424B3 1 a2105590z424b3.htm 424B3
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Filed Pursuant to Rule 424(b)(3)
Registration 333-103263

PROSPECTUS

OWENS-BROCKWAY GLASS CONTAINER INC.

OFFER TO EXCHANGE

$625,000,000 aggregate principal amount of its
83/4% Senior Secured Notes due 2012
which have been registered under the Securities Act,
for any and all of its outstanding 83/4% Senior Secured Notes due 2012


    The exchange offer expires at 5:00 p.m., New York City time, on April 10, 2003, unless extended.
    We will exchange all outstanding notes that are validly tendered and not validly withdrawn for an equal principal amount of a new series of notes which are registered under the Securities Act.
    The exchange offer is not subject to any conditions other than that it not violate applicable law or any applicable interpretation of the staff of the SEC.
    You may withdraw tenders of outstanding notes at any time before the exchange offer expires.
    The exchange of notes will not be a taxable event for U.S. federal income tax purposes.
    We will not receive any proceeds from the exchange offer.
    The terms of the new series of notes are substantially identical to the outstanding notes, except for transfer restrictions and registration rights relating to the outstanding notes.
    The notes are fully and unconditionally guaranteed, jointly and severally, on a senior basis by our indirect parent, Owens-Illinois Group, Inc., and by certain domestic subsidiaries of Owens-Illinois Group, Inc. so long as they continue to guarantee the secured credit agreement. If we cannot make payments on the notes when they are due, the guarantors must make them instead. Under certain circumstances the guarantees may be released without action by, or consent of, the holders of the notes.
    The notes and guarantees are secured, subject to the terms of the collateral documents under the secured credit agreement, on a pari passu basis with obligations under the secured credit agreement and our outstanding $1.0 billion of 87/8% Senior Secured Notes due 2009 by: (1) a security interest in substantially all the assets (other than intercompany debt and securities) of Owens-Illinois Group, Inc. and of substantially all the domestic subsidiaries of Owens-Illinois Group, Inc.; and (2) a pledge by Owens-Illinois Group, Inc. of the stock of, and intercompany debt owing to Owens-Illinois Group, Inc. by, all its direct subsidiaries (other than the stock of, and intercompany debt owing to Owens-Illinois Group, Inc. by, OI General FTS Inc.), and a pledge by Owens-Brockway Packaging, Inc. of the stock of, and intercompany debt owing to Owens-Brockway Packaging, Inc. by, Owens-Brockway Glass Container Inc. Certain additional collateral secures the obligations under the secured credit agreement. Under certain circumstances, the collateral securing the notes and guarantees may be released without action by, or consent of, the holders of the notes. The trustee does not control the dispostion or release of the collateral.
    You may tender outstanding notes only in denominations of $1,000 and multiples of $1,000.
    Our affiliates may not participate in the exchange offer.

Please refer to "Risk Factors" beginning on page 22 of this prospectus for
a description of the risks you should consider when evaluating this investment.

        We are not making this exchange offer in any state where it is not permitted.

        Neither the Securities and Exchange Commission nor any state securities commission has approved of the notes or determined that this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is March 13, 2003.



TABLE OF CONTENTS

 
  Page
Prospectus Summary   1
Risk Factors   22
Forward Looking Statements   34
The Exchange Offer   35
Use Of Proceeds   44
Capitalization Of Owens-Illinois Group, Inc.   45
Selected Consolidated Financial Data Of Owens-Illinois Group, Inc.   46
Management's Discussion And Analysis Of Financial Condition And Results Of Operations Of Owens-Illinois Group, Inc.   50
Business   65
Management   80
Compensation Of Executive Officers And Directors   83
Security Ownership Of Certain Beneficial Owners And Management   89
Certain Relationships And Related Transactions   92
Description Of Certain Indebtedness   93
Description Of Notes   97
Certain U.S. Federal Income Tax Considerations   147
Plan Of Distribution   148
Legal Matters   149
Experts   149
Where You Can Find More Information   149
Index to Financial Statements   F-1

        We have not authorized any dealer, salesperson or other person to give any information or to make any representations to you other than the information contained in this prospectus. You must not rely on any information or representations not contained in this prospectus as if we had authorized it. This prospectus does not offer to sell or solicit an offer to buy any securities other than the registered notes to which it relates, nor does it offer to buy any of these notes in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction.

        The information contained in this prospectus is current only as of the date on the cover page of this prospectus, and may change after that date.

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MARKET, RANKING AND OTHER DATA

        The data included in this prospectus regarding markets and ranking, including the size of certain markets and our position, the position of Owens-Illinois Group, Inc. and the position of our competitors and competitors of Owens-Illinois Group, Inc. within these markets, are based on independent industry publications, reports of government agencies or other published industry sources and our estimates and those of Owens-Illinois Group, Inc. based on each of our management's knowledge and experience in the markets in which we and Owens-Illinois Group, Inc. operate. Our estimates and those of Owens-Illinois Group, Inc. have been based on information obtained from customers, suppliers, trade and business organizations and other contacts in the markets in which we and Owens-Illinois Group, Inc. operate. We and Owens-Illinois Group, Inc. believe these estimates to be accurate as of the date of this prospectus. However, this information may prove to be inaccurate because of the method by which we or Owens-Illinois Group, Inc. obtained some of the data for these estimates or because this information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in a survey of market size.

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PROSPECTUS SUMMARY

        This summary highlights the information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all the information that may be important to you. For a more complete understanding of this offering, we encourage you to read this entire prospectus and the documents to which we refer you. You should read the following summary together with the more detailed information and consolidated financial statements and the notes to those statements included elsewhere in this prospectus. Unless otherwise specified or the context requires otherwise, reference in this prospectus to:

    "Company" or "we," "us" or "our" refers to Owens-Brockway Glass Container Inc., the issuer of the notes, and its direct and indirect subsidiaries on a consolidated basis; and

    "OI Group" refers to Owens-Illinois Group, Inc., the indirect parent of Owens-Brockway Glass Container Inc., and its direct and indirect subsidiaries on a consolidated basis, including Owens-Brockway Glass Container Inc.

        We will refer to the offerings of the private notes as the "private offerings." Unless indicated otherwise, the term "notes" refers to both the private notes and the exchange notes.

        Investors should carefully consider the information set forth under "Risk Factors." In addition, some statements include forward-looking information which involves risks and uncertainties.



Owens-Illinois Group, Inc.

        OI Group is one of the world's leading manufacturers of packaging products. OI Group is the largest manufacturer of glass containers in North America, South America, Australia and New Zealand, and one of the largest in Europe. In addition, OI Group is a leading manufacturer in North America of plastic containers, plastic closures and plastic prescription containers. OI Group also has plastics packaging operations in South America, Europe, Australia and New Zealand. Consistent with its strategy to continue to strengthen its existing packaging businesses, OI Group has acquired 18 glass container businesses in 18 countries since 1991, including businesses in South America, Central and Eastern Europe and the Asia Pacific region, and six plastics packaging businesses with operations in 11 countries. OI Group had net sales of approximately $5.4 billion and $4.3 billion, Adjusted EBITDA (as defined on page 21) of approximately $1.3 billion and $1.0 billion and net earnings (loss) of approximately $357 million and $(201.7) million, for the year ended December 31, 2001 and for the nine months ended September 30, 2002, respectively, and consolidated total assets of approximately $9.8 billion at September 30, 2002.

        OI Group believes it is a technological leader in the worldwide glass container and plastics packaging segments of the rigid packaging market. During the five years ended December 31, 2001, OI Group invested more than $2.3 billion in capital expenditures (excluding acquisitions) and more than $342 million in research, development and engineering to, among other things, improve labor and machine productivity, increase capacity in growing markets and commercialize technology into new products.

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Owens-Brockway Glass Container Inc.

        We are an indirect, wholly-owned subsidiary of OI Group and a leading manufacturer of glass containers throughout the world. Approximately one of every two glass containers made worldwide is made by us, our affiliates or our licensees. Worldwide glass container sales represented 66% and 68% of OI Group's consolidated net sales for the year ended December 31, 2001 and for the nine months ended September 30, 2002. For the nine months ended September 30, 2002, we manufactured approximately 40% of all glass containers sold by domestic producers in the U.S., making us the leading manufacturer of glass containers in the U.S. We are the leading glass container manufacturer in 17 of the 19 countries where we compete in the glass container segment of the rigid packaging market and the sole manufacturer of glass containers in eight of these countries. We had net sales of approximately $3.7 billion and $3.0 billion and net earnings of approximately $69 million and $151 million for the year ended December 31, 2001 and for the nine months ended September 30, 2002, respectively, and our consolidated total assets were approximately $5.9 billion at September 30, 2002.

        We and OI Group are headquartered at One SeaGate, Toledo, Ohio 43666, and our phone number is (419) 247-5000. We are a Delaware corporation incorporated on March 9, 1987.


Competitive Strengths

Leader in Glass and Plastics Packaging

    OI Group is one of the world's leading manufacturers of glass and plastics packaging

    We are a leading glass container manufacturer in 17 of 19 countries where we compete and the sole manufacturer of glass containers in 8 of these countries

    We, our affiliates or our licensees produce approximately one of every two glass containers made worldwide

    In plastics, OI Group is a leader in custom blow-molded and injection-molded packaging products

    OI Group believes its leadership in glass and plastics packaging provides opportunity to attract and retain "blue chip" customers, many of which have a worldwide presence

Technology Leader and Innovator

    OI Group's research, development and engineering ("RD&E") activities have yielded significant labor and machine productivity gains over time

    OI Group believes its RD&E expenditures relative to its competitors are among the highest in the worldwide rigid packaging market

    We believe we are often the glass container supplier of choice for multi-national consumer companies due to our leadership in glass technology and status as low-cost producer

    In plastics packaging, OI Group is a leader in product development and innovation and believes it is one of the few suppliers with capability to provide the customer with "complete package" consisting of the container and the closure

    OI Group believes its new product development cycle is one of the shortest in the plastics packaging industry

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    OI Group's plastics packaging innovations include the "child resistant" closure for prescription containers, the plastic Heinz ketchup bottle with oxygen barriers and a multi-layer plastic beer bottle being used by Anheuser-Busch, Coors and Miller Brewing

Low-Cost Producer

    We believe we are the low-cost producer in the glass container segment of the North American rigid packaging market, as well as the low-cost producer in most of the international glass container segments in which we compete

    Much of our cost advantage is due to our proprietary equipment and process technology

    Over the last 10 years, we have more than doubled our overall glass container labor and machine productivity in the United States, measured by output produced per man-hour

    Glass machine development activities and systematic upgrading of production equipment throughout the 1980's and 1990's have given us low-cost leadership in the glass container segment in most of the countries in which we compete

Worldwide Licensee Network

    We license our proprietary glass container technology to 25 companies in 25 countries

    In plastics packaging, OI Group has technical assistance agreements with 24 companies in 14 countries

    The worldwide licensee network provides a stream of revenue to support OI Group's development activities and an opportunity to participate in the rigid packaging market in countries where it does not already have a direct presence

    OI Group's technical agreements enable it to apply "best practices" developed by its worldwide licensee network

Experienced Management Team

    OI Group's management team has demonstrated an ability to deploy assets, improve productivity, and rationalize production capacity, while at the same time maintaining its leadership position in glass and plastics packaging

    OI Group is a direct, wholly-owned subsidiary of Owens-Illinois, Inc. ("OI Inc.")

    OI Inc.'s and the Company's 18 executive officers average approximately 30 years of experience with OI Inc. and its predecessor

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Business Strategy

        OI Group's business strategy is to continue to (1) strengthen its existing packaging businesses and (2) apply its leading edge technology to improve quality, service, profitability and cash flow. In addition, consistent with past practice, OI Group is considering strategic transactions, including acquisitions, that will complement, strengthen and enhance growth in its worldwide glass and plastics packaging operations. OI Group is evaluating a number of these transactions on a preliminary basis but it is not certain that any of these transactions will advance beyond the preliminary stages or be completed.

Continue to Strengthen Existing Packaging Businesses

    OI Group is strengthening its existing packaging businesses and intends to pursue growth opportunities in these businesses

    We are targeting stable and growing end-uses in the glass container segment of the North American rigid packaging market, particularly those such as beer, that would benefit from our high productivity machines and strategic plant locations; in the U.S., we manufacture more glass containers for packaging beer than any other company

    We believe demographic and economic trends in certain developing regions of the world, particularly portions of South America, Eastern and Central Europe and the Asia Pacific region, will lead to an increase in the demand for glass containers in these markets over time

    OI Group plans to pursue growth opportunities in its plastics packaging segment, both in the U.S. and internationally

    Growth in plastics packaging will focus on end-uses where customers seek distinctive and functional packaging to differentiate or enhance their products

Continue to Apply Leading Edge Technology to Improve Quality, Service, Profitability and Cash Flow

    OI Group's strategy includes continued pursuit of labor and machine productivity improvements over time in an effort to improve quality, service, profitability and cash flow

    OI Group intends to develop and employ new technology and improved "best practices" in an effort to continue to lower production costs, while at the same time preserving superior product quality

    OI Group believes that maintaining its leadership in technology is key to being successful in rigid packaging markets around the world

    Over the last ten years, we have more than doubled our overall glass container labor and machine productivity in the United States, as measured by output produced per man-hour


Recent Developments

OI Group Results for 2002

Summary

        OI Group's 2002 net sales were $5.640 billion compared with $5.403 billion in 2001, an increase of 4.4%. Consolidated EBIT (as defined on page 21) was $889.2 million for 2002 compared with Adjusted EBIT (as defined on page 21) of $856.6 million for 2001, an increase of 3.8%.

        Interest expense for 2002 was $421.7 million, down $8.3 million from 2001 interest, adjusted to exclude an unusual expense of $4.0 million. This decline was mainly due to lower interest rates on variable rate debt, partially offset by the first quarter 2002 issuance of $1 billion principal amount of 87/8% Senior Secured Notes due 2009 and the fourth quarter 2002 issuances of 83/4% Senior Secured

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Notes due 2012 totaling $625 million. Proceeds from the Senior Secured Notes were used to repay lower cost, variable rate debt borrowed under the secured credit agreement.

        OI Group reported a net loss for 2002 of $151.4 million compared with 2001 net earnings of $356.6 million. Earnings before extraordinary items and the cumulative effect of the change in method of accounting for goodwill were $318.2 million in 2002 compared with $360.7 million in 2001. Earnings in 2001, adjusted to exclude both goodwill amortization of $92.3 million and the net gain from unusual items of $161.7 million, were $291.3 million.

        Consolidated debt at December 31, 2002 was $5,346.2 million compared with $5,400.9 million at December 31, 2001, a reduction of $54.7 million.

Business Review

        The Glass Containers segment reported 2002 net sales of $3,875.2 million, up 8.5% from $3,572.3 million a year ago. The segment also reported EBIT of $709.0 million for 2002 compared with Adjusted EBIT of $627.1 million for 2001, an increase of 13.1%. EBIT margins in 2002 improved to 18.3% from 17.6% in 2001.

        North American glass container operations achieved a 16% increase in both sales and EBIT for the full year 2002 compared with 2001, with over half the EBIT increase resulting from the Canadian operations acquired early in the fourth quarter of 2001.

        South American glass container operations reported lower sales and EBIT for the full year 2002 as compared with 2001. The decreases were due to unfavorable currency translation rates compared with 2001 and slightly lower unit sales volumes, primarily caused by political and economic uncertainty in Venezuela. A national strike in Venezuela that began in early December caused energy supply curtailments that forced OI Group to idle its two plants in the country. Sales and EBIT for 2002 were adversely affected by approximately $20 million and $5 million, respectively. In early February, the affiliate began to prepare for resumption of production at one of the facilities based on its expectation that both suppliers and customers were beginning to resume limited operations.

        European glass container operations reported improved sales, EBIT, and EBIT margins for the full year 2002 compared with 2001 as a result of higher unit shipments, higher selling prices, improved manufacturing performance, and favorable currency translation rates.

        Asia Pacific glass container operations recorded a 5% increase in both sales and EBIT for the full year 2002 compared with 2001. Higher unit shipments and favorable currency translation rates were partially offset by modestly lower selling prices and higher warehousing and distribution costs.

        For 2002, the Plastics Packaging segment reported net sales of $1,765.2 million compared with net sales of $1,825.7 million in 2001. The sales decline was mainly due to competitive pricing pressures, the absence of sales from several small businesses that were sold during the past twelve months, and the pass-through effects on sales of lower resin prices. Partially offsetting this decline was an increase in unit shipments for most product lines. Plastics Packaging EBIT was $258.2 million in 2002 compared with Adjusted EBIT of $287.2 million in 2001. The EBIT decline was largely due to the competitive pricing pressures mentioned above, and two events which occurred in the third quarter: 1) an unfavorable accounting adjustment at one of our foreign affiliates principally for the write down of inventories to net realizable value, and 2) reduced sales and EBIT within our advanced technology systems business, as a major customer discontinued production in the United States and relocated that production to the Singapore.

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Effective Tax Rate

        OI Group's effective tax rate for 2002 was 30.1%. This compares with an effective rate of 30.3% for 2001, adjusted to exclude the effects of goodwill amortization and unusual items.

Asbestos-Related Matters

        OI Inc.'s asbestos-related cash payments for 2002 were $221.1 million, a reduction of $24.8 million, or 10.1%, from 2001. OI Inc. estimates that the number of plaintiffs and claimants involved in asbestos claims pending against OI Inc. at December 31, 2002 was 24,000, down from 27,000 at December 31, 2001. OI Group anticipates that cash flows from operations and other sources will be sufficient provide adequate funds to OI Inc. to meet its asbestos-related obligations in 2003. Also, OI Inc. collected $24.8 million in asbestos-related insurance proceeds during 2002. OI Inc.'s remaining receivable for asbestos-related insurance is approximately $12 million, which it expects to collect over the next two years.

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OI Group Condensed Consolidated Results of Operations (dollars in millions)

 
  Year ended December 31,
 
 
  2002
  2001
 
Revenues:              
  Net sales   $ 5,640.4   $ 5,402.5  
  Royalties and net technical assistance     24.2     24.6  
  Equity earnings     27.0     19.4  
  Interest     24.1     26.9  
  Other(a)     44.4     539.9  
   
 
 
      5,760.1     6,013.3  
Costs and expenses:              
  Manufacturing, shipping, and delivery     4,413.4     4,218.4  
  Research and development     41.1     41.2  
  Engineering     38.9     31.4  
  Selling and administrative(b)     318.6     341.3  
  Interest(c)     421.7     434.0  
  Other(d)     34.8     279.8  
   
 
 
      5,268.5     5,346.1  
   
 
 
Earnings before items below     491.6     667.2  
Provision for income taxes(e)     147.9     286.4  
Minority share owners' interests in earnings of subsidiaries     25.5     20.1  
   
 
 
Earnings before extraordinary items and cumulative effect of accounting change     318.2     360.7  
Extraordinary charges from early extinguishment of debt, net of applicable income taxes(f)     (9.6 )   (4.1 )
Cumulative effect of accounting change(g)     (460.0 )    
   
 
 
Net earnings (loss)   $ (151.4 ) $ 356.6  
   
 
 
Adjusted earnings data(h):              
  Adjusted earnings data required by FAS No. 142(h):              
    Earnings before extraordinary items and cumulative effect of accounting change   $ 318.2   $ 453.0  
    Net earnings (loss)     (151.4 )   448.9  
  Earnings before extraordinary items and cumulative effect of accounting, adjusted to exclude goodwill amortization and unusual items(i)     318.2     291.3  

(a)
Amount for 2001 includes gains totaling $470.4 million ($296.4 million after tax) for: (1) $13.1 million ($12.0 after tax) related to the sale of the label business and the sale of a minerals business in Australia, and (2) $457.3 million ($284.4 million after tax) related to the sale of the Harbor Capital Advisors business.

(b)
Amount for 2001 includes charges of $30.9 million ($19.4 million after tax) related to special employee benefit programs.

(c)
Amount for 2001 includes expense of $4.0 million ($2.8 million after tax) related to interest on the resolution of the transfer of pension assets and liabilities for a previous acquisition and divestiture.

(d)
Amount for 2001 includes charges totaling $129.5 million ($106.5 million after tax and minority share owners' interests) for: (1) $79.9 million ($63.9 million after tax and minority share owners' interests) related to restructuring and impairment charges at certain international glass operations,

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    principally Venezuela and Puerto Rico, as well as certain other domestic and international operations; (2) $8.5 million ($5.3 million after tax) for certain contingencies; (3) $31.0 million (pretax and after tax) related to the loss on the sale of facilities in India;(4) $7.9 million ($4.9 million after tax) related to restructuring manufacturing capacity in the medical devices business; and (5) $2.2 million ($1.4 million after tax) related to restructuring initiatives at certain Plastics Packaging facilities.

(e)
Amount for 2001 includes a charge of $6.0 million to adjust tax liabilities in Italy as a result of tax legislation.

(f)
The 2002 write-off of unamortized deferred finance fees related to indebtedness repaid prior to its scheduled maturity totaled $15.4 million, less applicable income taxes of $5.8 million.

    The 2001 write-off of unamortized deferred finance fees related to indebtedness repaid prior to its scheduled maturity totaled $6.6 million, less applicable income taxes of $2.5 million.

(g)
On January 1, 2002, OI Group adopted Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets" ("FAS No. 142"). As required by FAS No. 142, the transitional goodwill impairment loss of $460.0 million is recognized as the cumulative effect of a change in method of accounting.

(h)
Earnings for 2001 have been adjusted to eliminate goodwill amortization of $92.3 million as required by FAS No. 142.

(i)
Earnings before extraordinary items and cumulative effect of accounting change of $360.7 million for 2001 have been adjusted to exclude the aggregate net gain after tax of $161.7 million relating to the unusual items described in notes (a) through (e)above and to exclude goodwill amortization of $92.3 million.

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OI Group Consolidated Supplemental Financial Data (dollars in millions)

 
  Year Ended December 31,
 
 
  2002
  2001
 
Segment Data              
Net sales:              
  Glass Containers   $ 3,875.2   $ 3,572.3  
  Plastics Packaging     1,765.2     1,825.7  
  Other         4.5  
   
 
 
Segment and consolidated net sales   $ 5,640.4   $ 5,402.5  
   
 
 
EBIT(a)(b):              
  Glass Containers   $ 709.0   $ 534.5  
  Plastics Packaging     258.2     249.5  
  Other         3.0  
   
 
 
Segment EBIT     967.2     787.0  
Eliminations and other retained items     (78.0 )   379.6  
   
 
 
EBIT before goodwill amortization     889.2     1,166.6  
Amortization of goodwill(a)         (92.3 )
   
 
 
EBIT   $ 889.2   $ 1,074.3  
   
 
 
Other Data              
EBITDA   $ 1,346.8   $ 1,598.1  
Adjusted EBIT(b)     889.2     856.6  
Adjusted EBITDA(b)     1,348.8     1,288.1  
Amortization:              
  Goodwill         92.3  
  Intangibles and other deferred items     29.4     28.3  
  Deferred finance fees     23.1     19.9  
   
 
 
  Total amortization     52.5     140.5  
Depreciation     428.2     403.2  
Additions to property, plant, and equipment     496.0     531.9  
 
  December 31, 2002
  December 31, 2001
Total debt   $ 5,346.2   $ 5,400.9
Share owner's equity     2,022.1     2,322.0

(a)
In accordance with FAS No. 142, goodwill is no longer amortized beginning in 2002. In order to facilitate comparisons, goodwill amortization in 2001 has been reclassified out of the Glass Containers and Plastics Packaging segments and reported separately.

(b)
EBIT for 2001 includes gains totaling $470.4 million for: (1) $13.1 million related to the sale of the label business and the sale of a minerals business in Australia, and (2) $457.3 million related to the sale of the Harbor Capital Advisors business.

    EBIT for 2001 also includes charges totaling $160.4 million for: (1) $79.9 million related to restructuring and impairment charges at certain international glass operations, principally Venezuela and Puerto Rico, as well as certain other domestic and international operations; (2) $31.0 million related to the loss on the sale of facilities in India; (3) $7.9 million related to restructuring manufacturing capacity in the medical devices business; (4) $2.2 million related to

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    restructuring initiatives at certain Plastics Packaging facilities; (5) $30.9 million related to special employee benefit programs; and (6) $8.5 million for certain contingencies.

    Such gains (charges) are included as follows in consolidated EBIT and EBITDA for 2001:

Glass Containers   $ (92.6 )
Plastics Packaging     (37.7 )
Other     2.8  
   
 
Total Product Segments     (127.5 )
Eliminations and other retained items     437.5  
   
 
Consolidated Totals   $ 310.0  
   
 

    The net gain of $310.0 million has been excluded from Adjusted EBIT and Adjusted EBITDA. In order to facilitate comparisons, Adjusted EBIT for 2001 also excludes goodwill amortization.

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Organizational Structure

         GRAPHIC


(1)
OI Inc. is a public company listed on the New York Stock Exchange. OI Inc. has $1.7 billion of outstanding public debt securities.

(2)
These subsidiaries (other than OI General FTS Inc.), including six foreign subsidiaries, may borrow under the $2.45 billion revolving loan facility portion of the secured credit agreement. Borrowings by the six foreign subsidiaries under the secured credit agreement are limited to a total of $1.41 billion. Certain foreign subsidiaries guarantee the borrowings by the six foreign subsidiaries under the secured credit agreement. OI General FTS Inc. is jointly and severally liable for the revolving loan facility.

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The Exchange Offer


The Exchange Offer

 

We are offering to exchange the exchange notes for the outstanding private notes that are properly tendered and accepted. You may tender outstanding private notes only in denominations of $1,000 and multiples of $1,000. We will issue the exchange notes on or promptly after the exchange offer expires. As of the date of this prospectus, $625,000,000 principal amount of private notes is outstanding.

Expiration Date

 

The exchange offer will expire at 5:00 p.m., New York City time, on April 10, 2003, unless extended, in which case the expiration date will mean the latest date and time to which we extend the exchange offer.

Conditions to the Exchange Offer

 

The exchange offer is not subject to any condition other than that it not violate applicable law or any applicable interpretation of the staff of the SEC. The exchange offer is not conditioned upon any minimum principal amount of private notes being tendered for exchange.

Procedures for Tendering Private Notes

 

If you wish to tender your private notes for exchange notes pursuant to the exchange offer you must transmit to U.S. Bank National Association as exchange agent, on or before the expiration date, either:

 

 

•    a computer generated message transmitted through The Depository Trust Company's Automated Tender Offer Program system and received by the exchange agent and forming a part of a confirmation of book-entry transfer in which you acknowledge and agree to be bound by the terms of the letter of transmittal; or

 

 

•    a properly completed and duly executed letter of transmittal, which accompanies this prospectus, or a facsimile of the letter of transmittal, together with your private notes and any other required documentation, to the exchange agent at its address listed in this prospectus and on the front cover of the letter of transmittal.

 

 

If you cannot satisfy either of these procedures on a timely basis, then you should comply with the guaranteed delivery procedures described below. By executing the letter of transmittal, you will make the representations to us described under "The Exchange Offer—Procedures for Tendering."

Special Procedures for Beneficial Owners

 

If you are a beneficial owner whose private notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your private notes in the exchange offer, you should contact the registered holder promptly and instruct the registered holder to tender on your behalf. If you wish to tender on your own behalf, you must either (1) make appropriate arrangements to register ownership of the private notes in your name or (2) obtain a properly completed bond power from the registered holder before completing and executing the letter of transmittal and delivering your private notes.

 

 

 

12



Guaranteed Delivery Procedures

 

If you wish to tender your private notes and time will not permit the documents required by the letter of transmittal to reach the exchange agent before the expiration date, or the procedure for book-entry transfer cannot be completed on a timely basis, you must tender your private notes according to the guaranteed delivery procedures described in this prospectus under the heading "The Exchange Offer—Guaranteed Delivery Procedures."

Acceptance of the Private Notes and Delivery of the Exchange Notes

 

Subject to the satisfaction or waiver of the conditions to the exchange offer, we will accept for exchange any and all private notes which are validly tendered in the exchange offer and not withdrawn before 5:00 p.m., New York City time, on the expiration date.

Withdrawal Rights

 

You may withdraw the tender of your private notes at any time before 5:00 p.m., New York City time, on the expiration date, by complying with the procedures for withdrawal described in this prospectus under the heading "The Exchange Offer—Withdrawal of Tenders."

Certain U.S. Federal Tax Considerations

 

The exchange of notes will not be a taxable event for United States federal income tax purposes. For a discussion of certain federal tax consideration relating to the exchange of notes, see "Certain U.S. Federal Income Tax Considerations."

Exchange Agent

 

U.S. Bank National Association, the trustee under the indenture governing the notes, is serving as the exchange agent.

Consequences of Failure to
Exchange

 

If you do not exchange your private notes for exchange notes, you will continue to be subject to the restrictions on transfer provided in the private notes and in the indenture governing the private notes. In general, the private notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We do not currently plan to register the private notes under the Securities Act.

Registration Rights Agreement

 

You are entitled to exchange your private notes for exchange notes with substantially identical terms. This exchange offer satisfies this right. After the exchange offer is completed, you will no longer be entitled to any exchange or registration rights with respect to your private notes.

        We explain the exchange offer in greater detail beginning on page 35.

13



The Exchange Notes

        The summary below describes the principal terms of the exchange notes. Certain of the terms and conditions described below are subject to important limitations and exceptions. The "Description of Notes" section of this prospectus contains a more detailed description of the terms and conditions of the exchange notes.

        The form and terms of the exchange notes are the same as the form and terms of the private notes, except that the exchange notes will be registered under the Securities Act and, therefore, the exchange notes will not be subject to the transfer restrictions, registration rights and provisions providing for an increase in the interest rate applicable to the private notes. The exchange notes will evidence the same debt as the private notes, and both the private notes and the exchange notes are governed by the same indenture.


Issuer

 

Owens-Brockway Glass Container Inc., a Delaware corporation.

Securities

 

$625,000,000 principal amount of 83/4% Senior Secured Notes.

Maturity

 

November 15, 2012.

Interest

 

Annual rate: 83/4%. Payment frequency: every six months on May 15 and November 15. First payment: May 15, 2003.

Guarantees

 

The notes are fully and unconditionally guaranteed, jointly and severally, on a senior basis by our indirect parent, OI Group, and by certain domestic subsidiaries of OI Group so long as they continue to guarantee the secured credit agreement. If we cannot make payments on the notes when they are due, the guarantors must make them instead. As of September 30, 2002, on a pro forma basis after giving effect to the offering of the notes and the application of the estimated net proceeds therefrom, OI Group would have had approximately $5.4 billion of total consolidated indebtedness, which includes approximately $1.9 billion of secured indebtedness under the secured credit agreement. As of and for the nine months ended September 30, 2002, the non-guarantor subsidiaries represented in the aggregate approximately 46% of OI Group's consolidated net sales, 45% of OI Group's consolidated Adjusted EBITDA and 44% of OI Group's consolidated total assets. As of September 30, 2002, the liabilities of the non-guarantor subsidiaries on a consolidated basis were approximately $2.2 billion.

Ranking

 

The notes are senior obligations of Owens-Brockway Glass Container and rank pari passu in right of payment to all the current and future senior debt of Owens-Brockway Glass Container, including its obligations under the secured credit agreement and its 87/8% Senior Secured Notes due 2009, and rank senior in right of payment to the subordinated obligations of Owens-Brockway Glass Container. The guarantees of the notes rank equal in right of payment to the guarantees of OI Group and the subsidiary guarantors of their existing and future senior obligations, including their obligations under the secured credit agreement and the 87/8% Senior Secured Notes due 2009, and senior in right of payment to all subordinated obligations of those guarantors, which include the guarantees by OI Group and Owens-Brockway Packaging, Inc. ("OI Packaging") of the obligations of OI Group's parent, OI Inc., related to its $1.7 billion of outstanding public debt securities. The notes are effectively subordinated to obligations under the secured credit agreement, under which there would have been outstanding, on a pro forma basis after giving effect to the offering of the notes and the application of the estimated net proceeds therefrom, borrowings of $1.9 billion at September 30, 2002, certain obligations owing to lenders or their affiliates as permitted under the secured credit agreement aggregating $106.1 million at September 30, 2002 and obligations related to OI Inc.'s $1.7 billion of outstanding public debt securities, to the extent these obligations are secured by collateral that does not secure the notes. The notes may also be effectively subordinated to certain indebtedness incurred to refinance borrowings under the secured credit agreement to the extent that such indebtedness is secured by collateral that does not secure the notes. See "Risk Factors—Risks Relating to the Notes—Notes Effectively Subordinated to Certain Secured Credit Agreement Obligations and Obligations of OI Inc.—The notes are effectively subordinated to the obligations under the secured credit agreement, certain obligations owing to lenders or their affiliates as permitted under the secured credit agreement and obligations related to OI Inc.'s $1.7 billion of outstanding public debt securities to the extent these obligations are secured by collateral that does not secure the notes." In addition, the notes and the guarantees of the notes will be effectively junior to any liabilities, including trade payables, of any non-guarantor subsidiaries.

 

 

 

14



Collateral

 

The notes and guarantees of the notes are secured, subject to the terms of the collateral documents under the secured credit agreement, on a
pari passu basis with obligations under the secured credit agreement and our outstanding $1.0 billion of 87/8% Senior Secured Notes due 2009 by:

 

 

(1)    a security interest in substantially all the assets (other than intercompany debt and securities) of OI Group and of substantially all the domestic subsidiaries of OI Group; and

 

 

(2)    a pledge by OI Group of the stock of, and intercompany debt owing to OI Group by, all its direct subsidiaries (other than the stock of, and intercompany debt owing to OI Group by, OI General FTS Inc.) and a pledge by OI Packaging of the stock of, and intercompany debt owing to OI Packaging by, Owens-Brockway Glass Container.

 

 

 

15



 

 

Certain additional collateral, including the stock of OI General FTS Inc. owned by OI Group and intercompany debt owing to OI Group by OI General FTS Inc., secures the obligations under the secured credit agreement. OI General FTS Inc. and its subsidiaries do not conduct any manufacturing operations and are primarily involved in providing administrative and general corporate services to OI Group and its subsidiaries.

 

 

Except as permitted and contemplated by, and subject to the terms of, the secured credit agreement and the pledge agreement (as amended, modified, replaced or refunded), OI Group will not further pledge the stock of, or intercompany debt owing to OI Group by, OI General FTS Inc. as security or otherwise unless the notes and guarantees are secured on a
pari passu basis with the applicable indebtedness by this collateral.

Release of Guarantees and
Collateral

 

Under certain circumstances, the collateral securing the notes may be released without action by, or consent of, the holders of the notes or the trustee under the indenture. In general, the lenders under the secured credit agreement have the power to terminate and release the pledges and the security interests under the secured credit agreement and the notes when the obligations under the secured credit agreement have been paid in full, when OI Inc. and OI Group achieve investment grade debt ratings or upon the approval of the requisite percentage of lenders under the secured credit agreement. In addition, any guaranty of the notes may be released without action by, or consent of, the holders of the notes or the trustee under the indenture if the guarantor is no longer a guarantor of obligations:

 

 

•    under the secured credit agreement;

 

 

•    owing to lenders or their affiliates as lending facilities as permitted by the terms of the secured credit agreement; and

 

 

•    under interest rate and currency agreements with lenders or their affiliates as permitted by the terms of the secured credit agreement.

 

 

Upon release of a guarantor of the notes under its guarantee, the collateral documents provide that the security interest in the assets of that guarantor securing the notes and the guarantees will be released simultaneously. If collateral that secures the notes is later repledged or guarantees which guaranty the notes are reinstated under the secured credit agreement (including any amended and restated secured credit agreement or new credit agreement), such collateral will be pledged, subject to the terms of the collateral documents under the secured credit agreement (including any amended and restated secured credit agreement or new credit agreement), on a
pari passu basis with obligations under the secured credit agreement to secure the notes, and such guarantees will be executed in favor of the notes.

 

 

 

16



Optional Redemption

 

On or after November 15, 2007, we may redeem some or all of the notes at any time at the redemption prices described in the section entitled "Description of Notes—Optional Redemption." Prior to November 15, 2005, we may use the net proceeds of certain equity offerings by OI Inc. to redeem up to 35% of the notes at the price listed in the section entitled "Description of Notes—Optional Redemption."

Change of Control

 

If we, OI Inc. or OI Group experience specific kinds of changes of control, we must offer to repurchase the notes at 101% of the aggregate principal amount of notes repurchased plus accrued and unpaid interest and liquidated damages, if any, unless we have exercised our right to redeem the notes as described in the section entitled "Description of Notes—Optional Redemption," including our right, prior to November 15, 2007, to redeem all of the outstanding notes in the event of a change of control.

Basic Covenants of the Indenture

 

The indenture governing the notes contains covenants which, among other things, restrict the ability of OI Group and its restricted subsidiaries to:

 

 

•    borrow money;

 

 

•    pay dividends on, or redeem or repurchase, stock;

 

 

•    make investments;

 

 

•    create liens;

 

 

•    enter into certain transactions with affiliates; and

 

 

•    sell certain assets or merge with or into other companies.

 

 

On and after July 2, 2003, we will be permitted to assign our obligations under the notes and the indenture to OI Inc., and we and each guarantor will thereafter be released from our obligations under the notes, the guarantees thereof and the indenture, provided that (1) OI Inc. assumes all of the obligations under the notes and the indenture and (2) the obligations of each domestic borrower under the secured credit agreement have been or will be concurrently assumed by OI Inc. in accordance with the terms of the secured credit agreement. Under the secured credit agreement, the domestic borrowers may assign or transfer their rights and obligations to OI Inc. and all of OI Inc.'s subsidiaries will be concurrently released from their guarantees upon the consent of the requisite lenders if OI Inc. has achieved and maintains immediately following the assumption (including the assumption of the notes) the investment grade ratings specified under the secured credit agreement and if all obligations of subsidiaries of OI Inc. in respect of the $1.7 billion of outstanding public debt securities of OI Inc., the notes and certain other debt have been released and assumed by OI Inc. For more information, see the section entitled "Description of Notes—Certain Covenants."

 

 

 

17



Use of Proceeds

 

We will not receive any cash proceeds from the exchange offer.

        You should refer to the section entitled "Risk Factors" for an explanation of the material risks of investing in the notes.

18



SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
OWENS-ILLINOIS GROUP, INC.

        The summary selected consolidated financial data of OI Group presented below relates to each of the five years in the period ended December 31, 2001 and the nine months ended September 30, 2002 and 2001. The financial data for each of the four years in the period ended December 31, 2001 were derived from OI Group's audited consolidated financial statements. The financial data for the year ended December 31, 1997 and for the nine months ended September 30, 2002 and 2001 were derived from unaudited consolidated financial statements. The results for the nine months are not necessarily indicative of the results to be expected for the full year. For more information, see the "Consolidated Financial Statements" included elsewhere in this prospectus.

 
  Years ended December 31,
  Nine months
ended
September 30,

 
 
  2001
  2000
  1999
  1998(a)
  1997
  2002(b)
  2001
 
 
  (dollars in millions)

 
Consolidated operating results:                                            
  Net sales   $ 5,402.5   $ 5,552.1   $ 5,522.9   $ 5,306.3   $ 4,658.5   $ 4,280.3   $ 4,056.1  
  Other revenue(c)     610.8     262.7     263.8     193.0     169.9     81.6     585.5  
   
 
 
 
 
 
 
 
      6,013.3     5,814.8     5,786.7     5,499.3     4,828.4     4,361.9     4,641.6  
Costs and expenses:                                            
    Manufacturing, shipping and delivery     4,218.4     4,359.1     4,296.4     4,075.6     3,666.4     3,310.6     3,147.9  
    Research, engineering, selling, administrative and other(d)     693.7     810.6     566.6     584.7     407.0     327.2     511.6  
   
 
 
 
 
 
 
 
    Earnings before interest expense and items below     1,101.2     645.1     923.7     839.0     755.0     724.1     982.1  
    Interest expense(e)     434.0     486.7     425.9     380.0     302.7     314.0     335.5  
   
 
 
 
 
 
 
 
    Earnings before items below     667.2     158.4     497.8     459.0     452.3     410.1     646.6  
    Provision for income taxes(f)     286.4     64.1     185.5     162.3     148.5     129.5     267.9  
    Minority share owners' interests in earnings of subsidiaries     20.1     22.0     13.2     20.2     31.4     15.6     12.8  
   
 
 
 
 
 
 
 
    Earnings before extraordinary items and cumulative effect of accounting change   $ 360.7   $ 72.3   $ 299.1   $ 276.5   $ 272.4   $ 265.0   $ 365.9  
   
 
 
 
 
 
 
 
Other data:                                            
  Cash provided by operating activities   $ 620.3   $ 541.7   $ 677.3   $ 716.9   $ 517.2   $ 553.3   $ 300.4  
  Investing activities:                                            
    Additions to property, plant and equipment     (531.9 )   (481.4 )   (650.4 )   (573.5 )   (471.3 )   (343.2 )   (344.1 )
    Other investing activities     420.7     17.3     303.1     (3,659.1 )   (79.7 )   19.2     563.3  
   
 
 
 
 
 
 
 
  Cash provided by (utilized in) investing activities     (111.2 )   (464.1 )   (347.3 )   (4,232.6 )   (551.0 )   (324.0 )   219.2  
  Cash provided by (utilized in) financing activities     (578.9 )   (153.8 )   (327.5 )   3,573.0     110.3     (203.4 )   (546.0 )
  EBIT(g)     1,074.3     612.6     895.2     809.8     731.4     706.3     960.9  
  EBITDA(h)     1,598.1     1,152.0     1,431.6     1,266.3     1,070.8     1,047.4     1,347.8  
  Adjusted EBIT(i)     856.6     955.8     972.7     947.2     768.5     706.3     679.0  
  Adjusted EBITDA(j)     1,288.1     1,400.3     1,411.6     1,327.0     1,068.6     1,047.4     996.7  
  Depreciation     403.2     412.6     403.7     358.5     283.5     321.1     299.1  
  Amortization of excess cost and intangibles (b)     120.6     126.8     132.7     98.0     55.9     20.0     87.8  
  Amortization of deferred finance fees (included in interest expense)     19.9     10.1     8.9     7.4     4.1     16.7     13.4  
  Ratio of total debt to Adjusted EBITDA     4.2 x   4.2 x   4.2 x   4.5 x   3.1 x            
  Ratio of Adjusted EBITDA to interest expense     3.0 x   2.9 x   3.3 x   3.5 x   3.5 x   3.3 x   3.0 x
  Ratio of earnings to fixed charges(k)     2.5 x   1.3 x   2.1 x   2.1 x   2.4 x   2.3 x   2.9 x
Balance sheet data (at end of period):                                            
  Working capital   $ 899   $ 881   $ 892   $ 905   $ 660   $ 921   $ 959  
  Excess of purchase cost over net assets acquired, net of accumulated amortization (goodwill)     2,995     3,101     3,294     3,315     1,295     2,636     2,919  
  Total assets     9,993     10,080     10,521     10,818     6,576     9,751     9,801  
  Total debt     5,401     5,850     5,939     5,917     3,324     5,386     5,313  
  Share owner's equity     2,322     2,107     2,327     2,522     1,273     2,005     2,325  

(a)
Results of operations and other data since April 1998 include the acquisition of the worldwide glass and plastics packaging businesses of BTR plc and the related financings.

