinary and customary manner of removing such trash without violation of any law or ordinance governing such disposal.

12.     Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governing authority.

13.     Tenant assumes all responsibility for securing and protecting its Premises and its contents including keeping doors locked and other means of entry to the Premises closed.

14.     Tenant shall not use any method of heating or air conditioning other than that supplied by Landlord without Landlord’s prior written consent.

15.     No person shall go on the roof without Landlord’s permission.

16.     Tenant shall not permit any animals, other than seeing-eye dogs, to be brought or kept in or about the Premises or any common area of the property.

17.     Tenant shall not permit any motor vehicles to be washed or mechanical work or maintenance of motor vehicles to be performed on any portion of the Premises or parking lot.

18.     These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of any premises in the Building.

19.     Landlord reserves the right to make such other and reasonable rules and regulations as in its judgment may from time to time be needed for safety and security, for care and cleanliness of the Building and for the preservation of good order in and about the Building, provided same shall apply uniformly to all tenants. Tenant agrees to abide by all such rules and regulations herein stated and any additional rules and regulations which are adopted. Tenant shall be responsible for the observance of all of the foregoing rules by Tenant’s employees, agents, clients, customers, invitees and guests.

20.     Any toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown into them. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the Tenant who, or whose employees or invitees, shall have caused it.

21.     Tenant shall not permit smoking or carrying of lighted cigarettes or cigars in areas reasonably designated by Landlord or any applicable governmental agencies as non-smoking areas.

22.     Any directory of the Building or project of which the Building is a part (“Project Area”), if provided, will be exclusively for the display of the name and location of tenants only and Landlord reserves the right to charge for the use thereof and to exclude any other names.

23.     Canvassing, soliciting, distribution of handbills or any other written material in the Building or Project Area is prohibited and each tenant shall cooperate to prevent the same. No tenant shall solicit business from other tenants or permit the sale of any goods or merchandise in the Building or Project Area without the written consent of Landlord.

24.     Any equipment belonging to Tenant which causes noise or vibration that may be transmitted to the structure of the Building or to any space therein to such a degree as to be objectionable to Landlord or to any tenants in the Building shall be placed and maintained by Tenant, at Tenant’s expense, on vibration eliminators or other devices sufficient to eliminate the noise or vibration.

25.     Driveways, sidewalks, halls, passages, exits, entrances and stairways (“Access Areas”) shall not be obstructed by tenants or used by tenants for any purpose other than for ingress to and egress from their respective premises. Access areas are not for the use of the general public and Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence, in the judgement of Landlord, shall be prejudicial to the safety, character, reputation and interests of the Building or its tenants.

D-2

26.     Landlord reserves the right to designate the use of parking areas and spaces. Tenant shall not park in visitor, reserved, or unauthorized parking areas. Tenant and Tenant’s guests shall park between designated parking lines only and shall not park motor vehicles in those areas designated by Landlord for loading and unloading. Vehicles in violation of the above shall be subject to being towed at the vehicle owner’s expense. Vehicles parked overnight without prior written consent of the Landlord shall be deemed abandoned and shall be subject to being towed at vehicle owner’s expense. Tenant will from time to time, upon the request of Landlord, supply Landlord with a list of license plate numbers of vehicles owned or operated by its employees or agents.

27.     No trucks, tractors or similar vehicles can be parked anywhere other than in Tenant’s own truck dock area. Tractor-trailers which must be unhooked or parked with dolly wheels beyond the concrete loading areas must use steel plates or wood blocks under the dolly wheels to prevent damage to the asphalt paving surfaces. No parking or storing of such trailers will be permitted in the parking areas or on streets adjacent thereto.

28. During periods of loading and unloading, Tenant shall not unreasonably interfere with traffic flow and loading and unloading areas of other tenants. All products, materials or goods must be stored within the Tenant’s Premises and not in any exterior areas, including, but not limited to, exterior dock platforms, against the exterior of the Building, parking areas and driveway areas. Tenant agrees to keep the exterior of the Premises clean and free of nails, wood, pallets, packing materials, barrels and any other debris produced from their operation.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

D-3

EXHIBIT E – HAZARDOUS MATERIALS

attached to and made a part of Lease bearing the
Lease Reference Date of June 5, 2003, between
Cabot Industrial Properties, L.P., as Landlord and
Portola Packaging, Inc., as Tenant

1.	Tenant agrees that Tenant, its agents, contractors, licensees, or invitees shall not handle, use, manufacture, store or dispose of any flammables, explosives, radioactive materials, hazardous wastes or materials, toxic wastes or materials, or other similar substances, petroleum products or derivatives (collectively “Hazardous Materials”) on, under, or about the Premises, without Landlord’s prior written consent (which consent shall not be unreasonably withheld as long as Tenant demonstrates and documents to Landlord’s reasonable satisfaction (i) that such Hazardous Materials (A) are necessary or useful to Tenant’s business; and (B) will be used, kept, and stored in compliance with all laws relating to any Hazardous Materials so brought or used or kept in or about the Premises; and (ii) that Tenant will give all required notices concerning the presence in or on the Premises or the release of such Hazardous Materials from the Premises) provided that Tenant may handle, store, use or dispose of products containing small quantities of Hazardous Materials, which products are of a type customarily found in offices and households (such as aerosol cans containing insecticides, toner for copies, paints, paint remover, and the like), provided further that Tenant shall handle, store, use and dispose of any such Hazardous Materials in a safe and lawful manner and shall not allow such Hazardous Materials to contaminate the Premises or the environment.
2.	Tenant further agrees that Tenant will not permit any substance suspected of causing cancer or reproductive toxicity to come into contact with groundwater under the Premises. Any such substance coming into contact with groundwater shall be considered a Hazardous Material for purposes of this Rider.
3.	(i) Notwithstanding the provisions of Paragraph (1), Tenant may handle, store, and use Hazardous Materials, limited to the types, amounts, and use identified in the Hazardous Materials Exhibit attached hereto. If no Hazardous Materials Exhibit is attached to this Lease, then this Paragraph (3) shall be of no force and effect. Tenant hereby certifies to Landlord that the information provided by Tenant pursuant to this Paragraph is true, correct, and complete. Tenant covenants to comply with the use restrictions shown on the attached Hazardous Materials Exhibit. Tenant’s business and operations, and more especially its handling, storage, use and disposal of Hazardous Materials shall at all times comply with all applicable laws pertaining to Hazardous Materials. Tenant shall secure and abide by all permits necessary for Tenant’s operations on the Premises. Tenant shall give or post all notices required by all applicable laws pertaining to Hazardous Materials. If Tenant shall at any time fail to comply with this Paragraph, Tenant shall immediately notify Landlord in writing of such noncompliance.
	(ii) Tenant shall provide Landlord with copies of any Material Safety Data Sheets (as required by the Occupational Safety and Health Act) relating to any Hazardous Materials to be used, kept, or stored at or on the Premises, at least 30 days prior to the first use, placement, or storage of such Hazardous Material on the Premises. Landlord shall have 10 days following delivery of such Material Safety Data Sheets to approve or forbid, in its sole discretion subject to the limitation contained in Paragraph (a) above, such use, placement, or storage of a Hazardous Material on the Premises.
	(iii) Tenant shall not store hazardous wastes on the premises for more than 90 days; “hazardous waste” has the meaning given it by the Resource Conservation and Recovery Act of 1976, as amended. Tenant shall not install any underground or above ground storage tanks on the Premises. Tenant shall not dispose of any Hazardous Material or solid waste on the Premises. In performing any alterations of the Premises permitted by the Lease, Tenant shall not install any Hazardous Material in the Premises without the specific consent of Landlord attached as an exhibit to this Rider.
	(iv) Any increase in the premiums for necessary insurance on the Property which arises from Tenant’s use and/or storage of Hazardous Materials shall be solely at Tenant’s expense. Tenant shall procure and maintain at its sole