19


(b)
OI Group changed its method of accounting for goodwill and discontinued the amortization of goodwill effective January 1, 2002. Goodwill amortization for the nine months ended September 30, 2001 amounted to $69.2 million.

(c)
Other revenue in 2001 includes: (1) a gain of $457.3 million ($284.4 million after tax) related to the sale of the Harbor Capital Advisors business; and (2) gains totaling $13.1 million ($12.0 million after tax) related to the sale of the label business and the sale of a minerals business in Australia.

    Other revenue in 1999 includes gains totaling $40.8 million ($23.6 million after tax and minority share owners' interests) related to the sales of a U.S. glass container plant and a mold manufacturing business in Colombia.

    Other revenue in 1998 includes: (1) a gain of $18.5 million ($11.4 million after tax) related to the termination of a license agreement, net of charges for related equipment write-offs and capacity adjustments, under which OI Group had produced plastic multipack carriers for beverage cans; and (2) a loss of $5.7 million ($3.5 million after tax) on the sale of a discontinued operation by an equity investee.

    Other revenue in 1997 includes a gain of $16.3 million (pretax and after tax) from the sale of the remaining 49% interest in Kimble Glass.

    Other revenue for the nine months ended September 30, 2001 includes: (1) a gain of $457.3 million ($284.4 million after tax) related to the sale of the Harbor Capital Advisors business; and (2) gains totaling $13.1 million ($12.0 million after tax) related to the sale of the label business and the sale of a minerals business in Australia.

(d)
Amount for 2001 includes: (1) charges of $82.1 million ($65.3 million after tax and minority share owners' interests) related to restructuring and impairment charges at certain international glass operations, principally Venezuela and Puerto Rico, as well as certain other domestic and international operations; (2) a charge of $31.0 million (pretax and after tax) related to the loss on the sale of facilities in India; (3) charges of $30.9 million ($19.4 million after tax) related to special employee benefit programs; (4) a charge of $8.5 million ($5.3 million after tax) for certain contingencies; and (5) a charge of $7.9 million ($4.9 million after tax) related to restructuring manufacturing capacity in the medical devices business.

    In 2000, OI Group recorded pretax charges totaling $248.3 million ($171.0 million after tax and minority share owners' interests) for the following: (1) $122.4 million ($77.3 million after tax and minority share owners' interests) related to the consolidation of manufacturing capacity; (2) a net charge of $52.4 million ($32.6 million after tax) related to early retirement incentives and special termination benefits for 350 U.S. salaried employees; (3) $40.0 million (pretax and after tax) related to the impairment of property, plant and equipment at facilities in India; and (4) $33.5 million ($21.1 million after tax and minority share owners' interests) related principally to the write-off of software and related development costs.

    Amount for 1999 includes charges totaling $20.8 million ($14.0 million after tax and minority share owners' interests) related principally to restructuring costs and write-offs of certain assets in Europe and South America.

    In 1998, OI Group recorded: (1) charges of $72.6 million ($47.4 million after tax and minority share owners' interests) related principally to a plant closing in the U.K. and restructuring costs at certain international affiliates; and (2) a net charge of $0.9 million ($0.6 million after tax) for the settlement of certain environmental litigation and the reduction of previously established reserves for guarantees of certain lease obligations of a previously divested business.

    In 1997, OI Group recorded charges of $14.1 million ($8.7 million after tax) principally for guarantees of certain lease obligations of a previously divested business.

    Amount for the nine months ended September 30, 2001 includes; (1) charges of $79.9 million ($63.9 million after tax and minority share owners' interests) related to restructuring and impairment charges at certain international glass operations, principally Venezuela and Puerto Rico, as well as certain other domestic and international operations; (2) charges of $30.9 million ($19.4 million after tax) related to special employee benefit programs; and (3) a charge of $8.5 million ($5.3 million after tax) for certain contingencies.

(e)
Amount for 2001 includes a net interest charge of $4.0 million ($2.8 million after tax) related to interest on the resolution of the transfer of pension assets and liabilities for a previous acquisition and divestiture.

    Assuming $175.0 million of the notes had been issued at a 0.549% premium at the beginning of 2001 and assuming $450.0 million of the notes had been outstanding at the beginning of 2001 and further assuming the 878% Senior Secured Notes due 2009 also had been outstanding at the beginning of 2001, interest expense would have been $42.9 million higher for the year ended December 31, 2001 and $22.3 million higher for the nine months ended September 30, 2002. Net earnings would have been $26.6 million lower for the year ended December 31, 2001 and net losses would have been $13.9 million higher for the nine months ended September 30, 2002.

(f)
Amount for 2001 includes a $6.0 million charge to adjust tax liabilities in Italy as a result of recent legislation.

    Amount for 2000 includes a fourth quarter benefit of $9.3 million to adjust net income tax liabilities in Italy as a result of recent legislation.

    In 1998, OI Group recorded a credit of $15.1 million to adjust net deferred income tax liabilities as a result of a reduction in Italy's statutory income tax rate.

    Amount for the nine months ended September 30, 2001 includes a $6.0 million charge to adjust tax liabilities in Italy as a result of recent legislation.

20



(g)
EBIT consists of consolidated earnings before interest income, interest expense, provision for income taxes, minority share owners' interests in earnings of subsidiaries, extraordinary charges, and cumulative effect of accounting change.

(h)
EBITDA consists of EBIT before depreciation and amortization of excess cost and intangibles. EBITDA is presented because OI Group believes it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in OI Group's industry. However, other companies in OI Group's industry may calculate EBITDA differently than OI Group does. EBITDA is not a measurement of financial performance under generally accepted accounting principles and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net income as indicators of OI Group's operating performance or any other measures of performance derived in accordance with generally accepted accounting principles. See "Consolidated Financial Statements—Consolidated Cash Flows."

(i)
OI Group evaluates performance and allocates resources based on EBIT excluding unusual items and goodwill amortization ("Adjusted EBIT"). Unusual items consist of the gains, losses and charges discussed in Notes (c) and (d) above. The reconciliation from EBIT to Adjusted EBIT is as follows:

 
  Years ended December 31,
  Nine months
ended
September 30,

 
 
  2001
  2000
  1999
  1998
  1997
  2002
  2001
 
 
  (in millions)

 
EBIT   $ 1,074.3   $ 612.6   $ 895.2   $ 809.8   $ 731.4   $ 706.3   $ 960.9  
Add (deduct):                                            
  Gain on sale of Harbor Capital Advisors business     (457.3 )                                 (457.3 )
  Gains on sales of label business and minerals business     (13.1 )                                 (13.1 )
  Gains on sale of glass plant and mold business                 (40.8 )                        
  Net gain on termination of license agreement                       (18.5 )                  
  Sale of discontinued operations by equity investee                       5.7                    
  Gain on sale of 49% interest in Kimble Glass                             (16.3 )            
  Restructuring and impairment, principally international glass     82.1                                   79.9  
  Loss on the sale of facilities in India     31.0                                      
  Special employee benefit programs     30.9                                   30.9  
  Charges related to certain contingencies     8.5                                   8.5  
  Restructuring manufacturing capacity in the medical devices business     7.9                                      
  Consolidation of manufacturing capacity           122.4                                
  Early retirement incentives/special termination benefits           52.4                                
  Impairment of property, plant and equipment in India           40.0                                
  Write-off of software and related development costs           33.5                                
  Restructuring and asset write-offs in Europe/South America                 20.8                          
  U.K. plant closing and international restructuring                       72.6                    
  Settle environmental litigation/reduce reserve for guarantees                       0.9                    
  Charge for guarantees of lease obligations                             14.1              
  Goodwill amortization     92.3     94.9     97.5     76.7     39.3         69.2  
   
 
 
 
 
 
 
 
Adjusted EBIT   $ 856.6   $ 955.8   $ 972.7   $ 947.2   $ 768.5   $ 706.3   $ 679.0  
   
 
 
 
 
 
 
 

    (j)
    Adjusted EBITDA represents EBITDA excluding the unusual gains, losses and charges discussed in Notes (c) and (d) and summarized in Note (i) above. Adjusted EBITDA is presented because OI Group believes it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in OI Group's industry. However, other companies in OI Group's industry may present Adjusted EBITDA differently than OI Group does. Adjusted EBITDA is not a measurement of financial performance under generally accepted accounting principles and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net income as indicators of OI Group's operating performance or any other measures of performance derived in accordance with generally accepted accounting principles. See "Consolidated Financial Statements—Consolidated Cash Flows."

    (k)
    For purposes of these computations, earnings consist of earnings before income taxes, minority share owners' interests in earnings of subsidiaries, extraordinary items and cumulative effect of accounting change plus fixed charges. Fixed charges consist primarily of interest on indebtedness, including amortization of deferred finance fees, plus that portion of lease rental expense representative of the interest factor. Pretax earnings and fixed charges also include the proportional share of 50%-owned investees.

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RISK FACTORS

        You should carefully consider the following risks in addition to the other information set forth in this prospectus before making a decision to exchange your private notes for exchange notes in the exchange offer. The risk factors set forth below are generally applicable to the private notes as well as the exchange notes.

Risks Relating to the Notes

    Substantial Leverage—Our substantial indebtedness and the substantial indebtedness of OI Group could adversely affect our financial health and prevent us from fulfilling our obligations under the notes.

        We and OI Group have now and, after the exchange offer, will continue to have a significant amount of debt. As of September 30, 2002, on a pro forma basis after giving effect to the offering of the notes and the application of the estimated net proceeds therefrom, we and our consolidated subsidiaries would have had approximately $2.8 billion of total consolidated debt outstanding and OI Group would have had approximately $5.4 billion of total consolidated debt outstanding, which includes approximately $1.9 billion of secured indebtedness under the secured credit agreement and approximately $1.7 billion of outstanding public debt securities of OI Group's parent, OI Inc. OI Group's ratio of earnings to fixed charges was 2.5x and 2.3x for the year ended December 31, 2001 and nine months ended September 30, 2002, respectively.

        This substantial indebtedness could have important consequences to you. For example, it could:

    make it difficult for us to satisfy our obligations with respect to the notes;
    increase our vulnerability to general adverse economic and industry conditions;
    increase our vulnerability to interest rate increases for the portion of the unhedged debt under the secured credit agreement;
    require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, development efforts and other general corporate purposes;
    limit our flexibility in planning for, or reacting to, changes in our business and the rigid packaging market;
    place us at a competitive disadvantage relative to our competitors that have less debt; and
    limit, along with the financial and other restrictive covenants in the documents governing our indebtedness, among other things, our ability to borrow additional funds.

    Ability to Service Debt—To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

        Our ability to make payments on and to refinance our indebtedness, including the notes, and to fund working capital, capital expenditures, acquisitions, development efforts and other general corporate purposes depends on our ability to generate cash in the future. Similarly, the ability of the guarantors of the notes to make payments on and refinance their indebtedness will depend on their ability to generate cash in the future. Neither we nor the guarantors can assure you that any of us will generate sufficient cash flow from operations, or that future borrowings will be available under the secured credit agreement, in an amount sufficient to enable any of us to pay our indebtedness, including the notes, or to fund other liquidity needs. If short term interest rates increase, our debt service cost will increase because some of our debt is subject to short term variable interest rates. OI Group's annual interest expense for 2001, on a pro forma basis assuming $175.0 million of the notes had been issued at a 0.549% premium with interest at 83/4% at the beginning of 2001 and assuming $450.0 million of the notes had been outstanding at the beginning of 2001 and further assuming the 87/8% Senior Secured Notes due 2009 also had been outstanding at the beginning of 2001, would have

22


been $476.9 million. Based on the amount of variable rate debt outstanding during 2001, after giving pro forma effect to the issuance of the notes and the issuance of the 87/8% Senior Secured Notes due 2009, a 1% increase in variable interest rates for 2001 would have increased OI Group's annual pro forma interest expense by $23.1 million to $500.0 million. The notes are effectively subordinated to obligations under the secured credit agreement, under which there were outstanding, on a pro forma basis after giving effect to the offerings of notes and the application of the estimated net proceeds therefrom, borrowings of $1.9 billion at September 30, 2002, certain obligations owing to lenders or their affiliates as permitted under the secured credit agreement aggregating $106.1 million at September 30, 2002 and obligations related to OI Inc.'s $1.7 billion of outstanding public debt securities, to the extent these obligations are secured by collateral that does not secure the notes.

        Since you will not have a claim as a creditor against the subsidiaries that are not guarantors of the notes, the indebtedness and other liabilities of those subsidiaries will be effectively senior to your claims. As of September 30, 2002, the total indebtedness on a consolidated basis (excluding any indebtedness under the secured credit agreement) of the non-guarantor subsidiaries was approximately $1.1 billion, and their total liabilities on a consolidated basis were approximately $2.2 billion.

        We and the guarantors may need to refinance all or a portion of our indebtedness, including the notes, on or before maturity. If either we or the guarantors are unable to generate sufficient cash flow and are unable to refinance or extend outstanding borrowings on commercially reasonable terms or at all, we and the guarantors may have to:

    reduce or delay capital expenditures planned for replacements, improvements and expansions;
    sell assets;
    restructure debt; and/or
    obtain additional debt or equity financing.

        We cannot assure you that we or the guarantors could effect or implement any of these alternatives on satisfactory terms, if at all.

    Cash Used to Satisfy Other Obligations—A portion of our cash flow will be used to make payments to OI Inc. to satisfy certain debt, preferred stock and litigation-related obligations, including settlement of asbestos-related claims.

        Although our indirect parent, OI Inc., does not conduct any operations, it has substantial obligations to make payments on its $1.7 billion of outstanding public debt securities, to pay dividends on its outstanding preferred stock, to satisfy claims of persons for exposure to asbestos-containing products and related expenses and to pay other ordinary course obligations. OI Inc. relies primarily on distributions from its subsidiaries, including us, to meet these obligations. OI Inc. makes semi-annual interest payments of $64.8 million on its $1.7 billion of outstanding public debt securities. In addition, OI Inc. pays quarterly dividends of $5.4 million on 9,050,000 shares of its $2.375 convertible preferred stock. OI Inc.'s asbestos-related payments were $245.9 million and $221.1 million for the years ended December 31, 2001 and 2002, respectively. In the first quarter of 2002, OI Inc. established an additional liability of $475 million (in addition to previously recorded charges of $1.775 billion) to cover its estimated indemnity payments and legal fees arising from outstanding asbestos personal injury lawsuits and claims and asbestos personal injury lawsuits and claims filed in the next several years.

        As a result of the magnitude of OI Inc.'s obligations for asbestos-related lawsuits and its dependence on the cash flows of its subsidiaries, we expect that a substantial portion of our cash flow will be used to make payments to OI Inc. to allow it to satisfy these obligations. These payments will reduce the cash flow we could use to make payments on the notes. For additional information regarding OI Inc.'s asbestos-related lawsuits, claims and payments, see the footnote entitled "Contingencies" to Consolidated Financial Statements of OI Group.

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    Debt Restrictions—OI Group and its subsidiaries, including us, may not be able to finance future needs or adapt their business plans to changes because of restrictions placed on them by the secured credit agreement, the indenture and the instruments governing other indebtedness.

        The secured credit agreement, the indenture governing the 87/8% Senior Secured Notes due 2009, the indenture governing the notes and certain of the agreements governing other indebtedness contain affirmative and negative covenants that limit the ability of OI Group and its subsidiaries, including us, to take certain actions. For example, the indenture restricts, among other things, the ability of OI Group and its restricted subsidiaries to borrow money, pay dividends on, or redeem or repurchase, stock, make investments, create liens, enter into certain transactions with affiliates and sell certain assets or merge with or into other companies. These restrictions could adversely affect OI Group's and our ability to operate our businesses and may limit OI Group's and our ability to take advantage of potential business opportunities as they arise.

        Failure to comply with these or other covenants and restrictions contained in the secured credit agreement, the indenture governing the 87/8% Senior Secured Notes due 2009, the indenture governing the notes, or agreements governing other indebtedness could result in a default under those agreements, and the debt under those agreements, together with accrued interest, could then be declared immediately due and payable. If a default occurs under the secured credit agreement, the lenders could cause all of the outstanding debt obligations under the secured credit agreement to become due and payable, which would result in a default under the notes and could lead to an acceleration of obligations related to the notes. A default under the secured credit agreement, the indenture governing the 87/8% Senior Secured Notes due 2009, the indenture governing the notes, or agreements governing other indebtedness could also lead to an acceleration of debt under other debt instruments that contain cross acceleration or cross-default provisions. Upon a default or cross-default, the collateral agent, at the direction of the lenders under the secured credit agreement could proceed against the collateral. There may be insufficient collateral to fully repay the indebtedness under the secured credit agreement, the 87/8% Senior Secured Notes due 2009, the notes, and other senior indebtedness from time to time secured by the collateral at the time of any default.

    Additional Borrowings Available—Despite current indebtedness levels, OI Group and its subsidiaries may still be able to incur substantially more debt. This could further exacerbate certain risks described above.

        OI Group and its subsidiaries may be able to incur substantial additional debt in the future, including debt secured by the collateral that secures the notes and additional debt under the secured credit agreement. In addition, if OI Group designates some of its restricted subsidiaries under the indenture as unrestricted subsidiaries, those unrestricted subsidiaries would be permitted to borrow beyond the limitations specified in the indenture and engage in other activities in which restricted subsidiaries may not engage. After giving effect to the issuance of the notes and the application of the estimated net proceeds therefrom, at September 30, 2002, the revolving loan facility under the secured credit agreement would have had unused borrowing capacity of $479.1 million. Adding new debt to current debt levels could make it difficult for us to satisfy our obligations with respect to the notes.

    Notes Effectively Subordinated to Debt of Non-Guarantor Subsidiaries—The notes are effectively subordinated to all indebtedness of our subsidiaries that are not guarantors of the notes.

        You will not have any claim as a creditor against the subsidiaries that are not guarantors of the notes, and the indebtedness and other liabilities, including trade payables, whether secured or unsecured, of those subsidiaries will be effectively senior to your claims. As of and for the nine months ended September 30, 2002, the non-guarantor subsidiaries represented in the aggregate approximately 46% of OI Group's consolidated net sales, 45% of OI Group's consolidated Adjusted EBITDA and 44% of OI Group's consolidated total assets. As of September 30, 2002, the liabilities of the non-guarantor subsidiaries on a consolidated basis were approximately $2.2 billion. The non-guarantor subsidiaries include the foreign borrowers and foreign guarantors under the offshore subfacilities under

24


the secured credit agreement. The notes are effectively subordinated to claims against these foreign subsidiaries under the secured credit agreement. In the event of a bankruptcy, liquidation, reorganization or other winding up of any of the non-guarantor subsidiaries, holders of their indebtedness and their trade creditors will generally be entitled to payment of their claims from the assets of those subsidiaries before any assets are made available for distribution to us.

        In addition, under the indenture, non-guarantor subsidiaries are permitted to incur substantial amounts of additional debt and OI Group and its restricted subsidiaries are permitted to make an unlimited amount of investments in non-guarantor subsidiaries. Therefore, the notes would be effectively subordinated to this additional indebtedness that may be incurred by the non-guarantor subsidiaries. In addition, if OI Group or its restricted subsidiaries invest additional amounts in non-guarantor subsidiaries, in the event of a bankruptcy, liquidation, reorganization or other winding up of any of the non-guarantor subsidiaries, assets that otherwise could be used to satisfy our obligations under the notes will first be used to satisfy the obligations of the non-guarantor subsidiaries.

    Notes Effectively Subordinated to Certain Secured Credit Agreement Obligations and Obligations of OI Inc.—The notes are effectively subordinated to the obligations under the secured credit agreement, certain obligations owing to lenders or their affiliates as permitted under the secured credit agreement and obligations related to OI Inc.'s $1.7 billion of outstanding public debt securities to the extent these obligations are secured by collateral that does not secure the notes.

        In addition to the collateral securing the notes and guarantees, the obligations of the domestic borrowers and the domestic guarantors under the secured credit agreement are secured by certain additional collateral described in detail under "Description of Notes—Collateral."

        As a result, to the extent collateral does not secure the notes, the notes are effectively subordinated to the obligations under the secured credit agreement, obligations owing to lenders or their affiliates as lending facilities as permitted by the terms of the secured credit agreement and obligations under interest rate and currency agreements with lenders or their affiliates as permitted by the terms of the secured credit agreement. In the event of a bankruptcy, liquidation, reorganization or other winding up of us or OI Group, those assets that do not secure the notes will not be available to pay our obligations on the notes unless and until payment in full of the obligations under the secured credit agreement. Likewise, if the lenders under the secured credit agreement accelerate the obligations under the secured credit agreement, then those lenders would be entitled to exercise the remedies available to a secured lender under applicable law, and those lenders would have a claim on those assets that do not secure the notes before any holder of the notes. You would participate with respect to those assets ratably with all holders of other unsecured indebtedness that is deemed to be of the same class as the notes, and potentially with other general creditors.

        Similarly, the guarantees of the notes are effectively subordinated to the extent of the collateral that does not secure those guarantees.

        In addition, OI Inc.'s $1.7 billion of outstanding public debt securities are secured by a second priority lien on the capital stock owned by, and intercompany debt owed to, OI Group and OI Packaging. The collateral securing OI Inc.'s $1.7 billion of outstanding public debt securities includes the capital stock of, and intercompany debt owing to OI Group by, OI General FTS Inc., which have not been pledged to secure the notes.

        In the event of a foreclosure on the collateral that secures the obligations under the secured credit agreement, obligations owing to lenders or their affiliates as lending facilities as permitted by the terms of the secured credit agreement, obligations under interest rate and currency agreements with lenders or their affiliates as permitted by the terms of the secured credit agreement, OI Inc.'s obligations under the $1.7 billion of outstanding public debt securities and the notes, there could be proceeds from the disposition of that collateral that would not have to be shared with holders of the notes. As a result, lenders under the secured credit agreement and holders of OI Inc.'s $1.7 billion of outstanding public

25


debt securities may recover a greater percentage of the amounts owed to them than holders of the notes.

        Dilution of Collateral—The collateral securing the notes may be diluted under certain circumstances.

        The collateral securing the notes also secures $1.0 billion of 87/8% Senior Secured Notes due 2009 and the $2.45 billion revolving loan facility under the secured credit agreement. The commitment amounts under the secured credit agreement could be increased in the future. In addition, the collateral securing the notes secures obligations owing to lenders or their affiliates as lending facilities as permitted by the terms of the secured credit agreement and obligations under interest rate and currency agreements with lenders or their affiliates as permitted by the terms of the secured credit agreement. This collateral may secure additional senior indebtedness that OI Group or certain of its subsidiaries incurs in the future, subject to restrictions on their ability to incur debt and liens under the secured credit agreement and the indenture. Your rights to the collateral would be diluted by any increase in the indebtedness secured by this collateral.

    Disposition and Release of Collateral—The lenders under the secured credit agreement have the right to control the disposition and release of collateral in their sole discretion.

        Upon the earlier of:

    payment in full of all obligations under the secured credit agreement and the cancellation or termination of the secured credit agreement and related letters of credit and the written election of the applicable pledgor(s) or grantor(s);
    the first date on which the pledged collateral no longer secures any obligations under the secured credit agreement and upon the written election of the applicable pledgor(s) or grantor(s); and
    the achievement of "investment grade" debt ratings for OI Inc.'s and OI Group's long term unsecured debt (in the case of Moody's Investors Service, Inc., a rating of Baa3 or higher, and, in the case of Standard & Poor's Ratings Services, a rating of BBB- or higher);

the security interests securing the notes will terminate and the collateral will be released. In addition, lenders under the secured credit agreement have the ability to direct the collateral agent to release all or any portion of the collateral upon the approval of the requisite percentage of lenders under the secured credit agreement. In addition, in the event of an asset sale not prohibited by the secured credit agreement or the collateral documents, the assets subject to such sale will be released as collateral under the secured credit agreement. None of these actions by the lenders, or the applicable pledgor(s) or grantor(s) under the secured credit agreement or related collateral documents, require action by, or the consent of, any holder of the notes or the trustee under the indenture or constitute a default under the indenture. The release of collateral would eliminate the security for the notes and the collateral securing the guarantees thereof, the 87/8% Senior Secured Notes due 2009, the secured credit agreement and any other indebtedness secured thereby.

        Because the lenders under the secured credit agreement control the disposition of the collateral securing the secured credit agreement and the notes, if there were an event of default under the notes, the lenders could decide not to proceed against the collateral, regardless of whether or not there is a default under the secured credit agreement. In such event, the only remedy available to the holders of the notes would be to sue for payment on the notes and the guarantees. By virtue of the direction of the administration of the pledges and security interests and the release of collateral, actions may be taken under the collateral documents that may be adverse to you.

    Release of Guarantees—The lenders under the secured credit agreement have the discretion to release the guarantees under the secured credit agreement in a variety of circumstances.

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        Any guaranty of the notes may be released without action by, or consent of, any holder of the notes or the trustee under the indenture, at the discretion of the then obligor on the notes, if the guarantor is no longer a guarantor of obligations under the secured credit agreement, of obligations owing to lenders or their affiliates as lending facilities as permitted by the terms of the secured credit agreement and of obligations under interest rate and currency agreements with lenders or their affiliates as permitted by the terms of the secured credit agreement. The lenders under the secured credit agreement have the discretion to release the guarantees under the secured credit agreement in a variety of circumstances. In the case of the release of collateral consisting of the stock of a guarantor of the notes, that release would cause the guarantor's guaranty to be released if the release occurs in the context of an asset sale of such guarantor that is not prohibited by the secured credit agreement or the collateral documents. Upon release of a guarantor of the notes under its guarantee, the collateral documents will provide that the security interests in the assets of that guarantor securing the notes and guarantees will be released simultaneously. You will not have a claim as a creditor against any subsidiary that is no longer a guarantor of the notes, and the indebtedness and other liabilities, including trade payables, whether secured or unsecured, of those subsidiaries will effectively be senior to your claims.

    Further Collateral Pledges Subject to Avoidance—Any future pledge of collateral might be avoidable by a trustee in bankruptcy.

        Any future pledge of collateral in favor of the collateral agent for the benefit of the indenture trustee might be avoidable by the pledgor (as debtor in possession) or by its trustee in bankruptcy if certain events or circumstances exist or occur, including, among others, if the pledgor is insolvent at the time of the pledge, the pledge permits the holders of the notes to receive a greater recovery than if the pledge had not been given and a bankruptcy proceeding in respect of the pledgor is commenced within 90 days following the pledge, or, in certain circumstances, a longer period.

    Covenant Relief for Investment Grade Rating—If the notes receive an investment grade rating, we will no longer be subject to most of the covenants in the indenture.

        If at any time the notes receive an "investment grade" rating from Standard & Poor's Ratings Services and Moody's Investors Service, Inc., subject to certain additional conditions, OI Group and its restricted subsidiaries will no longer be subject to most of the covenants set forth in the indenture. In the event of such release, the covenants will not be restored, even if the notes were later rated below investment grade by either or both of these rating agencies. See "Description of Notes—Certain Covenants—Fall-Away Event."

        On and after July 2, 2003, we will be permitted to assign our obligations under the notes and the indenture to OI Inc., and we and each guarantor will thereafter be released from our obligations under the notes, the guarantees thereof and the indenture, provided that (1) OI Inc. assumes all of the obligations under the notes and the indenture and (2) the obligations of each domestic borrower under the secured credit agreement have been or will be concurrently assumed by OI Inc. in accordance with the terms of the secured credit agreement. As a result, holders of the notes could look only to OI Inc. to satisfy the obligations on the notes. See "Description of Notes—Certain Covenants—Merger, Consolidation or Sale of Assets."

    Fraudulent Transfer—Federal and state laws permit a court to void the notes or the guarantees under certain circumstances.

        The issuance of the notes and the guarantees may be subject to review under federal or state fraudulent transfer laws. While the relevant laws may vary from state to state, under such laws, the payment of consideration or the issuance of a guarantee will be a fraudulent conveyance if (1) we paid the consideration, or any guarantor issued guarantees, with the intent of hindering, delaying or defrauding creditors, or (2) we or any of the guarantors received less than reasonably equivalent value

27


or fair consideration in return for paying the consideration or issuing their respective guarantees, and, in the case of (2) above only, one of the following is also true:

    we or any of the guarantors were insolvent, or became insolvent, when we or they paid the consideration;
    paying the consideration or issuing the guarantees left us or the applicable guarantor with an unreasonably small amount of capital; or
    we or the applicable guarantor, as the case may be, intended to, or believed that we or it would, be unable to pay debts as they matured.

        If the payment of the consideration or the issuance of any guarantee were a fraudulent conveyance, a court could, among other things, void our obligations regarding the payment of the consideration or void any of the guarantors' obligations under their respective guarantees, as the case may be, and require the repayment of any amounts paid thereunder.

        Generally, an entity will be considered insolvent if:

    the sum of its debts is greater than the fair value of its property;
    the present fair value of its assets is less than the amount that it will be required to pay on its existing debts as they become due; or
    it cannot pay its debts as they become due.

        We believe that immediately after the issuance of the notes and the guarantees, we and each of the guarantors will be solvent, will have sufficient capital to carry on our respective businesses and will be able to pay our respective debts as they mature. However, we cannot be sure as to what standard a court would apply in making these determinations or that a court would reach the same conclusions with regard to these issues.

    Change of Control—The secured credit agreement provides that certain change of control events constitute an event of default. In the event of a change of control, we may not be able to satisfy all of our obligations under the secured credit agreement, the notes or other indebtedness.

        If we, OI Inc. or OI Group experiences specific kinds of changes of control, we will be required to offer to repurchase all outstanding notes and all outstanding 87/8% Senior Secured Notes due 2009. However, the secured credit agreement provides that certain change of control events constitute an event of default under the secured credit agreement. An event of default would entitle the lenders thereunder to, among other things, cause all outstanding debt obligations under the secured credit agreement to become due and payable and to proceed against their collateral, which includes collateral securing the notes and the guarantees. We cannot assure you that we would have sufficient assets or be able to obtain sufficient third party financing on favorable terms to satisfy all of our obligations under the secured credit agreement, the notes, the 87/8% Senior Secured Notes due 2009 or other indebtedness.

        Any future credit agreements or other agreements relating to indebtedness to which we become a party may contain restrictions on our ability to offer to repurchase the notes in connection with a change of control. In the event a change of control occurs at a time when we are prohibited from offering to purchase the notes, we could seek consent to offer to purchase the notes or attempt to refinance the borrowings that contain such a prohibition. If we do not obtain the consent or refinance the borrowings, we would remain prohibited from offering to purchase the notes. In such case, our failure to offer to purchase the notes would constitute a default under the indenture, which, in turn, could result in amounts outstanding under any future credit agreement or other agreements relating to indebtedness being declared due and payable. Any such declaration could have adverse consequences to us and the holders of the notes.

28


        The provisions relating to a change of control included in the indenture may increase the difficulty for a potential acquiror to obtain control of us. In addition, some important corporate events, such as leveraged recapitalizations, that would increase the level of our indebtedness, would not constitute a "change of control" under the indenture.

    No Prior Market for the Exchange Notes—You cannot be sure that an active trading market will develop for the exchange notes.

        The exchange notes are a new issue of securities for which there is currently no trading market. We do not intend to apply for listing of the exchange notes on any U.S. Exchange. We have been informed by the initial purchasers of the private notes that they intend to make a market in the exchange notes. However, the initial purchasers may cease their market-making at any time. In addition, the liquidity of the trading market in the exchange notes, and the market price quoted for these notes, may be adversely affected by changes in the overall market for high yield securities and by changes in our financial performance or in the prospects for companies in our industry generally. As a result, you cannot be sure that an active trading market will develop for the exchange notes.

Risks Relating to the Business of OI Group

    Funded Status of Pension Plans—Recognition of a minimum pension liability may cause a significant reduction in net worth.

        Due to broad declines in the stock market, the fair values of the assets in OI Group's U.S. pension plans have declined during the last several years. Statement of Financial Accounting Standards No. 87, "Accounting for Pensions," requires balance sheet recognition of a minimum liability if the fair value of plan assets is less than the accumulated benefit obligation ("ABO") at the end of the year. The fair values of OI Group's U.S. pension plans exceeded the ABO at December 31, 2002; therefore, no recognition of a minimum liability was required. However, if the fair values of the U.S. plans' assets at December 31, 2003 decrease or if the discount rate used to calculate the ABO decreases, OI Group may be required to write off most of its prepaid pension asset and record a liability equal to the excess of ABO over the fair value of the assets at December 31, 2003. The resulting noncash charge would not reduce reported earnings. It would be recorded directly as a decrease in the Accumulated Other Comprehensive Income component of share owner's equity. While OI Group cannot estimate the minimum liability with any certainty at this time, it believes that the required adjustment would significantly reduce OI Inc.'s net worth. For OI Group's major pension plan in the United Kingdom, the ABO exceeded the plan assets at December 31, 2002. The required adjustment, after tax effect, reduced net worth at December 31, 2002 by $91.5 million. The lenders under the secured credit agreement have recently amended that agreement to provide that any changes in Accumulated Other Comprehensive Income related to minimum pension liabilities will be excluded for purposes of calculating OI Inc.'s net worth under the "Maintenance of Net Worth" covenant in the secured credit agreement. Even if the fair values of the U.S. plans' assets are less than ABO at December 31, 2003, OI Group believes it will not be required to make cash contributions to the U.S. plans for at least several years.

    Goodwill—A significant write down of goodwill would have a material adverse effect on our reported results of operations and net worth.

        On January 1, 2002, OI Group adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("FAS No. 142"). OI Group no longer amortizes goodwill, but will review its goodwill balance for impairment at least once a year using the business valuation methods required by FAS No. 142. These methods include the use of a weighted average cost of capital to calculate the present value of the expected future cash flows of OI Group's reporting units. Future

29


changes in the cost of capital, expected cash flows, or other factors may cause OI Group's goodwill to be impaired, resulting in a noncash charge against results of operations to write down goodwill for the amount of impairment. If a significant write down is required, the charge would have a material adverse effect on OI Group's reported results of operations and net worth.

    International Operations—OI Group is subject to risks associated with operating in foreign countries.

        OI Group operates manufacturing and other facilities throughout the world. Net sales from international operations totaled approximately $2.3 billion and $1.9 billion, representing approximately 43% and 45% of OI Group's net sales for the year ended December 31, 2001 and for the nine months ended September 30, 2002. As a result of its international operations, OI Group is subject to risks associated with operating in foreign countries, including:

    political, social and economic instability;

    war, civil disturbance or acts of terrorism;

    taking of property by nationalization or expropriation without fair compensation;

    changes in government policies and regulations;

    devaluations and fluctuations in currency exchange rates;

    imposition of limitations on conversions of foreign currencies into dollars or remittance of dividends and other payments by foreign subsidiaries;

    imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries;

    hyperinflation in certain foreign countries; and

    impositions or increase of investment and other restrictions or requirements by foreign governments.

        The unusually severe economic, market and/or currency exchange conditions in South America, Europe and the Asia Pacific region adversely affected operating results in 1999, 2000 and 2001. In addition, OI Group has continued to be negatively affected in 2002 by weakness in certain South American currencies, which reduced U.S. dollar sales and earnings of foreign affiliates in that region. The risks associated with operating in foreign countries may have a material adverse effect on operations. A national strike in Venezuela that began in early December caused energy supply curtailments that forced OI Group's Venezuelan affiliate to idle the two plants in that country. In early February, the affiliate began to prepare for resumption of production at one of the facilities based on its expectation that both suppliers and customers were beginning to resume limited operations.

    Competition—We face intense competition from other glass container producers, as well as from makers of alternative forms of packaging. Competitive pressures could adversely affect our financial health.

        We are subject to significant competition from other glass container producers, as well as from makers of alternative forms of packaging, such as aluminum cans and plastic containers. We compete with each of our rigid packaging competitors on the basis of price, quality, service and the marketing attributes of the container. Advantages or disadvantages in any of these competitive factors may be sufficient to cause the customer to consider changing suppliers and/or to use an alternative form of packaging. For example, during 2001, our sales of glass containers for juice and iced tea products in the U.S. declined by approximately $27.0 million due to conversions from glass to plastic containers. Our principal competitors among glass container producers in the U.S. are Saint-Gobain Containers Inc., a wholly-owned subsidiary of Compagnie de Saint-Gobain, and Anchor Glass Container Corporation.

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        In supplying glass containers outside of the U.S., we compete directly with Compagnie de Saint-Gobain in Italy and Brazil, Rexam plc and Ardagh plc in the U.K., Vetropack in the Czech Republic and Amcor Limited in Australia. In other locations in Europe, we compete indirectly with a variety of glass container firms including Compagnie de Saint-Gobain, BSN Glasspack, Vetropack and Rexam plc.

        In addition to competing with other large, well-established manufacturers in the glass container segment, we compete with manufacturers of other forms of rigid packaging, principally aluminum cans and plastic containers, on the basis of quality, price and service. The principal competitors producing metal containers are Crown Cork & Seal Company, Inc., Rexam plc, Ball Corporation and Silgan Holdings Inc. The principal competitors producing plastic containers are Consolidated Container Holdings, LLC, Graham Packaging Company, Plastipak Packaging, Inc. and Silgan Holdings Inc. We also compete with manufacturers of non-rigid packaging alternatives, including flexible pouches and aseptic cartons, in serving the packaging needs of juice customers.

        Pressures from competitors and producers of alternative forms of packaging have resulted in excess capacity in certain countries in the past and have led to significant pricing pressures in the rigid packaging market.

    High Energy Costs—Higher energy costs worldwide and interrupted power supplies may have a material adverse effect on operations.

        Electrical power and natural gas are vital to OI Group's operations and it relies on a continuous power supply to conduct its business. In 2001, higher energy costs worldwide impacted OI Group's operations and earnings at a level that it did not anticipate, resulting in an approximate $50 million increase in energy costs over 2000. In 2002, energy costs were somewhat lower than 2001; however, if energy costs substantially increase in the future, OI Group could experience a significant increase in operating costs, which may have a material adverse effect on future operating income.

        In addition, certain locations in which OI Group has operations have experienced power shortages that resulted in periodic "rolling" blackouts to maintain the stability of the power grid. Certain of OI Group's facilities are susceptible to power interruptions as long as any such energy crisis exists. Frequent power interruptions may have a material adverse effect on operations.

    Integration Risks—OI Group may not be able to effectively integrate businesses it acquires.

        Consistent with past practice, OI Group is considering strategic transactions, including acquisitions, that will complement, strengthen and enhance growth in its worldwide glass and plastics packaging operations. OI Group is evaluating a number of these transactions on a preliminary basis but it is not certain that any of these transactions will advance beyond the preliminary stages or be completed. Any recent or future acquisitions are subject to various risks and uncertainties, including:

    the inability to assimilate effectively the operations, products, technologies and personnel of the acquired companies (some of which are located in diverse geographic regions);

    the potential disruption of existing business and diversion of management's attention from day-to-day operations;

    the inability to maintain uniform standards, controls, procedures and policies;

    the need or obligation to divest portions of the acquired companies; and

    the potential impairment of relationships with customers.