E-1

	expense such additional insurance as may be necessary to comply with any requirement of any Federal, State or local governmental agency with jurisdiction.
4.	If Landlord, in its sole discretion, believes that the Premises or the environment have become contaminated with Hazardous Materials that must be removed under the laws of the state where the Premises are located, in breach of the provisions of this Lease, Landlord, in addition to its other rights under this Lease, may enter upon the Premises and obtain samples from the Premises, including without limitation the soil and groundwater under the Premises, for the purposes of analyzing the same to determine whether and to what extent the Premises or the environment have become so contaminated. Tenant shall reimburse Landlord for the costs of any inspection, sampling and analysis that discloses contamination for which Tenant is liable under the terms of this Rider. Tenant may not perform any sampling, testing, or drilling to locate any Hazardous Materials on the Premises without Landlord’s prior written consent.
5.	Without limiting the above, Tenant shall reimburse, defend, indemnify and hold Landlord harmless from and against any and all claims, losses, liabilities, damages, costs and expenses, including without limitation, loss of rental income, loss due to business interruption, and attorneys fees and costs, arising out of or in any way connected with the use, manufacture, storage, or disposal of Hazardous Materials by Tenant, its agents or contractors on, under or about the Premises including, without limitation, the costs of any required or necessary investigation, repair, cleanup or detoxification and the preparation of any closure or other required plans in connection herewith, whether voluntary or compelled by governmental authority. The indemnity obligations of Tenant under this clause shall survive any termination of the Lease. At Landlord’s option, Tenant shall perform any required or necessary investigation, repair, cleanup, or detoxification of the Premises. In such case, Landlord shall have the right, in its sole discretion, to approve all plans, consultants, and cleanup standards. Tenant shall provide Landlord on a timely basis with (i) copies of all documents, reports, and communications with governmental authorities; and (ii) notice and an opportunity to attend all meetings with regulatory authorities. Tenant shall comply with all notice requirements and Landlord and Tenant agree to cooperate with governmental authorities seeking access to the Premises for purposes of sampling or inspection. No disturbance of Tenant’s use of the Premises resulting from activities conducted pursuant to this Paragraph shall constitute an actual or constructive eviction of Tenant from the Premises. In the event that such cleanup extends beyond the termination of the Lease, Tenant’s obligation to pay rent (including additional rent and percentage rent, if any) shall continue until such cleanup is completed and any certificate of clearance or similar document has been delivered to Landlord. Rent during such holdover period shall be at market rent; if the parties are unable to agree upon the amount of such market rent, then Landlord shall have the option of (a) increasing the rent for the period of such holdover based upon the increase in the cost-of-living from the third month preceding the commencement date to the third month preceding the start of the holdover period, using such indices and assumptions and calculations as Landlord in its sole reasonable judgment shall determine are necessary; or (b) having Landlord and Tenant each appoint a qualified MAI appraiser doing business in the area; in turn, these two independent MAI appraisers shall appoint a third MAI appraiser and the majority shall decide upon the fair market rental for Premises as of the expiration of the then current term. Landlord and Tenant shall equally share in the expense of this appraisal except that in the event the rent is found to be within fifteen percent of the original rate quoted by Landlord, then Tenant shall bear the full cost of all the appraisal process. In no event shall the rent be subject to determination or modification by any person, entity, court, or authority other than as set forth expressly herein, and in no event shall the rent for any holdover period be less than the rent due in the preceding period.
6.	Notwithstanding anything set forth in this Lease, Tenant shall only be responsible for contamination of Hazardous Materials or any cleanup resulting directly therefrom, resulting directly from matters occurring or Hazardous Materials deposited (other than by contractors, agents or representatives controlled by Landlord) during the Lease term, and any other period of time during which Tenant is in actual or constructive occupancy of the Premises. Tenant shall take reasonable precautions to prevent the contamination of the Premise with Hazardous Materials by third parties.
7.	It shall not be unreasonable for Landlord to withhold its consent to any proposed Assignment or Sublease if (i) the proposed Assignee’s or Sublessee’s anticipated use of the premises involves the generation, storage, use, treatment or disposal of Hazardous Materials; (ii) the proposed Assignee or Sublessee has been required by any prior landlord, lender, or governmental authority to take remedial action in connection with Hazardous Materials contaminating a property if the contamination resulted from such Assignee’s or Sublessee’s actions or use of the property in question;

E-2

	or (iii) the proposed Assignee or Sublessee is subject to an enforcement order issued by any governmental authority in connection with the use, disposal, or storage of a hazardous material.
8.	Any of Tenant’s insurance insuring against claims of the type dealt with in this Rider shall be considered primary coverage for claims against the Property arising out of or under this Paragraph.
9.	In the event of (i) any transfer of Tenant’s interest under this Lease; or (ii) the termination of this Lease, by lapse of time or otherwise, Tenant shall be solely responsible for compliance with any and all then effective federal, state or local laws concerning (i) the physical condition of the Premises, Building, or Property caused by Tenant’s occupancy of the Premises; or (ii) the presence of hazardous or toxic materials in or on the Premises, Building, or Property relating to Tenant’s occupancy of the Premises (for example, the New Jersey Environmental Cleanup Responsibility Act, the Illinois Responsible Property Transfer Act, or similar applicable state laws), including but not limited to any reporting or filing requirements imposed by such laws. Tenant’s duty to pay rent, additional rent, and percentage rent shall continue until the obligations imposed by such laws are satisfied in full and any certificate of clearance or similar document has been delivered to Landlord.
10.	All consents given by Landlord pursuant to this Rider shall be in writing and shall be attached as amendments to this Rider. If such consents are not attached to this Rider, then such consents will be deemed withheld.

E-3

EXHIBIT F — LIST OF HAZARDOUS MATERIALS

attached to and made a part of Lease bearing the
Lease Reference Date of June 5, 2003, between
Cabot Industrial Properties, L.P., as Landlord and
Portola Packaging, Inc., as Tenant

Permitted Chemicals

Landlord hereby permits Tenant to use, handle, and store the chemicals listed below, in the quantities indicated, per the Hazardous Materials language contained in the Lease and Exhibit E.

Chemical Quantity Classification

F-1

SECOND AMENDMENT TO LEASE

     THIS AMENDMENT, made as of December 12, 2003, by and between CABOT INDUSTRIAL PROPERTIES, L.P., a Delaware limited partnership (“Landlord”), and PORTOLA PACKAGING, INC., a Delaware corporation (“Tenant”),

     W I T N E S S E T H:

     Recital of Facts:

     A.   Landlord and Tenant entered into the Lease dated June 5, 2003, which was amended by the First Amendment to Lease dated October 1, 2003, between Landlord and Tenant (such Lease, as amended by such First Amendment to Lease, is the “Lease”). Words defined in the Lease have the same meanings in this Amendment.

     B.   Exhibit B to the Lease requires Landlord to construct the Initial Improvements in the Premises in accordance with the final Plans. Exhibit B to the Lease requires Landlord to pay Landlord’s Contribution to defray the cost of the Initial Improvements. Exhibit B to the Lease requires Tenant to pay the cost of the Initial Improvements in excess of Landlord’s Contribution. The budget for the Initial Improvements is $4,886,499. Landlord’s Contribution is $2,533,220. Tenant deposited the amount of $2,353,279 (“Tenant’s Cost Deposit”) with Landlord to pay Tenant’s share of the cost of the Initial Improvements.

     C.   Landlord entered into the Standard Form of Agreement between Owner and Contractor (the “Construction Contract”) dated July 28, 2003, with Willmeng Construction, Inc. (the “General Contractor”) and the RREEF Agreement for Professional Services (the “Management Agreement”) dated August 1, 2003, with Don Hoon (the “Construction Manager”) for the construction of the Initial Improvements.

     D.   Landlord has substantially completed the Initial Improvements. Tenant has accepted possession of the Premises. The Commencement Date is December 1, 2003, and the Termination Date is November 30, 2018. Landlord and Tenant executed a Commencement Date Memorandum dated December 1, 2003, which confirmed the Commencement Date and the Termination Date. Landlord made railroad service available to the Premises on or before the Commencement Date as required by Section 2.4 of the Lease.

     E.   In this Amendment, Landlord and Tenant will provide for the final completion of the Initial Improvements.

     NOW, THEREFORE, in consideration of the covenants in this Amendment, Landlord and Tenant agree as follows:

     1.   Confirmation of Facts. As of the date of this Amendment, the foregoing Recital of Facts is true and correct and is incorporated in and made a part of this Amendment.

     2.   Completion of Initial Improvements. As of the date of this Amendment, Landlord has substantially completed the Initial Improvements as required by the Lease, Landlord has fully expended Landlord’s Contribution for the Initial Improvements, and Landlord has

1

disbursed Tenant’s Cost Deposit for the Initial Improvements except for the amount of $705,233.71 (the “Remaining Tenant’s Cost Deposit”). An accounting of the expenditures made by Landlord for the Initial Improvements from Landlord’s Contribution and Tenant’s Cost Deposit is set forth in Exhibit A attached hereto and made a part hereof. As of the date of this Amendment, Landlord shall pay the Remaining Tenant’s Cost Deposit to Tenant, Landlord shall assign the Construction Contract and the Management Agreement to Tenant, and Tenant shall assume the obligations of Landlord under the Construction Contract and the Management Agreement. Upon such payment of the Remaining Tenant’s Cost Deposit and assignment of the Construction Contract and the Management Agreement to Tenant, Landlord shall have no further liability or obligation with respect to the Initial Improvements and Tenant shall have the right to enforce the obligations of the General Contractor and the Construction Manager under the Construction Contract and the Management Agreement. Tenant hereby releases and discharges Landlord from all liabilities and obligations with respect to the Initial Improvements. Tenant shall complete the Initial Improvements reasonably promptly after the date of this Amendment. Tenant shall indemnify and defend Landlord against and hold Landlord harmless from all claims, demands, liabilities, losses, damages, costs and expenses, including reasonable attorneys’ fees and disbursements, with respect to the Initial Improvements. Tenant shall not assert any demand or defense against Landlord, or deduct and withhold from or set off against any rent or other sums payable by Tenant under the Lease, on account of any claim of Tenant against the General Contractor or the Construction Manager with respect to the construction of the Initial Improvements. Tenant shall look solely to the General Contractor and the Construction Manager for performance of construction of the Initial Improvements under the Construction Contract and the Management Agreement and any failure by either of them to perform the Initial Improvements shall not constitute a default by Landlord under the Lease.

     3.   Legal Effect. If there is any conflict between this Amendment and the Lease, this Amendment shall control. Except as amended by this Amendment, the Lease is unmodified and, as so amended, the Lease shall remain in full force and effect.

     4.   Counterparts. This Amendment may be executed in counterparts by separately executed signature pages attached to this Amendment. Each such executed counterpart shall be an original and all such executed counterparts shall constitute one and the same Amendment.

     5.   Successors and Assigns. This Amendment shall benefit and bind Landlord and Tenant and their respective successors and assigns.

2

     IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the date first hereinabove written.

CABOT INDUSTRIAL PROPERTIES, L.P., a
Delaware limited partnership

By    RREEF MANAGEMENT COMPANY, a
         Delaware corporation, its Authorized Agent

        By  
                                                Bret C. Borg
                                            District Manager

PORTOLA PACKAGING, INC., a Delaware corporation

 By
                                            Dennis L. Berg
                    Vice President and Chief Financial Officer