        In addition, we cannot assure you that the integration and consolidation of newly acquired businesses will achieve anticipated cost savings and operating synergies.

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    Customer Consolidation—The continuing consolidation of OI Group's customer base may intensify pricing pressures and have a material adverse effect on operations.

        Over the last ten years, many of OI Group's largest customers have acquired companies with similar or complementary product lines. This consolidation has increased the concentration of OI Group's business with its largest customers. In many cases, such consolidation has been accompanied by pressure from customers for lower prices, reflecting the increase in the total volume of product purchased or the elimination of a price differential between the acquiring customer and the company acquired. Increased pricing pressures from OI Group's customers may have a material adverse effect on operations.

    Seasonality and Raw Materials—Profitability could be affected by varied seasonal demands and the availability of raw materials.

        Due principally to the seasonal nature of the brewing, iced tea and other beverage industries, in which demand is stronger during the summer months, sales of OI Group's products have varied and are expected to vary by quarter. Shipments in the U.S. and Europe are typically greater in the second and third quarters of the year, while shipments in South America and Asia Pacific are typically greater in the first and fourth quarters of the year. Unseasonably cool weather during peak demand periods can reduce demand for certain beverages packaged in OI Group's containers.

        The raw materials that OI Group uses have historically been available in adequate supply from multiple sources. For certain raw materials, however, there may be temporary shortages due to weather or other factors, including disruptions in supply caused by raw material transportation or production delays. These shortages, as well as material increases in the cost of any of the principal raw materials that OI Group uses, may have a material adverse effect on operations.

    Environmental Risks—OI Group is subject to various environmental legal requirements and may be subject to new legal requirements in the future. These requirements may have a material adverse effect on operations.

        OI Group's operations and properties, both in the U.S. and abroad, are subject to extensive laws, ordinances, regulations and other legal requirements relating to environmental protection, including legal requirements governing investigation and clean-up of contaminated properties as well as water discharges, air emissions, waste management and workplace health and safety. Such legal requirements frequently change and are different in every jurisdiction. OI Group's operations and properties, both in the U.S. and abroad, must comply with these legal requirements. These requirements may have a material adverse effect on operations.

        OI Group has incurred, and expects to incur, costs for its operations to comply with environmental legal requirements, and these costs could increase in the future. Many environmental legal requirements provide for substantial fines, orders (including orders to cease operations), and criminal sanctions for violations. These legal requirements may apply to conditions at properties that OI Group presently or formerly owned or operated, as well as at other properties for which OI Group may be responsible, including those at which wastes attributable to OI Group were disposed. A significant order or judgment against OI Group, the loss of a significant permit or license or the imposition of a significant fine may have a material adverse effect on operations.

        A number of governmental authorities both in the U.S. and abroad have enacted, or are considering, legal requirements that would mandate certain rates of recycling, the use of recycled materials, and/or limitations on certain kinds of packaging materials such as plastics. In addition, some companies with packaging needs have responded to such developments, and/or to perceived environmental concerns of consumers, by using containers made in whole or in part of recycled

32



materials. Such developments may reduce the demand for some of OI Group's products, and/or increase OI Group's costs, which may have a material adverse effect on operations.

    Labor Relations—OI Group is party to collective bargaining agreements with labor unions. Organized strikes or work stoppages by unionized employees may have a material adverse effect on operations.

        OI Group is party to a number of collective bargaining agreements with labor unions, several of which will expire in 2005, and at September 30, 2002, covered approximately 87% of OI Group's union-affiliated employees in the U.S. Upon the expiration of any collective bargaining agreement, OI Group's inability to negotiate acceptable contracts with labor unions could result in strikes by the affected workers and increased operating costs as a result of higher wages or benefits paid to union members. If the unionized workers were to engage in a strike or other work stoppage, OI Group could experience a significant disruption of operations and/or higher ongoing labor costs, which may have a material adverse effect on operations.

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FORWARD LOOKING STATEMENTS

        This prospectus includes forward looking statements. We have based these forward looking statements on our current expectations and projections about future events. These forward looking statements are subject to risks, uncertainties, and assumptions about us and our subsidiaries, and OI Group and its subsidiaries, including, among other things, factors discussed under the heading "Risk Factors" and the following:

    foreign currency fluctuations relative to the U.S. dollar;

    changes in capital availability or cost, including interest rate fluctuations;

    general political, economic and competitive conditions in markets and countries where we have operations, including disruptions in the supply chain, competitive pricing pressures, inflation or deflation, and changes in tax rates and laws;

    consumer preferences for alternative forms of packaging;

    fluctuations in raw material and labor costs;

    availability of raw materials;

    costs and availability of energy;

    transportation costs;

    consolidation among competitors and customers;

    the ability to integrate operations of acquired businesses;

    unanticipated expenditures with respect to environmental, safety and health laws;

    performance by customers of their obligations under purchase agreements; and

    timing and occurrence of events, including events related to asbestos-related claims against OI Inc., which are beyond our control.

        We caution you that although we believe that the assumptions on which the forward looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate and, as a result, the forward looking statements also could be materially incorrect. In light of these and other uncertainties, you should not regard the inclusion of a forward looking statement in this prospectus as a representation by us or OI Group that our plans and objectives or those of OI Group will be achieved, and you should not place undue reliance on these forward looking statements. We undertake no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward looking events discussed in this prospectus might not occur.

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THE EXCHANGE OFFER

Purpose of the Exchange Offer

        We issued $450.0 million of the private notes on November 13, 2002 and $175.0 million of the private notes on December 18, 2002, in each case to Salomon Smith Barney Inc., Banc of America Securities LLC, Deutsche Bank Securities Inc., Banc One Capital Markets, Inc., Scotia Capital (USA) Inc., Goldman, Sachs & Co., Barclays Capital Inc., BNP Paribas Securities Corp., Credit Lyonnais Securities (USA) Inc., Fleet Securities, Inc., McDonald Investments Inc., SG Cowen Securities Corporation, BNY Capital Markets, Inc. and TD Securities (USA) Inc., the initial purchasers, pursuant to a purchase agreement. The initial purchasers subsequently sold the private notes to "qualified institutional buyers," as defined in Rule 144A under the Securities Act, in reliance on Rule 144A, and outside the United States under Regulation S of the Securities Act. As a condition to each sale of the private notes, we entered into registration rights agreements with the initial purchasers on November 13, 2002 and December 18, 2002, respectively. Pursuant to each of these registration rights agreements, we agreed that we would:

    (1)
    file an exchange offer registration statement with the SEC on or prior to March 13, 2003;

    (2)
    use our commercially reasonable efforts to have the exchange offer registration statement declared effective by the SEC on or prior to June 1, 2003;

    (3)
    keep the exchange offer open for a period of not less than the minimum period required under applicable law, but in no event for less than 20 business days;

    (4)
    use our commercially reasonable efforts to consummate the exchange offer within 40 days after the exchange offer registration statement is declared effective.

        Upon the effectiveness of the exchange offer registration statement, we will offer the exchange notes in exchange for the private notes. We filed copies of the registration rights agreements as exhibits to the registration statement.

Resale of the Exchange Notes

        Based upon an interpretation by the staff of the SEC contained in no-action letters issued to third parties, we believe that you may exchange private notes for exchange notes in the ordinary course of business. For further information on the SEC's position, see Exxon Capital Holdings Corporation, available May 13, 1988, Morgan Stanley & Co. Incorporated, available June 5, 1991 and Shearman & Sterling, available July 2, 1993, and other interpretive letters to similar effect. You will be allowed to resell exchange notes to the public without further registration under the Securities Act and without delivering to purchasers of the exchange notes a prospectus that satisfies the requirements of Section 10 of the Securities Act so long as you do not participate, do not intend to participate, and have no arrangement with any person to participate, in a distribution of the exchange notes. However, the foregoing does not apply to you if you are: a broker-dealer who purchased the exchange notes directly from us to resell pursuant to Rule 144A or any other available exemption under the Securities Act; or you are an "affiliate" of ours within the meaning of Rule 405 under the Securities Act.

        In addition, if you are a broker-dealer, or you acquire exchange notes in the exchange offer for the purpose of distributing or participating in the distribution of the exchange notes, you cannot rely on the position of the staff of the SEC contained in the no-action letters mentioned above and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, unless an exemption from registration is otherwise available.

        Each broker-dealer that receives exchange notes for its own account in exchange for private notes, which the broker-dealer acquired as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. The

35



letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. A broker-dealer may use this prospectus, as it may be amended or supplemented from time to time, in connection with resales of exchange notes received in exchange for private notes which the broker- dealer acquired as a result of market-making or other trading activities.

Terms of the Exchange Offer

        Upon the terms and subject to the conditions described in this prospectus and in the letter of transmittal, we will accept any and all private notes validly tendered and not withdrawn before the expiration date. We will issue $1,000 principal amount of exchange notes in exchange for each $1,000 principal amount of outstanding private notes surrendered pursuant to the exchange offer. You may tender private notes only in integral multiples of $1,000.

        The form and terms of the exchange notes are the same as the form and terms of the private notes except that:

    we will register the exchange notes under the Securities Act and, therefore, the exchange notes will not bear legends restricting their transfer; and

    holders of the exchange notes will not be entitled to any of the rights of holders of private notes under the registration rights agreements, which rights will terminate upon the completion of the exchange offer.

The exchange notes will evidence the same debt as the private notes and will be issued under the same indenture, so the exchange notes and the private notes will be treated as a single class of debt securities under the indenture.

        As of the date of this prospectus, $625,000,000 in aggregate principal amount of the private notes are outstanding and registered in the name of Cede & Co., as nominee for The Depository Trust Company. Only registered holders of the private notes, or their legal representative or attorney-in-fact, as reflected on the records of the trustee under the indenture, may participate in the exchange offer. We will not set a fixed record date for determining registered holders of the private notes entitled to participate in the exchange offer.

        You do not have any appraisal or dissenters' rights under the indenture in connection with the exchange offer. We intend to conduct the exchange offer in accordance with the provisions of the registration rights agreements and the applicable requirements of the Securities Act, the Exchange Act and the rules and regulations of the SEC.

        We will be deemed to have accepted validly tendered private notes when, as and if we had given oral or written notice of acceptance to the exchange agent. The exchange agent will act as your agent for the purposes of receiving the exchange notes from us.

        If you tender private notes in the exchange offer you will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of private notes pursuant to the exchange offer. We will pay all charges and expenses, other than the applicable taxes described below, in connection with the exchange offer.

Expiration Date; Extensions; Amendments

        The term expiration date will mean 5:00 p.m., New York City time on April 10, 2003, unless we, in our sole discretion, extend the exchange offer, in which case the term expiration date will mean the latest date and time to which we extend the exchange offer.

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        To extend the exchange offer, we will:

    notify the exchange agent of any extension orally or in writing; and

    mail to each registered holder an announcement that will include disclosure of the approximate number of private notes deposited to date,

each before 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date.

        We reserve the right, in our reasonable discretion:

    to delay accepting any private notes:

    to extend the exchange offer; or

    if any conditions listed below under "—Conditions" are not satisfied, to terminate the exchange offer by giving oral or written notice of the delay, extension or termination to the exchange agent.

        We will follow any delay in acceptance, extension or termination as promptly as practicable by oral or written notice to the registered holders. If we amend the exchange offer in a manner we determine constitutes a material change, we will promptly disclose the amendment in a prospectus supplement that we will distribute to the registered holders. We will also extend the exchange offer for a period of five to ten business days, depending upon the significance of the amendment and the manner of disclosure, if the exchange offer would otherwise expire during the five to ten business day period.

Interest on the Exchange Notes

        The exchange notes will bear interest at the same rate and on the same terms as the private notes. Consequently, the exchange notes will bear interest at a rate equal to 83/4% per annum (calculated using a 360-day year). Interest will be payable semi-annually on each May 15 and November 15, commencing May 15, 2003.

        You will receive interest on May 15, 2003 from the date of initial issuance of the exchange notes, plus an amount equal to the accrued interest on the private notes from November 13, 2002 to the date of exchange. We will deem the right to receive any interest accrued on the private notes waived by you if we accept your private notes for exchange.

Procedures for Tendering

        You may tender private notes in the exchange offer only if you are a registered holder of private notes. To tender in the exchange offer, you must:

    complete, sign and date the letter of transmittal or a facsimile of the letter of transmittal;

    have the signatures guaranteed if required by the letter of transmittal; and

    mail or otherwise deliver the letter of transmittal or the facsimile to the exchange agent at the address listed below under "—Exchange Agent" for receipt before the expiration date.

        In addition, either:

    the exchange agent must receive certificates for the private notes along with the letter of transmittal into its account at the depositary pursuant to the procedure for book-entry transfer described below before the expiration date;

37


    the exchange agent must receive a timely confirmation of a book-entry transfer of the private notes, if the procedure is available, into its account at the depositary pursuant to the procedure for book-entry transfer described below before the expiration date; or

    you must comply with the guaranteed delivery procedures described below.

        Your tender, if not withdrawn before the expiration date, will constitute an agreement between you and us in accordance with the terms and subject to the conditions described in this prospectus and in the letter of transmittal.

        The method of delivery of private notes and the letter of transmittal and all other required documents to the exchange agent is at your election and risk. We recommend that instead of delivery by mail, you use an overnight or hand delivery service, properly insured. In all cases, you should allow sufficient time to assure delivery to the exchange agent before the expiration date. You should not send letters of transmittal or private notes to us. You may request your respective brokers, dealers, commercial banks, trust companies or nominees to effect the transactions described above for you.

        If you are a beneficial owner of private notes whose private notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your notes, you should contact the registered holder promptly and instruct the registered holder to tender on your behalf. If you wish to tender on your own behalf, before completing and executing the letter of transmittal and delivering the private notes you must either:

    make appropriate arrangements to register ownership of the private notes in your name; or

    obtain a properly completed bond power from the registered holder.

        The transfer of registered ownership may take considerable time. Unless the private notes are tendered:

    (1)
    by a registered holder who has not completed the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" on the letter of transmittal; or

    (2)
    for the account of: a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc.; a commercial bank or trust company having an office or correspondent in the United States; or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act that is a member of one of the recognized signature guarantee programs identified in the letter of transmittal,

an eligible guarantor institution must guarantee the signatures on a letter of transmittal or a notice of withdrawal described below under "—Withdrawal of Tenders."

        If the letter of transmittal is signed by a person other than the registered holder, the private notes must be endorsed or accompanied by a properly completed bond power, signed by the registered holder as the registered holder's name appears on the private notes.

        If the letter of transmittal or any private notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, they should so indicate when signing, and unless waived by us, they must submit evidence satisfactory to us of their authority to so act with the letter of transmittal.

        The exchange agent and the depositary have confirmed that any financial institution that is a participant in the depositary's system may utilize the depositary's Automated Tender Offer Program to tender notes.

        We will determine in our sole discretion all questions as to the validity, form, eligibility, including time of receipt, acceptance and withdrawal of tendered private notes, which determination will be final and binding. We reserve the absolute right to reject any and all private notes not properly tendered or

38



any private notes our acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to particular private notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, you must cure any defects or irregularities in connection with tenders of private notes within the time we determine. Although we intend to notify you of defects or irregularities with respect to tenders of private notes, neither we, the exchange agent nor any other person will incur any liability for failure to give you that notification. Unless waived, we will not deem tenders of private notes to have been made until you cure the defects or irregularities.

        While we have no present plan to acquire any private notes that are not tendered in the exchange offer or to file a registration statement to permit resales of any private notes that are not tendered in the exchange offer, we reserve the right in our sole discretion to purchase or make offers for any private notes that remain outstanding after the expiration date. We also reserve the right to terminate the exchange offer, as described below under "—Conditions," and, to the extent permitted by applicable law, purchase private notes in the open market, in privately negotiated transactions or otherwise. The terms of any of those purchases or offers could differ from the terms of the exchange offer.

        If you wish to tender private notes in exchange for exchange notes in the exchange offer, we will require you to represent that:

    you are not an affiliate of ours;

    you will acquire any exchange notes in the ordinary course of your business; and

    at the time of completion of the exchange offer, you have no arrangement with any person to participate in the distribution of the exchange notes.

        In addition, in connection with the resale of exchange notes, any participating broker-dealer who acquired the private notes for its own account as a result of market-making or other trading activities must deliver a prospectus meeting the requirements of the Securities Act. The SEC has taken the position that participating broker-dealers may fulfill their prospectus delivery requirements with respect to the exchange notes, other than a resale of an unsold allotment from the original sale of the notes, with this prospectus.

Return of Notes

        If we do not accept any tendered private notes for any reason described in the terms and conditions of the exchange offer or if you withdraw or submit private notes for a greater principal amount than you desire to exchange, we will return the unaccepted, withdrawn or non-exchanged notes without expense to you as promptly as practicable. In the case of private notes tendered by book-entry transfer into the exchange agent's account at the depositary pursuant to the book-entry transfer procedures described below, we will credit the private notes to an account maintained with the depositary as promptly as practicable.

Book-Entry Transfer

        The exchange agent will make a request to establish an account with respect to the private notes at the depositary for purposes of the exchange offer within two business days after the date of this prospectus, and any financial institution that is a participant in the depositary's systems may make book-entry delivery of private notes by causing the depositary to transfer the private notes into the exchange agent's account at the depositary in accordance with the depositary's procedures for transfer. However, although delivery of private notes may be effected through book-entry transfer at the depositary, you must transmit and the exchange agent must receive, the letter of transmittal or a

39



facsimile of the letter of transmittal, with any required signature guarantees and any other required documents, at the address below under "—Exchange Agent" on or before the expiration date or pursuant to the guaranteed delivery procedures described below.

Guaranteed Delivery Procedures

        If you wish to tender your private notes and (1) the notes are not immediately available or (2) you cannot deliver the private notes, the letter of transmittal or any other required documents to the exchange agent before the expiration date, you may effect a tender if:

    (1)
    the tender is made through an eligible guarantor institution;

    (2)
    before the expiration date, the exchange agent receives from the eligible guarantor institution a properly completed and duly executed notice of guaranteed delivery, substantially in the form provided by us, that: states your name and address, the certificate number(s) of the private notes and the principal amount of private notes tendered, states that the tender is being made by that notice of guaranteed delivery, and guarantees that, within three New York Stock Exchange trading days after the expiration date, the eligible guarantor institution will deposit with the exchange agent the letter of transmittal, together with the certificate(s) representing the private notes in proper form for transfer or a confirmation of a book-entry transfer, as the case may be, and any other documents required by the letter of transmittal; and

    (3)
    within five New York Stock Exchange trading days after the expiration date, the exchange agent receives a properly executed letter of transmittal, as well as the certificate(s) representing all tendered private notes in proper form for transfer and all other documents required by the letter of transmittal.

        Upon request, the exchange agent will send to you a notice of guaranteed delivery if you wish to tender your notes according to the guaranteed delivery procedures described above.

Withdrawal of Tenders

        Except as otherwise provided in this prospectus, you may withdraw tenders of private notes at any time before 5:00 p.m. on the expiration date.

        To withdraw a tender of private notes in the exchange offer, the exchange agent must receive a written or facsimile transmission notice of withdrawal at its address listed in this prospectus before the expiration date. Any notice of withdrawal must:

    specify the name of the person who deposited the private notes to be withdrawn;

    identify the private notes to be withdrawn, including the certificate number(s) and principal amount of the private notes; and

    be signed in the same manner as the original signature on the letter of transmittal by which the private notes were tendered, including any required signature guarantees.

        We will determine in our sole discretion all questions as to the validity, form and eligibility of the notices, and our determination will be final and binding on all parties. We will not deem any properly withdrawn private notes to have been validly tendered for purposes of the exchange offer, and we will not issue exchange notes with respect to those private notes, unless you validly retender the withdrawn private notes. You may retender properly withdrawn private notes by following one of the procedures described above under "—Procedures for Tendering" at any time before the expiration date.

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Conditions

        Notwithstanding any other term of the exchange offer, we will not be required to accept for exchange, or exchange the exchange notes for, any private notes, and may terminate the exchange offer as provided in this prospectus before the acceptance of the private notes, if, in our reasonable judgment, the exchange offer violates applicable law, rules or regulations or an applicable interpretation of the staff of the SEC.

        If we determine in our reasonable discretion that any of these conditions are not satisfied, we may:

    refuse to accept any private notes and return all tendered private notes to you;

    extend the exchange offer and retain all private notes tendered before the exchange offer expires, subject, however, to your rights to withdraw the private notes; or

    waive the unsatisfied conditions with respect to the exchange offer and accept all properly tendered private notes that have not been withdrawn.

        If the waiver constitutes a material change to the exchange offer, we will promptly disclose the waiver by means of a prospectus supplement that we will distribute to the registered holders of the private notes, and we will extend the exchange offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders, if the exchange offer would otherwise expire during the five to ten business day period.

Termination of Rights

        All of your rights under the registration rights agreements will terminate upon consummation of the exchange offer except with respect to our continuing obligations:

    to indemnify you and parties related to you against liabilities, including liabilities under the Securities Act; and

    to provide, upon your request, the information required by Rule 144A(d)(4) under the Securities Act to permit resales of the notes pursuant to Rule 144A.

Shelf Registration

        If:

    (1)
    we and the guarantors are not permitted to consummate the exchange offer because the exchange offer is not permitted by applicable law or SEC policy; or

    (2)
    any holder of transfer restricted securities notifies us prior to the 20th day following consummation of the exchange offer that:

    (a)
    it is prohibited by law or SEC policy from participating in the exchange offer; or

    (b)
    that it may not resell the exchange notes acquired by it in the exchange offer to the public without delivering a prospectus and the prospectus contained in the exchange offer registration statement is not appropriate or available for such resales; or

    (c)
    that it is a broker-dealer and owns private notes acquired directly from us or an affiliate of us,

we and the guarantors will file with the SEC a shelf registration statement to cover resales of the private notes by the holders thereof who satisfy certain conditions relating to the provision of information in connection with the shelf registration statement.

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        For purposes of the preceding, "transfer restricted securities" means each private note until:

    (1)
    the date on which such note has been exchanged by a person other than a broker-dealer for an exchange note in the exchange offer;

    (2)
    following the exchange by a broker-dealer in the exchange offer of a private note for an exchange note, the date on which such exchange note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the exchange offer registration statement;

    (3)
    the date on which such private note has been effectively registered under the Securities Act and disposed of in accordance with the shelf registration statement; or

    (4)
    the date on which such private note is distributed to the public pursuant to Rule 144 under the Securities Act.

Liquidated Damages

        If:

    (1)
    we and the guarantors fail to file any of the registration statements required by the registration rights agreements on or before the date specified for such filing; or

    (2)
    any of such registration statements is not declared effective by the SEC on or prior to the date specified for such effectiveness; or

    (3)
    we and the guarantors fail to consummate the exchange offer within 40 days after the exchange offer registration statement is declared effective; or

    (4)
    the shelf registration statement or the exchange offer registration statement is declared effective but thereafter ceases to be effective or usable in connection with resales or exchanges of transfer restricted securities during the periods specified in the registration rights agreements (each such event referred to in clauses (1) through (4) above, a "registration default");

then we and the guarantors will pay liquidated damages to each holder of outstanding notes ("liquidated damages") during the period of one or more registration defaults, with respect to the first 90-day period immediately following the occurrence of the first registration default in an amount equal to 0.25% per annum (which amount will be increased by an additional 0.25% per annum for each subsequent 90-day period that any liquidated damages continue to accrue; provided that the amounts at which liquidated damages accrue may in no event exceed 1.0% per annum) in respect of the transfer restricted securities held by such holder until the applicable registration statement is filed, the exchange offer registration statement is declared effective and the exchange offer is consummated or the shelf registration statement is declared effective or again becomes effective, as the case may be.

Exchange Agent

        We have appointed U.S. Bank National Association as exchange agent for the exchange offer. You should direct questions and requests for assistance, requests for additional copies of this prospectus or

42



the letter of transmittal and requests for a notice of guaranteed delivery to the exchange agent addressed as follows:


By registered or Certified Mail:
U.S. Bank National Association
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Corporate Trust Administration
By Overnight Delivery:
U.S. Bank National Association
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Corporate Trust Administration

 

By Hand Delivery:
U.S. Bank National Association
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Corporate Trust Administration
By Facsimile:
(651) 244-0711
Attention: Corporate Trust Administration
Confirm by Telephone:
(651) 244-8677

        Delivery to an address other than the one stated above or transmission via a facsimile number other than the one stated above will not constitute a valid delivery.

Fees and Expenses

        We will bear the expenses of soliciting tenders. We are making the principal solicitation by mail; however, our officers and regular employees may make additional solicitations by facsimile, telephone or in person.

        We have not retained any dealer manager in connection with the exchange offer and will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses.

        We will pay the cash expenses incurred in connection with the exchange offer which we estimate to be approximately $250,000. These expenses include registration fees, fees and expenses of the exchange agent and the trustee, accounting and legal fees and printing costs, among others.

        We will pay all transfer taxes, if any, applicable to the exchange of notes pursuant to the exchange offer. If, however, a transfer tax is imposed for any reason other than the exchange of the private notes pursuant to the exchange offer, then you must pay the amount of the transfer taxes. If you do not submit satisfactory evidence of payment of the taxes or exemption from payment with the letter of transmittal, we will bill the amount of the transfer taxes directly to you.

Consequence of Failures to Exchange

        Participation in the exchange offer is voluntary. We urge you to consult your financial and tax advisors in making your decisions on what action to take. Private notes that are not exchanged for exchange notes pursuant to the exchange offer will remain restricted securities. Accordingly, those private notes may be resold only:

    to a person whom the seller reasonably believes is a qualified institutional buyer in a transaction meeting the requirements of Rule 144A;
    in a transaction meeting the requirements of Rule 144 under the Securities Act;
    outside the United States to a foreign person in a transaction meeting the requirements of Rule 903 or 904 of Regulation S under the Securities Act;
    in accordance with another exemption from the registration requirements of the Securities Act and based upon an opinion of counsel if we so request;
    to us; or
    pursuant to an effective registration statement.

        In each case, the private notes may be resold only in accordance with any applicable securities laws of any state of the United States or any other applicable jurisdiction.

43



USE OF PROCEEDS

        The exchange offer satisfies an obligation under the registration rights agreements. We will not receive any cash proceeds from the exchange offer.

        The net proceeds from the sale of the private notes, including premium and accrued interest and after deducting estimated discounts, commissions and offering expenses, were approximately $616.0 million. The net proceeds were used to repay the outstanding term loan and permanently reduce a portion of the revolving loan facility under the secured credit agreement, which matures on March 31, 2004. The weighted average interest rate on borrowings under the secured credit agreement at September 30, 2002 was 3.8%.

44



CAPITALIZATION OF OWENS-ILLINOIS GROUP, INC.

        The following table presents, as of September 30, 2002, the (1) actual consolidated capitalization of OI Group and (2) capitalization of OI Group as adjusted to reflect the offerings of the notes and application of the net proceeds therefrom. You should read this table in conjunction with the Consolidated Financial Statements and the notes thereto included elsewhere in this prospectus. For more information, see also the section entitled "Selected Consolidated Financial Data of Owens-Illinois Group, Inc."

 
  At September 30, 2002
 
 
  Actual
  As Adjusted
 
 
  (in millions)

 
Current debt:              
  Short-term loans   $ 42.3   $ 42.3  
  Long-term debt due within one year     22.6     22.6  
   
 
 
      Total current debt   $ 64.9   $ 64.9  
   
 
 
Long-term debt:              
  Secured credit agreement:(a)              
    Revolving credit facility   $ 2,414.9   $ 1,863.9  
    Term loan     65.0      
   
 
 
      Total secured credit agreement     2,479.9     1,863.9  
87/8% Senior Secured Notes due 2009     1,000.0     1,000.0  
83/4% Senior Secured Notes due 2012(a)         625.0  
Payable to OI Inc.     1,700.0     1,700.0  
Other     163.8     163.8  
   
 
 
      Total long-term debt     5,343.7     5,352.7  
Share owner's equity:              
  Common stock, par value $.01 per share, 1,000 shares authorized, 100 shares issued and outstanding          
  Capital in excess of par value     1,632.0     1,632.0  
  Retained earnings(b)     961.6     958.7  
  Accumulated other comprehensive income (loss)     (588.8 )   (588.8 )
   
 
 
      Total share owner's equity     2,004.8     2,001.9  
   
 
 
Total capitalization   $ 7,348.5   $ 7,354.6  
   
 
 

(a)
In November 2002, the Company issued $450 million of its 83/4% Senior Secured Notes due 2012, the net proceeds of which were used to repay the remaining $65 million of the outstanding term loan under the secured credit agreement and to permanently reduce the revolving credit facility under the secured credit agreement by $376 million. In December 2002, the Company issued $175 million of its 83/4% Senior Secured Notes due 2012, the net proceeds of which were used to permanently reduce the revolving credit facility under the secured credit agreement. At September 30, 2002, OI Group had unused borrowing capacity of $479.1 million available under the secured credit agreement, after giving effect to the issuance of $625 million of the notes.

(b)
Reflects the write-off of unamortized finance fees of $4.5 million less tax benefits of $1.6 million.

45



SELECTED CONSOLIDATED FINANCIAL DATA OF OWENS-ILLINOIS GROUP, INC.

        The selected consolidated financial data for OI Group presented below relates to each of the five years in the period ended December 31, 2001 and the nine months ended September 30, 2002 and 2001. The financial data for each of the four years in the period ended December 31, 2001 were derived from OI Group's audited consolidated financial statements. The financial data for the year ended December 31, 1997 and for the nine months ended September 30, 2002 and 2001 were derived from unaudited consolidated financial statements. The results for the nine months are not necessarily indicative of the results to be expected for the full year. For more information, see the "Consolidated Financial Statements" included elsewhere in this prospectus.

 
  Years ended December 31,
  Nine months ended
September 30,

 
 
  2001
  2000
  1999
  1998(a)
  1997
  2002(b)
  2001
 
 
   
   
  (dollars in millions)

   
   
 
Consolidated operating results:                                            
  Net sales   $ 5,402.5   $ 5,552.1   $ 5,522.9   $ 5,306.3   $ 4,658.5   $ 4,280.3   $ 4,056.1  
  Other revenue(c)     610.8     262.7     263.8     193.0     169.9     81.6     585.5  
   
 
 
 
 
 
 
 
      6,013.3     5,814.8     5,786.7     5,499.3     4,828.4     4,361.9     4,641.6  
  Costs and expenses:                                            
    Manufacturing, shipping and delivery     4,218.4     4,359.1     4,296.4     4,075.6     3,666.4     3,310.6     3,147.9  
    Research, engineering, selling, administrative and other(d)     693.7     810.6     566.6     584.7     407.0     327.2     511.6  
   
 
 
 
 
 
 
 
    Earnings before interest expense and items below     1,101.2     645.1     923.7     839.0     755.0     724.1     982.1  
    Interest expense(e)     434.0     486.7     425.9     380.0     302.7     314.0     335.5  
   
 
 
 
 
 
 
 
    Earnings before items below     667.2     158.4     497.8     459.0     452.3     410.1     646.6  
    Provision for income taxes(f)     286.4     64.1     185.5     162.3     148.5     129.5     267.9  
    Minority share owners' interests in earnings of subsidiaries     20.1     22.0     13.2     20.2     31.4     15.6     12.8  
   
 
 
 
 
 
 
 
    Earnings before extraordinary items and cumulative effect of accounting change     360.7     72.3     299.1     276.5     272.4     265.0     365.9  
    Extraordinary charges from early extinguishment of debt, net of applicable income taxes     (4.1 )         (0.8 )   (14.1 )   (104.5 )   (6.7 )   (4.1 )
    Cumulative effect of accounting change(b)                                   (460.0 )      
   
 
 
 
 
 
 
 
    Net earnings (loss)   $ 356.6   $ 72.3   $ 298.3   $ 262.4   $ 167.9   $ (201.7 ) $ 361.8  
   
 
 
 
 
 
 
 

46


Other data:                                            
  Cash provided by operating activities   $ 620.3   $ 541.7   $ 677.3   $ 716.9   $ 517.2   $ 553.3   $ 300.4  
  Investing activities:                                            
    Additions to property, plant, and equipment     (531.9 )   (481.4 )   (650.4 )   (573.5 )   (471.3 )   (343.2 )   (344.1 )
    Other investing activities     420.7     17.3     303.1     (3,659.1 )   (79.7 )   19.2     563.3  
   
 
 
 
 
 
 
 
      Cash provided by (utilized in) investing activities     (111.2 )   (464.1 )   (347.3 )   (4,232.6 )   (551.0 )   (324.0 )   219.2  
  Cash provided by (utilized in) financing activities     (578.9 )   (153.8 )   (327.5 )   3,573.0     110.3     (203.4 )   (546.0 )
  EBIT(g)     1,074.3     612.6     895.2     809.8     731.4     706.3     960.9  
  EBITDA(h)     1,598.1     1,152.0     1,431.6     1,266.3     1,070.8     1,047.4     1,347.8  
  Adjusted EBIT(i)     856.6     955.8     972.7     947.2     768.5     706.3     679.0  
  Adjusted EBITDA(j)     1,288.1     1,400.3     1,411.6     1,327.0     1,068.6     1,047.4     996.7  
  Depreciation     403.2     412.6     403.7     358.5     283.5     321.1     299.1  
  Amortization of excess cost and intangibles(b)     120.6     126.8     132.7     98.0     55.9     20.0     87.8  
  Amortization of deferred finance fees (included in interest expense)     19.9     10.1     8.9     7.4     4.1     16.7     13.4  
  Ratio of total debt to Adjusted EBITDA     4.2 x   4.2 x   4.2 x   4.5 x   3.1 x        
  Ratio of Adjusted EBITDA to interest expense     3.0 x   2.9 x   3.3 x   3.5 x   3.5 x   3.3 x   3.0 x
  Ratio of earnings to fixed charges(k)     2.5 x   1.3 x   2.1 x   2.1 x   2.4 x   2.3 x   2.9 x
Balance sheet data (at end of period):                                            
  Working capital   $ 899   $ 881   $ 892   $ 905   $ 660   $ 921   $ 959  
  Excess of purchase cost over net assets acquired, net of accumulated amortization (goodwill)     2,995     3,101     3,294     3,315     1,295     2,636     2,919  
  Total assets     9,993     10,080     10,521     10,818     6,576     9,751     9,801  
  Total debt     5,401     5,850     5,939     5,917     3,324     5,386     5,313  
  Share owner's equity     2,322     2,107     2,327     2,522     1,273     2,005     2,325  

(a)
Results of operations and other data since April 1998 include the acquisition of the worldwide glass and plastics packaging businesses of BTR plc and the related financings.

(b)
OI Group changed its method of accounting for goodwill and discontinued the amortization of goodwill effective January 1, 2002. Goodwill amortization for the nine months ended September 30, 2001 amounted to $69.2 million.

(c)
Other revenue in 2001 includes: (1) a gain of $457.3 million ($284.4 million after tax) related to the sale of the Harbor Capital Advisors business; and (2) gains totaling $13.1 million ($12.0 million after tax) related to the sale of the label business and the sale of a minerals business in Australia.

    Other revenue in 1999 includes gains totaling $40.8 million ($23.6 million after tax and minority share owners' interests) related to the sales of a U.S. glass container plant and a mold manufacturing business in Colombia.

    Other revenue in 1998 includes: (1) a gain of $18.5 million ($11.4 million after tax) related to the termination of a license agreement, net of charges for related equipment write-offs and capacity adjustments, under which OI Group had produced plastic multipack carriers for beverage cans; and (2) a loss of $5.7 million ($3.5 million after tax) on the sale of a discontinued operation by an equity investee.

    Other revenue in 1997 includes a gain of $16.3 million (pretax and after tax) from the sale of the remaining 49% interest in Kimble Glass.

    Other revenue for the nine months ended September 30, 2001 includes: (1) a gain of $457.3 million ($284.4 million after tax) related to the sale of the Harbor Capital Advisors business; and (2) gains totaling $13.1 million ($12.0 million after tax) related to the sale of the label business and the sale of a minerals business in Australia.

(d)
Amount for 2001 includes: (1) charges of $82.1 million ($65.3 million after tax and minority share owners' interests) related to restructuring and impairment charges at certain international glass operations, principally Venezuela and Puerto Rico, as well as certain other domestic and international operations; (2) a charge of $31.0 million (pretax and after tax) related to the loss on the sale of facilities in India; (3) charges of $30.9 million ($19.4 million after tax)

47


    related to special employee benefit programs; (4) a charge of $8.5 million ($5.3 million after tax) for certain contingencies; and (5) a charge of $7.9 million ($4.9 million after tax) related to restructuring manufacturing capacity in the medical devices business.

    In 2000, OI Group recorded pretax charges totaling $248.3 million ($171.0 million after tax and minority share owners' interests) for the following: (1) $122.4 million ($77.3 million after tax and minority share owners' interests) related to the consolidation of manufacturing capacity; (2) a net charge of $52.4 million ($32.6 million after tax) related to early retirement incentives and special termination benefits for 350 U.S. salaried employees; (3) $40.0 million (pretax and after tax) related to the impairment of property, plant and equipment at facilities in India; and (4) $33.5 million ($21.1 million after tax and minority share owners' interests) related principally to the write-off of software and related development costs.

    Amount for 1999 includes charges totaling $20.8 million ($14.0 million after tax and minority share owners' interests) related principally to restructuring costs and write-offs of certain assets in Europe and South America.

    In 1998, OI Group recorded: (1) charges of $72.6 million ($47.4 million after tax and minority share owners' interests) related principally to a plant closing in the U.K. and restructuring costs at certain international affiliates; and (2) a net charge of $0.9 million ($0.6 million after tax) for the settlement of certain environmental litigation and the reduction of previously established reserves for guarantees of certain lease obligations of a previously divested business.

    In 1997, OI Group recorded charges of $14.1 million ($8.7 million after tax) principally for guarantees of certain lease obligations of a previously divested business.

    Amount for the nine months ended September 30, 2001 includes: (1) charges of $79.9 million ($63.9 million after tax and minority share owners' interests) related to restructuring and impairment charges at certain international glass operations, principally Venezuela and Puerto Rico, as well as certain other domestic and international operations; (2) charges of $30.9 million ($19.4 million after tax) related to special employee benefit programs; and (3) a charge of $8.5 million ($5.3 million after tax) for certain contingencies.

(e)
Amount for 2001 includes a net interest charge of $4.0 million ($2.8 million after tax) related to interest on the resolution of the transfer of pension assets and liabilities for a previous acquisition and divestiture.

    Assuming $175.0 million of the notes had been issued at a 0.549% premium at the beginning of 2001 and assuming $450.0 million of the notes had been outstanding at the beginning of 2001 and further assuming the 87/8% Senior Secured Notes due 2009 also had been outstanding at the beginning of 2001, interest expense would have been $42.9 million higher for the year ended December 31, 2001 and $22.3 million higher for the nine months ended September 30, 2002. Net earnings would have been $26.6 million lower for the year ended December 31, 2001 and net losses would have been $13.9 million higher for the nine months ended September 30, 2002.

(f)
Amount for 2001 includes a $6.0 million charge to adjust tax liabilities in Italy as a result of recent legislation.

    Amount for 2000 includes a fourth quarter benefit of $9.3 million to adjust net income tax liabilities in Italy as a result of recent legislation.

    In 1998, OI Group recorded a credit of $15.1 million to adjust net deferred income tax liabilities as a result of a reduction in Italy's statutory income tax rate.

    Amount for the nine months ended September 30, 2001 includes a $6.0 million charge to adjust tax liabilities in Italy as a result of recent legislation.

(g)
EBIT consists of consolidated earnings before interest income, interest expense, provision for income taxes, minority share owners' interests in earnings of subsidiaries, extraordinary charges, and cumulative effect of accounting change.

(h)
EBITDA consists of EBIT before depreciation and amortization of excess cost and intangibles. EBITDA is presented because OI Group believes it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in OI Group's industry. However, other companies in OI Group's industry may calculate EBITDA differently than OI Group does. EBITDA is not a measurement of financial performance under generally accepted accounting principles and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net income as indicators of OI Group's operating performance or any other measures of performance derived in accordance with generally accepted accounting principles. See "Consolidated Financial Statements—Consolidated Cash Flows."