3

EXHIBIT A

Accounting of Expenditures for Initial Improvements

Date	Vendor - Contractor	Cost / Amount		Remarks
05/15/03	Don Hoon		1,088.00	Construction Manger Fee, May
05/15/03	Evolution Design		3,679.72	April charges
06/03/03	Evolution Design		5,761.01	Design fees
06/15/03	Don Hoon		10,500.00	Construction Manger Fee, June
07/02/03	Liqui-Chill Inc		91,000.00	Installment amount $101,128.35
07/02/03	Liqui-Chill Inc		10,128.35	Final amount of $101,128.35
07/08/03	Mountain States		99,622.00	Addnl Spur tracks
07/09/03	Evolution Design		75,055.00	Project Architech Fee
07/11/03	Willmeng Construction		11,995.50	Pre-construction Fees
07/11/03	Willmeng Construction		303,584.30	Progress Payment #1
07/14/03	Evolution Design		13,417.91	Demo Permit
07/14/03	Willmeng Construction		6,454.50	Final - pre-construction billing
07/15/03	Liqui-Chill Inc		101,128.35	2nd half deposit
07/18/03	Evolution Design		71,142.33	Eng. Services - July '03
07/31/03	Don Hoon		6,563.00	July Const. Mgmt. Fees
08/01/02	Liqui-Chill Inc		202,256.75	1st Progress Payment
08/14/03	Ace Crane		142,425.00	50% of P.O.
08/31/03	Don Hoon		6,713.00	August Const. Mgmt. Fees
09/05/03	Mountain States		5,374.61	Willmeng completed - chk to be returned
09/12/03	Evolution Design		6,605.94	August charges
09/12/03	Ace Crane		72,232.00	Progress Payment #3
09/16/03	Landa Associates		9,378.00	Structural design - chiller platform
09/19/03	Salt River Project		6,000.00	Design Pad fees
09/23/03	Evolution Design		3,990.25	8/1 to 9/10 charges
09/30/03	Willmeng Construction		550,221.00	2nd Draw
09/30/03	Don Hoon		6,225.00	Sept Const. Mgmt. Fees
09/30/03	Corbins		24,287.16	Progress Payment #1
10/01/03	Liqui-Chill Inc		202,256.75	2nd Progress Payment
10/10/03	Evolution Design		8,033.44	Sept. charges
10/20/03	Liqui-Chill Inc		161,805.50	3rd Progress Payment
10/31/03	Don Hoon		4,388.00	Oct Const Mgmt Fees
10/31/03	Willmeng Construction		453,384.00	Draw #3
10/31/03	Corbins Electric		221,309.75	2nd Progress Payment
11/04/03	Ace Crane		70,970.00	Progress payment #4
11/11/03	Evolution Design		5,354.06	10/03 charges
12/10/03	Evolution Design		2,625.68	Nov. Billing
12/10/03	Evolution Design		1,350.00	Final (Dec.) Billing
12/10/03	Sunstate Landscaping		3,600.00	Landscaping & irrigation adj.
12/10/03	Willmeng Construction		1,061,575.00	Draw #4
12/10/03	Corbins Electric		16,000.00	3rd Progress Payment
12/10/03	RREEF Construction Mgmt.		121,784.43	3% management services
	Total Payments Thru. 12-10		4,181,265.29
	Tenant Contribution		2,353,279.00
	Landlord Contribution		2,533,220.00
	Total Budget		4,886,499.00
	Balance Remaining		705,233.71

EX-14.01

Exhibit 14.01

PORTOLA PACKAGING, INC.
CORPORATE CODE OF CONDUCT AND ETHICS

MISSION STATEMENT

Today’s business environment presents the employees of Portola Packaging, Inc. and its subsidiaries and other affiliates (referred to herein collectively as “Portola” or the “Company”) with many legal and ethical challenges. Portola’s commitment to ethical business practices supports our commitment to quality and integrity in the business world. Our employees, customers, suppliers and stockholders expect us to maintain high standards of ethics and professional responsibility. Likewise, the Company’s success is largely predicated on a company culture that fosters mutual respect for the rights and dignity of our fellow employees. In this regard, this booklet is being provided to all of Portola’s employees, not because of doubts concerning the desire of employees to conduct business ethically, but because the pace and complexity of modern business activity frequently make it difficult to know what proper conduct might be and where to go for answers. We hope this booklet will help to promote a working environment of open communications, where fair and honest decisions and actions are encouraged and supported. If you have any questions or would like clarification regarding these issues please feel free to contact Portola’s Vice President of Human Resources or Director of Human Resources Administration.

This Code applies to every Director, Officer (including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer), and Employee of Portola Packaging, Inc. (the Company). The term employee includes any individual who is paid on the company payroll.

To further the Company’s fundamental principles of honesty, loyalty, fairness and forthrightness, we have established this Code of Business Conduct and Ethics (this “Code”). Our Code strives to deter wrongdoing and promote the following six objectives:

1.	Honest and ethical conduct;
2.	Avoidance of conflicts of interest;
3.	Full, fair, accurate, timely and transparent disclosure;
4.	Compliance with the applicable government and self-regulatory organization laws, rules and regulations;
5.	Prompt internal reporting of Code violations; and
6.	Accountability for compliance with the Code.

Below, we discuss situations that require application of our fundamental principles and promotion of our objectives. If you believe there is a conflict between this Code and a specific procedure you should consult the Corporate Legal Counsel for guidance.

ACCOUNTABILITY FOR COMPLIANCE WITH THE CODE

Each of the Company’s directors, officers and employees is expected to:

Understand. The Company expects YOU to understand the requirements of your position including Company expectations and governmental rules and regulations that apply to your position.

Comply. The Company holds YOU accountable for complying with this Code and all applicable laws, rules and regulations.

Report. The Company expects YOU to report any violation of this Code of which you become aware.

INTRODUCTION

The subject of business ethics covers a broad range of conduct and it is impossible to anticipate every possible situation. However, an understanding of the core issues and concepts should assist you in determining the ethical and legal implications of your business conduct and help in making informed decisions as to the appropriate course of action. Employees who recognize their responsibility to make an ethically sound decision and know the resources available to them, will be better prepared to handle serious situations that could put them or the Company at risk.

We recognize that the complex business environment in which we operate presents challenging issues for employees at every level. These involve a range of issues including proprietary and confidential information, stock trading and market communications, fiduciary responsibility, Company information resources, customers, vendors and consultants, conflict of interest concerns, and even interactions between Company employees. The following is an outline of how this booklet will proceed in shedding light on these and other issues:

Proprietary and Confidential Information.

Company Expectations of Management and Employees.

1.	Interactions with Fellow Employees.
2.	Drugs and Alcohol in the Workplace.
3.	Environment, Health and Safety.
4.	Use of Company Information Resources.
5.	Reliability and Transparency of Portola’s Financial and Business Records.
6.	Legal Process and Actions Brought Against Portola.

Ethical Standards in Dealing with Customers, Vendors, Consultants, and Others.

Compliance with Securities Laws and Other Legal Issues.

1.	Transactions in Portola Securities.
2.	Conflicts of Interest.
3.	International Boycotts and Antitrust Laws.
4.	Campaign Contributions and Payments to Government Officials.
5.	The Foreign Corrupt Practices Act.
6.	The Sarbanes-Oxley Act of 2002
7.	Compliance with U.S. Export Control Laws.
8.	Compliance with Local Laws in Countries of Operation
9.	Reporting of Code Violations.

Conclusion.

A. PROPRIETARY AND CONFIDENTIAL INFORMATION

During your employment with Portola, you may have access to various forms of proprietary and confidential information about the Company as well as its customers, suppliers and other business partners. Confidential information can generally be defined as information, which is highly sensitive, not generally known, would be considered a trade secret, or which is marked as confidential.

The Employee Non-Disclosure and Assignment of Inventions Agreement, which all Portola employees are required to sign, describes the employee’s duty as to confidential disclosures. Certain provisions of this agreement are summarized here for your ease of review.

Employees will preserve and maintain the privacy of all such confidential information received during the course of employment by Portola, will discuss or disclose the same only as necessary during the normal course of employment, and then only to other employees of Portola as necessary. In the event extraordinary or unusual business circumstances require confidential information to be discussed with or disclosed to third parties, the employee shall obtain prior authorization of an officer of Portola before making such disclosure.

B. COMPANY EXPECTATIONS OF MANAGEMENT AND EMPLOYEES

     1. Interactions with Fellow Employees

Portola’s culture is predicated on a mutual respect for the rights and dignity of our employees. All employees are expected to act in a professional, responsible and courteous manner at all times while conducting Company business. It is the responsibility of all Company employees to create and maintain an atmosphere of decency, fairness and respect in our professional interactions with each other. Company policy regarding harassment can be found in the Employee Handbook (as updated from time to time) which each Portola employee has received. Aspects of that policy are replicated here for your ease of reference:

Portola expects all employees to be treated with fairness, dignity, and respect. Unfair treatment in the form of harassment or discrimination of any kind in the workplace is intolerable. This includes racial slurs, epithets, profane or abusive language, and derogatory comments. Portola is committed to working with all employees in creating an environment that is free of unlawful discrimination and harassment. Unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature constitutes sexual harassment when (1) submission to such conduct is made either explicitly or implicitly a term or condition of an individual’s employment; (2) submission to or rejection of such conduct by an individual is used as the basis for

employment decisions affecting such individual; or (3) such conduct has the purpose or effect of unreasonably interfering with an individual’s work performance or creating an intimidating, hostile, or offensive working environment. Simply put, sexual harassment is unwelcome behavior of a sexual nature. The following behaviors are examples of conduct that may be considered hostile or abusive:

– Sexual flirtations, advances, or propositions;

– Verbal abuse or innuendo of a sexual nature (e.g., profane or abusive language, jokes, or comments of a sexual nature);

– Uninvited physical contact such as touching, hugging or patting;

– Comments of a sexual nature about an individual’s dress or body;

– Display of sexually suggestive objects or pictures, including photographs, calendars, electronic communications, and posters in the workplace;

– Jokes or remarks of a sexual nature in front of people who find them offensive;

– Prolonged staring or leering at a person;

– Using sexually degrading words to describe an individual;

– Making obscene gestures or suggestive or insulting sounds; and/or

– Using Company communication systems (email, telephones, faxes, voicemail) to send or receive messages considered inappropriate by the Company.

Any employee who believes he or she has encountered unfair treatment or inappropriate behavior in the workplace by a Manager, Group Leader, coworker, vendor, supplier, visitor or customer should report it immediately to his or her supervisor. If you are unable to discuss this matter with your direct supervisor, the complaint should be directed to the Human Resources Representative or the General Manager. If you prefer an alternate resolution method, the matter may be brought to the attention of the Human Resources Vice President, Director of Human Resources Administration or any other member of the Executive Management Team. (For purposes of this policy, Executive Team shall mean Vice President level or higher.) Portola will investigate all complaints as confidentially as possible and corrective action will be taken when warranted. Portola guarantees that anyone who files a complaint of sexual harassment will not suffer adverse job consequences regardless of the outcome of the investigation.

     2. Drugs and Alcohol in the Workplace.

Portola’s goal is to provide and maintain an alcohol- and drug-free workplace and to provide a safe and productive work environment. The use, sale, solicitation for sale, manufacture, transfer, possession of or being under the influence of drugs or alcohol during working hours or on Company property is prohibited. Violations of this policy at any level will not be tolerated and may subject the employee to disciplinary action, including suspension and termination.

     3. Environment, Health and Safety.

Portola employees have an ethical obligation to watch for and promptly report environmental, health and safety problems. Such problems should be reported to the employee’s supervisors and to the Human Resources Department. By reporting all such problems, the potential risk and impact of the problem can be minimized. Prompt reporting will help to ensure the safety of all employees by avoiding employee injury or a contamination of the environment. No employee shall be retaliated against in any way for coming forward with an environmental, health or safety problem or concern. As soon as possible, any reported problem will be corrected.

In addition to ethical responsibility and Company policy, there are legal reasons for adhering to the above standard of conduct. If employees, at any level, are found to have ignored, covered up, or failed to report a serious environmental, health or safety problem, they may be subject to a substantial fine or imprisonment by local government authorities.

The Company’s products are subject to governmental regulation, including regulation by the Federal Food and Drug Administration and other agencies with jurisdiction over effectiveness of tamper-resistant devices and other closures for dairy and other food and beverage products. Federal, state and local governments may from time to time enact laws or regulations concerning environmental or other matters that would change the environmental, health and safety requirements. As such, employees must remain aware of the Company’s current environmental, health and safety policies.

     4. Use of Company Information Resources.

We all rely to a great extent on the Company’s information resources such as computers, libraries, faxes, telephones, and Internet access to conduct our business and business communications. Electronic mail and web pages have become essential means of communicating with and conveying information to third parties. Company resources are intended for Company-related business use. However, Portola understands that employees may sometimes use such resources for personal interests. Such personal use should be limited to a reasonable amount and should be consistent with the standards set forth in this booklet, including the above mentioned

policies regarding harassment. The Company reserves the right to examine, use, copy and/or delete user files for purposes consistent with Company business interests.

     5. Reliability of Portola’s Financial and Business Records.

Financial records are an integral part of how management, stockholders and the business community assess the financial health of the Company. Such records often constitute the basis for important business and investment decisions. Employees responsible for creating and maintaining Portola’s financial records owe a fiduciary duty both to Portola and to our stockholders to maintain such records in accordance with applicable legal requirements and generally accepted accounting principles.

Portola’s financial records must accurately and fully describe relevant transactions and such records must be supported by adequate documentation. False or misleading entries in financial records are strictly forbidden and no information may be concealed from the Company’s internal or external auditors. It is extremely important that revenue and expenses be properly recognized on a timely basis and assets and liabilities must be properly valued and recorded.

Employees involved in maintaining Portola’s financial records must follow the Company’s financial policies in doing so. Further, all employees have a duty to ensure that information they supply to Portola’s finance department is complete and accurate. If you become aware of any omission, inaccuracy or falsification, promptly report the situation to the appropriate financial or management personnel or by using the Company’s confidential telephone hotline or website (described in Section D. 6. below.). Any inaccurate reporting of information will be investigated and appropriate action, including suspension and termination, will be taken to ensure the integrity of Portola’s financial records.

     6. Legal Process and Actions Brought Against Portola.

Any company of significant size, such as Portola, is sometimes involved in various types of litigation or legal action. This involvement can be as a plaintiff (i.e., the party initiating the lawsuit), defendant (i.e., the party being sued or charged with unlawful conduct), or as a third party, such as a witness in a trial. It is possible that a Portola employee may be named as a party to a lawsuit based on alleged actions within the scope of his or her employment.

Often, the first notice that Portola receives of actual or threatened legal action is in the form of a letter. However, legal actions of any kind are part of a larger legal process with its own exacting procedure. The first official notice of legal action would be in the form of a summons and complaint, which is an official notice that a lawsuit has actually been filed. If any Portola employee receives any such notification or threat of a lawsuit against Portola or against the employee acting in his or her capacity at Portola, you must immediately report such notification to the Human Resources Vice President, Director of Human Resources Administration, or a member of the Executive Management Team.