48


(i)
OI Group evaluates performance and allocates resources based on EBIT excluding unusual items and goodwill amortization ("Adjusted EBIT"). Unusual items consist of the gains, losses and charges discussed in Notes (c) and (d) above. The reconciliation from EBIT to Adjusted EBIT is as follows:

 
  Years ended December 31,
  Nine months
ended
September 30,

 
 
  2001
  2000
  1999
  1998
  1997
  2002
  2001
 
 
   
   
  (in millions)

   
   
 
  EBIT   $ 1,074.3   $ 612.6   $ 895.2   $ 809.8   $ 731.4   $ 706.3   $ 960.9  
  Add (deduct):                                            
    Gain on sale of Harbor Capital Advisors business     (457.3 )                                 (457.3 )
    Gains on sales of label business and minerals business     (13.1 )                                 (13.1 )
    Gains on sale of glass plant and mold business                 (40.8 )                        
    Net gain on termination of license agreement                       (18.5 )                  
    Sale of discontinued operations by equity investee                       5.7                    
    Gain on sale of 49% interest in Kimble Glass                             (16.3 )            
    Restructuring and impairment, principally international glass     82.1                                   79.9  
    Loss on the sale of facilities in India     31.0                                      
    Special employee benefit programs     30.9                                   30.9  
    Charges related to certain contingencies     8.5                                   8.5  
    Restructuring manufacturing capacity in the medical devices business     7.9                                      
    Consolidation of manufacturing capacity           122.4                                
    Early retirement incentives/special termination benefits           52.4                                
    Impairment of property, plant and equipment in India           40.0                                
    Write-off of software and related development costs           33.5                                
    Restructuring and asset write-offs in Europe/South America                 20.8                          
    U.K. plant closing and international restructuring                       72.6                    
    Settle environmental litigation/reduce reserve for guarantees                       0.9                    
    Charge for guarantees of lease obligations                             14.1              
    Goodwill amortization     92.3     94.9     97.5     76.7     39.3         69.2  
   
 
 
 
 
 
 
 
  Adjusted EBIT   $ 856.6   $ 955.8   $ 972.7   $ 947.2   $ 768.5   $ 706.3   $ 679.0  
   
 
 
 
 
 
 
 
(j)
Adjusted EBITDA represents EBITDA excluding the unusual gains, losses and charges discussed in Notes (c) and (d) and summarized in Note (i) above. Adjusted EBITDA is presented because OI Group believes it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in OI Group's industry. However, other companies in OI Group's industry may present Adjusted EBITDA differently than OI Group does. Adjusted EBITDA is not a measurement of financial performance under generally accepted accounting principles and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net income as indicators of OI Group's operating performance or any other measures of performance derived in accordance with generally accepted accounting principles. See "Consolidated Financial Statements—Consolidated Cash Flows."

(k)
For purposes of these computations, earnings consist of earnings before income taxes, minority share owners' interests in earnings of subsidiaries, extraordinary items and cumulative effect of accounting change plus fixed charges. Fixed charges consist primarily of interest on indebtedness, including amortization of deferred finance fees, plus that portion of lease rental expense representative of the interest factor. Pretax earnings and fixed charges also include the proportional share of 50%-owned investees.

49



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF OWENS-ILLINOIS GROUP, INC.

Results of Operations

    First Nine Months 2002 compared with First Nine Months 2001

        OI Group recorded earnings before extraordinary items and cumulative effect of accounting change of $265.0 million for the first nine months of 2002 compared to earnings before extraordinary items of $365.9 million for the first nine months of 2001. The net loss for the first nine months of 2002 of $201.7 million reflects $6.7 million of an extraordinary charge from the early extinguishment of debt and $460.0 million from the cumulative effect the change in accounting for goodwill. Net earnings of $361.8 million for 2001 reflect $4.1 million of an extraordinary charge from the early extinguishment of debt. Excluding the effects of the 2002 extraordinary item and cumulative effect of accounting change, OI Group's first nine months 2002 net earnings of $265.0 million increased $28.9 million, or 12.2% from the first nine months 2001 earnings, excluding extraordinary and unusual items and goodwill amortization, of $236.1 million. Consolidated EBIT for the first nine months of 2002 was $706.3 million, an increase of $27.3 million, or 4.0%, compared to the first nine months 2001 EBIT, excluding unusual items and goodwill amortization, of $679.0 million. The increase is principally due to higher EBIT for the Glass Containers segment, partially offset by lower EBIT for the Plastics Packaging segment and lower EBIT from eliminations and other retained items, as further discussed below. Interest expense, net of interest income and the 2001 unusual interest expense of $4.0 million, decreased $14.1 million from the 2001 period. The effects of lower short-term variable interest rates were partially offset by the January 2002 issuance of $1.0 billion principal amount of 87/8% Senior Secured Notes due 2009. Proceeds from the 87/8% Senior Secured Notes due 2009 were used to reduce a variable-rate term loan under the Secured Credit Agreement. OI Group's estimated effective tax rate for the first nine months of 2002 was 31.6%. This compares with a rate of 31.3% for the first nine months of 2001, and 30.3% for the full year of 2001, adjusted to exclude the effects of goodwill amortization and unusual items. The increase in the 2002 estimated rate compared to the full year of 2001 is primarily the result of decreased international and domestic tax benefits and credits and a shift in estimated international earnings toward countries with higher effective tax rates.

        Capsule segment results (in millions of dollars) for the first nine months of 2002 and 2001 were as follows:

Net sales to unaffiliated customers

  2002
  2001
Glass Containers   $ 2,916.2   $ 2,639.9
Plastics Packaging     1,364.1     1,411.7
Other           4.5
   
 
Segment totals   $ 4,280.3   $ 4,056.1
   
 
EBIT(a)

  2002
  2001(b)(c)
 
Glass Containers   $ 549.5   $ 412.3  
Plastics Packaging     217.9     214.5  
Other           3.0  
   
 
 
Segment totals     767.4     629.8  
Eliminations and other retained items     (61.1 )   400.3  
   
 
 
Consolidated EBIT before goodwill amortization     706.3     1,030.1  
Amortization of goodwill           (69.2 )
   
 
 
Consolidated totals   $ 706.3   $ 960.9  
   
 
 

50



(a)
EBIT consists of consolidated earnings before interest income, interest expense, provision for income taxes, minority share owners' interests in earnings of subsidiaries, extraordinary items and cumulative effect of accounting change.

(b)
Amount for the nine months ended September 30, 2001 included a net gain of $351.1 million related to the following: (1) a gain of $457.3 million related to the sale of OI Group's Harbor Capital business; (2) charges of $79.9 million related to restructuring and impairment charges at certain of OI Group's international glass operations, principally Venezuela and Puerto Rico, as well as certain other domestic and international operations; (3) charges of $30.9 million related to special employee benefit programs; (4) a charge of $8.5 million for certain contingencies; (5) a gain of $10.3 million from the sale of a minerals business in Australia; and (6) a gain of $2.8 million from the sale of OI Group's labels business.

    Such charges (gains) are included as follows in consolidated EBIT for the nine months ended September 30, 2001:

Glass Containers   $ 61.6  
Plastics Packaging     27.6  
Other     (2.8 )
   
 
Total Product Segments     86.4  
Eliminations and other retained items     (437.5 )
   
 
Consolidated Totals   $ (351.1 )
   
 
(c)
In accordance with FAS No. 142, goodwill is no longer amortized beginning in 2002. In order to facilitate comparisons, goodwill amortization for 2001 has been reclassified out of the Glass Containers and Plastics Packaging segments and reported separately.

        Consolidated net sales for the first nine months of 2002 increased $224.2 million, or 5.5%, over the prior year. Net sales of the Glass Containers segment increased $276.3 million, or 10.5%, over 2001. In North America, the additional sales from the October 2001 acquisition of the Canadian glass container operations and increased shipments of containers for liquor and wine and were partially offset by decreased shipments of containers for food, teas and juices. The combined U.S. dollar sales of the segment's other foreign affiliates increased from the prior year. Increased shipments throughout most of Europe and the Asia Pacific region and favorable currency translation rates throughout most of Europe and the Asia Pacific region were partially offset by unfavorable currency translation rates throughout most of South America and the absence of the glass container operations in India. The effect of changing foreign currency exchange rates increased U.S. dollar sales of the segment's foreign affiliates in Europe and the Asia Pacific region by approximately $49 million. The effect of changing foreign currency exchange rates decreased U.S. dollar sales of the segment's foreign affiliates in South America by approximately $43 million. Net sales of the Plastics Packaging segment decreased $47.6 million, or 3.4%, from 2001. Increased shipments of plastic containers for food, bottled water, juice and health and personal care and closures for juice and other beverages, were more than offset by lower unit pricing in some product lines, and the effects of lower resin costs on pass-through arrangements with customers. The effects of lower resin cost pass-throughs decreased sales approximately $20 million compared to the first nine months of 2001.

        Excluding the effects of the 2001 unusual items, consolidated EBIT for the first nine months of 2002 increased $27.3 million, or 4.0%, to $706.3 million from the 2001 adjusted EBIT of $679.0 million, adjusted to exclude goodwill amortization. EBIT of the Glass Containers segment increased $75.6 million to $549.5 million, compared to adjusted EBIT of $473.9 million in 2001. The combined U.S. dollar EBIT of the segment's foreign affiliates increased from prior year. Increased shipments throughout most of Europe and the Asia Pacific region and moderately improved pricing in some

51



regions were partially offset by lower shipments in Brazil and Colombia and unfavorable currency translation rates throughout most of South America. In North America, Glass Container EBIT increased over 2001 principally as a result of the addition of the Canadian glass container operations in the fourth quarter of 2001, moderately improved pricing, increased shipments of containers for liquor and wine and the recognition of the remaining deferred income associated with the early termination of an energy supply agreement, partially offset by the conversion of certain food and beverage containers to plastic packaging. EBIT of the Plastics Packaging segment decreased $24.2 million, or 10.0%, to $217.9 million compared to adjusted EBIT of $242.1 million in 2001. Increased shipments of plastic containers for food, bottled water, juice and health and personal care and closures for juice and other beverages as well as improved manufacturing performance were more than offset by lower unit pricing in some product lines, a $4.1 million unfavorable accounting adjustment at one of the segment's foreign affiliates largely due to the write down of inventories to net realizable value, and discontinued production for a major customer in the advanced technology systems business as the customer moves production from the U.S. to the Far East. OI Group is commissioning a new factory in the Far East to continue to supply this customer and expects to be fully operational early in 2003. The Plastics Packaging segment operates in a number of highly competitive markets and has incurred significant pricing pressure in some product lines which OI Group expects to partially offset by increased unit volume, improved productivity and reduced costs. EBIT from eliminations and other retained items, excluding 2001 unusual items, decreased $23.9 million from 2001 reflecting lower net financial services income due to the sale of OI Group's Harbor Capital Advisors business in the second quarter of 2001 as well as higher information systems spending and certain employee benefit costs.

        Results for the first nine months of 2001 included the following unusual items: (1) a gain of $457.3 million ($284.4 million after tax) related to the sale of OI Group's Harbor Capital Advisors business; (2) pretax gains totaling $13.1 million ($12.0 million after tax) related to the sale of OI Group's label business and the sale of a minerals business in Australia; (3) charges of $79.9 million ($63.9 million after tax and minority share owners' interests) related to restructuring and impairment charges at certain of OI Group's international glass operations, principally Venezuela and Puerto Rico, as well as certain other domestic and international operations; (4) charges of $30.9 million ($19.4 million after tax) related to special employee benefit programs; (5) a charge of $8.5 million ($5.3 million after tax) for certain contingencies; (6) a $6.0 million charge to adjust tax liabilities in Italy as a result of recent legislation; and (7) a net interest charge of $4.0 million ($2.8 million after tax) related to interest on the resolution of the transfer of pension assets and liabilities for a previous acquisition and divestiture.

    Comparison of 2001 with 2000

        For the year ended December 31, 2001, OI Group recorded earnings of $360.7 million before an extraordinary item compared to net earnings of $72.3 million for 2000. Net earnings of $356.6 million for 2001 reflect $4.1 million of an extraordinary charge from the early extinguishment of debt. Excluding the effects of unusual items for both 2001 and 2000 discussed in the table below, OI Group's 2001 earnings of $199.0 million before an extraordinary item decreased $35.0 million, or 15.0%, from 2000 earnings of $234.0 million.

        The following table lists unusual items (in millions of dollars) recorded in 2001 and 2000, and their related effects on both EBIT and earnings before extraordinary items. EBIT is defined as earnings

52


before interest income, interest expense, provision for income taxes, minority share owners' interest in earnings of subsidiaries, and extraordinary charges.

 
  2001
  2000
 
 
  EBIT
  Earnings before
extraordinary
item

  EBIT
  Earnings before
extraordinary
item

 
As reported   $ 1,074.3   $ 360.7   $ 612.6   $ 72.3  
Unusual items—charges (credits):                          
  Gain on the sale of the Harbor Capital Advisors business     (457.3 )   (284.4 )            
  Gain on the sale of the label business and the sale of a minerals business in Australia     (13.1 )   (12.0 )            
  Restructuring and impairment charges at certain international and domestic operations     82.1     65.3              
  Loss on the sale of facilities in India     31.0     31.0              
  Special employee benefit programs     30.9     19.4              
  Charges related to certain contingencies     8.5     5.3              
  Restructuring manufacturing capacity in the medical devices business     7.9     4.9              
  Charges to adjust net income tax liabilities in Italy           6.0              
  Net interest on the resolution of the transfer of pension assets and liabilities for a previous acquisition           2.8              
  Charges related to consolidation of manufacturing capacity                 122.4     77.3  
  Charges related to early retirement incentives and special termination benefits                 52.4     32.6  
  Charges related to impairment of property, plant, and equipment in India                 40.0     40.0  
  Other charges, principally related to the write-off of software                 33.5     21.1  
  Benefit related to an adjustment of tax liabilities in Italy as a result of recent legislation                       (9.3 )
   
 
 
 
 
Before unusual items   $ 764.3   $ 199.0   $ 860.9   $ 234.0  
   
 
 
 
 

        Consolidated EBIT, excluding unusual items, for 2001 was $764.3 million, a decrease of $96.6 million, or 11.2%, compared to 2000 EBIT, excluding unusual items, of $860.9 million. The decrease is attributable to lower EBIT for both the Glass Containers segment and the Plastics Packaging segment. Results of both segments are discussed further below. Interest expense, net of interest income and unusual items, decreased $51.1 million from 2000 due principally to lower interest rates and decreased levels of debt. Exclusive of the adjustment for net income tax liabilities in Italy and other unusual items previously discussed, the effective tax rate for 2001 was 38.1%. This compares with a rate of 36.9% for 2000, excluding the adjustment for net income tax liabilities in Italy and other unusual items. The increase in the 2001 rate compared to 2000 is primarily the result of the non-recurrence of certain international and domestic tax benefits and credits.

53



        Capsule segment results (in millions of dollars) for 2001 and 2000 were as follows (a):

Net sales to unaffiliated customers

  2001
  2000
Glass Containers   $ 3,571.2   $ 3,695.6
Plastics Packaging     1,817.5     1,787.6
Other     13.8     68.9
   
 
Segment and consolidated net sales   $ 5,402.5   $ 5,552.1
   
 
EBIT(b)

  2001(c)
  2000(d)
 
Glass Containers   $ 489.9   $ 401.2  
Plastics Packaging     218.1     238.0  
Other     (13.3 )   1.1  
   
 
 
Segment EBIT     694.7     640.3  
Eliminations and other retained items     379.6     (27.7 )
   
 
 
Consolidated EBIT   $ 1,074.3   $ 612.6  
   
 
 

(a)
See "Consolidated Financial Statements—Segment Information."

(b)
EBIT consists of consolidated earnings before interest income, interest expense, provision for income taxes, minority share owners' interests in earnings of subsidiaries and extraordinary charges.

(c)
Amount for 2001 includes: (1) a gain of $457.3 million related to the sale of the Harbor Capital Advisors business; (2) a $10.3 million gain from the sale of a minerals business in Australia; (3) a $2.8 million gain from the sale of the label business; (4) charges of $82.1 million related to restructuring and impairment charges at certain international glass operations, principally Venezuela and Puerto Rico, as well as certain other domestic and international operations; (5) a charge of $31.0 million related to the loss on the sale of facilities in India; (6) charges of $30.9 million related to special employee benefit programs; (7) a charge of $8.5 million for certain contingencies; and (8) a charge of $7.9 million related to restructuring manufacturing capacity in the medical devices business.

        Such charges (gains) are included as follows in consolidated EBIT for 2001 (in millions of dollars):

Glass Containers   $ 92.6  
Plastics Packaging     29.8  
Other     5.1  
   
 
Total Product Segments     127.5  
Eliminations and other retained items     (437.5 )
   
 
Consolidated Totals   $ (310.0 )
   
 
(d)
Amount for 2000 includes charges totaling $248.3 million for the following: (1) $122.4 million related to the consolidation of manufacturing capacity; (2) a net charge of $52.4 million related to early retirement incentives and special termination benefits for 350 U.S. salaried employees; (3) $40.0 million related to the impairment of property, plant and equipment at facilities in India; and (4) $33.5 million related principally to the write-off of software and related development costs.

54


    These items were recorded in the third quarter of 2000. Such items are included as follows in consolidated EBIT for 2000 (in millions of dollars):

Glass Containers   $ 186.0
Plastics Packaging     11.2
   
Total Product Segments     197.2
Eliminations and other retained items     51.1
   
Consolidated Totals   $ 248.3
   

        Consolidated net sales for 2001 decreased $149.6 million, or 2.7%, over the prior year. Net sales of the Glass Containers segment decreased $124.4 million from 2000. In North America, the additional sales from the acquisition of the Canadian operations were more than offset by decreased shipments of containers for beer producers and conversions of certain juice and iced tea from glass to plastic containers. The combined U.S. dollar sales of the segment's foreign affiliates decreased from the prior year. Increased shipments from operations throughout most of Europe and South America were more than offset by the effects of a strong U.S. dollar and lower shipments from operations in the United Kingdom and most of the Asia Pacific region. The effect of changing foreign currency exchange rates reduced U.S. dollar sales of the segment's foreign affiliates by approximately $140 million. Net sales of the Plastics Packaging segment increased $29.9 million, or 1.7%, over 2000, reflecting increased shipments of plastic containers and closures for food and health care, as well as prescription products, and the effects of higher resin costs on pass-through arrangements with customers, partially offset by lower shipments of plastic containers for juice and other beverages and the effect of changing foreign currency exchange rates, principally in Australia. The effects of higher resin costs increased sales by approximately $32 million compared to 2000.

        Segment EBIT for 2001, excluding the 2001 and 2000 unusual items, decreased $15.3 million to $822.2 million, or 15.2% of net sales, from 2000 segment EBIT of $837.5 million, or 15.1% of net sales. Consolidated operating expense (consisting of selling and administrative, engineering, and research and development expenses) as a percentage of net sales was 7.7% in 2001 compared to 6.5% in 2000. The increase in operating expenses is attributed to lower pension income and higher costs of certain employee benefit programs. EBIT of the Glass Containers segment decreased $4.7 million, or 0.8%, to $582.5 million, compared to $587.2 million in 2000. The combined U.S. dollar EBIT of the segment's foreign affiliates increased from prior year. Increased shipments from operations throughout most of Europe and South America were partially offset by the effects of a strong U.S. dollar, higher energy costs worldwide, and lower shipments from operations in the United Kingdom and most of the Asia Pacific region. In the United States, Glass Container EBIT decreased from 2000 principally due to higher energy costs, which have not been fully recovered through price adjustments. EBIT of the Plastics Packaging segment decreased $1.3 million, or 0.5%, to $247.9 million, compared to $249.2 million in 2000. Increased shipments of plastic containers and closures for food and health care, as well as prescription products, were more than offset by lower shipments of plastic containers for juice and other beverages and one-time costs associated with the relocation of a U.S. manufacturing operation to a new and larger facility to accommodate a growing business base.

        Eliminations and other retained items, excluding the 2001 and 2000 unusual items, declined $81.3 million from 2000 reflecting lower net financial services income due to the sale of the Harbor Capital Advisors business, higher spending on information systems, and certain employee benefit costs increases.

        The 2001 results include a net pretax gain of $310.0 million ($170.5 million after tax and minority share owners' interest) for the following: (1) a gain of $457.3 million ($284.4 million after tax) related to the sale of the Harbor Capital Advisors business; (2) gains totaling $13.1 million ($12.0 million after tax) related to the sale of the label business and the sale of a minerals business in Australia;

55



(3) charges of $82.1 million ($65.3 million after tax and minority share owners' interests) related to restructuring and impairment charges at certain international glass operations, principally Venezuela and Puerto Rico, as well as certain other domestic and international operations; (4) a charge of $31.0 million (pretax and after tax) related to the loss on the sale of facilities in India; (5) charges of $30.9 million ($19.4 million after tax) related to special employee benefit programs; (6) a charge of $8.5 million ($5.3 million after tax) for certain contingencies; and (7) a charge of $7.9 million ($4.9 million after tax) related to restructuring manufacturing capacity in the medical devices business.

        The 2000 results include pretax charges totaling $248.3 million ($171.0 million after tax and minority share owners' interests) for the following: (1) $122.4 million ($77.3 million after tax and minority share owners' interests) related to the consolidation of manufacturing capacity; (2) a net charge of $52.4 million ($32.6 million after tax) related to early retirement incentives and special termination benefits for 350 United States salaried employees; (3) $40.0 million (pretax and after tax) related to the impairment of property, plant and equipment at facilities in India; and (4) $33.5 million ($21.1 million after tax and minority share owners' interests) related principally to the write-off of software and related development costs.

    Comparison of 2000 with 1999

        For the year ended December 31, 2000, OI Group recorded net earnings of $72.3 million compared to earnings before extraordinary items of $299.1 million for 1999. Net earnings of $298.3 million for 1999 reflect $0.8 million of extraordinary charges from the early extinguishment of debt. Excluding the effects of unusual items for both 2000 and 1999 discussed in the table below, OI Group's 2000 earnings of $234.0 million decreased $55.5 million, or 19.2%, from 1999 earnings before extraordinary items of $289.5 million.

        The 2000 results include the unusual items discussed above. The 1999 results included the following unusual items: (1) gains totaling $40.8 million ($23.6 million after tax and minority share owners' interests) related to the sales of a U.S. glass container plant and a mold manufacturing business in Colombia and (2) charges totaling $20.8 million ($14.0 million after tax and minority share owners' interests) related principally to restructuring costs and write-offs of certain assets in Europe and South America.

        Consolidated EBIT, excluding unusual items, for 2000 was $860.9 million, a decrease of $14.3 million, or 1.6%, compared to consolidated EBIT for 1999, excluding unusual items, of $875.2 million. The decrease is attributable to lower EBIT for the Plastics Packaging segment, partially offset by slightly higher EBIT for the Glass Containers segment. Results of both segments are discussed further below. Interest expense, net of interest income, increased $56.8 million from the 1999 period due principally to higher interest rates. The $8.8 million increase in minority share owners' interests in earnings of subsidiaries resulted from higher net earnings of certain foreign affiliates, principally the affiliates in Colombia, Venezuela and Brazil. Exclusive of the adjustment for net income tax liabilities in Italy and other unusual items previously discussed, the effective tax rate for 2000 was 36.9%. This compares with a rate of 36.9% for 1999, excluding unusual items.

56



        Capsule segment results (in millions of dollars) for 2000 and 1999 were as follows (a):

Net sales to unaffiliated customers

  2000
  1999
Glass Containers   $ 3,695.6   $ 3,762.6
Plastics Packaging     1,787.6     1,686.7
Other     68.9     73.6
   
 
Segment and consolidated net sales   $ 5,552.1   $ 5,522.9
   
 
EBIT

  2000(b)
  1999
 
Glass Containers   $ 401.2   $ 602.4 (c)
Plastics Packaging     238.0     277.7  
Other     1.1     9.2  
   
 
 
Segment EBIT     640.3     889.3  
Eliminations and other retained items     (27.7 )   5.9  
   
 
 
Consolidated EBIT   $ 612.6   $ 895.2  
   
 
 

(a)
See "Consolidated Financial Statements—Segment Information."

(b)
EBIT for 2000 includes charges totaling $248.3 million for the following: (1) $122.4 million related to the consolidation of manufacturing capacity; (2) a net charge of $52.4 million related to early retirement incentives and special termination benefits for 350 U.S. salaried employees; (3) $40.0 million related to the impairment of property, plant and equipment at facilities in India; and (4) $33.5 million related principally to the write-off of software and related development costs. These items were recorded in the third quarter of 2000. These items decreased segment EBIT as follows: Glass Containers—$186.0 million; Plastics Packaging—$11.2 million; Eliminations and other retained items—$51.1 million.

(c)
EBIT for 1999 includes: (1) gains totaling $40.8 million related to the sales of a U.S. glass container plant and a mold manufacturing business in Colombia; and (2) charges totaling $20.8 million related principally to restructuring costs and write-offs of certain assets in Europe and South America.

        Consolidated net sales for 2000 increased $29.2 million, or 0.5%, over the prior year. Net sales of the Glass Containers segment decreased $67.0 million from 1999. In the U.S., the effect of increased shipments of containers for beer producers was partially offset by lower shipments of certain food containers. The combined U.S. dollar sales of the segment's foreign affiliates decreased from the prior year due to the strength of the U.S. dollar. Increased shipments from the operations throughout most of Europe, South America and the Asia Pacific region were more than offset by lower shipments from the operations in the U.K. and the effects of a strong U.S. dollar. The effect of changing foreign currency exchange rates reduced U.S. dollar sales of the segment's foreign affiliates by approximately $230 million. Net sales of the Plastics Packaging segment increased $100.9 million, or 6.0%, over 1999, reflecting increased shipments of plastic containers for juices, closures for food and beverages, and the effects of higher resin costs on pass-through arrangements with customers, partially offset by lower shipments of household, health care and personal care containers. The effects of higher resin costs increased sales by approximately $90 million compared to 1999.

        Segment EBIT for 2000, excluding unusual items, decreased $31.8 million to $837.5 million, or 15.1% of net sales, from 1999 segment EBIT, excluding unusual items, of $869.3 million, or 15.7% of net sales. Consolidated operating expense (consisting of selling and administrative, engineering, and research and development expenses) as a percentage of net sales was 6.5% in 2000 compared to 6.8% in 1999. EBIT of the Glass Containers segment increased $4.8 million, or 0.8%, to $587.2 million,

57



compared to $582.4 million in 1999. The combined U.S. dollar EBIT of the segment's foreign affiliates increased from the prior year. Increased shipments from the operations throughout most of Europe, South America, and the Asia Pacific region, and a gain from the restructuring of the ownership in two small joint ventures in South America were partially offset by the effects of a strong U.S. dollar, higher energy costs worldwide, and expenses associated with the scheduled rebuild of a glass melting furnace in Australia. In the U.S., Glass Container EBIT decreased from 1999 principally due to higher energy costs and conversions of juice and iced tea bottles from glass to plastic containers, partially offset by further improvements in cost structure. EBIT of the Plastics Packaging segment decreased $28.5 million, or 10.3%, to $249.2 million, compared to $277.7 million in 1999. Increased shipments of plastic containers for juices and closures for food and beverages were more than offset by lower shipments of household, health care, and personal care containers and costs incurred in connection with the start-up of new custom polyethylene terephthalate (PET) capacity, including a new plastic bottle plant.

        Eliminations and other retained items improved $17.5 million from 1999 principally due to higher net financial services income.

        The 2000 results included pretax charges totaling $248.3 million ($171.0 million after tax and minority share owners' interests) for the following: (1) $122.4 million ($77.3 million after tax and minority share owners' interests) related to the consolidation of manufacturing capacity; (2) a net charge of $52.4 million ($32.6 million after tax) related to early retirement incentives and special termination benefits for 350 U.S. salaried employees; (3) $40.0 million ($40.0 million after tax) related to the impairment of property, plant and equipment at facilities in India; and (4) $33.5 million ($21.1 million after tax and minority share owners' interests) related principally to the write-off of software and related development costs.

        The 1999 results included the following unusual items: (1) gains totaling $40.8 million ($23.6 million after tax and minority share owners' interests) related to the sales of a U.S. glass container plant and a mold manufacturing business in Colombia; and (2) charges totaling $20.8 million ($14.0 million after tax and minority share owners' interests) related principally to restructuring costs and write-offs of certain assets in Europe and South America.

Restructuring and Impairment Charges

        The second quarter of 2001 operating results included pretax charges of $79.9 million, principally related to a restructuring program and impairment at certain of the international and domestic operations. The charge included the impairment of assets at OI Group's affiliate in Puerto Rico and the consolidation of manufacturing capacity and the closing of a facility in Venezuela. The program also included consolidation of capacity at certain other international and domestic facilities in response to decisions about pricing and market strategy. OI Group expects its actions related to these restructuring and impairment charges to be completed during the next several quarters. The cost savings resulting from the 2001 restructuring are not expected to be material on an annual basis.

        The 2000 operating results included a pretax charge of $248.3 million recorded in the third quarter, principally related to a restructuring and capacity realignment program. The restructuring and capacity realignment program, initiated in the third quarter of 2000, included the consolidation of manufacturing capacity and a reduction of 350 employees in the U.S. salaried work force, or about 10%, principally as a result of early retirement incentives. Also included in the charge was a write-down of plant and equipment for OI Group's glass container affiliate in India and certain other asset write-offs, including $27.9 million for software which had been abandoned. Manufacturing capacity consolidations principally involved U.S. glass container facilities and reflect technology-driven improvements in productivity, conversions from some juice and similar products to plastic containers,

58



decisions regarding pricing and volume, and the further concentration of production in the most strategically-located facilities.

Capital Resources and Liquidity

        OI Group's total debt at September 30, 2002 was $5.39 billion, compared to $5.40 billion at December 31, 2001 and $5.31 billion at September 30, 2001.

        In April 2001, OI Group and certain of OI Group's subsidiaries entered into the secured credit agreement with a group of banks, which expires on March 31, 2004. The secured credit agreement provides for a $3.0 billion revolving credit facility and a $65 million term loan (initially $1.5 billion). The borrowers under the secured credit agreement used the proceeds therefrom to repay intercompany amounts owed to OI Inc., which in turn used the proceeds from the repayment of such intercompany amounts to repay amounts outstanding under, and terminate, its existing credit agreement.

        At September 30, 2002, OI Group had available credit totaling $3.065 billion under the secured credit agreement, of which $479.1 million had not been utilized. At September 30, 2001 OI Group had $621.4 million of credit which had not been utilized under the secured credit agreement. The decrease is due in large part to the $150 million purchase of the Canadian glass container assets of Consumers Packaging Inc. in October 2001. Cash provided by operating activities was $553.3 million for the first nine months 2002 compared to $300.4 million for the first nine months of 2001.

        In January 2002, the Company issued $1.0 billion of its 87/8% Senior Secured Notes due February 15, 2009. The 87/8% Senior Secured Notes due 2009 are guaranteed by substantially all of OI Group's domestic subsidiaries. The assets of substantially all of OI Group's domestic subsidiaries are pledged as security for the notes. The Company used the net cash proceeds from the notes to reduce the outstanding term loan under the secured credit agreement by $980 million. As a result, OI Group wrote off unamortized deferred financing fees in January 2002 related to the term loan and recorded an extraordinary charge totaling $10.9 million less applicable income taxes of $4.2 million.

        In November and December 2002, the Company issued a total of $625 million of its 83/4% Senior Secured Notes due November 15, 2012. The notes are guaranteed by substantially all of OI Group's domestic subsidiaries. The assets of substantially all of OI Group's domestic subsidiaries are pledged as security for the notes. The Company used the net cash proceeds from the notes to repay the remaining $65 million of the outstanding term loan under the secured credit agreement and to permanently reduce the revolving credit facility under the secured credit agreement by $551 million. As a result, OI Group wrote off unamortized deferred financing fees related to the term loan and the revolving credit facility and recorded extraordinary charges totaling $4.5 million less applicable income taxes of $1.6 million.

        The $1.625 billion of Senior Secured Notes noted above that were issued during 2002 are part of OI Group's plan to obtain longer term financing by issuing long term fixed rate debt. While this strategy extends the maturity of OI Group's debt, the long term fixed rate debt increases the cost of borrowing over the shorter term, variable rate debt. OI Group expects that the higher cost debt will add approximately $25 million to interest expense in 2003. In 2003, OI Group expects to continue refinancing its existing debt, including the secured credit agreement, which may include the replacement of more of its shorter term, lower cost, variable rate debt with longer term, higher cost, fixed rate debt.

        OI Inc. has substantial obligations related to semiannual interest payments on $1.7 billion of outstanding public debt securities. In addition, OI Inc. pays aggregate annual dividends of $21.5 million on 9,050,000 shares of its $2.375 convertible preferred stock. OI Inc. also makes, and expects in the future to make, substantial indemnity payments and payments for legal fees and expenses in connection with asbestos-related lawsuits and claims. OI Inc.'s asbestos-related payments for the nine months ended September 30, 2002 were $167.4 million down from $186.8 million for the first nine months of 2001. OI Inc. expects that the gross amount of total asbestos-related payments will be moderately lower

59



in 2002 compared to 2001. OI Inc. relies primarily on distributions from OI Group to meet these obligations. Based on OI Inc.'s expectations regarding future payments for lawsuits and claims, and also based on OI Group's expected operating cash flow, OI Group believes that the payments to OI Inc. for any deferred amounts of previously settled or otherwise determined lawsuits and claims, and the resolution of presently pending and anticipated future lawsuits and claims associated with asbestos, will not have a material adverse effect upon OI Group's liquidity on a short-term or long-term basis.

        The secured credit agreement contains covenants and provisions that, among other things, restrict the ability of OI Group and its subsidiaries to dispose of assets, incur additional indebtedness, prepay other indebtedness or amend certain debt instruments, pay dividends, create liens on assets, enter into contingent obligations, enter into sale and leaseback transactions, make investments, loans or advances, make acquisitions, engage in mergers or consolidations, change the business conducted by OI Group and its subsidiaries, engage in certain transactions with affiliates and otherwise restrict certain corporate activities. In addition, the secured credit agreement contains financial covenants that require OI Group and its subsidiaries to maintain, based upon the financial statements of OI Inc. and its subsidiaries on a consolidated basis, specified financial ratios and tests, including minimum fixed charge coverage ratios, maximum leverage ratios, minimum net worth and specified capital expenditure tests.

        OI Group anticipates that cash flow from its operations and from utilization of credit available through March 2004 under the secured credit agreement will be sufficient to fund its operating and seasonal working capital needs, debt service and other obligations including payments to OI Inc. described above.

        The indenture for the notes restricts, among other things, the ability of OI Group and its restricted subsidiaries to borrow money, pay dividends on, or redeem or repurchase, stock, make investments, create liens, enter into certain transactions with affiliates and sell certain assets or merge with or into other companies.

        The following information summarizes OI Group's significant contractual cash obligations at December 31, 2001 (millions of dollars).

 
  Payments due by period
 
  Total
  Less than
one year

  1-3 years
  4+ years
Contractual cash obligations:                        
  Long-term debt   $ 5,358.3   $ 30.8   $ 2,848.6   $ 2,478.9
  Capital lease obligations     2.2           2.2      
  Operating leases     243.1     62.0     120.1     61.0
   
 
 
 
      Total contractual cash obligations   $ 5,603.6   $ 92.8   $ 2,970.9   $ 2,539.9
   
 
 
 
 
  Amount of commitment expiration per period
 
  Total
  Less than
one year

  1-3 years
  4+ years
Other commercial commitments:                        
  Lines of credit (included in the long-term debt in the table above)   $ 2,410.4         $ 2,410.4      
  Standby letters of credit     98.2   $ 98.2            
  Guarantees     35.3               $ 35.3
   
 
 
 
      Total commercial commitments   $ 2,543.9   $ 98.2   $ 2,410.4   $ 35.3
   
 
 
 

Critical Accounting Estimates

        OI Group's analysis and discussion of its financial condition and results of operations are based upon its consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The preparation of financial

60



statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. OI Group evaluates these estimates and assumptions on an ongoing basis, including but not limited to those related to pension benefit plans and goodwill. Estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. The results of these estimates may form the basis of the carrying value of certain assets and liabilities and may not be readily apparent from other sources. Actual results, under conditions and circumstances different from those assumed, may differ from estimates. The impact and any associated risks related to estimates and assumptions are discussed within Management's Discussion and Analysis of Financial Condition and Results of Operations, as well as in the Notes to Condensed Consolidated Financial Statements, if applicable, where estimates and assumptions affect OI Group's reported and expected financial results.

        OI Group believes that accounting for pension benefit plans and goodwill involves the more significant judgments and estimates used in the preparation of its consolidated financial statements:

    Pension Benefit Plans

        Because of their historically well-funded status, OI Group's principal pension benefit plans contributed pretax credits to earnings of approximately $62.8 million for the first nine months of 2002 and approximately $72.8 million for the first nine months of 2001. OI Group expects that the amount of such credits for the full year 2002 will be approximately 15% lower than the full year of 2001. The 2002 decrease in pretax pension credits is attributed to lower expected return on assets and the addition of certain pension plans from the acquisition of the Canadian glass container assets of Consumers Packaging Inc.

        Future effects on operating results depend on economic conditions and investment performance. For example, a one-half percentage point change in the actuarial assumption regarding the expected return on assets would result in a change of approximately $15 million in pretax pension credits for the full year. In addition, changes in external factors, including the fair values of plan assets and the discount rate used to calculate plan liabilities, could result in balance sheet recognition of a minimum pension liability. If the plans' accumulated benefit obligations ("ABO") exceed the fair value of their assets at December 31, 2003, OI Group will be required to write off most of its prepaid pension asset and record a liability equal to the excess of the ABO over the fair value of the assets. The noncash charge would result in a decrease in the Accumulated Other Comprehensive Income component of share owner's equity that would significantly reduce net worth.

    Goodwill

        Beginning in 2002, OI Group will evaluate goodwill annually (or more frequently if impairment indicators arise) for impairment. Goodwill impairment testing is performed using the business enterprise value ("BEV") of each reporting unit which is calculated as of a measurement date, by determining the present value of debt-free, after tax future cash flows, discounted at the weighted average cost of capital of a hypothetical third party buyer. This BEV is then compared to the book value of each reporting unit as of the measurement date to assess whether an impairment exists. If certain assumptions change, thereby reducing the BEV, such as EBIT projections, cash flow projections, or the risk adjusted cost of capital, goodwill may have to be written down. If the write down is significant, the charge would have a material adverse effect on reported results of operations and net worth.

Quantitative and Qualitative Disclosure about Market Risk

        All borrowings under the April 2001 secured credit agreement, including borrowings by foreign subsidiaries, are denominated in U.S. dollars. As described below, certain amounts borrowed under the agreement by foreign subsidiaries have been swapped into the subsidiaries' functional currencies.

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        In January 2002, the Company completed a $1.0 billion private placement of its 87/8% Senior Secured Notes due 2009. The Company used the net cash proceeds from the notes to reduce the outstanding term loan under the Secured Credit Agreement by $980 million. In November 2002, the Company completed a $450 million private placement of its 83/4% Senior Secured Notes due 2012. The Company used the net cash proceeds from the notes to repay the remaining $65 million of the outstanding term loan under the secured credit agreement and the remaining $376 million was used to permanently reduce the revolving loan facility under the secured credit agreement. In December 2002, the Company completed a $175 million private placement of its 83/4% Senior Secured Notes due 2012. The Company used the net cash proceeds from the notes to permanently reduce the revolving loan facility under the secured credit agreement. As a result, OI Group's exposure to variable interest rates has been reduced and the maturity of a significant portion of its debt has been extended.

    Foreign Currency Exchange Rate Risk

        A substantial portion of OI Group's operations consists of manufacturing and sales activities conducted by affiliates in foreign jurisdictions. The primary foreign markets served by OI Group's affiliates are in Australia, South America (principally Colombia, Brazil and Venezuela) and Europe (principally Italy, the U.K. and Poland). In general, revenues earned and costs incurred by OI Group's major foreign affiliates are denominated in their respective local currencies. Consequently, OI Group's reported financial results could be affected by factors such as changes in foreign currency exchange rates or highly inflationary economic conditions in the foreign markets in which OI Group's affiliates operate. When the U.S. dollar strengthens against foreign currencies, the reported dollar value of local currency EBIT generally decreases; when the U.S. dollar weakens against foreign currencies, the reported U.S. dollar value of local currency EBIT generally increases.

        Subject to other business and tax considerations, OI Group's strategy is to mitigate the economic effects of currency exchange rate fluctuations on that portion of foreign currency EBIT which is expected to be invested elsewhere or remitted to the parent company. OI Group's foreign affiliates generally invest their excess funds in U.S. dollars or dollar-based instruments, where such instruments are available with acceptable interest rates and terms. In those countries where the local currency is the designated functional currency, however, this strategy exposes OI Group to reported losses or gains in the event the foreign currency strengthens or weakens against the U.S. dollar. OI Group believes that the benefit of investing excess cash in U.S. dollars or their equivalent outweighs the risk of reporting losses or gains from currency exchange rate fluctuations. In those countries with hyper-inflationary economies, where the U.S. dollar is the designated functional currency, this investment strategy for excess funds mitigates the risk of reported losses or gains.

        Because most of OI Group's foreign affiliates operate within their local economic environment, OI Group believes it is appropriate to finance those operations with local currency borrowings to the extent practicable. Considerations which influence the amount of such borrowings include long- and short-term business plans, tax implications, and the availability of borrowings with acceptable interest rates and terms. In those countries where the local currency is the designated functional currency, this strategy mitigates the risk of reported losses or gains in the event the foreign currency strengthens or weakens against the U.S. dollar. In those countries where the U.S. dollar is the designated functional currency, however, local currency borrowings expose OI Group to reported losses or gains in the event the foreign currency strengthens or weakens against the U.S. dollar.