Prompt reporting is important because if a lawsuit has actually been filed, the Company will only have a limited time in which to respond (usually 30 days). If Portola does not respond within the time period, we could potentially suffer a default judgment (i.e., an automatic entry in favor of the party bringing the suit). Further, a limited number of Portola personnel are authorized to accept a summons or subpoena on the Company’s behalf. If any unauthorized employee is ever asked to accept a summons or subpoena, politely decline and refer the requestor to the Human Resources Vice President or Director of Human Resources Administration.

Finally, often in the course of a legal action, confidential information is disclosed to those involved. It is important that such information be kept confidential and any discussion concerning information related to the legal action take place in the presence of Portola’s legal counsel.

C. ETHICAL STANDARDS IN DEALING WITH CUSTOMERS, VENDORS, CONSULTANTS, AND OTHERS

A large part of Portola’s success is related to our ability to build and maintain strong business relationships not only with our employees, but also with our customers and suppliers. It is important that those who deal with the Company feel confident and secure that the relationship is fair, honest and based on mutual respect. Our commitment to ethical business practices requires that Company employees know the Company’s policy regarding these relationships.

It is sometimes customary for persons or companies involved in a business relationship to exchange gifts or other gratuities. For instance, during the course of a business relationship, the parties may conduct meetings over lunch or dinner, the celebration of a deal may facilitate the exchange of novelties bearing the Company logo (such as paperweights, traveling bags, pens or coffee mugs), or during the holidays, one party may invite the other to a holiday event. The appropriateness of exchanging such gratuities will depend on the particular circumstances. However, to protect Portola and our employees from possible claims of bribery or special treatment, we must understand appropriate guidelines with respect to such exchanges.

In general it is best to take a reasonable approach in accepting or offering gifts or meals. Always avoid acceptance of any gift or meal, which is lavish, or beyond what would be expected in such circumstances. The following guidelines will be helpful in making these decisions:

• You should never accept special favors, entertainment or gifts that might give the appearance of influencing the decision to go through with a business transaction. For example, if a potential business partner offers to pay all expenses for a Portola employee to visit his or her facility, this would be considered an inappropriate offer and no Company employee should accept this, without first consulting with senior management or the Human Resources Vice President or Director of Human Resources Administration.

• Invitations to lunch or dinner, invitations to sporting events or to participate in sporting events, such as a round of golf, may be accepted if they are directly related to the conduct of business, are for the purpose of advancing the business relationship and are within the bounds of moderation and common sense. If the invitations are excessively lavish or designed to improperly influence a business decision, they must not be accepted. You should reciprocate and pay for necessary business lunches at Company expense.

• The acceptance of a gratuity or novelty gift should always be of customary value as determined by industry practices, so as not to be construed as a bribe or kickback.

• If a gratuity is offered, it is important to keep in mind how the acceptance of the gift would look if publicly disclosed. If the gift would adversely reflect on the Company, it should not be accepted.

• Portola’s policy is never to accept any gift or prize donation in connection with an upcoming Company event.

• It is never appropriate to accept gifts in the form of cash, personal loans, paid vacations, airline tickets, gift certificates over $200.00 or other such extravagancies.

The appropriateness of any offered meal or gratuity will depend on the particular circumstances of that business relationship. Keep in mind that any gift offered or accepted by a Portola employee will reflect on the perception of the business relationship not only as to the particular employee but also as to the Company. Accepting an inappropriate gift will lead to corrective action. If you have any questions as to the appropriateness of a particular gratuity please discuss the situation with management or with the Human Resources Vice President or Director of Human Resources Administration.

D. COMPLIANCE WITH SECURITIES LAWS AND OTHER LEGAL ISSUES

     1. Transactions in Portola Securities.

The Company’s Common Stock is not listed for trading on any national securities exchange, and there is no public market for the Company’s Common Stock. Also, resale’s of any Common Stock acquired upon exercise of stock options granted under the Company’s 1988, 1994 or 2002 Stock Option Plans, or acquired under the Company’s Employee Stock Purchase Plan, are subject to certain restrictions on transfer, including rights of first refusal in favor of the Company.

Additionally, United States federal and state securities laws prohibit employees possessing “insider information” from purchasing or selling the Company’s Common Stock until there has been full public disclosure of the information. It is against the Company’s policy and it is illegal for any employee, or any other person associated with the Company or its employees, to purchase or sell the Common Stock of the Company while possessing material “inside information” about the Company (other than purchases of Common Stock upon the exercise of stock options granted under the Company’s 1988, 1994 or 2002 Stock Option Plans or purchases of Common Stock under the Company’s Employee Stock Purchase Plan). A violation of the insider trading laws can lead to criminal prosecution resulting in a prison term of up to 10 years, and monetary penalties of $1,000,000 or more. A violation can also result in termination of employment.

Currently, the Company does have senior notes outstanding that are generally held by large institutional investors and that are publicly traded in the over-the-counter markets. You should know that the Company has established insider trading guidelines pertaining to its outstanding senior notes which, among other things, restrict trading in the notes by insiders and other individuals with inside information for certain periods of time following widespread release of the Company’s quarterly or annual financial results.

In connection with the senior notes that are currently outstanding, the Company files quarterly and annual financial statements with the Securities and Exchange Commission (“SEC”) following the end of the period to which the financial statements relate. You may obtain copies of these documents upon request or view them on the SEC’s website at www.sec.gov.

     2. Conflicts of Interest.

A conflict of interest arises in any situation where there is a potential for divided loyalties between your obligations to Portola and your personal interests. Company employees must avoid activities that are in conflict, or give the appearance of being in conflict with, ethical principals and Company requirements. Often, such conflicts arise when an employee, through his or her access to information at Portola, advances his or her personal financial interests. Another way a conflict situation could arise is when an employee performs outside work which is inconsistent with Portola’s business interests.

If a potential conflict of interest situation arises, the employee should fully disclose the potential conflict in writing to the Human Resources Director. Under certain circumstances, the employee may be able to obtain written approval for the activity. However, activity constituting an actual conflict of interest is never acceptable.

It is the obligation of every Portola employee to alert management or Human Resources of possible conflicts of interest. It is also the obligation and responsibility of every employee to alert management of potential misconduct in this area as to other employees.

The following list contains examples of some typical conflict of interest situations. If you are ever unclear as to a particular situation, please verify the situation with management or Human Resources.

• Engaging in any conduct that is not in the best interest of Portola. For instance, performing any work for or serving on the board of directors of a competitor, customer or supplier of Portola.

• Selling any products or services that compete with or are similar to products and services provided by Portola, unless expressly authorized in writing by the appropriate member of senior management of Portola.

• Engaging in outside employment for a competitor or potential competitor, supplier, customer, consulting firm involved with Portola, or with any other company or organization, which may interfere with your duties at Portola.

• Borrowing from or lending items or cash to employees, customers, or suppliers.

• Initiating or approving personnel actions in favor of (or against) hiring your family members, spouse or domestic partner, without disclosing that such person is so affiliated with you.

• Investing or possessing a significant financial interest in a third-party that may influence or be affected by decisions you make at Portola.

• Taking personal advantage of business opportunities, which rightfully belong to the Company, unless expressly authorized in writing by the appropriate member of senior management.

• Conducting Company business with family members or a domestic partner, or with third parties owned or substantially controlled by you, family members or domestic partners, unless expressly authorized in writing by the appropriate member of senior management.

• Accepting payment, commission or other compensation from third parties for services you provided on Portola’s behalf (other than compensation provided by Portola).

• Approving false payments that are intended to be used for a purpose other than that described in the supporting documents.

• Making any unlawful agreement with distributors with respect to prices.

• Unlawfully discussing prices, costs, customers, vendors, suppliers, sales or markets with competing customers or their employees.

• Recording false entries in Company accounting books and records for any reason, or engaging in any arrangement that results in such a prohibited act.

     3. International Boycotts and Antitrust Laws.

Doing business with countries participating in international boycotts can cause potential complications for Portola. U.S. export and tax laws prohibit compliance with international boycotts of certain countries. These anti-boycott laws are technical and potential violations are sometimes difficult to identify; however, the penalties for violation can be severe. Therefore, all agreements or business transactions with any government or with customers, suppliers or vendors participating in an international boycott must be reviewed by a member of the Executive Management Team before executed.

International issues are also of concern in customer relationships and antitrust laws. Most countries have laws that govern seller/customer relationships, particularly where the customer is purchasing products for resale in its designated country. The following list contains short summaries of U.S. antitrust laws which may affect Portola’s U.S. and international business activities. Always consult with the appropriate member of senior management with regard to compliance or clarifications concerning any of these issues.

• Resale Price Maintenance. If you deal with customers who intend to resell Portola products, you should refrain from discussing resale prices with them. It is illegal to require any customer purchasing products for resale to maintain particular resale prices.

• Restrictions on Resellers. It is generally permissible to impose certain contractual restrictions unrelated to price, provided that such restrictions have a legitimate business purpose and are uniformly enforced. For instance, within the U.S., Portola may restrict resale to certain geographic locations in order to promote efficient distribution of its products. Portola’s legal counsel must review all such contractual restrictions to ensure the legality of the contemplated act and to ensure that it is applied uniformly.

• Tying. It is generally illegal to require a customer to purchase one product in order to be eligible to purchase another product. However, it is permissible to offer “package deals” so long as all products included in the package are available separately at reasonable prices.

• Price Discrimination. In the U.S., the Robinson-Patman Act prohibits sellers from price discrimination in particular circumstances. Specifically, it prohibits sellers from discriminating in prices, price-related terms and conditions, or promotional services to resellers of the same or substantially similar products when such discrimination would substantially lessen competition between resellers. The laws governing this area are detailed and complex. All sales and marketing personnel should seek guidance and instructions from the V.P. of Sales and Marketing in establishing price discounts or promotions.

• Agreements in Restraint of Trade. U.S. antitrust laws expressly limit agreements in restraint of trade. Agreements in restraint of trade are any agreements that jeopardize the free flow of trade and/or benefits of competition among suppliers. For example, it is illegal for competitors to reach agreement on allocation of customers or sales territories, restriction on the development or production of products, or refuse to deal with particular customers or suppliers.

Note that the consequences for violating the laws governing these areas include fines and imprisonment. Further, the existence of an agreement of this nature can be inferred simply by two parties having a conversation about a particular subject. Thus, you should never discuss prices, customers, suppliers or product plans with employees of a competitor. All price discussions should be conducted exclusively by sales and marketing personnel in conjunction with senior management.

     4. Campaign Contributions and Payments to Government Officials.

Although it is not illegal, Portola does not currently make campaign contributions outside the United States. Any exception to this policy must be approved by a member of the Executive Management Team. Portola considers individual political contribution or involvement to be a matter of personal choice. The Company does not solicit or inquire as to individual political contributions and will not reimburse employees for such contributions. Federal law prohibits corporations such as Portola from directly contributing to federal campaigns (although they may form political action committees to solicit contributions).

It is a criminal offense to offer or give anything to a U.S. government official or employee in order to obtain a contract or favorable treatment under a contract. Similar criminal prohibitions may apply when dealing with contractors to the U.S. government. Offering, giving, soliciting or accepting anything of value in return for favorable treatment on such contracts may be construed as a strictly prohibited and illegal kickback.

In addition, the U.S. government’s Office of Government Ethics (“OGE”) has established rules regarding what U.S. government personnel may accept in any business transaction. Specifically, OGE prohibits U.S. government personnel from accepting anything having a value of U.S. Twenty Dollars ($20) or greater from any source to do business with the U.S. government. There is a U.S. Fifty

Dollar ($50) annual limit on accepting anything of value from any one source. Prohibited gifts can come in any form including gratuities, loans, transportation, training, lodging and meals. Portola employees must be attentive to these strict guidelines and contact Human Resources in the event there is any question or concern.

     5. The Foreign Corrupt Practices Act.

The Foreign Corrupt Practices Act (“FCPA”) aims at combating bribery of foreign officials in international business transactions. It prohibits a corporation and its employees and agents from directly or indirectly paying, or promising to pay anything of value to, any foreign governmental employee or official (including a political party, party employee or official, or candidate for political office) for the purpose of influencing an official act or decision to obtain business for the corporation. The FCPA prohibition also applies where a corporation has knowledge of any such payment made by an agent, partner, reseller or third party on the corporation’s behalf.

The FCPA is intended to prevent the use of bribery to improperly influence foreign government processes in government procurements. Violations of the FCPA may result in substantial monetary penalties for the guilty corporation and substantial prison sentences and monetary penalties for the individuals involved.

Please be advised that any and all contributions, payments or gratuities to foreign officials must be reviewed and approved by a member of the Executive Management Team. Such payments will be authorized only if approved in writing by Portola, and only in the event that Portola’s legal counsel determines that such payments are in accordance with local law and custom, violate no applicable laws (U.S. or otherwise) and are not made for the purpose of improper influence.

     6. The Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley (SOX) Act of 2002 was enacted largely in response to a number of major corporate and accounting scandals involving some of the most prominent companies in the United States. These scandals resulted in a great loss of public trust in corporate accounting and reporting practices. The SOX Act was enacted in a major effort to prevent accounting scandals and other reporting problems from recurring, and to rebuild public trust in corporate business practices and reporting.

The SOX Act establishes new or enhanced standards for corporate accountability and penalties for corporate wrongdoing. The legislation contains 11 titles, ranging from additional responsibilities for audit committees to tougher criminal penalties for white-collar crimes. The requirements of the Act place increased demands on company executives, the board of directors, independent auditors and internal resources involved in corporate reporting.