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        OI Group's secured credit agreement provides for U.S. dollar borrowings by certain foreign affiliates. As of September 30, 2002, amounts outstanding under the secured credit agreement borrowed by foreign affiliates were:

Affiliate Location

  Millions of
U.S. Dollars

Australia   $ 861.7
United Kingdom     83.0
   
    $ 944.7
   

        A significant portion of the above borrowings along with U.S. dollar borrowings through intercompany loans, has been swapped into local currencies using currency swaps. OI Group accounts for these swaps as fair value hedges. As such, the changes in the value of the swaps are included in other expense and are expected to substantially offset any exchange rate gains or losses on the related U.S. dollar borrowings.

        As of September 30, 2002, OI Group's affiliate in Australia has swapped $650.0 million of borrowings into $1,275.0 million of Australian dollars. This swap matures on March 31, 2003, with interest resets every 90 days. The interest reset terms of the swap approximate the terms of the U.S. dollar borrowings. This derivative instrument swaps both the interest and principal from U.S. dollars to Australian dollars and also swaps the interest rate from a U.S. based rate to an Australian based rate. OI Group's affiliate in the United Kingdom has swapped $200.0 million of bank and intercompany borrowings into 139.0 million British pounds. This swap also matures on March 31, 2003, with interest resets every 90 days. This derivative instrument swaps both the interest and principal from U.S. dollars to British pounds and also swaps the interest rate from a U.S. based rate to a British based rate.

        On October 1, 2001, OI Group completed the acquisition of the Canadian glass container assets of Consumers Packaging Inc. for a purchase price of approximately $150 million and the assumption of certain liabilities. OI Group financed this purchase through borrowings under the secured credit agreement, which were transferred to Canada through intercompany loans in U.S. dollars. OI Group's affiliate in Canada has entered into swap transactions to manage the affiliate's exposure to fluctuating foreign exchange rates by swapping the principal and interest portion of the intercompany loan. At September 30, 2002, the Canadian affiliate has swapped $90.0 million of U.S. dollar borrowings into $142.0 million Canadian dollars. This swap matures on October 1, 2003. This derivative instrument swaps both the interest and principal from U.S. dollars to Canadian dollars and also swaps the interest rate from a U.S. based rate to a Canadian based rate. The affiliate has also entered into a forward hedge related to the fourth quarter interest receivable and payable related to the previous swap. The affiliate has also entered in forward hedges which effectively swap $10 million of U.S. dollar borrowings into $16 million Canadian dollars. These hedges swap both the interest and principal from U.S. dollars to Canadian dollars and mature monthly.

        The remaining portion of OI Group's consolidated debt which was denominated in foreign currencies was not significant.

        OI Group believes it does not have material foreign currency exchange rate risk related to local currency denominated financial instruments (i.e., cash, short-term investments and long-term debt) of its foreign affiliates.

    Interest Rate Risk

        OI Group's interest expense is most sensitive to changes in the general level of U.S. interest rates applicable to its U.S. dollar indebtedness. To mitigate the impact of fluctuations in variable interest

63


rates, OI Group could, at its option, convert to fixed interest rates by either refinancing variable rate debt with fixed rate debt or entering into interest rate swaps.

        The following table provides information about OI Group's significant interest rate risk at September 30, 2002.

 
  Outstanding
  Fair value
 
  (dollars in millions)

Variable rate debt:            
Secured Credit Agreement, matures March 31, 2004:            
  Revolving Loans, interest at a Eurodollar based rate plus 2.00%   $ 2,414.9   $ 2,414.9
  Term Loan, interest at a Eurodollar based rate plus 2.50%   $ 65.0   $ 65.0

        The fair value of OI Inc.'s $1.7 billion outstanding debt securities being guaranteed by OI Group at September 30, 2002 was $1,516.6 million.

    Commodity Risk

        OI Group is exposed to fluctuation of various commodity prices, most significantly, the changes in prices related to natural gas. OI Group purchases a significant amount of natural gas at nationally quoted market prices. OI Group uses commodity futures contracts related to a portion of its forecasted future natural gas requirements. The objective of these futures contracts is to limit the fluctuations in prices paid and the potential volatility in earnings or cash flows from future price movements. In January of 2002, OI Group entered into commodity futures contracts for approximately 50% of its domestic natural gas usage (approximately 800 million BTUs) through the end of 2002. OI Group has also entered into additional contracts during 2002 in order to hedge approximately 50% of its North American natural gas needs through the first quarter 2003. At September 30, 2002, an unrealized net gain of $1.8 million (net of tax) related to these commodity futures contracts was included in Other Comprehensive Income. There was no ineffectiveness recognized during the nine months ended September 30, 2002.

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BUSINESS

        OI Group is one of the world's leading manufacturers of packaging products. OI Group is the largest manufacturer of glass containers in North America, South America, Australia and New Zealand, and one of the largest in Europe. In addition, OI Group is a leading manufacturer in North America of plastic containers, plastic closures and plastic prescription containers. OI Group also has plastics packaging operations in South America, Europe, Australia and New Zealand. Consistent with its strategy to continue to strengthen its existing packaging businesses, OI Group has acquired 18 glass container businesses in 18 countries since 1991, including businesses in South America, Central and Eastern Europe and the Asia Pacific region, and six plastics packaging businesses with operations in 11 countries.

        OI Group believes it is a technological leader in the worldwide glass container and plastics packaging segments of the rigid packaging market. During the five years ended December 31, 2001, OI Group invested more than $2.3 billion in capital expenditures (excluding acquisitions) and more than $342.0 million in research, development and engineering to, among other things, improve labor and machine productivity, increase capacity in growing markets and commercialize technology into new products.

        OI Group is a holding company with subsidiaries operating in two product segments:

    Glass Containers, manufactured by us; and

    Plastics Packaging, manufactured principally by subsidiaries of OI Plastic Products FTS Inc.

Glass Containers

        We are an indirect, wholly-owned subsidiary of OI Group and a leading manufacturer of glass containers throughout the world. Approximately one of every two glass containers made worldwide is made by us, our affiliates or our licensees. Worldwide glass container sales represented 66% of OI Group's consolidated net sales for the year ended December 31, 2001 and 68% of those sales for the nine months ended September 30, 2002. For the nine months ended September 30, 2002, we manufactured approximately 40% of all glass containers sold by domestic producers in the U.S., making us the leading manufacturer of glass containers in the U.S. We are the leading glass container manufacturer in 17 of the 19 countries where we compete in the glass container segment of the rigid packaging market and the sole manufacturer of glass containers in eight of these countries.

    Products and Services

        In the U.S., we produce glass containers for malt beverages including beer and ready to drink low alcohol refreshers, food, tea, juice, liquor, wine and pharmaceuticals. We also produce glass containers for soft drinks, principally outside the U.S. We manufacture these products in a wide range of sizes, shapes and colors. As a leader in glass container innovation, we are active in new product development.

    Customers

        In most of the countries where we compete, we have the leading position in the glass container segment of the rigid packaging market (based on units sold). Our largest customers include many of the leading manufacturers and marketers of glass packaged products in the world. In the U.S., the majority of our customers for glass containers are brewers, food producers, distillers and wine vintners. Outside of the U.S., glass container customers also include soft drink bottlers. Our largest U.S. glass container customers include (in alphabetical order) Anheuser-Busch, Cadbury, Coors, Gerber,

65


H.J. Heinz and Miller Brewing. Our largest international glass container customers include Diageo, Foster's, Heineken, Labatt, Lion Nathan and Molson. We are the sole glass container supplier to many of these "blue chip" customers.

        We sell most of our glass container products directly to customers under annual or multi-year supply agreements. We also sell some of our products through distributors. Glass containers are typically scheduled for production in response to customers' orders for their quarterly requirements.

    Markets and Competitive Conditions

        The principal markets for our glass container products are in North America, South America, Europe and the Asia Pacific region. We believe we are the low-cost producer in the glass container segment of the North American rigid packaging market, as well as the low-cost producer in most of the international glass container segments in which we compete. Much of this cost advantage is due to the proprietary equipment and process technology we use. Our machine development activities and systematic upgrading of production equipment in the 1980's and 1990's have given us low-cost leadership in the glass container segment in many of the countries in which we compete, a key strength to competing successfully in the rigid packaging market.

        We have the leading share of the glass container segment of the U.S. rigid packaging market based on units sold by domestic producers in the U.S., with our sales representing approximately 40% of that segment for the nine months ended September 30, 2002. Our principal glass container competitors in the U.S. are Saint-Gobain Containers Inc., a wholly-owned subsidiary of Compagnie de Saint-Gobain, and Anchor Glass Container Corporation.

        In supplying glass containers outside of the U.S., we compete directly with Compagnie de Saint-Gobain in Italy and Brazil, Rexam plc and Ardagh plc in the U.K., Vetropack in the Czech Republic and Amcor Limited in Australia. In other locations in Europe, we compete indirectly with a variety of glass container firms including Compagnie de Saint-Gobain, BSN Glasspack, Vetropack and Rexam plc. Except as mentioned above, we do not compete with any large, multi-national glass container manufacturers in South America or the Asia Pacific region.

        In addition to competing with other large, well-established manufacturers in the glass container segment, we compete with manufacturers of other forms of rigid packaging, principally aluminum cans and plastic containers, on the basis of quality, price and service. The principal competitors producing metal containers are Crown Cork & Seal Company, Inc., Rexam plc, Ball Corporation and Silgan Holdings Inc. The principal competitors producing plastic containers are Consolidated Container Holdings, LLC, Graham Packaging Company, Plastipak Packaging, Inc. and Silgan Holdings Inc. We also compete with manufacturers of non-rigid packaging alternatives, including flexible pouches and aseptic cartons, in serving the packaging needs of juice customers.

        Our unit shipments of glass containers in countries outside of the U.S. have grown substantially from levels of the early 1990's. We have added to our international operations by acquiring glass container companies, many of which have leading positions in growing or established markets, increasing capacity at select foreign affiliates, and maintaining the global network of glass container companies that license our technology. In many developing countries, our international glass operations have benefited in the last ten years from increased consumer spending power, a trend toward the privatization of industry, a favorable climate for foreign investment, lowering of trade barriers and global expansion programs by multi-national consumer companies. Due to the weighting of labor as a production cost, glass containers have a significant cost advantage over plastic and metal containers in developing countries where labor wage rates are relatively low.

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        Our majority ownership positions in international glass affiliates are summarized below:

Company/Country

  Ownership %
ACI Operations Pty. Ltd., Australia   100.0
ACI Operations New Zealand Ltd., New Zealand   100.0
Avirunion, a.s., Czech Republic   100.0
Karhulan Lasi Oy, Finland   100.0
OI Canada Corp., Canada   100.0
United Glass Ltd., United Kingdom   100.0
United Hungarian Glass, Hungary   100.0
Vidrieria Rovira S.A., Spain   100.0
PT Kangar Consolidated Industries, Indonesia   100.0
A/S Jarvakandi Klaas, Estonia   99.9
AVIR S.p.A., Italy   99.7
Owens-Illinois Polska S.A., Poland   99.4
Vidrios Industriales S.A., Peru   96.0
Companhia Industrial Sao Paulo e Rio, Brazil   79.4
Owens-Illinois de Venezuela, C.A., Venezuela   74.0
ACI Guangdong Glass Company Ltd., China   70.0
ACI Shanghai Glass Company Ltd., China   70.0
Wuhan Owens Glass Container Company Ltd., China   70.0
Cristaleria del Ecuador S.A., Ecuador   69.0
Cristaleria Peldar S.A., Colombia   58.4

        North America.    In addition to our glass container operations in the U.S., our affiliate in Canada is the sole manufacturer of glass containers in that country.

        South America.    Our affiliates in Colombia, Ecuador and Peru are the sole manufacturers of glass containers in those countries. In both Brazil and Venezuela, we are the leading manufacturer of glass containers. In South America, there is a large infrastructure for returnable/refillable glass containers. However, with improving economic conditions in South America after the recessions of the late 1990's, our unit sales of non-returnable glass containers have grown in Venezuela, Colombia and Brazil.

        Europe.    Our European glass container business has operations in eight countries and is one of the largest in Europe. In Italy, our wholly-owned affiliate, AVIR, is the leading manufacturer of glass containers and operates 13 glass container plants. AVIR accounted for approximately 49% of our total European glass container sales in 2001. United Glass, our affiliate in the U.K., is a leading manufacturer of glass containers for the U.K. spirits business. In Poland, we are the leading glass container manufacturer and currently operate two plants. Our affiliate in the Czech Republic, Avirunion, is the leading glass container manufacturer in that country and also ships a portion of its beer bottle production to Germany. In Hungary, we are the sole glass container manufacturer and serve the Hungarian food industry. In Finland and the Baltic country of Estonia, we are the only manufacturer of glass containers. We coordinate our production activities between Finland and Estonia in order to efficiently serve the Finnish, Baltic and Russian markets. In recent years, Western European brewers have been establishing beer production facilities in Central Europe and the Russian Republic. Because these new beer plants use high-speed filling lines, they require high quality glass containers in order to operate properly. We believe we are well-positioned to meet this growing demand. In Spain, we serve the market for wine bottles in the Barcelona area.

        Asia Pacific.    We have glass operations in four countries in the Asia Pacific region: Australia, New Zealand, Indonesia and China. Our Asia Pacific affiliates are the leading manufacturers of glass

67



containers in most of the countries in which they compete. In Australia, we operate five glass container plants, including a plant focused on serving the needs of the rapidly growing Australian wine industry. In New Zealand, we are the sole glass container manufacturer. In Indonesia, our affiliate supplies the Indonesian market and exports glass containers for food and pharmaceutical products to Australian customers. In China, the glass container segments of the packaging market are regional and highly fragmented with a number of local competitors. We have three modern glass container plants in China manufacturing high-quality beer bottles to serve Foster's as well as Anheuser-Busch, which is now producing Budweiser® in and for the Chinese market.

        We continue to focus on serving the needs of leading multi-national consumer companies as they pursue international growth opportunities. We believe that we and our affiliates are often the glass container partner of choice for such multi-national consumer companies due to our leadership in glass technology and our status as a low-cost producer in most of the markets we serve.

    Manufacturing

        We believe we are the low-cost producer in the glass container segment of the North American rigid packaging market, as well as the low-cost producer in most of the international glass segments in which we compete. Much of this cost advantage is due to the proprietary equipment and process technology we use. We believe our glass forming machines, developed and refined by our engineering group, are significantly more efficient and productive than those used by our competitors. Our machine development activities and systematic upgrading of production equipment in the 1980's and 1990's have given us low-cost leadership in the glass container segment in most of the countries in which we compete, a key strength to competing successfully in the rigid packaging market.

        Over the last ten years, we have more than doubled our overall glass container labor and machine productivity in the U.S., as measured by output produced per man-hour. By applying our technology and worldwide "best practices," during this period we decreased the number of production employees required per glass-forming machine line in the U.S. by over 35%, and we increased the daily output of our glass-forming machines by approximately 40%.

    Methods of Distribution

        Due to the significance of transportation costs and the importance of timely delivery, glass container manufacturing facilities are generally located close to customers. In the U.S., most of our glass container products are shipped by common carrier to customers within a 250-mile radius of a given production site. In addition, our glass container operations outside the U.S. export some products to customers beyond their national boundaries, which may include transportation by rail and ocean delivery in combination with common carriers. We also operate several machine and mold shops that manufacture high-productivity glass-forming machines, molds and related equipment.

    Suppliers and Raw Materials

        The primary raw materials used in our glass container operations are sand, soda ash and limestone. Each of these materials, as well as the other raw materials we use to manufacture glass containers, have historically been available in adequate supply from multiple sources. For certain raw materials, however, there may be temporary shortages due to weather or other factors, including disruptions in supply caused by raw material transportation or production delays.

        Worldwide suppliers of sand used in the production of glass containers include Unimin Corporation, SCR Sibelco, U.S. Silica and Quarzwerke. There are a number of suppliers of limestone

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and other minerals; these firms are regional rather than worldwide in scope. Historically, prices for sand, limestone and other minerals have not been subject to dramatic fluctuations.

        Worldwide suppliers of soda ash include Solvay, FMC Corporation, OCI Chemical, IMC Corporation and General Chemical Partners. Historically, prices for soda ash have not been subject to dramatic fluctuations, except for temporary spikes or troughs from time to time.

    Glass Recycling

        We are an important contributor to the recycling effort in the U.S. and continue to melt substantial recycled glass tonnage in our glass furnaces. If sufficient high-quality recycled glass were available on a consistent basis, we have the technology to operate using 100% recycled glass. Using recycled glass in our manufacturing process reduces energy costs and prolongs the operating life of our glass melting furnaces.

    Facilities

        We have glass container operations located in 19 countries. The following table lists the locations of our glass container plants and related facilities:

North America
  Europe
  Asia Pacific
  South America
California   Oklahoma   Czech Republic   Poland   Australia   Brazil
Hayward   Muskogee   Sokolov   Antoninek   Adelaide   Descalvado(#)
Los Angeles   Oregon   Teplice   Jaroslaw   Brisbane   Manaus(+)
Oakland   Portland   Estonia   Spain   Melbourne   Rio de Janeiro
Tracy   Pennsylvania   Jarvakandi   Barcelona   Melbourne(§)   Sao Paulo
Colorado   Brockway   Finland   United Kingdom   Perth   Colombia
Wheat Ridge(*)   Brockway(+)   Karhula   Alloa   Sydney   Buga
Georgia   Clarion   Hungary   Birmingham(+)   China   Cali(+)
Atlanta   Crenshaw   Oroshaza   Devilla(#)   Guangzhou   Envigado
Illinois   Texas   Italy   Harlow   Shanghai   Soacha
Godfrey(+)   Waco   Asti       Tianjin(§)   Zipaquira(§)
Streator   Virginia   Bari       Wuhan   Zipaquira(#)
Indiana   Danville   Bologna       Indonesia   Ecuador
Lapel   Toano   Milan (2 plants)       Jakarta   Guayaquil
Michigan   Canada   Napoli       New Zealand   Peru
Charlotte   British Columbia   Napoli(§)       Auckland   Callao
New York   New Brunswick   Pordenone           Venezuela
Auburn   Ontario (3 plants)   Rome           Valencia
North Carolina   Quebec   Termi           Valera
Winston-Salem       Trento (2 plants)            
Ohio       Treviso            
Zanesville                    

(*)
A 50-50 joint venture with Coors Brewing Company

(+)
Machine manufacturing

(#)
Silica sand plant

(§)
Mold shop

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Plastics Packaging

        OI Group is a leading manufacturer in North America of plastic containers, plastic closures and plastic prescription containers. OI Group also has plastics packaging operations in South America, Europe, Australia and New Zealand. Plastics packaging sales represented 34% of OI Group's consolidated net sales for the year ended December 31, 2001 and 32% of those sales for the nine months ended September 30, 2002.

    Manufacturing and Products

        The plastics packaging business utilizes two basic manufacturing processes:

    Blow-Molded Plastics Packaging

        Blow-molding is a plastics manufacturing process where pre-heated plastic is captured inside a hollow mold and using pressurized air is blown, much like a balloon, into a container. After being cooled, the mold is opened and the plastic product is removed.

        In blow-molded plastics packaging, OI Group is a leading U.S. manufacturer of high density polyethylene (HDPE) containers. OI Group manufactures these containers for products for the food and beverage, household, personal care, health care and chemical and automotive fluid end-use categories.

        OI Group is also a leading worldwide manufacturer of PET blow-molded containers. Many of these PET containers are manufactured using multiple layers of plastic, with each layer having a different function. Some of these plastic layers have "barrier" properties, effectively blocking the escape of carbon dioxide out of, and the permeation of oxygen into, the packaged product thereby maintaining product quality and extending shelf life. Examples of products packaged in multi-layer PET containers include Heinz ketchup and Gatorade® sports drink. Major brewers, such as Anheuser-Busch, Coors and Miller Brewing, are now marketing beer packaged in OI Group's multi-layer PET beer bottles.

    Injection-Molded Plastics Packaging

        Injection molding is a plastics manufacturing process where plastic resin in the form of pellets or powder is melted and then injected or otherwise forced under pressure into a mold. The mold is then cooled and the product is removed from the mold.

        OI Group develops and produces injection-molded plastic closures and closure systems, which typically incorporate functional features such as tamper evidence and child resistance or dispensing. Other products include trigger sprayers for household cleaning products, finger and lotion pumps for fragrances and cosmetics, as well as injection-molded containers for deodorant and toothpaste.

        The prescription product unit manufactures injection-molded plastic prescription containers. These products are sold primarily to drug wholesalers, major drug chains and mail order pharmacies. Containers for prescriptions include ovals, vials, ointment jars, dropper bottles and automation friendly prescription containers.

    Customers

        OI Group's largest customers (in alphabetical order) for plastic containers and closures include Bristol-Myers Squibb, H.J. Heinz, Johnson & Johnson, PepsiCo (Dole®, Gatorade®, Tropicana®), Procter & Gamble and Unilever. The largest customers for prescription containers include

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AmeriSourceBergen, Cardinal Health, Eckerd Drug, McKesson, Merck-Medco, Rite-Aid and Walgreens.

        OI Group sells most plastic containers, plastic closures and plastic prescription containers directly to customers under annual or multi-year supply agreements. These supply agreements typically allow a pass-through of resin price increases and decreases, except for the prescription business. OI Group also sells some of its products through distributors.

    Markets and Competitive Conditions

        Major markets for plastics packaging include the food and beverage, household products, personal care products, health care products and chemical and automotive fluid industries.

        The plastics segment of the rigid packaging market is competitive and fragmented due to generally available technology, low costs of entry and customer emphasis on low package cost. A large number of competitors exist on both a national and regional basis. OI Group competes with other manufacturers in the plastic containers segment on the basis of quality, price, service and product design. The principal competitors producing plastic containers are Consolidated Container Holdings, LLC, Graham Packaging Company, Plastipak Packaging, Inc. and Silgan Holdings Inc. OI Group emphasizes total package supply (i.e., bottle and closure system), diversified market positions, proprietary technology and products, new package development and packaging innovation. The plastic closures segment is divided into various categories in which several suppliers compete for business on the basis of quality, price, service and product design.

        OI Group's approach has been to identify and serve areas of the plastics packaging segment where customers seek distinctive and functional packaging to differentiate their products among an array of choices offered to consumers. OI Group believes it is a leader in technology and development of custom products and has a leading market position in the U.S. for such products. OI Group believes its plastic containers and plastic closures businesses have a competitive advantage as a result of one of the shortest new product development cycles in the industry, enabling it to respond quickly to customer needs in the rapidly changing custom plastic containers and closures segments. OI Group's product innovations in plastics packaging include in-mold labeling for custom-molded bottles and multi-layer bottles containing post-consumer recycled (PCR) plastic.

    Manufacturing

        The exact type of blow-molding manufacturing process OI Group uses is dependent on the plastic product type and package requirements. These blow-molding processes include: various types of extrusion blow-molding for medium- and large-sized HDPE, low density polyethelene (LDPE), polypropylene and polyvinyl chloride (PVC) containers; stretch blow-molding for medium-sized PET containers; injection blow-molding for small health care and personal care containers in various materials; two-stage PET blow-molding for high volume, high performance mono-layer, multi-layer and heat-set PET containers; and proprietary blow-molding for drain-back systems and other specialized applications.

        Injection-molding is used in the manufacture of plastic closures, trigger sprayers, deodorant canisters, ink cartridges and vials. Compression-molding, an advanced type of injection-molding, is used for high volume carbonated soft drink and other beverage closures that require tamper evidence.

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    Methods of Distribution

        In the U.S., most of OI Group's plastic containers, plastic closures and plastic prescription containers are shipped by common carrier. In addition, OI Group's plastics packaging operations outside the U.S. export some products to customers beyond their national boundaries, which may include transportation by rail and ocean delivery in combination with common carriers.

    Suppliers and Raw Materials

        OI Group manufactures containers and closures using HDPE, LDPE, polypropylene, PVC, PET and various other plastic resins. OI Group also purchases large quantities of master batch colorants, corrugated materials and labels. In general, these raw materials are available in adequate supply from multiple sources. However, for certain raw materials, there may be temporary shortages due to market conditions and other factors.

        Worldwide suppliers of plastic resins used in the production of plastics packaging include Voridian (formerly Eastman Chemical), Dow Chemical, ExxonMobil, Basell, Chevron Phillips and BP Solvay. Historically, prices for plastic resins have been subject to dramatic fluctuations. However, resin cost pass-through provisions are typical in OI Group's supply contracts with its plastics packaging customers.

        With the exceptions of PolyOne, Ampacet and Clariant, each of which do business worldwide, most suppliers of batch colorants are regional in scope. Historically, prices for these raw materials have been subject to dramatic fluctuations. However, cost recovery for batch colorants is included in resin pass-through provisions which are typical in OI Group's supply contracts with its plastics packaging customers.

        Worldwide suppliers of corrugated materials include International Paper, Georgia-Pacific, Weyerhaeuser, Temple-Inland, Stone-Smurfit Container and Jefferson Smurfit Group. Historically, prices for corrugated materials have not been subject to dramatic fluctuations, except for temporary spikes or troughs from time to time.

        With the exception of Fuji Seal (Japan) and its subsidiary, American Fuji Seal, most suppliers of plastic labels are regional in scope. Historically, prices for these raw materials have not been subject to dramatic fluctuations.

    Recycling

        Recycling content legislation, which has been enacted in several states, requires that a certain specified minimum percentage of recycled plastic be included in certain new plastic containers. OI Group has met such legislated standards in part due to its material and multi-layer process technology. OI Group's plastic containers are made with PCR plastic constituting somewhere between 25% and 100% of the material used to produce the container. In addition, its plastics plants also recycle virtually all of the internal scrap generated in the production process.

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    Facilities

        OI Group has 41 plastics manufacturing plants in the U.S. and Puerto Rico, as well as plastics packaging operations located in nine countries outside of the U.S. The following table lists the locations of the plastics packaging plants:

North America
  Europe
  Asia Pacific
  South America
Arizona   Nevada   Finland   Australia   Brazil
Tolleson   Henderson   Ryttyla   Adelaide   Sorocaba
California   New Hampshire   Hungary   Berri   Venezuela
  La Mirada   Bedford   Gyor   Brisbane (3 plants)   Valencia
  Modesto   Nashua   Netherlands   Drouin    
Connecticut   New Jersey   Etten-Leur   Melbourne (5 plants)    
  Bridgeport   Belvidere   United Kingdom   Perth (2 plants)    
Florida   Edison   Chalgrove   Sydney (2 plants)    
  Kissimmee   Washington       Wadonga    
Georgia   North Carolina       New Zealand    
  Cartersville   Hamlet       Auckland    
  Rossville   Rocky Mount       Christchurch    
Illinois   Ohio            
  Chicago   Berlin            
  Vandalia   Bowling Green            
Indiana   Cincinnati            
  Franklin   Findlay            
  Sullivan   Fremont            
Iowa   Pennsylvania            
  Iowa City   Brookville            
Kentucky   Erie            
  Florence   Hazleton            
  (2 plants)   South Carolina            
Maryland   Greenville            
  Baltimore   Texas            
Michigan   El Paso            
  Constantine   Rockwall            
Mississippi   Virginia            
  Hattiesburg   Alta Vista            
Missouri   Harrisonburg            
  Kansas City   Puerto Rico            
  St. Louis   Las Piedras            
    Mexico            
    Mexico City            
    Pachuca            

        In addition, a plastics packaging plant is under construction for the manufacture and assembly of plastic ink cartridges in Singapore.

Technical Assistance License Agreements

        We license our proprietary glass container technology to 25 companies in 25 countries. In plastics packaging, OI Group has technical assistance agreements with 24 companies in 14 countries. These agreements cover areas ranging from manufacturing and engineering assistance, to support in functions such as marketing, sales and administration. The worldwide licensee network provides a stream of revenue to support OI Group's development activities and gives it the opportunity to participate in the rigid packaging market in countries where it does not already have a direct presence. In addition, OI Group's technical agreements enable it to apply "best practices" developed by its worldwide licensee network. For the year ended December 31, 2001 and the nine months ended September 30, 2002,

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OI Group earned $24.6 million and $18.5 million, respectively, in royalties and net technical assistance revenue.

Research and Development

        Research and development constitutes an important part of OI Group's activities. Research and development expenditures were $41.2 million, $46.7 million and $37.5 million for 2001, 2000 and 1999, respectively. In addition, engineering expenditures were $31.4 million, $31.3 million and $42.2 million for 2001, 2000 and 1999, respectively. OI Group's research, development and engineering activities include new products, manufacturing process control, automatic inspection and further automation.

Environmental and Other Governmental Regulation

        OI Group's worldwide operations, in common with those of the industry generally, are subject to extensive laws, ordinances, regulations and other legal requirements relating to environmental protection, including legal requirements governing investigation and clean-up of contaminated properties as well as water discharges, air emissions, waste management and workplace health and safety. Capital expenditures for property, plant and equipment for environmental control activities were not material during 2001 or for the nine months ended September 30, 2002.

        In August 1998, the Company received a Notice of Violation from the United States Environmental Protection Agency regarding alleged opacity violations at its Oakland, California glass container plant from the period of 1994 through 1997. Certain furnaces at the plant are equipped with monitors that continuously monitor opacity. During this period, these furnaces had occasional upset and breakdown conditions that caused opacity excursions that were reported to the local air quality management district. This action by the U.S. EPA involves the same incidents that were resolved with the local air quality management district. The Company has reached a settlement in principle with the U.S. EPA under which it will pay certain monetary penalties.

        In September 2001, the Virginia Department of Environmental Quality issued a Notice of Violation to the Company's plant located in Toano, Virginia, alleging violations of certain regulations in connection with certain changes that were made to the furnaces during repairs. The Company has reached a settlement with the Virginia Department of Environmental Quality under which it will voluntarily install abatement equipment, agreed to certain production capacity limitations that are not expected to materially impact operations, and paid certain monetary penalties.

        The monetary penalties for the Oakland matter and the Toano matter are not expected to exceed $425,000 in the aggregate.

        A number of governmental authorities, both in the U.S. and abroad, have enacted, or are considering, legal requirements that would mandate certain rates of recycling, the use of recycled materials and/or limitations on certain kinds of packaging materials such as plastics. OI Group believes that governmental authorities in both the U.S. and abroad will continue to enact and develop such legal requirements.

        In the U.S., sales of non-refillable glass beverage bottles and other convenience packages are affected by mandatory deposit laws and other types of restrictive legislation. As of January 1, 2002, there were nine states with mandatory deposit laws in effect. A number of states and local governments have enacted or are considering legislation to promote curbside recycling and recycled content legislation as alternatives to mandatory deposit laws. Although such legislation is not uniformly developed, OI Group believes that states and local governments will continue to enact and develop curbside recycling and recycling content legislation.

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        Plastic containers have also been the subject of legislation in various states, which requires that a certain specified minimum percentage of recycled plastic be included in new plastic products. OI Group utilizes recycled plastic resin in its manufacturing processes.

        Although OI Group is unable to predict what environmental legal requirements may be adopted in the future, it has not made, and does not anticipate making, material expenditures with respect to environmental protection. However, the compliance costs associated with environmental legal requirements may result in future additional costs to operations.

Intellectual Property Rights

        The Company has a large number of patents that relate to a wide variety of products and processes, has a substantial number of patent applications pending, and is licensed under several patents of others. While in the aggregate the Company's patents are of material importance to its businesses, the Company does not consider that any patent or group of patents relating to a particular product or process is of material importance when judged from the standpoint of any segment or its businesses as a whole.

        The Company has a number of intellectual property rights, comprised of both patented and proprietary technology, that make the Company's glass forming machines more efficient and productive than those used by our competitors. In addition, the efficiency of the Company's glass forming machines is enhanced by the Company's overall approach to cost efficient manufacturing technology, which extends from batch house to warehouse. This technology is proprietary to the Company through a combination of issued patents, pending applications, copyrights, trade secret and proprietary know-how.

        Upstream of the glass forming machine, there is technology to deliver molten glass to the forming machine at high rates of flow and fully conditioned to be homogeneous in consistency, viscosity and temperature for efficient forming into glass containers. The Company has proprietary know-how in (a) the batch house, where raw materials are stored, measured and mixed, (b) the furnace control system and furnace combustion, and (c) the forehearth and feeding system to deliver such homogeneous glass to the forming machines.

        In the Company's glass container manufacturing processes, computer control and electro-mechanical mechanisms are commonly used for feeding molten glass to the forming machines. Various patents held by the Company describe electro-mechanical mechanisms and related technology used for feeding molten glass to the forming machines. Others represent electro-mechanical mechanisms and related technology used by the Company for shearing glass gobs for delivery to the forming machines. Additional U.S. patents and various pending applications represent technology used by the Company for measuring and precisely delivering glass gobs to the forming machines.

        Downstream of the glass forming machines there is patented and unpatented technology for ware handling, annealing, coating and inspection, which further enhance the overall efficiency of the manufacturing process.

        While the above patents and intellectual property rights are representative of the technology used in the Company's glass manufacturing operations, there are numerous other pending patent applications, trade secrets and other proprietary know-how and technology, as supplemented by administrative and operational best practices, which contribute to the Company's competitive advantage. As noted above, however, the Company does not consider that any patent or group of patents relating to a particular product or process is of material importance when judged from the standpoint of any segment or its businesses as a whole.

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Seasonality

        Sales of particular glass container and plastics packaging products such as beer and food containers are seasonal. Shipments in the U.S. and Europe are typically greater in the second and third quarters of the year, while shipments in South America and the Asia Pacific region are typically greater in the first and fourth quarters of the year.

Employees

        OI Group employed approximately 29,700 persons at December 31, 2001. A majority of OI Group's hourly workers are covered by collective bargaining agreements. Several collective bargaining agreements, which at September 30, 2002 covered approximately 87% of OI Group's union-affiliated employees in the U.S., extend through various dates in 2005. OI Group considers its employee relations to be good.

Legal Proceedings—OI Group

        In April 1999, Crown Cork & Seal Technologies Corporation ("CCS") filed suit against Continental PET Technologies, Inc. ("CPT"), a wholly-owned subsidiary of OI Group, in the United States District Court for the District of Delaware alleging that certain plastic containers manufactured by CPT, primarily multi-layer PET containers with barrier properties, infringe CCS's U.S. Patent 5,021,515 relating to an oxygen-scavenging material. CCS is a party to an agreement with Chevron Philips Chemical Company ("Chevron") under which Chevron has rights to sublicense certain CCS patents, including, Chevron believed, the patent involved in the suit against CPT. To avoid the cost of litigation, CPT took a sublicense from Chevron under the patent in suit and other patents. Chevron then entered the suit to defend and assert its right to sublicense the patent in suit to CPT. In November 2002, the Delaware District Court concluded that Chevron did not have the rights it purported to sublicense to CPT.

        Subject to any appeal by Chevron, the decision will allow CCS to pursue its lawsuit against CPT, which is in its initial stages and was stayed pending resolution of the Chevron claims. In the lawsuit, CCS seeks certain monetary damages and injunctive relief. At such time as the suit against CPT is reinstituted, CPT will pursue all defenses available to it. However, if the Court were to reach conclusions adverse to CPT on the claims for monetary damages asserted by CCS, OI Group believes such determination would not have a material adverse effect on OI Group's consolidated results of operations and financial position, and any such damages could be covered in part by third party indemnification. Additionally, an adverse decision with respect to CCS's request for injunctive relief is not likely to have a material adverse effect on OI Group because OI Group believes that it can pursue alternative technologies for the manufacture of multi-layer PET containers with barrier properties.

        Certain other litigation is pending against OI Group, in many cases involving ordinary and routine claims incidental to the business of OI Group and in others presenting allegations that are nonroutine and involve compensatory, punitive or treble damage claims as well as other types of relief. The ultimate legal and financial liability of OI Group in respect to this pending litigation cannot be estimated with certainty. However, OI Group believes, based on its examination and review of such matters and experience to date, that such ultimate liability will not have a material adverse effect on its results of operations or financial condition.

Legal Proceedings—OI Inc.

        OI Inc. is one of a number of defendants in a substantial number of lawsuits filed in numerous state and federal courts by persons alleging bodily injury (including death) as a result of exposure to dust from asbestos fibers. OI Inc. relies primarily on distributions from its subsidiaries, including the Company, to fund its indemnity payments and legal fees related to these lawsuits.

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        From 1948 to 1958, one of OI Inc.'s former business units commercially produced and sold approximately $40 million of a high-temperature, calcium-silicate based pipe and block insulation material containing asbestos. OI Inc. exited the pipe and block insulation business in April 1958. The traditional asbestos personal injury lawsuits and claims relating to such production and sale of asbestos material typically allege various theories of liability, including negligence, gross negligence and strict liability and seek compensatory and, in some cases, punitive damages in various amounts (herein referred to as "asbestos claims").

        As of December 31, 2002, OI Inc. has determined that it is a named defendant in asbestos lawsuits and claims involving approximately 24,000 plaintiffs and claimants. Approximately 55% of the currently pending claims and lawsuits set forth above involve multiple claimants, and virtually all of the pending claims and lawsuits name a number of additional defendants (typically from 20 to 100 or more). Approximately 40% of the claimants and plaintiffs do not specify the monetary damages sought. Another 39% of the plaintiffs merely recite that the amount of damages sought exceed the required jurisdictional minimum damages in the court of jurisdiction in which the suit is filed. Approximately 14% of the plaintiffs specify the maximum damages sought in amounts ranging from $10 million to $40 million. Lastly, fewer than 7% of the plaintiffs are involved in lawsuits which specify precise damage amounts, with approximately 5.8% specifying amounts up to $20 million; approximately 0.2% specifying amounts from $20 million to $75 million; and approximately 0.5% specifying amounts from $75 million to $125 million. In addition, one lawsuit, pending since 1991 and involving fewer than 0.2% of the plaintiffs and approximately 60 defendants, specifies damages of $11 billion.

        As indicated by the foregoing summary, modern pleading practice permits considerable variation in the assertion of monetary damages. This variability, together with the actual experience discussed further below of litigating or resolving through settlement hundreds of thousands of asbestos claims and lawsuits over an extended period, demonstrates that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value. Rather, the amount potentially recoverable for a specific claimant is determined by other factors such as the claimant's severity of disease, product identification evidence against specific defendants, the defenses available to those defendants, the specific jurisdiction in which the claim is made, the claimant's history of smoking or exposure to other possible disease-causative factors, and the various other matters discussed further below.

        In addition to the pending claims set forth above, OI Inc. has claims-handling agreements in place with many plaintiffs' counsel throughout the country. These agreements require evaluation and negotiation regarding whether particular claimants qualify under the criteria established by such agreements. The criteria for such claims include verification of a compensable illness and a reasonable probability of exposure to a product manufactured by OI Inc.'s former business unit during its manufacturing period ending in 1958. Some plaintiffs' counsel have historically withheld claims under these agreements for later presentation while focusing their attention on active litigation in the tort system. OI Inc. believes that as of December 31, 2002 there are no more than 18,500 of such preexisting but presently unasserted claims against OI Inc. that are not included in the total of pending claims specified in the preceding paragraph. OI Inc. further believes that the bankruptcies of additional co-defendants, as discussed below, have resulted in an acceleration of the presentation and disposition of a number of these previously withheld preexisting claims under such agreements, which claims would otherwise have been presented and disposed of over the next several years. This acceleration is reflected in an increased number of pending asbestos claims and, to the extent disposed, contributes to an increase in asbestos-related payments which is expected to continue in the near term.

        OI Inc. is also a defendant in other asbestos-related lawsuits or claims involving maritime workers, medical monitoring claimants, co-defendants and property damage claimants. Based upon its past experience, OI Inc. believes that these categories of lawsuits and claims will not involve any material

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liability and they are not included in the above description of pending matters, or in the following description of disposed matters.

        Since receiving its first asbestos claim, OI Inc., as of December 31, 2002, has disposed of the asbestos claims of approximately 286,000 plaintiffs and claimants at an average indemnity payment per claim of approximately $5,600. OI Inc.'s indemnity payments for these claims have varied on a per claim basis, and are expected to continue to vary considerably over time. As discussed above, a part of OI Inc.'s objective is to achieve, where possible, resolution of asbestos claims pursuant to claims-handling agreements. Under such agreements, qualification by meeting certain illness and exposure criteria has tended to reduce the number of claims presented to OI Inc. that would ultimately be dismissed or rejected due to the absence of impairment or product exposure evidence. OI Inc. expects that as a result, although aggregate spending may be lower, there may be an increase in the per claim average indemnity payment involved in such resolution. In this regard, although the average of such payments has been somewhat higher following the implementation of the claims-handling agreements in the mid-1990s, the annual average amount has not varied materially from year to year in recent years.