One of the provisions of the SOX Act requires the CEO and CFO to certify that they have evaluated the effectiveness of the company’s internal controls and that the controls are adequate to prevent errors and irregularities in financial reporting. Portola has extensive internal controls and procedures. Portola employees must be aware of and follow established policies and procedures that support Portola’s internal control system. Employees who become aware of situations that are not in compliance with the company’s established policies and procedures should report it immediately to his or her supervisor. If the condition is not corrected in a timely manner, the employee should report the condition to the Executive Management Team, or by using the confidential telephone or Internet hotline described below.

     7. Compliance with U.S. Export Control Laws.

U.S. export laws impose restrictions on sales of products outside the United States and frequently require approval by the U.S. government for such sales. All exports of Portola products from the U.S. must be accompanied by proper export documentation and covered by the appropriate regulatory authorization. Whenever a Company employee is involved in a potential sale of Portola products to be used outside the U.S., contact Portola’s sales personnel to ensure that such transactions are in compliance with U.S. export control laws. In most instances, the proposed sale will be exempt from U.S. export control laws or otherwise covered by an existing export license. Violations of U.S. export laws may result in fines, imprisonment and/or revocation of Portola’s privileges to export products outside the U.S.

     8. Compliance with Local Laws in Countries of Operation

Portola has operations in many different countries, each of which has its own laws with which Portola, its facilities and its employees must comply. Employees who are employed at a Company facility located outside of the United States should consult with the General Manager or other plant management of the facility where they are employed as to the requirements of applicable local laws with which they must comply. For example, shipments of products or equipment to or from the United States or other countries may be subject to import and export laws or other similar restrictions, including tariffs, imposed by the country in which the Portola facility is located.

     9. Reporting of Code Violations

You should be alert and sensitive to situations that could result in actions that might violate federal, state or local laws or the standards of conduct set forth in this Code. If you believe your own conduct or that of a fellow employee may have violated any such laws or this Code, you have an obligation to report the matter.

Generally, you should raise such matters first with an immediate supervisor. However, if you are not comfortable bringing the matter up with your immediate supervisor, or do not believe the supervisor has dealt with the matter properly, then you should raise the matter with the Vice President in charge of your division or, if a law, rule or regulations is in question, then consult with Portola’s General Legal Counsel.

If you are not comfortable bringing the matter up with Portola’s General Legal Counsel, then you should know that Portola has established an Ethics Hotline for your convenience in reporting any violations of the Code in a completely anonymous way. You may report violations by calling the Ethics Hotline at 1-800-499-0981, 24 hours a day, 7 days a week, year round. There are two ways to access the website: 1) Click on the link in the “Policies, Procedures and Ethics” section of the Portola intranet site, or 2) Go directly to the EthicsPoint website at www.ethicspoint.com. (When you get to the site, type “Portola” in the window for “Company Name” and it will take you to the Portola ethics site.)

The most important point is that all potential violations of the Code of Conduct and Ethics should be reported, and we support all means of reporting them.

E. CONCLUSION

This Corporate Code of Conduct and Ethics booklet outlines the types of legal and ethical challenges you may encounter during your employment with the Company. This booklet is not comprehensive, but is intended to alert you to legal and ethical issues that are important for you to keep in mind as you perform your work for Portola. Recognizing and avoiding problems in these areas is essential to the Company’s success and your success at Portola. Violations in these policies may result in disciplinary action including suspension and termination of employment. If you have any questions, concerns or would like clarifications concerning the issues raised in this booklet please feel free to contact Human Resources.

EX-21.01

Exhibit 21.01

SUBSIDIARIES OF PORTOLA PACKAGING, INC.

Portola Packaging Canada Ltd., a Yukon Territory corporation (operating)

Portola Packaging Limited, a corporation organized under the laws of England and Wales (formerly Cap Snap (U.K.) Ltd.) (operating)

Portola Packaging Inc. Mexico, S.A. de C.V., a Mexican corporation (operating)

Northern Engineering and Plastics Corporation, a Delaware corporation (operating)

Tech Industries, Inc., a Rhode Island corporation (operating)

Portola Allied Tool, Inc., a Delaware corporation (operating but not significant pursuant to Item 601 of Regulation S–K)

Shanghai Portola Packaging Company Limited, a People’s Republic of China Corporation (operating but not significant pursuant to Item 601 of Regulation S–K)

Portola (Asia Pacific) Holding Limited, a Hong Kong corporation (operating but not significant pursuant to Item 601 of Regulation S–K)

Portola Ltd. (U.K.), a corporation organized under the laws of England and Wales (operating but not significant pursuant to Item 601 of Regulation S–K)

Portola GmbH, an Austrian corporation (operating but not significant pursuant to Item 601 of Regulation S–K)

Portola s.r.o., a Czech Republic corporation (operating but not significant pursuant to Item 601 of Regulation S–K)

Tech Industries UK Ltd., a Rhode Island corporation (operating but not significant pursuant to Item 601 of Regulation S-K)

Portola Packaging (ANZ) Limited, a New Zealand corporation (operating but not significant pursuant to Item 601 of Regulation S-K)

EX-23.01

Exhibit 23.01

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-82125 and 333-17533) of Portola Packaging, Inc. of our report dated November 3, 2004, except for the fifth paragraph of Note 8 and the second paragraph of Note 18 as to which the date is November 24, 2004, relating to the financial statements and our report dated November 3, 2004 relating to the financial statement schedule, which appears in this Form 10-K/A.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Pittsburgh, Pennsylvania

December 13, 2004

EX-31.01

Exhibit 31.01

CERTIFICATION

I, Jack L. Watts, certify that:

1.	I have reviewed this annual report on Form 10-K/A of Portola Packaging, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ Jack L. Watts
Date: December 13, 2004	Jack L. Watts
	Chief Executive Officer and Chairman
	of the Board of Directors

EX-31.02

Exhibit 31.02

CERTIFICATION

I, James A. Taylor, certify that:

1.	I have reviewed this annual report on Form 10-K/A of Portola Packaging, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ James A. Taylor
Date: December 13, 2004	James A. Taylor
	President and Chief Operating Officer

EX-31.03

Exhibit 31.03

CERTIFICATION

I, Michael T. Morefield, certify that:

1.	I have reviewed this annual report on Form 10-K/A of Portola Packaging, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ Michael T. Morefield
Date: December 13, 2004	Michael T. Morefield
	Senior Vice President and
	Chief Financial Officer

EX-32.01

Exhibit 32.01

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERS AND PRINCIPAL ACCOUNTING
OFFICER PURSUANT TO 18 U.S.C. 1350

     Each of the undersigned hereby certifies, for the purposes of Section 1350 of Chapter 63 of Title 18 of the United States Code, in his capacity as an officer of Portola Packaging, Inc. (the “Company”), that, to his knowledge, the Annual Report of the Company on Form 10-K/A for the fiscal year ended August 31, 2004, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operation of the Company.

	/s/ Jack L. Watts
Date: December 13, 2004	Jack L. Watts
	Chairman of the Board and Chief
	Executive Officer

	/s/ Michael T. Morefield
Date: December 13, 2004	Michael T. Morefield
	Senior Vice President and
	Chief Financial Officer