        OI Inc. believes that its ultimate asbestos-related contingent liability (i.e., its indemnity or other claim disposition costs plus related legal fees) cannot be estimated with certainty. In 1993, OI Inc. established a liability of $975 million to cover indemnity payments and legal fees associated with the resolution of outstanding and expected future asbestos lawsuits and claims. In 1998, an additional liability of $250 million was established. During the third quarter of 2000, OI Inc. established an additional liability of $550 million to cover OI Inc.'s estimated indemnity payments and legal fees arising from outstanding asbestos personal injury lawsuits and claims and asbestos personal injury lawsuits and claims expected to be filed in the ensuing several years. OI Inc.'s ability to reasonably estimate its liability has been significantly affected by the volatility of asbestos-related litigation in the United States, the expanding list of non-traditional defendants that have been sued in this litigation and found liable for substantial damage awards, the continued use of litigation screenings to generate new lawsuits, the large number of claims asserted or filed by parties who claim prior exposure to asbestos materials but have no present physical impairment as a result of such exposure, and the growing number of co-defendants that have filed for bankruptcy. In 2002, North American Refractories Co., Kaiser Aluminum Corporation, Harbison Walker Refractories Group, A. P. Green Industries, Inc., Porter Hayden Company, Plibrico Company, Shook & Fletcher Insulation Co., Artra Group (Synkoloid Company), AC&S, A-Best Company and JT Thorpe Co. declared bankruptcy. These companies join others, such as G-I Holdings (GAF), USG Corporation, Federal-Mogul Corporation, Burns & Roe Enterprises, Inc., W.R. Grace & Co., Owens Corning, Fibreboard Corporation, Pittsburgh-Corning, Babcock & Wilcox, Armstrong World Industries and approximately 40 other asbestos defendants who have sought the protection of the Bankruptcy Code.

        OI Inc. has continued to monitor trends which may affect its ultimate liability and has continued to analyze the developments and variables affecting or likely to affect the resolution of pending and future asbestos claims against OI Inc. OI Inc. expects that the gross amount of total asbestos-related payments will be moderately lower in 2003 compared to 2002 and will continue to decline thereafter as the preexisting but presently unasserted claims withheld under the claims handling agreements are presented to OI Inc. and as the number of potential claimants continues to decrease. However, the trend toward lower aggregate annual payments has not occurred as soon as had been anticipated when the additional liability was established in 2000. In addition, the number of claims and lawsuits filed against OI Inc. has exceeded the number anticipated at that time. In early March 2002, OI Inc. initiated a comprehensive review to determine whether further adjustment of asbestos-related liabilities was appropriate. At the conclusion of this review in April, OI Inc. determined that an additional charge of $475 million would be appropriate to adjust the reserve for estimated future asbestos-related costs. The material components of OI Inc.'s accrual, including this additional accrued amount, are the following: (i) OI Inc.'s estimate at that date of the reasonably probable contingent liability for asbestos

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claims already asserted against OI Inc., (ii) OI Inc.'s estimate at that date of the contingent liability for preexisting but unasserted asbestos claims for prior periods arising under its administrative claims-handling agreements with various plaintiffs' counsel, (iii) OI Inc.'s estimate at that time of the contingent liability for asbestos claims not yet asserted against OI Inc., but which OI Inc. believes it is reasonably probable will be asserted in the next several years, to the degree that such an estimation as to future claims is possible, and (iv) OI Inc.'s estimate of legal defense costs likely to be incurred in connection with the foregoing types of claims.

        The significant assumptions underlying the material components of OI Inc.'s accrual are:

            (a)  the extent to which settlements are limited to claimants who were exposed to OI Inc.'s asbestos-containing insulation prior to its exit from that business in 1958;

            (b)  the extent to which claims are resolved under OI Inc.'s administrative claims agreements or on terms comparable to those set forth in those agreements;

            (c)  the extent of reduction in the inventory of pending serious disease cases;

            (d)  the extent to which OI Inc. is able to successfully defend itself at trial;

            (e)  the extent of actions by courts to eliminate or reduce the diversion of financial resources for unimpaired claimants and so-called forum shopping;

            (f)    the extent to which additional defendants with substantial resources and assets are required to participate significantly in the resolution of future asbestos cases and claims;

            (g)  the number and timing of co-defendant bankruptcies; and

            (h)  the extent to which the resolution of co-defendant bankruptcies divert resources to unimpaired claimants.

        OI Inc. believes that any possible loss or range of loss in addition to the foregoing charge cannot be reasonably estimated. While OI Inc. cannot reasonably estimate the precise timing of payment, OI Inc. believes that its liabilities for the next several years will not exceed the amount accrued, based on its expectation of continuing moderate declines in annual spending for asbestos-related costs.

        OI Inc. has previously pursued recovery of its losses from third parties, particularly its insurance carriers, and has largely resolved all of its significant coverage claims. OI Inc. expects some further recovery from deferred payment provisions of existing settlement agreements and from pursuing certain additional reimbursement claims. However, OI Inc. does not expect to recover additional material amounts in excess of the recorded receivable of $12.2 million at December 31, 2002.

        The ultimate amount of distributions which may be required to be made by the Company and other subsidiaries of OI Inc. to fund OI Inc.'s asbestos-related payments cannot be estimated with certainty. OI Inc.'s reported results of operations for 2002 have been materially affected by the $475 million first quarter charge and asbestos-related payments continue to be substantial. Any possible future additional accrual would likewise materially affect OI Inc.'s results of operations in the period in which it might be recorded. Also, the continued use of significant amounts of cash for asbestos-related costs has affected and will continue to affect OI Inc.'s cost of borrowing and its ability to pursue global or domestic acquisitions. However, OI Inc. believes that its operating cash flows and other sources of liquidity will be sufficient to pay its obligations for asbestos-related costs and to fund its working capital and capital expenditure requirements on a short-term and long-term basis.

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MANAGEMENT

Executive Officers and Directors

        We are an indirect, wholly-owned subsidiary of OI Inc. All of our executive officers and directors hold the same position with OI Inc. and receive no separate compensation from the Company. The following table sets forth certain information with respect to the executive officers and directors of OI Inc. as of January 31, 2003.

Name and Age

  Position
Executive Officers    
Joseph H. Lemieux (71)   Chairman and Chief Executive Officer
Terry L. Wilkison (61)   Executive Vice President, Plastics Group General Manager
Thomas L. Young (58)   Executive Vice President, Administration and General Counsel
John Bachey (54)   Vice President, Glass Container Sales and Marketing
James W. Baehren (52)   Vice President, Director of Finance and Secretary
Joseph V. Conda (61)   Vice President, General Manager of Prescription Products
L. Richard Crawford (41)   Vice President, Global Glass Technology
Jeffrey A. Denker (55)   Treasurer
Larry A. Griffith (56)   Vice President, General Manager of Plastic Containers
W. Bruce Larsen (49)   Vice President, General Manager of Food and Beverage
Gerald J. Lemieux (45)   Vice President, Corporate Strategy
Michael D. McDaniel (54)   Vice President, General Manager of Closure and Specialty Products
Philip McWeeny (63)   Vice President, General Counsel—Corporate and Assistant Secretary
Gilberto Restrepo (62)   Vice President, General Manager of Latin American Glass Container Operations
Peter J. Robinson (59)   Vice President, General Manager of Asia Pacific Operations
Robert A. Smith (61)   Vice President, General Manager of Domestic Glass Container
Franco Todisco (59)   Vice President, General Manager of European Operations
Edward C. White (55)   Vice President and Controller Directors
Directors    
Joseph H. Lemieux (71)   Chairman and Chief Executive Officer
Thomas L. Young (58)   Director and Executive Vice President, Administration and General Counsel
George R. Roberts (59)   Director
Michael W. Michelson (51)   Director
James H. Greene, Jr. (52)   Director
Edward A. Gilhuly (43)   Director
Robert J. Dineen (73)   Director
John J. McMackin, Jr. (51)   Director
Anastasia D. Kelly (53)   Director
Gary F. Colter (57)   Director

        Mr. Lemieux has been Chairman of the Board of the Company since 1991, Chief Executive Officer of the Company since 1990 and a director since 1987. Mr. Lemieux was President and Chief Operating Officer of the Company and its predecessor from 1986 to 1990. Mr. Lemieux is a director of Manor Care, Inc. He is chairman of the Executive Committee.

        Mr. Wilkison has been Executive Vice President, Plastics Group General Manager since 2000. He previously served as Executive Vice President, Latin American Operations (1998-2000), Executive Vice President (1993-1997) and Executive Vice President, Domestic Packaging Operations (1993-1996).

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        Mr. Young has been Executive Vice President, Administration and General Counsel and a director since 1998. He previously served as Executive Vice President, Administration, General Counsel, and Secretary (1993-1998). Mr. Young is a director of Manor Care, Inc.

        Mr. Bachey has been Vice President since 1997 and Vice President of Glass Container Sales and Marketing since 2000. He previously served as General Manager, European and Latin American Plastics Operations (1999-2000), General Manager, Europe and Latin America, Continental PET Technologies (1998-1999) and Vice President of Glass Container Sales and Marketing (1996-1997).

        Mr. Baehren has been Corporate Secretary since 1998 and Vice President, Director of Finance since 2001. He previously served as Associate General Counsel (1996-2001).

        Mr. Conda has been Vice President since 1998 and Vice President and General Manager of Prescription Products since 2000. He previously served as Vice President of Glass Container Sales and Marketing (1997-2000) and Vice President and General Manager of Prescription Products (1996-1997).

        Mr. Crawford has been Vice President since 2000 and Vice President, Global Glass Technology since 2002. He previously served as Manufacturing Manager of Domestic Glass Container (2000-2002), Vice President of Domestic Glass Container and Area Manufacturing Manager, West Coast (1997-2000) and Domestic Glass Container Area Manufacturing Manager (1994-1997).

        Mr. Denker has been Treasurer since 1998. He previously served as Assistant Treasurer (1988-1998) and Director of International Finance (1987-1998).

        Mr. Griffith has been Vice President since 1990 and Vice President and General Manager of Plastic Containers since 2001. He previously served as Vice President and General Manager of Closure and Specialty Products (1998-2001), Vice President of International Operations (1997-1998), Vice President and Chief Information Officer (1996-1998) and General Manager of Plastic Components Operations (1996-1997).

        Mr. Larsen has been Vice President since 1997 and Vice President, General Manager of Food and Beverage since 2002. He previously served as Vice President and General Manager of Continental PET Technologies (2001-2002), as Vice President and General Manager of Plastic Containers (1999-2001), as Vice President and Director of Operations, Plastic Containers (1998-1999) and as Vice President and Director of Manufacturing, Plastic Containers (1993-1998).

        Mr. Gerald J. Lemieux has been Vice President since 1997 and Vice President, Corporate Strategy since 2002. He previously served as Vice President, General Manager of Domestic Glass Container (1997-2002) and as Vice President, Domestic Glass Container Finance and Administration (1992-1997). Mr. Gerald J. Lemieux is the son of Mr. Joseph H. Lemieux.

        Mr. McDaniel has been Vice President since 1992 and Vice President and General Manager of Closure and Specialty Products since 2001. He previously served as Vice President and General Manager of Continental PET Technologies (1998-2001) and Vice President and General Manager of Closure and Specialty Products (1991-1998).

        Mr. McWeeny has been Vice President and General Counsel—Corporate since 1988.

        Mr. Restrepo has been Vice President since 2000 and General Manager of Latin American Glass Container Operations since 2000. He previously served as Vice President of International Operations and General Manager, Western Region—Latin America (1997-2000). Mr. Restrepo has been the President of Cristaleria Peldar, S.A. since 1982.

        Mr. Robinson has been Vice President since 1999 and General Manager of Asia Pacific Operations since 1998. Prior to joining the Company, Mr. Robinson served as Chief Executive of ACI Packaging Group (1988-1998).

        Mr. Smith has been Vice President since 1993 and Vice President, General Manager of Domestic Glass Container since 2000. He previously served as Vice President and Technical Director (1998-2002), Vice

81



President of International Operations (1997-1998) and Vice President of Glass Container Manufacturing (1993-1997).

        Mr. Todisco has been Vice President since 1999 and General Manager European Operations since 1999. Prior to joining the Company, Mr. Todisco served as President of AVIR S.p.A. (1994-1999).

        Mr. White has been Vice President since 2002 and Controller since 1999. He previously served as Vice President and Director of Finance, Planning, and Administration—International Operations (1997-1999) and Financial Director of OI Group's affiliates in Finland and Poland (1996-1997).

        Mr. Roberts has been a director since 1987. Mr. Roberts is a Founding Partner of Kohlberg Kravis Roberts & Co., L.P. and, effective January 1, 1996, he became a managing member of the limited liability company which is the general partner of Kohlberg Kravis Roberts & Co., L.P. Mr. Roberts also is a general partner of KKR Associates, L.P. Mr. Roberts is a director of Accuride Corporation, Alliance Imaging, Inc., Amphenol Corporation, Borden, Inc., The Boyds Collection, Ltd., DPL Inc., Evenflo Company Inc., IDEX Corporation, KinderCare Learning Centers, Inc., KSL Recreation Group, Inc., PRIMEDIA, Inc., Safeway Inc. and Spalding Holdings Corporation. He is a member of the Executive Committee.

        Mr. Michelson has been a director since 1987. Mr. Michelson has been a member of the limited liability company which is the general partner of Kohlberg Kravis Roberts & Co., L.P. since January 1, 1996. Prior thereto, he was a general partner of Kohlberg Kravis Roberts & Co., L.P. Mr. Michelson also is a general partner of KKR Associates, L.P. Mr. Michelson is a director of Alliance Imaging, Inc., Amphenol Corporation, AutoZone, Inc. and KinderCare Learning Centers, Inc. He is chairman of the Compensation Committee and a member of the Executive Committee.

        Mr. Greene has been a director since 1987. Mr. Greene was a general partner of Kohlberg Kravis Roberts & Co., L.P. from January 1, 1993 until January 1, 1996, when he became a member of the limited liability company which is the general partner of Kohlberg Kravis Roberts & Co., L.P. Mr. Greene has been a general partner of KKR Associates, L.P. since January 1, 1993, and prior thereto was a limited partner of KKR Associates, L.P. and an executive of Kohlberg Kravis Roberts & Co., L.P. Mr. Greene is a director of Accuride Corporation, Birch Telecom, Inc., Safeway Inc. and Shoppers Drug Mart Corporation. He is a member of the Compensation Committee.

        Mr. Gilhuly has been a director since 1987. Mr. Gilhuly was a general partner of Kohlberg Kravis Roberts & Co., L.P. from January 1, 1995 until January 1, 1996, when he became a member of the limited liability company which is the general partner of Kohlberg Kravis Roberts & Co., L.P. Mr. Gilhuly has been a general partner of KKR Associates, L.P. since January 1, 1995, and prior thereto was a limited partner of KKR Associates, L.P. and an executive of Kohlberg Kravis Roberts & Co., L.P. Mr. Gilhuly is a director of Layne Christensen Company, MedCath Corporation and Rockwood Specialties, Inc. He is a member of the Executive and Compensation Committees.

        Mr. McMackin has been a director since 1994. Mr. McMackin has been a member of the law firm of Williams & Jensen, P.C. for more than five years.

        Mr. Dineen has been a director since 1994. Mr. Dineen has been Chairman of the Board of Directors of Layne Christensen Company since 1992. Prior to 1993, Mr. Dineen was President and Chief Executive Officer of The Marley Company for more than five years. Mr. Dineen is a director of Layne Christensen Company. He is chairman of the Audit Committee.

        Ms. Kelly has been a director since 2002. Ms. Kelly served as an executive officer of Sears, Roebuck and Co. from 1999 to 2003. She previously served as Senior Vice President (1996-1999) and General Counsel and Secretary (1995-1999) of Fannie Mae, a financial services company. She is a member of the Audit Committee.

        Mr. Colter has been a director since 2002. Mr. Colter has been President of CRS Inc. since 2002. He previously served as Vice Chairman of KPMG Canada, 2000-2002; Global Managing Partner, Financial Advisory Services, of KPMG International, 1998-2000; and Vice Chairman of KPMG Canada, 1989-1998. He is a member of the Audit Committee.

82



COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

Director Compensation

        All of the Company's directors are also directors of OI Inc. Directors who are not officers of OI Inc. and the Company are paid a fee of $55,000 annually plus expenses associated with meetings of OI Inc.'s and the Company's Boards and receive no separate compensation from the Company. In addition, each director who is not an officer of the Company receives a grant under OI Inc.'s Directors Stock Option Plan of an option for 5,000 shares of OI Inc.'s Common Stock annually on the day immediately following the date of the annual meeting of share owners. Options are priced at the fair market value of the Common Stock on the date of grant, have a term of ten years and one day and vest on the first anniversary of the grant date.

Executive Compensation

        All of our executive officers hold the same position with OI Inc. and receive no separate compensation from the Company. The following table shows, for the years ended December 31, 2000, 2001 and 2002, the cash compensation paid by OI Inc. and its subsidiaries, as well as certain other compensation paid or accrued for those years, to the Chief Executive Officer and the four most highly compensated executive officers of the Company and OI Inc. (the "named executive officers") in all capacities in which they served.

 
   
   
   
   
  Long Term Compensation

   
 
 
   
  Annual Compensation

  Awards

  Payouts

   
 
Name and
Principle Position

  Year
  Salary
($)(1)

  Bonus
($)(2)

  Other
Annual
Compensation
($)(3)

  Restricted
Stock
Award(s)
($)

  Securities
Underlying
Options/SAR's
(#)(4)

  Long
Incentive
Payouts
($)(5)

  All Other
Compensation
($)(6)

 
Joseph H. Lemieux
Chairman and Chief
Executive Officer
  2002
2001
2000
  $

742,500
696,667
650,797
  $

675,000
525,000
137,500
  $

435,050
1,125,954
346,287
(7)
(7)
$

635,046
1,307,468
856,286
(8)

310,000
160,000
160,000
(9)

$

413,100
335,644
100,358
  $

69,360
66,449
64,163
(10)(11)

Peter J. Robinson
V.P., General Manager,
Asia Pacific Operations
  2002
2001
2000
    497,294
432,401
471,726
(12)

  637,024
544,063
405,879
(13)

  25,861
598,911
0
    179,820
602,000
0
(14)

35,000
75,000
100,000
    179,811
146,096
124,616
    5,280
4,404
4,446
(15)

R. Scott Trumbull(16)
Executive V.P.—Chief
Financial Officer
  2002
2001
2000
    331,667
311,667
292,500
    250,000
240,000
180,000
    216,381
467,216
104,202
    179,820
451,500
0
(17)

42,500
75,000
75,000
(18)

  133,171
108,202
94,502
    14,312
12,976
12,594
(11)

Terry L. Wilkison
Executive V.P.—Plastics
Group General Manager
  2002
2001
2000
    340,833
315,833
292,500
    320,000
250,000
200,000
    28,200
413,241
33,005
    199,800
451,500
0
(19)

40,000
100,000
75,000
    133,258
108,272
73,093
    9,822
8,489
5,956
(11)


Thomas L. Young
Executive V.P.—
Administration
and General Counsel

 

2002
2001
2000

 

 

340,833
315,833
292,500

 

 

320,000
250,000
200,000

 

 

106,828
459,331
85,921

 

 

199,800
451,500
0

(20)


95,793
100,000
75,000

(21)


 

132,736
107,848
91,763

 

 

9,542
8,106
12,948

(11)


(1)

 

Includes amounts deferred at the election of the named executive officer pursuant to the salary reduction provisions of the Owens-Illinois Stock Purchase and Savings Program.
(2)   Except as otherwise provided in footnote 13 below, the amounts disclosed in this column represent awards under the Owens-Illinois, Inc. Senior Management Incentive Plan for the year indicated. Except as otherwise provided in footnote 8 below, amounts, if any, deferred at the election of a named executive officer are included in the year earned.
(3)   The amounts disclosed in this column represent amounts reimbursed during the year for the payment of taxes, including taxes due in connection with certain contributions made by OI Inc. to the Secular Trust Plan on behalf of certain named executive officers in the following amounts: Mr. Lemieux, $290,169; Mr. Trumbull, $174,954; and Mr. Young, $75,631. See "Pension Plans" below.
(4)   No SAR's were granted to any of the named executive officers during 2002.
(5)   The amounts disclosed in this column represent awards under OI Inc.'s Performance Award Plan for the year indicated. Except as otherwise provided in footnote 8 below, amounts, if any, deferred at the election of an executive officer are included in the year earned.

83


(6)   Except as otherwise provided in footnote 15 below, the amounts disclosed in this column for 2002 represent matching cash contributions by OI Inc. to the Stock Purchase and Savings Program ("SPASP") and the Executive Deferred Savings Plan, both defined contribution plans. The SPASP is a tax-qualified defined contribution plan intended to satisfy the requirements of Section 401(k) of the Internal Revenue Code of 1986. OI Inc. contributes to each participant's account maintained under the SPASP an amount of OI Inc. stock equal to 50% of the participant's contributions to the SPASP but not more than 4% of (a) the participant's earnings or (b) $200,000 for 2002, whichever is lower. The difference between the theoretical OI Inc. matching contribution under the SPASP for each participant, without regard to the legally imposed maximum, and the maximum contribution permitted under law is used to determine the number of theoretical shares of OI Inc. Common Stock which would have been purchased for the participant's account in the absence of the IRS limitation on participant's earnings in excess of $200,000 for 2002. Amounts deferred into the Executive Deferred Savings Plan at the election of the participant may be credited to either a cash deferral account earning interest at a prescribed rate or an OI Inc. stock deferral account. Any balance in the plan is paid in cash to the individual at termination of employment.
(7)   For 2002, the amount shown reflects $382,216 reimbursed to Mr. Lemieux in 2002 for the payment of taxes, including the amount of $290,169 representing taxes due in connection with contributions by OI Inc. to the Secular Trust Plan on behalf of Mr. Lemieux in 2002. The amount shown also reflects the values of certain perquisites provided by OI Inc. to Mr. Lemieux totaling $52,834, of which $22,027 is attributable to his personal use of OI Inc. aircraft and $17,636 is attributable to financial planning provided by OI Inc. For 2001, the amount shown reflects $1,065,060 reimbursed to Mr. Lemieux in 2001 for the payment of taxes, including the amount of $974,049 representing taxes due in connection with the grant of 160,000 shares of restricted stock in 2001. The amount shown also reflects the values of certain perquisites provided by OI Inc. to Mr. Lemieux totaling $60,894, of which $28,359 is attributable to his personal use of OI Inc. aircraft and $19,819 is attributable to financial planning provided by OI Inc.
(8)   Represents 59,676 shares of restricted stock granted to Mr. Lemieux under OI Inc.'s Amended and Restated 1997 Equity Participation Plan of which 39,676 shares were granted in lieu of cash payments in the amounts of $225,000 and $137,700 pursuant to elections by Mr. Lemieux under OI Inc.'s Senior Management Incentive Plan and Performance Award Plan, respectively. As of December 31, 2002, Mr. Lemieux held 409,143 shares of restricted stock of OI Inc. with a value of $5,965,305 (determined by the closing price of the Common Stock on the New York Stock Exchange on December 31, 2002).
(9)   Represents 110,000 options to purchase Common Shares granted to Mr. Lemieux under OI Inc.'s Amended and Restated 1997 Equity Participation Plan and 200,000 options granted to Mr. Lemieux in 1992, the expiration date of which was extended by one year in 2002.
(10)   Also includes a premium of $28,950 paid by OI Inc. on a whole life insurance policy owned by Mr. Lemieux.
(11)   Includes the following amounts equal to the value of premiums paid during 2002 by OI Inc. in connection with life insurance policies issued pursuant to the Owens-Illinois Executive Life Insurance Plan and Participation Agreements entered into between OI Inc. and certain named executive officers: Mr. Lemieux, $10,710; Mr. Trumbull, $1,045; Mr. Wilkison, $1,822; and Mr. Young, $1,542.
(12)   Includes payments in the amount of $94,647, which payments were made to Mr. Robinson in lieu of contributions on his behalf to a superannuation fund to provide post-retirement pension benefits. Mr. Robinson's bonus is provided under a separate bonus plan relating to OI Inc.'s Asia Pacific business.
(13)   Includes $114,639 accrued to Mr. Robinson under the ACI Packaging Services Pty. Ltd. Senior Executive Retention and Confidentiality Agreement.
(14)   As of December 31, 2002, Mr. Robinson held phantom stock units under OI Inc.'s Amended and Restated 1997 Equity Participation Plan with respect to 38,000 shares of Common Stock of OI Inc. and 100,000 shares of restricted stock of OI Inc. with a combined value of $2,012,040 (determined by the closing price of the Common Stock on the New York Stock Exchange on December 31, 2002).
(15)   Represents the statutory minimum amounts contributed by OI Inc. to a superannuation fund on behalf of Mr. Robinson.
(16)   Mr. Trumbull retired as Executive Vice President and Chief Financial Officer of OI Inc. as of the end of the year 2002.
(17)   As of December 31, 2002, Mr. Trumbull held 108,000 shares of restricted stock of OI Inc. with a value of $1,574,640 (determined by the closing price of the Common Stock on the New York Stock Exchange on December 31, 2002).
(18)   Represents 35,000 options to purchase Common Shares granted to Mr. Trumbull under OI Inc.'s Amended and Restated 1997 Equity Participation Plan and 7,500 options granted to Mr. Trumbull in 1992, the expiration date of which was extended by one year in 2002.
(19)   As of December 31, 2002, Mr. Wilkison held 110,000 shares of restricted stock of OI Inc. with a value of $1,603,800 (determined by the closing price of the Common Stock on the New York Stock Exchange on December 31, 2002).
(20)   Represents 40,000 options to purchase Common Shares granted to Mr. Young under OI Inc.'s Amended and Restated 1997 Equity Participation Plan, 17,252 options granted to Mr. Young in 1997 as Additional Options, as defined in the Second Amended and Restated Option Plan for Key Employees of Owens-Illinois, Inc., upon his exercise in that year of certain options granted to him in 1992, the expiration date of which was extended by one year in 2002, and 38,541 Additional Options granted to Mr. Young under OI Inc.'s Amended and Restated 1997 Equity Participation Plan upon his exercise of certain previously-issued options.
(21)   As of December 31, 2002, Mr. Young held 115,000 shares of restricted stock of OI Inc. with a value of $1,676,700 (determined by the closing price of the Common Stock on the New York Stock Exchange on December 31, 2002).

84


Option/SAR Grants in Last Fiscal Year(1)

        The following table provides information on options to purchase shares of Common Stock granted in 2002 to the named executive officers.

 
  Individual Grants

   
   
 
 
  Potential Realizable
Value at Assumed
Annual Rates
of Stock Price
Appreciation for
Option Term(6)

 
 
  Number of
Securities
Underlying
Options/SARs
Granted
(#)

   
   
   
 
 
  % of Total
Options/SARs
Granted to
Employees in
Fiscal Year(5)

   
   
 
Name

  Exercise or
Base Price
($/Sh)

  Expiration
Date

 
  5%
  10%
 
Joseph H. Lemieux   110,000
200,000
(2)
(3)
7.9
14.3
%
%
$
9.99
12.50
  01/03/12
05/14/03
  $
691,092
125,000
  $
1,751,364
250,000
(6)
(7)
Peter J. Robinson   35,000 (2) 2.5 %   9.99   01/03/12     219,893     557,252 (6)
R. Scott Trumbull   35,000
7,500
(2)
(3)
2.5
0.5
%
%
  9.99
12.50
  01/03/12
05/14/03
    219,893
4,688
    557,252
9,375
(6)
(7)
Terry L. Wilkison   40,000 (2) 2.9 %   9.99   01/03/12     251,306     636,859 (6)
Thomas L. Young   40,000
17,252
38,541
(2)
(3)
(4)
2.9
1.2
2.8
%
%
%
  9.99
36.31
16.65
  01/03/12
05/14/03
01/03/11
    251,306
31,323
353,792
    636,859
62,646
871,405
(6)
(8)
(9)

(1)
No SARs were granted to any of the named executive officers during 2002.

(2)
Exercises of one-half of the options are permitted after each of the fifth and sixth anniversaries of the date of the grant; provided, options shall become exercisable after the first anniversary of the date of the grant thereof at the time when the average fair market value per share (as evidenced by the closing price of the underlying stock on the principal exchange on which it is traded) for any period of 20 consecutive trading days (commencing after such first anniversary) is at least equal to the product of the fair market value per share on the date of grant times the amount shown below under "Stock Price Multiple" as to the percentage of the shares of stock initially subject to the option shown below under "Exercise Percentage."

Stock Price
Multiple

  Resulting
Stock Price

  Exercise Percentage
 
120 % $ 11.99   25 %
144 %   14.39   50 %
172 %   17.18   75 %
206 %   20.58   100 %

            Under the Second Amended and Restated Stock Option Plan for Key Employees of Owens-Illinois, Inc., for all options granted between January 1, 1992 and December 31, 1996, rights to receive Additional Options, as defined in the Second Amended and Restated Stock Option Plan for Key Employees of Owens-Illinois, Inc., are attached to each option and Additional Options will be granted upon exercise, subject to certain conditions, if the exercise price is paid using shares of Common Stock owned by the optionee or the related tax obligation is paid using shares of Common Stock owned by the optionee or by relinquising Common Stock which the optionee is entitled to receive upon the exercise of the options. Under the 1997 Equity Participation Plan of Owens-Illinois, Inc., for all options granted under the plan, rights to receive Additional Options, as defined in the 1997 Equity Participation Plan of Owens-Illinois, Inc., are attached to each option and Additional Options will be granted upon exercise, subject to certain conditions, if the exercise price is paid using shares of Common Stock owned by the optionee or the related tax obligation is paid using shares of Common Stock owned by the optionee or by relinquishing Common Stock which the optionee is entitled to receive upon the exercise of the options. The options granted in 2002 are not transferable except (a) by will or pursuant to the applicable laws of descent and distribution upon death of the optionee or (b) by gift to (i) such optionee's spouse, children or certain other relatives of the optionee, (ii) a trust for the benefit of such persons, (iii) a limited liability company or partnership, all of whose members or partners consist of the optionee or the above-listed relatives or trust, or (iv) a non-profit organization or charitable trust, contributions to which are tax-deductible.

(3)
Represents options, the expiration date of which was extended by one year in 2002. The options, which had an original expiration date of May 14, 2002, were extended to May 14, 2003. No other changes were made in the terms of the options. For purposes of this table, these options are deemed to be granted in 2002.

85


(4)
Options are Additional Options issued under the Amended and Restated 1997 Equity Participation Plan of OI Inc. For purposes of this table, these options are deemed to be granted in 2002.

(5)
Exclusive of the options extended during 2002, as described in footnote 3 above, and the Additional Options issued during 2002, as described in footnote 4 above, the percentages of total options granted in 2002 to each named executive officer were as follows: Mr. Lemieux, 10.5%; Mr. Robinson, 3.4%; Mr. Trumbull, 3.4%; Mr. Wilkison, 3.8%; and Mr. Young, 3.8%.

(6)
Based on actual option term and annual compounding. The assumed annual rates of appreciation of 5 and 10 percent would result in the price of the Common Stock increasing to $16.273 and $25.911, respectively, over the ten-year life of the options granted in 2002 (which would equal a total increase in stock price of 63% and 159%, respectively). These assumed rates of growth were selected by the Securities and Exchange Commission for illustration purposes only and are not intended to predict future stock prices, which will depend upon market conditions and OI Inc.'s future performance and prospects.

(7)
Based on actual option term and annual compounding. The assumed annual rates of appreciation of 5 and 10 percent would result in the price of the Common Stock increasing to $13.125 and $13.750, respectively, over the remaining one-year life of these options (which would equal a total increase in stock price of 5% and 10%, respectively). These assumed rates of growth were selected by the Securities and Exchange Commission for illustration purposes only and are not intended to predict future stock prices, which will depend upon market conditions and OI Inc.'s future performance and prospects.

(8)
Based on actual option term and annual compounding. The assumed annual rates of appreciation of 5 and 10 percent would result in the price of the Common Stock increasing to $38.126 and $39.941, respectively, over the remaining one-year life of these options (which would equal a total increase in stock price of 5% and 10%, respectively). These assumed rates of growth were selected by the Securities and Exchange Commission for illustration purposes only and are not intended to predict future stock prices, which will depend upon market conditions and OI Inc.'s future performance and prospects.

(9)
Based on actual option term and annual compounding. The assumed annual rates of appreciation of 5 and 10 percent would result in the price of the Common Stock increasing to $25.830 and $39.260, respectively, over the remaining nine-year life of these options (which would equal a total increase in stock price of 55% and 136%, respectively). These assumed rates of growth were selected by the Securities and Exchange Commission for illustration purposes only and are not intended to predict future stock prices, which will depend upon market conditions and OI Inc.'s future performance and prospects.

Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values

        The following table provides information on the exercise of options to purchase Common Stock during 2002 by the named executive officers and the value of such officers' unexercised options to purchase Common Stock at December 31, 2002.

 
   
   
  Number of Securities
Underlying Unexercised
Options/SARs At
December 31, 2002

   
   
 
   
   
  Value of Unexercised
In-the-Money Options/SARs
At December 31, 2002(1)

Name

  Shares
Acquired on
Exercise(#)

  Value
Realized ($)

  Exercisable
  Unexercisable
  Exercisable
  Unexercisable
Joseph H. Lemieux   0   $ 0   575,000   650,000   $ 2,026,400   $ 634,500
Peter J. Robinson   75,000     642,188   25,000   310,000     27,000     241,650
R. Scott Trumbull   0     0   160,000   278,750     715,475     221,400
Terry L. Wilkison   0     0   118,750   246,250     909,500     244,350
Thomas L. Young   78,000 (2)   813,755 (2) 159,532   283,750     69,463     244,350
(1)
Based on the closing price of Common Stock on the New York Stock Exchange on that date of $14.58.

(2)
Includes the exercise of options covering 4,000 shares gifted to Mr. Young's wife, which had a value realized of $27,250. Mr. Young disclaimed beneficial ownership of those securities.

Long-Term Incentive Plans—Awards in Last Fiscal Year

        The named executive officers are covered by OI Inc.'s Performance Award Plan ("PAP") under which eligible employees receive annual cash awards payable at the end of the three-year period covered by the grant of the award. Award payouts under PAP are based on the average annual

86



attainment of the performance objectives set by the Compensation Committee of OI Inc.'s Board. For the 2002-2004 award period, performance will be evaluated in comparison to OI Inc.'s attained level of earnings per share relative to objectives for that period. The target amounts shown below are earned by OI Inc. performance at the level of 100% of the established objectives, with such payment percentage increasing or decreasing four percentage points for each single percentage point increase or decrease, respectively, in performance.

 
  Performance or
Other Period Until
Maturation or
Payout

  Estimated Future Payouts under
Non-Stock Price-Based Plans

 
Name

 
  Threshold
  Target
  Maximum
 
Joseph H. Lemieux   2002-2004   $ 115,500   $ 577,500   (1 )
Peter J. Robinson   2002-2004     32,767     163,836   (1 )
R. Scott Trumbull   2002-2004     27,680     138,400   (1 )
Terry L. Wilkison   2002-2004     28,496     142,480   (1 )
Thomas L. Young   2002-2004     28,400     142,000   (1 )

(1)
The maximum dollar amount that may be earned under PAP is not capped.

Pension Plans

        The following table illustrates the estimated annual benefits payable under the Owens-Illinois Salary Retirement Plan (the "Retirement Plan") and nonqualified retirement plans in various average earnings classifications upon normal retirement at age 65:

 
  Years of Credited Service
Highest Three-Year
Average Annual Earnings

  20
  25
  30
  35
  40
  45
$  200,000   $ 52,458   $ 65,572   $ 78,686   $ 91,801   $ 103,921   $ 116,041
    400,000     108,317     135,396     162,475     189,554     213,201     237,441
    600,000     165,459     206,824     248,189     289,554     322,481     358,841
    800,000     222,602     278,253     333,903     389,554     431,761     480,241
  1,000,000     279,745     349,681     419,618     489,554     541,041     601,641
  1,200,000     336,888     421,110     505,332     589,554     650,321     723,041
  1,400,000     394,031     492,539     591,046     689,554     759,601     844,441
  1,600,000     451,174     563,967     676,761     789,554     868,881     965,841
  1,800,000     508,317     635,396     762,475     889,554     978,161     1,087,241
  2,000,000     565,459     706,824     848,189     989,554     1,087,441     1,208,641
  2,200,000     622,602     778,253     933,903     1,089,554     1,196,721     1,330,041
  2,400,000     679,745     849,681     1,019,618     1,189,554     1,306,001     1,451,441
  2,600,000     736,888     921,110     1,105,332     1,289,554     1,415,281     1,572,841

        The above pension table illustrates benefits calculated on a straight-life annuity basis, and reflects the greater of the regular benefit or the "grandfathered" benefit available under the formula in effect prior to January 1, 1989. The regular benefit does not contain an offset for social security or other amounts, whereas the "grandfathered" benefit does provide for a partial offset for social security benefits.

        The compensation covered by the plans under which the benefits are summarized in the table above equals the sum of base salary, Senior Management Incentive Plan and Performance Award Plan payments, as reported in the Summary Compensation Table for the named executive officers for the last three fiscal years, and is equal to the highest three-year average of such amounts. At January 31, 2003, Mr. Lemieux had 45 years of credited service, Mr. Trumbull had 31 years of credited service, Mr. Wilkison had 4 years of credited service and Mr. Young had 26 years of credited service under the Retirement Plan. To the extent that benefits in the preceding table cannot, under the limitations of the Code, be provided under the Retirement Plan, such benefits will be provided under OI Inc.'s

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Supplemental Retirement Benefit Plan (the "SRBP"). Peter J. Robinson is not covered by an OI Inc.-sponsored pension plan.

        A significant portion of the pension benefits payable to certain named executive officers is provided under the SRBP. Such benefits have historically represented an unfunded liability of OI Inc. OI Inc. previously provided for funding of a significant portion of the retirement benefits due under the SRBP through cash payments to certain participants in the plan. Such funding arrangements offset the liabilities under the SRBP at the time of such funding. All or a significant portion of the remaining retirement benefits under the SRBP will be provided to certain named executive officers through insurance policies purchased by OI Inc. and held in a secular trust plan (the "Secular Trust Plan") for each participant in the Secular Trust Plan. The amounts paid by OI Inc. on behalf of each participant constitute income to the participant. OI Inc. makes tax payments in an amount sufficient to cover each participant's taxes on both the insurance premiums paid by OI Inc. and the tax payments.

        Employment Agreements.    OI Inc. entered into employment agreements with certain officers, including the named executive officers listed above, that entitle the participants to receive their base salaries and to participate in designated benefit plans of OI Inc. The agreements provide for termination of employment at any time, with or without cause, and the benefit plans designated therein and each employee's rights to receive salary and bonuses pursuant thereto are subject to modification by OI Inc. in its sole discretion.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table sets forth certain information regarding the beneficial ownership of OI Inc. Common Stock as of February 15, 2003 (except as otherwise noted in the footnotes below) by each beneficial owner of more than five percent of the outstanding Common Stock known to OI Inc., each of OI Inc.'s directors, named executive officers and all directors and officers as a group. Joseph H. Lemieux, R. Scott Trumbull, Gerald J. Lemieux and L. Richard Crawford own 30,000, 28,000, 2,500 and 200 shares of OI Inc.'s $2.375 Convertible Preferred Stock, respectively, which shares are reflected in the totals shown below at a conversion rate of 0.9491 shares of Common Stock for each share of Convertible Preferred Stock. No other director, nominee for director, named executive officer or other executive officer beneficially owned any of OI Inc.'s preferred stock.

Name and Address
of Beneficial Owner

  Number of
Shares Beneficially
Owned(1)

  Percentage
 
KKR Associates, L.P.(2)
9 West 57th Street
New York, New York 10019
  36,000,000   24.4 %
FMR Corp.(3)
82 Devonshire Street
Boston, Massachusetts 02109
  21,705,847   14.6  
AXA Financial, Inc., and affiliates(4)
1290 Avenue of the Americas
New York, New York 10104
  14,961,033   10.2  
State Street Bank and Trust Company(5)
225 Franklin Street
Boston, MA 02110
  19,186,611   13.0  
Joseph H. Lemieux(1)   1,617,527 (6)(7) 1.1  
Thomas L. Young(1)   358,832 (6)(7) 0.2  
Gary F. Colter (1)   1,000    
Robert J. Dineen(1)   27,282    
Edward A. Gilhuly(2)   10,000    
James H. Greene, Jr.(2)      
Anastasia D. Kelly   1,000    
John J. McMackin, Jr.(1)   28,019    
Michael W. Michelson(2)(8)   20,000    
George R. Roberts(2)      
Peter J. Robinson(1)   272,750 (6)(7) 0.2  
R. Scott Trumbull(1)   425,661 (6)(7) 0.3  
Terry L. Wilkison(1)   308,542 (6)(7) 0.2  
All directors and executive officers as a group (other than as set forth in relation to KKR Associates, L.P.) (27 persons)(1)   4,800,616 (6)(7) 3.0  

(1)
For purposes of this table, a person or group of persons is deemed to have "beneficial ownership" of any shares as of a given date if such person has the right to acquire such shares within 60 days after such date. For purposes of computing the percentage of outstanding shares held by each person or group of persons named above on a given date, any security which such person or persons has the right to acquire within 60 days after such date is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The information includes: all currently exercisable options granted to Messrs. Lemieux, Young, Dineen, McMackin, Robinson, Trumbull and Wilkison. The number of shares beneficially owned includes 602,500 shares subject to options granted to Mr. Lemieux; 169,532 shares subject

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    to options granted to Mr. Young; 18,182 shares subject to options granted to Mr. Dineen; 18,391 shares subject to options granted to Mr. McMackin; 33,750 shares subject to options granted to Mr. Robinson; 168,750 shares subject to options granted to Mr. Trumbull; 128,750 shares subject to options granted to Mr. Wilkison; and 1,909,505 shares subject to options granted to all directors and officers as a group (other than as set forth in relation to KKR Associates, L.P.). For purposes of this table, Mr. Robinson is deemed to have "beneficial ownership" of 56,000 phantom stock units issued under OI Inc.'s 1997 Equity Participation Plan.

(2)
Shares shown as owned by KKR Associates, L.P. are owned of record by three limited partnerships of which KKR Associates, L.P. is the sole general partner and as to which it possesses sole voting and investment power. As of December 31, 2002, KKR Associates, L.P. owned shares of the Common Stock, which represented approximately 24.4% of the outstanding shares of Common Stock. Henry R. Kravis, George R. Roberts, Paul E. Raether, Michael W. Michelson, James H. Greene, Jr., Edward A. Gilhuly, Perry Golkin and Scott Stuart are the general partners of KKR Associates, L.P., and Messrs. Kravis and Roberts are also the members of the Executive Committee of KKR Associates, L.P., and in such capacity may be deemed to share beneficial ownership of any shares of Common Stock beneficially owned or deemed to be beneficially owned by KKR Associates, L.P., but disclaim any such beneficial ownership.
(3)
The Schedule 13G received by OI Inc. from FMR Corp. ("FMR"), Edward C. Johnson 3d, Abigail P. Johnson and Fidelity Management & Research Company ("Fidelity"), a wholly-owned subsidiary of FMR, indicated that FMR is the beneficial owner of 21,705,847 shares of the Common Stock, with sole power to vote or to direct the vote of 4,655,078 shares and the sole power to dispose or to direct the disposition of 21,705,847 shares. Fidelity is the beneficial owner of 17,019,669 shares of the Common Stock as a result of acting as investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940. That number includes 1,092,699 shares of Common Stock resulting from the assumed conversion of 1,151,300 shares of OI Inc.'s $2.375 Convertible Preferred Stock (0.9491 shares of Common Stock for each share of Convertible Preferred Stock). Edward C. Johnson 3d, FMR, through its control of Fidelity, and the funds each has sole power to dispose of the 17,019,669 shares owned by the Funds. Neither FMR nor Edward C. Johnson 3d, Chairman of FMR, has the sole power to vote or direct the voting of the shares owned directly by the Fidelity Funds. Fidelity Management Trust Company, a wholly-owned subsidiary of FMR is the beneficial owner of 2,943,250 shares of Common Stock as a result of its serving as investment manager of the institutional account(s). Edward C. Johnson 3d and FMR, through its control of Fidelity Management Trust Company, each has sole dispositive power over 2,943,250 shares and sole power to vote or to direct the voting of 2,911,850 shares, and no power to vote or to direct the voting of 31,400 shares of Common Stock owned by the institutional account(s) as reported above. Geode Capital Management, LLC is the beneficial owner of 543 shares of Common Stock. The managers of Geode Capital Management, LLC are certain shareholders and employees of FMR. Fidelity International Limited is the beneficial owner of 1,742,385 shares of Common Stock.
(4)
The Schedule 13G received by OI Inc. from AXA Financial, Inc. ("AFI"), filing jointly on behalf of itself and AXA Conseil Vie Assurance Mutuelle, AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle and AXA Courtage Assurance Mutuelle (the "Mutuelles AXA"), and AXA indicated that (a) the Mutuelles AXA and AXA are each the beneficial owner of 14,961,003 shares of the Common Stock, with sole power to vote or to direct the vote on 8,572,744 shares, shared power to vote or direct the vote on 1,101,245 shares, the sole power to dispose or to direct the disposition of 13,868,903 shares and the shared power to dispose or to direct the disposition of 1,092,100 shares; (b) AFI is the beneficial owner of 13,829,403 shares of the Common Stock, with sole power to vote or to direct the vote on 7,910,544 shares, shared power to vote or direct the vote on 1,101,245 shares, and the sole power to dispose or to direct the disposition of 13,829,403 shares; (c) AXA Konzern AG is deemed to have sole power to vote or to direct the vote on 39,500

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    shares, and is deemed to have sole power to dispose or to direct the disposition of 39,500 shares; AXA Rosenberg Investment Management LLC is deemed to have sole power to vote or to direct the vote on 622,700 shares, and is deemed to have shared power to dispose or to direct the disposition of 1,092,100 shares; and Alliance Capital Management L.P. is deemed to have sole power to vote or direct the vote on 7,910,544 shares, is deemed to have shared power to vote or direct the vote on 1,101,245 shares, and is deemed to have sole power to dispose or to direct the disposition of 13,829,403 shares. The filing further indicated that the filing was made by AFI; AXA, which owns AFI; and the Mutuelles AXA, which as a group control AXA: (i) in the Mutuelles AXA's capacity, as a group, acting as a parent holding company with respect to the holdings of the following AXA entity or entities: (ii) in AXA's capacity as a parent holding company with respect to the holdings of the following AXA entity or entities: AXA Konzern AG (Germany) AXA Rosenberg Investment Management LLC (iii) in AFI's capacity as a parent holding company with respect to the holdings of the following subsidiaries: (iv) Alliance Capital Management L.P., an investment adviser registered under Section 203 of the Investment Advisers Act of 1940.

(5)
The Schedule 13G received by OI Inc. from State Street Bank and Trust Company ("State Street"), acting in various fiduciary capacities, indicated it is beneficial owner of 19,186,611 shares of Common Stock, with sole voting power with respect to 815,893 shares of Common Stock, shared voting power with respect to 18,351,088 shares of Common Stock, sole dispositive power with respect to 11,451,289 shares of Common Stock, and shared dispositive power with respect to 7,735,322 shares of Common Stock. The majority of the shares with respect to which State Street is the beneficial owner are owned on behalf of (a) the Owens-Illinois Hourly Supplemental Retirement Plan, (b) the Owens-Illinois Non-Union Retirement and Savings Plan, (c) the Owens-Illinois Stock Purchase and Savings Program, and (d) the Owens-Illinois Long Term Savings Plan.
(6)
The table includes the number of shares of Common Stock that Joseph H. Lemieux, Thomas L. Young, R. Scott Trumbull, Terry L. Wilkison and all directors and officers as a group (other than as set forth in relation to KKR Associates, L.P.) held in the Stock Purchase and Savings Program as of January 31, 2003. No shares are held in such program for Peter J. Robinson.
(7)
The number of shares shown as beneficially owned includes the following number of shares of unvested restricted stock over which the following persons or group had voting, but not investment, power as of February 15, 2003; Mr. Lemieux—444,469 shares; Mr. Young—145,000 shares; Mr. Robinson—100,000 shares; Mr. Trumbull—108,000 shares; Mr. Wilkison—134,000 shares; and all directors and officers as a group (other than as set forth in relation to KKR Associates, L.P.)—1,527,040 shares. The number of shares shown as beneficially owned by Mr. Robinson also includes 56,000 phantom stock units issued under OI Inc.'s 1997 Equity Participation Plan.
(8)
Does not include 3,000 shares of Common Stock held in an irrevocable trust created by Mr. Michelson for the benefit of his children with respect to which Mr. Michelson disclaims any beneficial ownership. Two of the limited partnerships noted in footnote 2 above (the "KKR Partnerships") dissolved, by their terms, on December 31, 1999. In connection with the dissolution and winding up of the limited partnerships, KKR Associates, L.P., as general partner of the KKR Partnerships, has sole discretion regarding the timing (which may be one or more years after the dissolution of the KKR Partnerships) and manner of the disposition of any Common Stock held by such limited partnerships, including public or private sales of such Common Stock, the distribution of such Common Stock to the limited partners of the limited partnerships or a combination of the foregoing.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        During 2002, the law firm of Williams & Jensen, P.C., of which Mr. McMackin is a member, received fees for legal services in connection with various matters. It is anticipated that OI Inc. will continue to utilize the services of Williams & Jensen, P.C. on various matters.

        The following non-employee directors serve on the Compensation Committee of OI Inc.'s Board of Directors: Edward A. Gilhuly, James H. Greene, Jr. and Michael W. Michelson (chair). Until June 1987, Mr. Gilhuly and Mr. Greene were officers of OI Inc. Messrs. Greene, Michelson and Gilhuly are members of KKR & Co. L.L.C., the general partner of Kohlberg Kravis Roberts & Co., L.P., which provides management, consulting and financial services to OI Inc. for an annual fee. In 2002, the payment for the management fee and expenses was $2,024,291. Such services include, but are not necessarily limited to, advice and assistance concerning any and all aspects of the operation, planning and financing of OI Inc. and its subsidiaries, as needed from time to time.

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DESCRIPTION OF CERTAIN INDEBTEDNESS

The Secured Credit Agreement

        As of September 30, 2002, the secured credit agreement consisted of an aggregate of $3.065 billion in financing under (1) a $65 million term loan (the "Term Facility") extended to Owens-Brockway Glass Container Inc. and (2) a $3.0 billion revolving loan facility (including the subfacilities described below, the "Revolving Facility") consisting of a general revolving loan facility of $2.5 billion available to OI Plastic Products FTS Inc. and Owens-Brockway Glass Container Inc. (collectively, with OI General FTS Inc., the "Domestic Borrowers") and a $500.0 million tranche of separated funded loans of OI Plastic Products FTS Inc. The Company used a portion of the net cash proceeds from the issuance of $450.0 million of the 83/4% Senior Secured Notes due 2012 to repay in full the Term Facility. OI General FTS Inc. has repaid in full its term loan under the secured credit agreement but remains jointly and severally liable for all revolving loans. Each Domestic Borrower is jointly and severally liable for loans made to any borrower under the Revolving Facility. The Revolving Facility also includes:

    a $300.0 million subfacility (the "U.K. Subfacility") available to certain of OI Group's U.K. subsidiaries (the "U.K. Borrowers");

    a $1.1 billion subfacility (the "Australian Subfacility") available to certain of OI Group's Australian subsidiaries (the "Australian Borrowers"); and

    a $10.0 million subfacility (the "Italian Subfacility") available to certain of OI Group's Italian subsidiaries (the "Italian Borrowers").

Each U.K. Borrower is jointly and severally liable for the obligations of each other U.K. Borrower. Each Australian Borrower is jointly and severally liable for the obligations of each other Australian Borrower. Each Italian Borrower is jointly and severally liable for the obligations of each other Italian Borrower. In addition, the Revolving Facility includes a $500.0 million letter of credit subfacility available to the Domestic Borrowers, the U.K. Borrowers and the Australian Borrowers and certain overdraft facilities.

        The Revolving Facility expires on March 31, 2004. As of September 30, 2002, loans of $2.4 billion were outstanding under the Revolving Facility and $106.0 million of issued but undrawn letters of credit were outstanding.

        Loans under the Revolving Facility bear interest, generally at the applicable borrower's option, at:

    the higher of (A) the prime rate or (B) 50 basis points over an averaged federal funds rate, plus in either case 75 basis points, if the applicable leverage ratio then in effect under the secured credit agreement is less than 3.5:1, or 100 basis points, if the applicable leverage ratio is greater than or equal to 3.5:1; or

    a reserve adjusted Eurodollar rate plus 175 basis points, if the applicable leverage ratio then in effect under the secured credit agreement is less than 3.5:1, or 200 basis points, if the applicable leverage ratio is greater than or equal to 3.5:1.

        Each Domestic Borrower has guaranteed the obligations of each borrower under the secured credit agreement (including the offshore subfacilities). In addition, the secured credit agreement (including the offshore subfacilities) is guaranteed by OI Group and substantially all other direct and indirect domestic subsidiaries of OI Group. The U.K. Borrowers have guaranteed the obligations of the Australian Borrowers and the Italian Borrowers under the secured credit agreement. In addition, certain wholly-owned U.K. subsidiaries of the U.K. Borrowers (the "U.K. Guarantors") have guaranteed the obligations of the U.K. Borrowers under the U.K. Subfacility; and certain wholly-owned Australian subsidiaries of the Australian Borrowers (the "Australian Guarantors") have guaranteed the obligations of the Australian Borrowers under the Australian Subfacility.

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        The secured credit agreement and the domestic guaranties of the secured credit agreement, subject to certain exceptions and limitations, are secured on a first priority basis by substantially all of the assets of OI Group and substantially all of the assets of substantially all present and future direct and indirect domestic subsidiaries of OI Group, including the stock and intercompany debt of such subsidiaries. In addition, the U.K. Subfacility and the guaranties of the U.K. Borrowers and U.K. Guarantors are secured by substantially all of the assets of the U.K. Borrowers and U.K. Guarantors, and the Australian Subfacility and the guaranties of the Australian Borrowers and the Australian Guarantors are secured by substantially all of the assets of the Australian Borrowers and the Australian Guarantors. Real property with an acquisition cost or insurable value of less than $25.0 million has generally been excluded. The secured credit agreement also requires under certain circumstances certain additional existing and future subsidiaries to guaranty the secured credit agreement and grant security interests in their assets to secure the secured credit agreement. The secured credit agreement and related collateral documents provide that, subject to certain conditions, the domestic guaranties and liens supporting the secured credit agreement may be shared from time to time with specified types of other obligations owing to lenders or affiliates of lenders party to the secured credit agreement incurred or guaranteed by OI Group or its subsidiaries as lending facilities and interest rate and currency agreements and certain other indebtedness permitted by the secured credit agreement, including the notes. In the event the rating for OI Inc.'s and OI Group's long term unsecured debt from Standard & Poor's Ratings Services and Moody's Investors Service, Inc. is BBB- and Baa3 or higher, respectively, and acknowledged by the collateral agent, the security interests in the collateral securing the secured credit agreement will terminate, provided that no default exists and all of OI Inc.'s outstanding public debt securities, the notes and other institutional debt shall be and remain unsecured. The Domestic Borrowers may assign or transfer their rights and obligations under the secured credit agreement to OI Inc. and all of OI Inc.'s subsidiaries will be concurrently released from their guarantees upon the consent of the requisite percentage of lenders under the secured credit agreement if OI Inc. has achieved, and immediately following such assumption maintains, specified investment grade ratings and all obligations of subsidiaries of OI Inc. in respect of OI Inc.'s outstanding public debt securities, the notes and certain other debt have been released and assumed by OI Inc.

        Loans and commitments under the secured credit agreement are subject to mandatory prepayment and reduction under certain circumstances from proceeds of permitted asset sales (including sales of receivables), the sale or issuance of permitted debt securities, the sale or issuance of certain equity securities, and from insurance and condemnation proceeds, in each case received by OI Group and/or OI Group's subsidiaries (with certain exceptions for non-U.S. subsidiaries), and in some cases by OI Inc. Voluntary prepayment of any of the loans under the secured credit agreement is permitted in whole or in part with prior notice and without premium or penalty (other than funding losses), subject to limitations as to minimum amounts.

        The secured credit agreement contains covenants and provisions that, among other things, restrict the ability of OI Group and its subsidiaries to dispose of assets, incur additional indebtedness, prepay other indebtedness or amend certain debt instruments, pay dividends, create liens on assets, enter into contingent obligations, enter into sale and leaseback transactions, make investments, loans or advances, make acquisitions, engage in mergers or consolidations, change the business conducted by OI Group and its subsidiaries, engage in certain transactions with affiliates and otherwise restrict certain corporate activities.

        In addition, the secured credit agreement contains financial covenants that require OI Group and its subsidiaries to maintain, based upon the financial statements of OI Inc. and its subsidiaries on a consolidated basis, the following financial ratios and tests:

            The fixed charge coverage ratio (the ratio of cash flow available for fixed charges to fixed charges) must be at least 1.25 to 1.0 for any fiscal quarter through September 30, 2003 and at least 1.30 to 1.0 for any fiscal quarter through March 31, 2004.

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            The leverage ratio (the ratio of total debt to adjusted EBITDA) may not exceed 4.50 to 1.0 as of the last day of each fiscal quarter through March 31, 2003, may not exceed 4.25 to 1.0 as of the last day of each fiscal quarter through September 30, 2003 and may not exceed 4.0 to 1.0 as of the last day of each fiscal quarter through March 31, 2004.

            Consolidated net worth may not at any time be less than the sum of (i) $1.65 billion plus (ii) 60% of consolidated adjusted net income for the period from January 1, 2001 through the date of calculation taken as one accounting period plus (iii) 90% of any after-tax gains or losses attributable to asset sales for the period from January 1, 2001 through the date of calculation taken as one accounting period.

            Capital expenditures cannot exceed $615 million in 2002 and $625 million in each of 2003 and 2004.

            At September 30, 2002, the borrowers under the secured credit agreement were in compliance with all of these requirements.

        Events of default under the secured credit agreement include, among other matters: (1) any failure to pay principal when due or to reimburse letters of credit when reimbursement is due, or to pay interest, fees or other amounts within five days after the date due; (2) any failure by OI Inc. or any of its subsidiaries to pay when due principal or interest on certain indebtedness that gives rise to a right of acceleration, and other breaches or defaults by OI Inc. or its subsidiaries under such indebtedness similarly giving rise to acceleration rights; (3) the breach by OI Group or certain of its subsidiaries of certain covenants, representations or warranties in the secured credit agreement; (4) any other default by OI Group or certain subsidiaries under the secured credit agreement that has not been remedied or waived within 30 days of the requisite notice; (5) certain events of bankruptcy, insolvency or dissolution of OI Inc., OI Group, any borrower or any material subsidiary, and certain material judgments entered against the same; (6) a change of control of OI Inc., OI Group or the Company as defined in the secured credit agreement; (7) certain ERISA and pension-related matters and liabilities; (8) material impairment of the guarantees or the collateral security; and (9) certain changes in the activities of OI Inc.

Senior Secured Notes due 2009 and 2012

        In January 2002, the Company issued $1.0 billion of the 87/8% Senior Secured Notes due 2009. In November 2002, the Company issued $450.0 million of the 83/4% Senior Secured Notes due 2012. In December 2002, Company issued $175.0 million of the 83/4% Senior Secured Notes due 2012. The 87/8% Senior Secured Notes due 2009 are senior obligations of the Company and rank pari passu in right of payment with all current and future senior debt of the Company, including its obligations under the secured credit agreement and the 83/4% Senior Secured Notes due 2012. The guarantees of the 87/8% Senior Secured Notes due 2009 rank equal in right of payment to the guarantees of OI Group and the subsidiary guarantors of their existing and future senior obligations, including their obligations under the secured credit agreement and the 83/4% Senior Secured Notes due 2012. The terms of the 87/8% Senior Secured Notes due 2009, including the collateral securing those notes and guarantees thereof, are substantially similar to the terms of the 83/4% Senior Secured Notes due 2012.

Indebtedness of OI Inc.

        OI Inc. has issued the following outstanding public debt securities:

            $300 million of 7.85% Senior Notes due 2004

            $350 million of 7.15% Senior Notes due 2005

            $300 million of 8.10% Senior Notes due 2007

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            $250 million of 7.35% Senior Notes due 2008

            $250 million of 7.50% Senior Debentures due 2010

            $250 million of 7.80% Senior Debentures due 2018

        OI Inc.'s obligations under these outstanding public debt securities are guaranteed on a subordinated basis by OI Group and OI Packaging. The guarantees and the outstanding public debt securities are secured by a second priority lien on the intercompany debt owed to and capital stock owned by OI Group and OI Packaging.

        The guarantees by OI Group and OI Packaging are subordinated to the prior payment in full in cash of all obligations of these guarantors under the secured credit agreement, obligations owing to lenders or their affiliates as lending facilities as permitted by the terms of the secured credit agreement and obligations under interest rate and currency agreements with lenders or their affiliates as permitted by the terms of the secured credit agreement. The guarantees will also be subordinated to the guarantees by OI Group and OI Packaging of our obligations under the notes. Each of OI Group and OI Packaging will be released and relieved of any obligations under its guarantee of OI Inc.'s outstanding public debt securities (1) in the event of a sale or other disposition of all or substantially all of the assets of such guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of its capital stock, to a person that is not a subsidiary of OI Inc., or (2) at the discretion of OI Inc., in the event that the guarantor is no longer a guarantor of: (A) the obligations under the secured credit agreement; (B) obligations under certain interest rate and currency agreements with lenders or their affiliates as permitted by the terms of the secured credit agreement; and (C) obligations owing to lenders or their affiliates as lending facilities as permitted by the terms of the secured credit agreement.

        The security interests are second in priority to the liens granted to the senior secured parties under the pledge agreement, which currently consist of the collateral agent for the benefit of the lenders under the secured credit agreement, lenders or their affiliates party to certain interest rate and currency agreements as permitted by the terms of the secured credit agreement and lenders and their affiliates under lending facilities as permitted by the terms of the secured credit agreement, the 87/8% Senior Secured Notes due 2009, and which will include the holders of the notes. The security interests securing OI Inc.'s outstanding public debt securities will terminate and the collateral will be released upon the earlier of:

    payment in full of all obligations under the secured credit agreement and the cancellation or termination of the secured credit agreement and related letters of credit and the written election of OI Group and OI Packaging;

    the first date on which the pledged collateral no longer secures any obligations under the secured credit agreement and upon the written election of OI Group and OI Packaging; and

    the achievement of "investment grade" debt ratings for OI Inc.'s and OI Group's long term unsecured debt (in the case of Moody's Investors Service, Inc., a rating of Baa3 or higher, and, in the case of Standard & Poor's Ratings Services, a rating of BBB- or higher).

        In addition, lenders under the secured credit agreement have the ability to direct the collateral agent to release the collateral upon the approval of the requisite percentage of lenders under the secured credit agreement.

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DESCRIPTION OF NOTES

        You can find the definitions of certain terms used in this description under the subheading "—Certain Definitions." In this description, the word "Company" refers only to Owens-Brockway Glass Container Inc. and not to any of its Subsidiaries, the term "OI Packaging" refers to Owens-Brockway Packaging, Inc., the Company's direct parent, and not to any of its Subsidiaries and the term "OI Group" refers to Owens-Illinois Group, Inc., the Company's indirect parent, and not to any of its Subsidiaries. OI Group and certain of the Subsidiaries of OI Group guarantee the notes and therefore are subject to many of the provisions contained in this Description of Notes.

        The Company issued the private notes, and will issue the exchange notes, under an Indenture dated as of January 24, 2002, as supplemented by a third supplemental indenture dated as of the Issue Date and a supplement thereto dated December 18, 2002 (as supplemented, the "Indenture") among itself, the Guarantors and U.S. Bank National Association, as trustee (the "Trustee") in a private transaction that is not subject to the registration requirements of the Securities Act. The terms of the notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").

        The following description is a summary of the material provisions of the Indenture and the Collateral Documents (as defined below). It does not restate those agreements in their entirety. We urge you to read the Indenture and the Collateral Documents because they, and not this description, define your rights as Holders of the notes. Certain defined terms used in this description but not defined below under "—Certain Definitions" have the meanings assigned to them in the Indenture.

Brief Description of the Notes and the Guarantees

    The Notes

        The notes:

    are senior obligations of the Company secured on the basis described below;

    are pari passu in right of payment with existing, and any future, senior Indebtedness of the Company; and

    are guaranteed on a senior basis by the Guarantors.

    The Guarantees

        The notes are guaranteed by OI Group and all Domestic Subsidiaries of OI Group that guarantee the Credit Agreement and will be guaranteed by any future Domestic Subsidiaries of OI Group that guarantee the Credit Agreement. As of the Issue Date, all of OI Group's Subsidiaries, other than its Foreign Subsidiaries, were "Domestic Subsidiaries." In the future, OI Group may have additional Subsidiaries which are not Domestic Subsidiaries and may also have additional Domestic Subsidiaries which do not guarantee the notes.

        Each Guarantee of the notes:

    is a senior obligation of the Guarantor secured on the basis described below; and

    is pari passu in right of payment with existing, and any future, senior Indebtedness of the Guarantor.

        As of the Issue Date, all of OI Group's Subsidiaries were "Restricted Subsidiaries." However, under the circumstances described below under the subheading "—Certain Covenants—Designation of Restricted and Unrestricted Subsidiaries," OI Group will be permitted to designate certain of its

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subsidiaries as "Unrestricted Subsidiaries." The Unrestricted Subsidiaries will not be subject to any of the restrictive covenants in the Indenture and will not guarantee the notes.

Principal, Maturity and Interest

        The Indenture does not limit the maximum aggregate principal amount of notes that the Company may issue thereunder. The Company will issue an aggregate principal amount of $625,000,000 million of notes in this exchange offer. The Company may issue additional notes (the "additional notes") from time to time after this exchange offer. The notes and any additional notes subsequently issued under the Indenture would be treated as a single series for all purposes under the Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase.

        In addition to the notes and any additional notes, the Company may issue additional series of debt securities under the Indenture. The terms of any additional debt securities issued under the Indenture will be established pursuant to a resolution of the Board of Directors of the Company and set forth or determined in the manner provided in an officer's certificate or by a supplemental indenture. Any offering of additional notes or additional debt securities under the Indenture is subject to the covenant described below under the caption "—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock."

        The Company will issue notes in denominations of $1,000 and integral multiples of $1,000. The notes will mature on November 15, 2012.

        Interest on the notes will accrue at the rate of 83/4% per annum and will be payable semi-annually in arrears on May 15 and November 15, commencing on May 15, 2003. The Company will make each interest payment to the Holders of record on the immediately preceding May 1 and November 1.

        Interest on the exchange notes will accrue from the last interest payment date on which interest was paid, or, if no interest was paid on the private notes, from November 13, 2002. Holders whose private notes are accepted for exchange will be deemed to have waived the right to receive any interest accrued on the private notes. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.

Methods of Receiving Payments on the Notes

        If a Holder has given wire transfer instructions to the Company, the Company will pay all principal, interest and premium and liquidated damages, if any, on that Holder's notes in accordance with those instructions. All other payments on notes will be made at the office or agency of the paying agent and registrar within the City and State of New York unless the Company elects to make interest payments by check mailed to the Holders at their addresses set forth in the register of Holders.

Paying Agent and Registrar for the Notes

        The Trustee will initially act as paying agent and registrar. The Company may change the paying agent or registrar without prior notice to the Holders, and the Company or any of its Subsidiaries may act as paying agent or registrar.

Transfer and Exchange

        A Holder may transfer or exchange notes in accordance with the Indenture. The registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any note selected for redemption. Also, the Company is not required to transfer or exchange any note for a period of 15 days before a selection of notes to be redeemed.

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        The registered Holder of a note will be treated as the owner of it for all purposes.

Guarantees

        The Guarantors jointly and severally guarantee the due and punctual payment of principal and of interest on the notes and all other obligations of the Company under the Indenture. The Guarantees of the notes (including the payment of principal of, premium, if any, and interest on the notes) are senior obligations of such Guarantors and rank pari passu in right of payment with all existing and future senior obligations of the Guarantors and rank senior to all subordinated obligations of such Guarantors. The Guarantees are secured to the extent set forth below under "—Collateral." The obligations of each Guarantor under its Guarantee are limited as necessary to prevent that Guarantee from constituting a fraudulent conveyance under applicable law. See "Risk Factors—Risks Relating to the Notes—Fraudulent Transfer—Federal and state laws permit a court to void the notes or the guarantees under certain circumstances."

        Until such time as all Guarantees of the notes by the Guarantors have been released in accordance with the terms of the Indenture, OI Group will cause each Domestic Subsidiary that guarantees the Company's obligations under the Credit Agreement to become a Guarantor under the Indenture and thereby guarantee the notes on the terms and conditions set forth in the Indenture. Upon the release of a Guarantee by a Domestic Subsidiary under the Credit Agreement, the Guarantee of such Domestic Subsidiary under the Indenture will be released and discharged at such time. In the event any such Domestic Subsidiary thereafter guarantees obligations under the Credit Agreement (or such released Guarantee under the Credit Agreement is reinstated or renewed), then such Domestic Subsidiary will guarantee the notes on the terms and conditions set forth in the Indenture.

        A Guarantor may not sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person, other than the Company or another Guarantor, unless:

    (1)
    immediately after giving effect to that transaction, no Event of Default exists under the Indenture; and

    (2)
    either:

    (a)
    the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger is organized or existing under the laws of the United States, any state thereof or the District of Columbia and assumes all the obligations of that Guarantor under the Indenture, its Guarantee, the Collateral Documents and the Registration Rights Agreements pursuant to a supplemental indenture satisfactory to the Trustee; or

    (b)
    such sale or other disposition complies with the "Asset Sale" provisions of the Indenture, including the application of the Net Proceeds therefrom.

        The Guarantee of a Guarantor will be released:

    (1)
    in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) a Restricted Subsidiary of OI Group, if the sale or other disposition of all or substantially all of the assets of that Guarantor complies with the "Asset Sale" provisions of the Indenture;

    (2)
    in connection with any sale of all of the Capital Stock of a Guarantor to a Person that is not (either before or after giving effect to such transaction) a Restricted Subsidiary of OI Group,

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      if the sale of all such Capital Stock of that Guarantor complies with the "Asset Sale" provisions of the Indenture; or

    (3)
    if OI Group properly designates any Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary.

        The Guarantees will also be released in the circumstances described below under the caption "—Certain Covenants—Merger, Consolidation or Sale of Assets."

        The Collateral Documents provide that, upon the release of a Guarantee under the Indenture, the security interests in the assets of that Guarantor securing the notes and Guarantees of the notes will be released simultaneously.

Ranking

        The notes are senior obligations of the Company and rank pari passu in right of payment with all existing and future senior obligations of the Company (including Indebtedness of the Company under the Credit Agreement and under the Existing Senior Notes) and rank senior in right of payment to all subordinated obligations of the Company. The notes are secured to the extent set forth below under "—Collateral" and guaranteed by the Guarantors to the extent set forth above under "—Guarantees." The Guarantees of the notes rank equal in right of payment to the Guarantees of OI Group and the other Guarantors of their existing and future senior obligations, including their obligations under the Credit Agreement and under the Existing Senior Notes, and senior in right of payment to all subordinated obligations of the Guarantors, including the guarantees of OI Group and OI Packaging of the obligations of OI Group's parent, OI Inc., related to $1.7 billion of outstanding public debt securities. The notes are effectively subordinated to obligations under the Credit Agreement and the OI Inc. Senior Notes to the extent such obligations are secured by collateral that does not secure the notes. The notes may also be effectively subordinated to certain Indebtedness incurred to refinance borrowings under the Credit Agreement to the extent that such Indebtedness is secured by collateral that does not secure the notes.

        As of and for nine months ended September 30, 2002, the non-guarantor Subsidiaries represented approximately:

    46% of OI Group's net sales;

    45% of OI Group's Consolidated Adjusted EBITDA; and

    44% of OI Group's consolidated assets.

        The liabilities of the non-guarantor Subsidiaries on a consolidated basis were approximately $2.2 billion as of September 30, 2002.

        As of September 30, 2002, on a pro forma basis after giving effect to the offerings and the use of the estimated net proceeds therefrom, OI Group would have approximately $5.4 billion of total consolidated indebtedness, which includes approximately $1.9 billion of secured indebtedness under the Credit Agreement.

Collateral

        Collateral Securing the Notes.    The notes and the Guarantees of the notes are secured, subject to the terms of the Collateral Documents, on a pari passu basis with the Indebtedness of the Company under the Credit Agreement, the Existing Senior Notes, related documents and liabilities owing to lenders or affiliates of lenders party to the Credit Agreement and in connection with interest rate and currency agreements and certain other Indebtedness permitted by the Credit Agreement.

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        The notes and Guarantees of the notes are secured by:

    a security interest in substantially all the assets (other than Intercompany Indebtedness and Capital Stock) of OI Group and of substantially all the Domestic Subsidiaries of OI Group; and

    a pledge by OI Group of the Capital Stock of all its direct Subsidiaries and Intercompany Indebtedness owing to OI Group by such direct Subsidiaries (other than the Capital Stock of OI General FTS Inc. ("OI General FTS") owned by OI Group and Intercompany Indebtedness owing to OI Group by OI General FTS) and a pledge by OI Packaging of the Capital Stock of the Company and Intercompany Indebtedness owing to OI Packaging by the Company.

        Negative Pledge.    Except as permitted and contemplated by, and subject to the terms of, the Credit Agreement and the Pledge Agreement, OI Group will not further pledge the Capital Stock of OI General FTS or the Intercompany Indebtedness of OI General FTS owing to OI Group, as security or otherwise, unless the notes and the Guarantees of the notes are secured on a pari passu basis with the applicable Indebtedness by this collateral.

        Additional Collateral Secures the Credit Agreement.    In addition to the Collateral securing the obligations under the notes and the Guarantees of the notes, the obligations of the Credit Agreement Domestic Borrowers and the domestic guarantors under the Credit Agreement are further secured by:

    a pledge by OI Group of the Capital Stock of OI General FTS and Intercompany Indebtedness owing to OI Group by OI General FTS;

    a pledge of the Capital Stock of substantially all of the Domestic Subsidiaries of OI General FTS, OI Plastic Products FTS Inc. and the Company;

    a pledge of the Intercompany Indebtedness owed to OI General FTS, OI Plastic Products FTS Inc. and the Company and substantially all of their Domestic Subsidiaries; and

    a pledge of 65% of the stock of the first-tier Foreign Subsidiaries.

In addition to being secured by the above, the offshore subfacilities and related Guarantees under the Credit Agreement are also secured by the assets (including stock and intercompany debt) of certain wholly owned U.K. and Australian Subsidiaries and by the remaining 35% of the stock of the first-tier Foreign Subsidiaries. See "Risk Factors—Risks Relating to the Notes—Notes Effectively Subordinated to Certain Secured Credit Agreement Obligations and Obligations of OI Inc.—The notes are effectively subordinated to the obligations under the secured credit agreement, certain obligations owing to lenders or their affiliates as permitted under the secured credit agreement and obligations related to OI Inc.'s $1.7 billion outstanding public debt securities to the extent these obligations are secured by collateral that does not secure the notes."

        Sufficiency of Collateral.    The fair market value of the Collateral is subject to fluctuations based on factors that include, among others, the condition of the packaging products industry, the ability to sell the Collateral in an orderly sale, the condition of the international, national and local economies, the availability of buyers and similar factors. In the event of foreclosure on the collateral, the proceeds from the sale of the collateral, including the Collateral securing the notes and the Guarantees of the notes, may not be sufficient to satisfy in full the Company's obligations under the notes, the Existing Senior Notes and the Credit Agreement and any senior, secured indebtedness ranking pari passu with the notes. The amount to be received upon such a sale would be dependent on numerous factors, including but not limited to the timing and the manner of the sale. In addition, the book value of the Collateral should not be relied on as a measure of realizable value for such assets. By its nature, portions of the Collateral may be illiquid and may have no readily ascertainable market value. Accordingly, there can be no assurance that the Collateral can be sold in a short period of time in an orderly manner. A significant portion of the Collateral includes assets that may only be usable, and

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thus retain value, as part of the existing operating businesses of OI Group and its Subsidiaries. Accordingly, any such sale of the Collateral separate from the sale of certain of OI Group's and its Subsidiaries' operating businesses may not be feasible or of significant value. To the extent that third parties enjoy Liens permitted by the Indenture such third parties may have rights and remedies with respect to the assets or property subject to such Liens that, if exercised, could adversely affect the value of the Collateral. In addition, in the event of a bankruptcy, the ability of the Holders to realize upon any of the Collateral may be subject to certain bankruptcy law limitations. See "Risk Factors—Risks Relating to the Notes—Notes Effectively Subordinated to Certain Secured Credit Agreement Obligations and Obligations of OI Inc.—The notes are effectively subordinated to the obligations under the secured credit agreement, certain obligations owing to lenders or their affiliates as permitted under the secured credit agreement and obligations related to OI Inc.'s $1.7 billion of outstanding public debt securities to the extent these obligations are secured by collateral that does not secure the notes."

        The Company has the ability to issue additional notes as part of the same series of these notes or in one or more different series, all of which may be secured with the notes and the Existing Senior Notes by the Collateral. OI Group and its Restricted Subsidiaries can increase their Indebtedness but there can be no assurance that there will be a proportionate increase in the value of the Collateral as a percentage of the aggregate principal amount of outstanding notes. See "Risk Factors—Risks Relating to the Notes—Dilution of Collateral—The collateral securing the notes may be diluted under certain circumstances."

Certain Bankruptcy Limitations

        The right of the Collateral Agent to repossess and dispose of the Collateral upon the occurrence of an Event of Default would be significantly impaired by applicable bankruptcy law in the event that a bankruptcy case were to be commenced by or against the Company, OI Group, or any of the Guarantors prior to the Collateral Agent having repossessed and disposed of the Collateral. Upon the commencement of a case for relief under Title 11 of the United States Code, as amended (the "Bankruptcy Code"), a secured creditor such as the Collateral Agent is prohibited from repossessing its security from a debtor in a bankruptcy case, or from disposing of security repossessed from the debtor, without bankruptcy court approval. Moreover, the Bankruptcy Code permits the debtor to continue to retain and use Collateral even though the debtor is in default under the applicable debt instruments provided that the secured creditor is given adequate protection. The meaning of the term "adequate protection" may vary according to circumstances, but it is intended in general to protect the value of the secured creditor's interest in the Collateral and may include cash payments or the granting of additional security, if and at such times as the court in its discretion determines, for any diminution in the value of the Collateral as a result of the stay or repossession or disposition or any use of the Collateral by the debtor during the pendency of the bankruptcy case. A bankruptcy court may determine that a secured creditor may not require compensation for a diminution in the value of the Collateral if the value of the Collateral exceeds the debt it secures.

        In view of the broad equitable powers of a bankruptcy court, it is impossible to predict how long payments under the notes could be delayed following commencement of a bankruptcy case, whether or when the Collateral Agent could repossess or dispose of the Collateral, the value of the Collateral at the time of the bankruptcy petition or whether or to what extent Holders of the notes would be compensated for any delay in payment or loss of value of the Collateral through the requirement of "adequate protection." Any disposition of the Collateral during a bankruptcy case would also require permission from the bankruptcy court. Furthermore, in the event a bankruptcy court determines the value of the Collateral is not sufficient to repay all amounts due on the notes, the Holders of the notes would hold secured claims to the extent of the value of the Collateral to which the Holders of the notes are entitled, and unsecured claims with respect to such shortfall. The Bankruptcy Code only permits the payment and/or accrual of post-petition interest, costs and attorney's fees to a secured

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creditor during a debtor's bankruptcy case to the extent the value of the Collateral is determined by the bankruptcy court to exceed the aggregate outstanding principal amount of the obligations secured by the Collateral.

Optional Redemption

        Except as described below, the notes are not redeemable at the Company's option prior to November 15, 2007. The Company cannot predict with any certainty the criteria that it will use in determining whether to redeem the notes. The general economic environment, the Company's capitalization, the interest rate environment and the Company's cash flow are just a few of the many factors that may influence the Company's decision. The Company may, for example, be more likely to redeem the notes if interest rates are low or if the Company has substantial excess cash flow.

        After November 15, 2007, the Company may redeem all or a part of the notes upon not less than 30 nor more than 60 days notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and liquidated damages, if any, thereon, to the applicable redemption date, if redeemed during the twelve-month period beginning on November 15 of the years indicated below:

Year

  Percentage
 
2007   104.375 %
2008   102.917 %
2009   101.458 %
2010 and thereafter   100.000 %

        At any time prior to November 15, 2005, the Company may redeem on any one or more occasions up to 35% of the aggregate principal amount of notes (calculated after giving effect to any issuance of additional notes) at a redemption price of 108.750% of the principal amount thereof, plus accrued and unpaid interest and liquidated damages, if any, to the redemption date, with the net cash proceeds of one or more Equity Offerings by OI Inc. to the extent the net cash proceeds thereof are contributed to the Company or used to purchase from the Company Capital Stock (other than Disqualified Stock) of the Company; provided that:

    (1)
    at least 65% of the aggregate principal amount of notes (calculated after giving effect to any issuance of additional notes) remains outstanding immediately after the occurrence of such redemption (excluding notes held by OI Inc. and its Subsidiaries); and

    (2)
    the redemption must occur within 60 days of the date of the closing of such Equity Offering.

        In addition, at any time prior to November 15, 2007, the notes may also be redeemed, in whole but not in part, at the option of the Company upon the occurrence of a Change of Control, upon not less than 30 nor more than 60 days prior notice (but in no event more than 90 days after the occurrence of such Change of Control) mailed by first-class mail to each Holder's registered address, at a redemption price equal to 100% of the principal amount of notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest and liquidated damages, if any, to, the date of redemption (subject to the right of Holders of record on the relevant record date to receive interest due on the notes on the relevant interest payment date).

        "Applicable Premium" means, with respect to any note on any redemption date, the greater of:

    (1)
    1.0% of the principal amount of such note; or

    (2)
    the excess of:

    (a)
    the present value at such redemption date of (1) the redemption price of such note at November 15, 2007 (such redemption price being set forth in the table above) plus (2) all

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        required interest payments due on such note through November 15, 2007 (including accrued but unpaid interest) computed using a discount rate equal to the Treasury Rate on such redemption date plus 50 basis points; over

      (b)
      the principal amount of such note.

        "Treasury Rate" means, as of any redemption date, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15(519) that has become publicly available at least two business days prior to the redemption date (or, if such statistical release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to November 15, 2007; provided, however, that if the period from the redemption date to November 15, 2007 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used.

Mandatory Redemption

        The Company is not required to make mandatory redemption or sinking fund payments with respect to the notes.

Repurchase at the Option of Holders

    Change of Control

        If a Change of Control occurs, unless the Company has exercised its right to redeem the notes as described under "Optional Redemption," each Holder of notes has the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of that Holder's notes pursuant to a change of control offer on the terms set forth in the Indenture (a "Change of Control Offer"). In the Change of Control Offer, the Company will offer a payment in cash equal to 101% of the aggregate principal amount of notes repurchased plus accrued and unpaid interest and liquidated damages, if any, thereon, to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase notes on the date specified in such notice (the "Change of Control Payment Date"), which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedures required by the Indenture and described in such notice. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control provisions of the Indenture by virtue of such conflict.

        On the Change of Control Payment Date, the Company will, to the extent lawful:

    (1)
    accept for payment all notes or portions thereof properly tendered pursuant to the Change of Control Offer;

    (2)
    deposit with the paying agent an amount equal to the Change of Control Payment in respect of all notes or portions thereof so tendered; and

    (3)
    deliver or cause to be delivered to the Trustee the notes so accepted together with an Officers' Certificate stating the aggregate principal amount of notes or portions thereof being purchased by the Company.

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        The paying agent will promptly mail to each Holder of notes so tendered the Change of Control Payment for such notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new note equal in principal amount to any unpurchased portion of the notes surrendered, if any; provided that each such new note will be in a principal amount of $1,000 or an integral multiple thereof.

        The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.

        The indenture for the Existing Senior Notes contains a similar Change of Control covenant.

        The Credit Agreement currently prohibits the Company from voluntarily purchasing the notes or the Existing Senior Notes, and also provides that certain change of control events with respect to OI Inc., OI Group and the Company would constitute a default under that agreement. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing notes, the Company could seek consent to purchase the notes and the Existing Senior Notes or could attempt to refinance its borrowings under the Credit Agreement. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing notes or the Existing Senior Notes. In such case, the Company's failure to purchase tendered notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under the Credit Agreement.

        The provisions described above that require the Company to make a Change of Control Offer following a Change of Control will be applicable regardless of whether any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the notes to require that the Company repurchase or redeem the notes in the event of a takeover, recapitalization or similar transaction.

        The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all notes validly tendered and not withdrawn under such Change of Control Offer.

    Asset Sales

        OI Group will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:

    (1)
    OI Group (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of;

    (2)
    such Fair Market Value is determined in good faith by OI Group and a certification to that effect is set forth in an Officers' Certificate delivered to the Trustee; and

    (3)
    at least 75% of the consideration therefor received by OI Group or such Restricted Subsidiary is in the form of cash. For purposes of this provision, each of the following shall be deemed to be cash:

    (a)
    any liabilities (as shown on OI Group's or such Restricted Subsidiary's most recent balance sheet) of OI Group or any Restricted Subsidiary of OI Group (other than liabilities that are by their terms subordinated to the notes or any Guarantee of the notes) that are assumed by the transferee of any such assets which assumption releases OI Group or such Restricted Subsidiary from further liability;

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      (b)
      any securities, notes or other obligations received by OI Group or any such Restricted Subsidiary from such transferee that are converted within 180 days by OI Group or such Restricted Subsidiary into cash (to the extent of the cash received in that conversion); and

      (c)
      any Designated Noncash Consideration received by OI Group or any Restricted Subsidiary of OI Group in such Asset Sale having an aggregate Fair Market Value, taken together with all other Designated Noncash Consideration received pursuant to this clause (c) that is at that time outstanding, not to exceed 5.0% of Tangible Assets at the time of the receipt of such Designated Noncash Consideration (with the Fair Market Value of each item of Designated Noncash Consideration being measured at the time received and without giving effect to subsequent changes in value);

provided, that the 75% limitation referred to in clause (3) above will not apply to any Asset Sale in which the cash portion of such consideration received therefor on an after-tax basis, determined in accordance with clause (3) above, is equal to or greater than what the after-tax net proceeds would have been had such transaction complied with such 75% limitation.

        Within 360 days after the receipt of any Net Proceeds from an Asset Sale, OI Group or such Restricted Subsidiary may apply such Net Proceeds at its option:

    (1)
    to repay senior Indebtedness of the Company or any Guarantor and, if the senior Indebtedness of the Company or any Guarantor repaid is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto, if the terms of such revolving credit Indebtedness would require such a commitment reduction; provided, however, that a non-Guarantor Restricted Subsidiary may use the Net Proceeds from an Asset Sale to repay senior Indebtedness of OI Group or any Restricted Subsidiary of OI Group;

    (2)
    to make payments required to be made with respect to the outstanding OI Inc. Senior Notes;

    (3)
    to acquire all or substantially all of the assets of, or a majority of the Voting Stock of, a Permitted Business;

    (4)
    to make a capital expenditure in or that is used or useful in a Permitted Business;

    (5)
    to acquire other long-term assets in or that are used or useful in a Permitted Business; or

    (6)
    to make an Investment in any one or more businesses (provided that such Investment in any business may be in the form of the acquisition of Capital Stock so long as it results in OI Group or a Restricted Subsidiary of OI Group, as the case may be, owning a majority of the Capital Stock of such business), properties or assets that replace the businesses, properties and assets that are the subject of such Asset Sale; provided, however, that any such business, properties and assets of OI Group or a Guarantor that are the subject of an Asset Sale are invested in one or more businesses, properties or assets that constitute or are owned or will be owned by a Guarantor or a Restricted Subsidiary that becomes a Guarantor.

Notwithstanding the foregoing, with respect to any Asset Sale by the Company or any Guarantor, such Net Proceeds may only be applied pursuant to items (1) or (6) above and, to the extent such Net Proceeds are applied to, or with respect to, the Company, a Guarantor or a Person or a Restricted Subsidiary that becomes a Guarantor, items (3), (4) or (5) above. Pending the final application of any such Net Proceeds, OI Group or the applicable Restricted Subsidiary may temporarily reduce revolving credit borrowings or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture.

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        Any Net Proceeds from Asset Sales that are not applied or invested as provided in the preceding paragraph will constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $25.0 million, the Company will make an offer (an "Asset Sale Offer") to all Holders of notes and all Holders of other Indebtedness that is pari passu with the notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets (including the Existing Senior Notes) to purchase the maximum principal amount of notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of principal amount plus accrued and unpaid interest and liquidated damages, if any, to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of notes and such other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall select the notes and such other pari passu Indebtedness to be purchased on a pro rata basis based on the principal amount of notes and such other pari passu Indebtedness tendered. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.

        The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with each repurchase of notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sales provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Asset Sale provisions of the Indenture by virtue of such conflict.

        The agreements governing OI Group's Indebtedness or the Company's other Indebtedness contain prohibitions of certain events, including events that would constitute a Change of Control or an Asset Sale. In addition, the exercise by the Holders of notes of their right to require the Company to repurchase the notes upon a Change of Control or an Asset Sale could cause a default under these other agreements, even if the Change of Control or Asset Sale itself does not, due to the financial effect of such repurchases on the Company or OI Group. Finally, the Company's ability to pay cash to the Holders of notes upon a repurchase may be limited by the Company's or OI Group's then existing financial resources.

Selection and Notice

        If less than all of the notes are to be redeemed at any time, the Trustee will select notes for redemption as follows:

    (1)
    if the notes are listed, in compliance with the requirements of the principal national securities exchange on which the notes are listed; or

    (2)
    if the notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate.

        No notes of $1,000 or less will be redeemed in part. Notices of redemption will be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of notes to be redeemed at its registered address. Notices of redemption may not be conditional.

        If any note is to be redeemed in part only, the notice of redemption that relates to that note will state the portion of the principal amount thereof to be redeemed. A new note in principal amount equal to the unredeemed portion of the original note will be issued in the name of the Holder thereof upon cancellation of the original note. Notes called for redemption become due on the date fixed for

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redemption. On and after the redemption date, interest ceases to accrue on notes or portions of them called for redemption.

Certain Covenants

    Fall-Away Event

        If at any time the notes have achieved the Investment Grade Ratings, OI Group and the Restricted Subsidiaries of OI Group will thereafter no longer be subject to the covenants under "—Repurchase at the Option of Holders—Change of Control" and "—Repurchase at the Option of Holders—Asset Sales" or the following provisions of the Indenture under the heading "—Certain Covenants" (even if the notes subsequently cease to have the Investment Grade Ratings):

        "—Restricted Payments,"

        "—Incurrence of Indebtedness and Issuance of Preferred Stock,"

        "—Liens,"

        "—Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries,"

        "—Transactions with Affiliates,"

        "—Additional Guarantees/Pledges," and

        "—Payments for Consent"

(collectively, the "Extinguished Covenants"), provided that if upon the receipt by the notes of the Investment Grade Ratings, a Default or Event of Default has occurred and is continuing under the Indenture, the Company will continue to be subject to the Extinguished Covenants until such time as no Default or Event of Default is continuing.

        Notwithstanding the foregoing, at the time OI Group and the Restricted Subsidiaries are no longer subject to the Extinguished Covenants, neither OI Group nor any of its Domestic Subsidiaries will create, incur, or permit to exist, any Lien on any of their respective assets, whether now owned or hereafter acquired, in order to secure any Indebtedness of either of OI Group or any of its Domestic Subsidiaries, without effectively providing that the notes shall be equally and ratably secured until such time as such Indebtedness is no longer secured by such Lien, except: (i) Liens on cash and Cash Equivalents securing obligations in respect of letters of credit in accordance with the terms of the Credit Agreement; (ii) Liens existing on the Issue Date; (iii) Liens granted after the Issue Date on any assets of OI Group or any of its Domestic Subsidiaries securing Indebtedness of OI Group or any of its Domestic Subsidiaries created in favor of the Holders of the notes; (iv) Liens securing Indebtedness which is incurred to extend, renew or refinance Indebtedness which is secured by Liens permitted to be incurred under the Indenture; provided that such Liens do not extend to or cover any assets of OI Group or any of its Domestic Subsidiaries other than the assets securing the Indebtedness being extended, renewed or refinanced and that the principal or commitment amount of such Indebtedness does not exceed the principal or commitment amount of the Indebtedness being extended, renewed or refinanced at the time of such extension, renewal or refinancing, or at the time the Lien was issued, created or assumed or otherwise permitted; (v) Investment Grade Permitted Liens; or (vi) Liens created in substitution of or as replacement for any Liens permitted by the preceding clauses (i) through (v) or this clause (vi), provided that, based on a good faith determination of an officer of the Company, the assets encumbered under any such substitute or replacement Lien is substantially similar in value to the assets encumbered by the otherwise permitted Lien which is being replaced. Upon the assignment of the Company's obligations under the Indenture to OI Inc. as described in the last paragraph of the covenant described below under the caption "—Merger, Consolidation or Sale of Assets," the limitations described in this paragraph will apply to Liens securing Indebtedness of OI Inc.

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and its Domestic Subsidiaries in lieu of Liens securing Indebtedness of OI Group and its Domestic Subsidiaries.

    Restricted Payments

        OI Group will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:

    (1)
    declare or pay any dividend or make any other distribution on account of OI Group's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving OI Group or any of its Restricted Subsidiaries) or to the direct or indirect holders of OI Group's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of OI Group or such Restricted Subsidiaries); provided that the foregoing will not limit or preclude: (a) the declaration or payment of dividends or distributions to OI Group, the Company or any Guarantor; (b) the declaration or payment of dividends or distributions to holders of Equity Interests of a Guarantor (other than OI Group or a Subsidiary of OI Group) on a pro rata basis with all other holders; or (c) the declaration or payment of dividends or distributions by non-Guarantor Restricted Subsidiaries to the holders of their Equity Interests on a pro rata basis;

    (2)
    purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving OI Group or any of its Restricted Subsidiaries) any Equity Interests of OI Group or any direct or indirect parent of OI Group;

    (3)
    purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the notes or the Guarantees of the notes, except for (a) payments of or related to Intercompany Indebtedness (other than Intercompany Indebtedness owing to OI Inc. by OI Group), (b) a payment of interest or principal at the Stated Maturity thereof (other than Intercompany Indebtedness owing to OI Inc. by OI Group) or (c) the purchase, repurchase, defeasance, acquisition or retirement for value of Indebtedness of a Foreign Subsidiary by a Foreign Subsidiary; or

    (4)
    make any Restricted Investment (all such payments and other actions set forth in clauses (1) through (4) above being collectively referred to as "Restricted Payments"),

unless, at the time of and after giving effect to such Restricted Payment:

    (1)
    no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and

    (2)
    OI Group would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption "—Incurrence of Indebtedness and Issuance of Preferred Stock"; and

    (3)
    such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by OI Group and its Restricted Subsidiaries after January 24, 2002 (excluding Restricted Payments permitted by clauses (2), (3), (4), (6) and (7) of the next succeeding paragraph), is less than the sum, without duplication, of:

    (a)
    50% of the Consolidated Net Income of OI Group for the period (taken as one accounting period) from April 1, 2002 to the end of OI Group's most recently ended

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        fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus

      (b)
      100% of the aggregate net cash proceeds and the Fair Market Value of marketable securities received by OI Group since January 24, 2002 as a contribution to its common equity capital or from the issue or sale of Equity Interests of OI Group (other than Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of OI Group that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of OI Group); plus

      (c)
      to the extent that any Restricted Investment that was made after January 24, 2002 is sold or otherwise liquidated, the cash plus the Fair Market Value of any marketable securities received upon the sale or liquidation of such Restricted Investment (less the cost of disposition, if any); plus

      (d)
      $15.0 million.

        So long as (solely with respect to clauses (2), (3), (5) and (7) below) no Event of Default has occurred and is continuing or would be caused thereby, the preceding provisions will not prohibit:

    (1)
    the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture;

    (2)
    the redemption, repurchase, retirement, defeasance or other acquisition of any Indebtedness of OI Group or any Restricted Subsidiary of OI Group or of any Equity Interests of OI Group in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of OI Group) of, Equity Interests of OI Group (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (3)(b) of the preceding paragraph;

    (3)
    the defeasance, redemption, repurchase or other acquisition of the OI Inc. Senior Notes;

    (4)
    the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness of OI Group (other than the OI Inc. Senior Notes) or any Restricted Subsidiary of OI Group with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness;

    (5)
    the repurchase, redemption or other acquisition or retirement (or dividends or distributions to OI Inc. or payments of Intercompany Indebtedness, in each case, to finance such repurchase, retirement or other acquisition) for value of any Equity Interests of OI Inc., OI Group or any Restricted Subsidiary of OI Group held by any member of OI Inc.'s, OI Group's or any Restricted Subsidiary of OI Group's management; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $5.0 million in any twelve-month period;

    (6)
    any OI Inc. Ordinary Course Payment; and

    (7)
    dividends or distributions to OI Inc. or payments of Intercompany Indebtedness to allow OI Inc. to pay cash dividends on any shares of preferred stock of OI Inc. outstanding on January 24, 2002, plus dividends on any subsequently issued shares of preferred stock of OI Inc. in an amount not to exceed $25.0 million in any twelve-month period.

        The amount of all Restricted Payments (other than cash) shall be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued to or

110


by OI Group or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The Fair Market Value of any assets or securities that are required to be valued by this covenant shall be determined in good faith by OI Group.

    Incurrence of Indebtedness and Issuance of Preferred Stock

        OI Group will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and OI Group will not issue any Disqualified Stock and OI Group will not permit any of its Restricted Subsidiaries to issue any Disqualified Stock or preferred stock; provided, however, that OI Group and any of its Restricted Subsidiaries may incur Indebtedness (including Acquired Debt) and may issue preferred stock, if the Fixed Charge Coverage Ratio for OI Group's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred would have been at least 2.00 to 1.00, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred at the beginning of such four-quarter period.

        The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"):

    (1)
    the incurrence by OI Group or its Restricted Subsidiaries of Indebtedness under Credit Facilities (and the incurrence of Guarantees thereof) in an aggregate principal amount at any one time outstanding (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Restricted Subsidiaries thereunder) not to exceed $4.5 billion (of which not more than $1.41 billion of such Indebtedness shall be incurred by Restricted Subsidiaries that are not Guarantors);

    (2)
    the incurrence by OI Group and any Restricted Subsidiary of OI Group of the Existing Indebtedness;

    (3)
    the incurrence by OI Group, the Company and the Guarantors of Indebtedness represented by the private notes and the related Guarantees issued on the Issue Date and the Exchange Notes to be issued pursuant the Registration Rights Agreements;

    (4)
    the incurrence by OI Group or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, in an aggregate principal amount at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (4), not to exceed 3.0% of Tangible Assets;

    (5)
    the incurrence by OI Group or any of its Restricted Subsidiaries of Indebtedness incurred to finance all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of OI Group or such Restricted Subsidiary, in an aggregate principal amount at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (5), not to exceed 5.0% of Tangible Assets, as measured after giving effect to such transaction;

    (6)
    provided that so long as no Default shall have occurred or be continuing or would be caused thereby, the incurrence by OI Group or any of its Restricted Subsidiaries of Indebtedness in exchange for, or the proceeds of which are or will be used to refund, refinance or replace the $300.0 million aggregate principal amount of 7.85% Senior Notes due 2004, the $350.0 million aggregate principal amount of 7.15% Senior Notes due 2005, the $300.0 million aggregate principal amount of 8.10% Senior Notes due 2007, the $250.0 million aggregate principal

111


      amount of 7.35% Senior Notes due 2008 and the $250.0 million aggregate principal amount of 7.50% Senior Debentures due 2010, in each case of OI Inc.;

    (7)
    the incurrence by OI Group or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are or will be used to refund, refinance or replace Indebtedness (other than Intercompany Indebtedness) that was permitted by the Indenture to be incurred under the first paragraph of this covenant or clauses (2), (3), (6) or (7) of this paragraph;

    (8)
    the incurrence by OI Group or any of its Restricted Subsidiaries of Intercompany Indebtedness between or among OI Group and any of its Restricted Subsidiaries and with respect to OI Group only, between OI Group and OI Inc.; provided, however, that:

    (a)
    if OI Group, the Company or any Guarantor is the obligor on such Indebtedness, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the notes, in the case of the Company, or the Guarantees of the notes, in the case of OI Group or a Guarantor;

    (b)
    any incurrence by OI Group of Intercompany Indebtedness to OI Inc. after the Issue Date will be in exchange for cash loans or advances from OI Inc. in the ordinary course of business consistent with past practices; and

    (c)
    (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than OI Group or a Restricted Subsidiary thereof and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either OI Group or a Restricted Subsidiary thereof, shall be deemed, in each case, to constitute an incurrence of such Indebtedness by OI Group or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (8);

    (9)
    the incurrence by OI Group or any of its Restricted Subsidiaries of Hedging Obligations;

    (10)
    provided that so long as no Default shall have occurred or be continuing or would be caused thereby, the incurrence by any Foreign Subsidiary of OI Group of Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, not to exceed $300.0 million, in addition to the $1.41 billion of Indebtedness that may be incurred under clause (1) of this paragraph;

    (11)
    (i) the Guarantee by the Company or any of the Guarantors of Indebtedness of OI Group or any Restricted Subsidiary of OI Group and (ii) the Guarantee by any Foreign Subsidiary of Indebtedness of OI Group or any Restricted Subsidiary of OI Group, in each case, that was permitted to be incurred by another provision of this covenant;

    (12)
    the accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness for purposes of this covenant or an issuance of Disqualified Stock; provided, in each such case, that the amount thereof is included in Fixed Charges of OI Group as accrued;

    (13)
    the incurrence by OI Group or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (13), not to exceed $300.0 million;

    (14)
    Indebtedness arising from agreements of OI Group or a Restricted Subsidiary of OI Group providing for indemnification, adjustment of purchase price or similar obligations, in each

112


      case, incurred or assumed in connection with the disposition of any business, assets or a Subsidiary, other than Guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or a Subsidiary for the purpose of financing such acquisition; provided, however, that (i) such Indebtedness is not reflected on the balance sheet of OI Group or any such Restricted Subsidiary of OI Group (contingent obligations referred to in a footnote to financial statements and not otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this clause (i)) and (ii) the maximum assumable liability in respect of all such Indebtedness that is permitted to be incurred pursuant to this clause (14) shall at no time exceed the gross proceeds including noncash proceeds (the Fair Market Value of such noncash proceeds being measured at the time received and without giving effect to any subsequent changes in value) actually received by OI Group and its Restricted Subsidiaries in connection with such disposition;

    (15)
    the incurrence by OI Group or any of its Restricted Subsidiaries of Indebtedness incurred or deemed incurred or cash consideration received from the sale of accounts receivable by OI Group or any of its Restricted Subsidiaries or a special purpose vehicle established by any of them to purchase and sell such receivables;

    (16)
    obligations in respect of performance and surety bonds and completion guarantees provided by OI Group or any of its Restricted Subsidiaries in the ordinary course of business;

    (17)
    Indebtedness incurred by OI Group or any of its Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business, including without limitation letters of credit in respect of workers' compensation claims, or other Indebtedness with respect to reimbursement type obligations regarding workers' compensation claims; provided, however, that upon the drawing of such letters of credit or the incurrence of such Indebtedness, such obligations are reimbursed within 30 days following such drawing or incurrence; and

    (18)
    the incurrence by OI Group or any of its Restricted Subsidiaries of Acquired Debt, in an aggregate principal amount at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (18), not to exceed 5.0% of Tangible Assets, as measured after giving effect to the transaction for which the Acquired Debt was incurred.

        The Company will not incur any Indebtedness (including Permitted Debt) after the Issue Date that is contractually subordinated in right of payment to any other Indebtedness of the Company unless such Indebtedness is also contractually subordinated in right of payment to the notes on substantially similar terms; provided, however, that no Indebtedness of the Company shall be deemed to be contractually subordinated in right of payment to any other Indebtedness of the Company solely by virtue of being unsecured.

        OI Group will not, and will not permit any Guarantor to, incur any Indebtedness (including Permitted Debt) after the Issue Date that is contractually subordinated in right of payment to any other Indebtedness of OI Group or the Guarantors, as the case may be, unless such Indebtedness is also contractually subordinated in right of payment to the obligations under the notes or Guarantees of the notes on substantially similar terms; provided, however, that no Indebtedness of OI Group or the Guarantors shall be deemed to be contractually subordinated in right of payment to any other Indebtedness of OI Group or the Guarantors solely by virtue of being unsecured.

        For purposes of determining compliance with this "Incurrence of Indebtedness and Issuance of Preferred Stock" covenant, in the event that any proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (18) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company will be permitted to

113



classify such item of Indebtedness on the date of its incurrence in any manner that complies with this covenant, or later reclassify all or a portion of such item of Indebtedness. Indebtedness under Credit Facilities outstanding on November 13, 2002 shall be deemed to have been incurred on such date in reliance on the exception provided by clauses (1) or (2) of the definition of Permitted Debt above.

    Liens

        Neither OI Group nor any Restricted Subsidiary of OI Group will create, incur, or permit to exist, any Lien on any of their respective assets, whether now owned or hereafter acquired, in order to secure any Indebtedness of either of OI Group or any Restricted Subsidiary of OI Group, without effectively providing that the notes shall be equally and ratably secured until such time as such Indebtedness is no longer secured by such Lien, except:

    (1)
    Liens on cash and Cash Equivalents securing obligations in respect of letters of credit in accordance with the terms of the Credit Agreement;

    (2)
    Liens existing on the Issue Date;

    (3)
    Liens granted after the Issue Date on any assets of OI Group or any of its Restricted Subsidiaries securing Indebtedness of OI Group or any of its Restricted Subsidiaries created in favor of the Holders of the notes;

    (4)
    Liens securing Indebtedness of OI Group or any Restricted Subsidiary of OI Group which is incurred to extend, renew or refinance Indebtedness which is secured by Liens permitted to be incurred under the Indenture; provided that such Liens do not extend to or cover any assets of OI Group or any Restricted Subsidiary of OI Group other than the assets securing the Indebtedness being extended, renewed or refinanced and that the principal or commitment amount of such Indebtedness does not exceed the principal or commitment amount of the Indebtedness being extended, renewed or refinanced at the time of such extension, renewal or refinancing, or at the time the Lien was issued, created or assumed or otherwise permitted;

    (5)
    Permitted Liens; and

    (6)
    Liens created in substitution of or as replacements for any Liens permitted by the preceding clauses (1) through (5) or this clause (6), provided that, based on a good faith determination of an officer of the Company, the assets encumbered under any such substitute or replacement Lien is substantially similar in value to the assets encumbered by the otherwise permitted Lien which is being replaced.

For purposes of the Indenture, the notes and the Guarantees of the notes, so long as the Credit Agreement is in effect, the notes will be considered equally and ratably secured if they are secured pursuant to terms and provisions, including any exclusions or exceptions described therein, no less favorable to the Holders of notes than those set forth in, or contemplated by, the Credit Agreement.

    Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries

        OI Group will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any such Restricted Subsidiary to:

    (1)
    pay dividends or make any other distributions on its Capital Stock to OI Group or any of its Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to OI Group or any of its Restricted Subsidiaries;

    (2)
    make loans or advances to OI Group or any of its Restricted Subsidiaries; or

    (3)
    transfer any of its properties or assets to OI Group or any of its Restricted Subsidiaries.

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        However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of:

    (1)
    agreements governing Existing Indebtedness, Credit Facilities, charter documents and shareholder agreements as in effect on the Issue Date, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in such Existing Indebtedness, Credit Facilities, charter documents and shareholders agreements as in effect on the Issue Date;

    (2)
    the Indenture, the notes, the Collateral Documents, the Offshore Collateral Documents and the Guarantees of the notes;

    (3)
    applicable law;

    (4)
    any instrument governing Indebtedness or Capital Stock of a Person acquired by OI Group or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred;

    (5)
    customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices;

    (6)
    purchase money obligations, including Capital Lease Obligations and obligations under mortgages, for property acquired in the ordinary course of business that impose restrictions on the property so acquired of the nature described in clause (3) of the first paragraph of this covenant;

    (7)
    any agreement for the sale or other disposition of a Restricted Subsidiary of OI Group that restricts any of the foregoing by that Restricted Subsidiary pending its sale or other disposition;

    (8)
    Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; and

    (9)
    Permitted Liens or Investment Grade Permitted Liens securing Indebtedness that limit the right of the debtor to dispose of the assets subject to such Lien.

        Nothing contained in this covenant shall prevent OI Group or a Restricted Subsidiary of OI Group from entering into any agreement (x) permitting or providing for the incurrence of Liens otherwise permitted by the "Liens" covenant or (y) restricting the sale or other disposition of property securing Indebtedness.

    Merger, Consolidation or Sale of Assets

        OI Group will not, in any transaction or series of transactions, merge or consolidate with or into, or, directly or indirectly, sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets to, any Person or Persons, and OI Group will not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions, in the aggregate, would result in a sale, assignment, conveyance, transfer, lease or

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other disposition of all or substantially all of the properties and assets of OI Group and its Restricted Subsidiaries, on a consolidated basis, to any other Person or Persons, unless at the time and after giving effect thereto:

    (1)
    either: (a) OI Group or such Restricted Subsidiary, as the case may be, is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than OI Group or such Restricted Subsidiary) (the "Successor Company") or to which such sale, assignment, transfer, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia;

    (2)
    the Successor Company (if other than OI Group or such Restricted Subsidiary) or the Person to which such sale, assignment, transfer, conveyance or other disposition shall have been made assumes all the obligations of OI Group or such Restricted Subsidiary (if such Restricted Subsidiary is a Guarantor), as the case may be, under the notes, the Indenture, the Collateral Documents and the Registration Rights Agreements pursuant to agreements reasonably satisfactory to the Trustee;

    (3)
    immediately after such transaction no Default or Event of Default exists; and

    (4)
    OI Group or the Successor Company formed by or surviving any such consolidation or merger (if other than OI Group), or the Person to which such sale, assignment, transfer, conveyance or other disposition shall have been made, will have, immediately after such transaction, a Fixed Charge Coverage Ratio equal to or greater than such ratio for OI Group immediately prior to such transaction.

        This "Merger, Consolidation or Sale of Assets" covenant will not apply to (i) a merger or consolidation of OI Group, the Company or any of the Guarantors with or into any other of the Company, OI Group or any of the Guarantors or the sale, assignment, conveyance, transfer, lease or other disposition of assets between or among the Company, OI Group and any of its Guarantors and (ii) a merger or consolidation of any Foreign Subsidiary with or into OI Group or any of its Restricted Subsidiaries or the sale, assignment, conveyance, transfer, lease or other disposition of assets from any Foreign Subsidiary to OI Group or any of its Restricted Subsidiaries.

        On and after July 2, 2003, the Company will be permitted to assign its obligations under the notes and the Indenture to OI Inc., and the Company and each Guarantor will thereafter be released from its obligations under the notes, the Guarantees thereof and the Indenture provided that (1) OI Inc. assumes all of the obligations under the notes and the Indenture, and (2) the obligations of each Credit Agreement Domestic Borrower under the Credit Agreement have been or will be concurrently assumed by OI Inc. in accordance with the terms of the Credit Agreement. Under the Credit Agreement, the Credit Agreement Domestic Borrowers may assign or transfer their rights and obligations thereunder to OI Inc. and all of OI Inc.'s subsidiaries will be concurrently released from their guarantees upon the consent of the requisite lenders thereunder if the term loans have been repaid, if OI Inc. has achieved and maintains immediately following such assumption (including the assumption of the notes) the investment grade ratings specified under the Credit Agreement and if all obligations of Subsidiaries of OI Inc. in respect of the OI Inc. Senior Notes, the notes and certain other debt have been released and assumed by OI Inc.

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    Transactions with Affiliates

        OI Group will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an "Affiliate Transaction") involving aggregate payments in consideration in excess of $5.0 million, unless:

    (1)
    such Affiliate Transaction is on terms that are no less favorable to OI Group or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by OI Group or such Restricted Subsidiary with an unrelated Person; and

    (2)
    OI Group delivers to the Trustee with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors.

      The following items shall not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph:

    (1)
    transactions between or among OI Group and/or its Restricted Subsidiaries;

    (2)
    transactions between OI Group and/or its Restricted Subsidiaries on the one hand, and OI Inc. on the other, that are in the ordinary course of business consistent with past practices;

    (3)
    payment of reasonable directors fees;

    (4)
    Restricted Payments that are permitted by the provisions of the Indenture described above under the caption "—Restricted Payments";

    (5)
    the payment of customary annual management, consulting, monitoring and advisory fees and related expenses to KKR and its Affiliates;

    (6)
    the payment of reasonable and customary fees paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of OI Group, any of its direct or indirect parent corporations or any Restricted Subsidiary of OI Group;

    (7)
    payments by OI Group or any of its Restricted Subsidiaries to KKR and its Affiliates for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including, without limitation, in connection with acquisitions or divestitures which payments are approved by a majority of the Board of Directors of OI Group in good faith;

    (8)
    transactions in which OI Group or any of its Restricted Subsidiaries, as the case may be, delivers to the Trustee a letter from an investment banking firm of nationally recognized standing stating that such transaction is fair to OI Group or such Restricted Subsidiary from a financial point of view or meets the requirements of clause (1) of the preceding paragraph;

    (9)
    in addition to any payments referred to in (6) above, payments or loans to officers, directors and employees of OI Group, any of its direct or indirect parent corporations or any Restricted Subsidiary of OI Group for business or personal purposes and other loans and advances, in accordance with any policy of OI Group which shall have been approved by the Board of Directors of OI Group in good faith from time to time, to such officers, directors and employees for travel, entertainment, moving and other relocation expenses made in the ordinary course of business of OI Group, any of its direct or indirect parent corporations or any Restricted Subsidiary of OI Group;

117


    (10)
    any agreement in effect as of the Issue Date or any amendment thereto (so long as such amendment is not disadvantageous to the Holders in any material respect) or any transaction contemplated thereby;

    (11)
    transactions with customers, clients, suppliers or purchasers or sellers of goods or services, in each case in the ordinary course of business which are fair to OI Group or its Restricted Subsidiaries, in the reasonable determination of the Board of Directors of OI Group or the senior management thereof;

    (12)
    the issuance of Equity Interests (other than Disqualified Stock) of OI Group or the Company to any Principal; and

    (13)
    transactions involving the sale of accounts receivables by OI Group or any of its Restricted Subsidiaries or a special purpose vehicle established by any of them to purchase and sell receivables.

    Additional Guarantees/Pledges

        If a Domestic Subsidiary of OI Group or any of its Restricted Subsidiaries guarantees Indebtedness under the Credit Agreement, including the reinstatement or renewal of a Guarantee of Indebtedness under the Credit Agreement previously released under the Credit Agreement, then that Domestic Subsidiary must become a Guarantor and execute a supplemental indenture and deliver an Opinion of Counsel to the Trustee within 10 business days of the date on which it executes a guarantee under the Credit Agreement.

        If, on or after November 13, 2002, any Domestic Subsidiary of OI Group pledges any property or assets to secure obligations under the Credit Agreement (other than pursuant to the Collateral Documents or as contemplated by the Credit Agreement), then such property or assets will, subject to certain exceptions, also secure the notes.

    Designation of Restricted and Unrestricted Subsidiaries

        The Board of Directors of OI Group may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default; provided that in no event shall the business currently operated by the Company be transferred to or held by an Unrestricted Subsidiary. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by OI Group and its Restricted Subsidiaries in the Subsidiary so designated will be deemed to be a Restricted Investment made as of the time of such designation and that designation will only be permitted if such Investment would be permitted at that time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors of OI Group may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of OI Group of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (1) such Indebtedness is permitted under the covenant described under the caption "—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation.

    Negative Pledge

        Except as contemplated by and permitted by the Credit Agreement and the Collateral Documents, OI Group will not permit any of the issued and outstanding shares of any class of Capital Stock of OI General FTS or any part of the Intercompany Indebtedness owed by OI General FTS to OI Group to

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be pledged, in each of the foregoing cases as security or otherwise unless the notes and Guarantees of the notes are secured by this collateral on a pari passu basis with the applicable Indebtedness.

    Limitations on Issuances of Guarantees of Indebtedness

        OI Group will not permit any of its Domestic Subsidiaries, directly or indirectly, to guarantee the payment of any other Indebtedness of the Company or OI Group unless such Domestic Subsidiary simultaneously executes and delivers a supplemental indenture providing for the Guarantee of the payment of the notes by such Domestic Subsidiary, which Guarantee shall be senior to or pari passu with such Subsidiary's Guarantee of such other Indebtedness.

        Notwithstanding the preceding paragraph, any Guarantee will provide by its terms that it will be automatically and unconditionally released and discharged under the circumstances described above under the caption "—Guarantees." The form of the Guarantee is attached as an exhibit to the Indenture.

    Payments for Consent

        OI Group will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture, the notes or the Guarantees unless such consideration is offered to be paid and is paid to all Holders of the notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.

    Reports

        Whether or not required by the SEC, so long as any notes are outstanding, OI Group will furnish to the Holders of the notes, within the time periods specified in the SEC's rules and regulations:

    (1)
    all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if OI Group were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report on the annual financial statements by OI Group's certified independent accountants; and

    (2)
    all current reports that would be required to be filed with the SEC on Form 8-K if OI Group were required to file such reports.

        In addition, whether or not required by the SEC, OI Group will file a copy of all of the information and reports referred to in clauses (1) and (2) above with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, the Company and the Guarantors have agreed that, for so long as any notes remain outstanding, they will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

Events of Default and Remedies

        Each of the following is an Event of Default:

    (1)
    default for 30 days in the payment when due of interest on, or liquidated damages, if any, with respect to, the notes;

    (2)
    default in payment when due of the principal of, or premium, if any, on the notes;

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    (3)
    failure by OI Group or any of its Restricted Subsidiaries to comply with the provisions described under the captions "—Repurchase at the Option of Holders—Change of Control," "—Repurchase at the Option of Holders—Asset Sales" or "—Certain Covenants—Merger, Consolidation or Sale of Assets";

    (4)
    failure by OI Group or any of its Restricted Subsidiaries for 60 days after notice to comply with any of the other agreements in the Indenture, the notes, the Guarantees of the notes (with respect to any Guarantor) and the Collateral Documents (with respect to any Restricted Subsidiary which has pledged assets or property to secure its obligations under the Indenture and the notes);

    (5)
    default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by OI Group or any Restricted Subsidiary (or the payment of which is guaranteed by OI Group or any of its Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created after the Issue Date, if that default:

    (a)
    is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or

    (b)
    results in the acceleration of such Indebtedness prior to its express maturity; provided, that an Event of Default will not be deemed to occur with respect to any such accelerated Indebtedness which is repaid or prepaid within 20 business days after such declaration;

      and, in any individual case, the principal amount of any such Indebtedness is equal to or in excess of $50.0 million, or such Indebtedness together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $100.0 million or more;

    (6)
    any final judgment or order for payment of money in excess of $50.0 million in any individual case and $100.0 million in the aggregate at any time shall be rendered against OI Group or any of its Restricted Subsidiaries and such judgment shall not have been paid, discharged or stayed for a period of 60 days;

    (7)
    except as permitted by the Indenture or the Collateral Documents, any Guarantee of the notes shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Guarantee of the notes;

    (8)
    certain events of bankruptcy or insolvency with respect to the Company, OI Group or any Significant Subsidiary of OI Group; and

    (9)
    except as permitted by the Collateral Documents, any amendments thereto and the provisions of the Indenture, any of the Collateral Documents ceases to be in full force and effect or ceases to be effective, in all material respects, to create the Lien purported to be created in the Collateral in favor of the Holders for 60 days after notice.

        In the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to OI Group or any Significant Subsidiary of OI Group, all outstanding notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding notes may declare all the notes to be due and payable immediately.

        A Holder of notes may not pursue any remedy with respect to the Indenture, the notes, any Guarantee or any Collateral Document unless: (1) the Holder gives to the Trustee written notice of a

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continuing Event of Default; (2) the Holders of at least 25% in principal amount of such notes outstanding make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not comply with the request within 30 days after receipt of the request and the offer of indemnity; and (5) during such 30-day period the Holders of a majority in principal amount of the outstanding notes do not give the Trustee a direction which is inconsistent with the request. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest or liquidated damages) if it determines that withholding notice is in their interest.

        The Holders of a majority in aggregate principal amount of the notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or liquidated damages on, or the principal of, the notes.

        The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture. Upon becoming aware of any Default or Event of Default, the Company is required to deliver to the Trustee a statement specifying such Default or Event of Default.

No Personal Liability of Directors, Officers, Employees and Stockholders

        No director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or the Guarantors under the notes, the Indenture, the Guarantees of the notes, the Collateral Documents or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of notes by accepting a note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the notes. The waiver may not be effective to waive liabilities under the federal securities laws.

Legal Defeasance and Covenant Defeasance

        The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding notes and all obligations of the Guarantors discharged with respect to their Guarantees of the notes ("Legal Defeasance") except for:

    (1)
    the rights of Holders of outstanding notes to receive payments in respect of the principal of, or interest or premium and liquidated damages, if any, on such notes when such payments are due from the trust referred to below;

    (2)
    the Company's obligations with respect to the notes concerning issuing temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payment and money for security payments held in trust;

    (3)
    the rights, powers, trusts, duties and immunities of the Trustee, and the Company's and the Guarantors' obligations in connection therewith; and

    (4)
    the Legal Defeasance provisions of the Indenture.

        In addition, the Company may, at its option and at any time, elect to have the obligations of the Company and the Guarantors released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with those covenants shall not constitute a Default or Event of Default with respect to the notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation

121



and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the notes.

        In order to exercise either Legal Defeasance or Covenant Defeasance:

    (1)
    the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, or interest and premium and liquidated damages, if any, on the outstanding notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the notes are being defeased to maturity or to a particular redemption date;

    (2)
    in the case of Legal Defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the Issue Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;

    (3)
    in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel confirming that the Holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;

    (4)
    no Default or Event of Default shall have occurred and be continuing either: (a) on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit); or (b) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit;

    (5)
    such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument to which OI Group or the Company or any of their Restricted Subsidiaries are a party or by which OI Group or the Company or any of such Restricted Subsidiaries are bound;

    (6)
    the Company must have delivered to the Trustee an Opinion of Counsel to the effect that, assuming no intervening bankruptcy of the Company or any Guarantor between the date of deposit and the 91st day following the deposit and assuming that no Holder is an "insider" of the Company under applicable bankruptcy law, after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally;

    (7)
    the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and

    (8)
    the Company must deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with.

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Amendment, Supplement and Waiver

        Except as provided in the next two succeeding paragraphs, the notes, the Guarantees thereof and the Indenture as it relates to the notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes), and any existing default or compliance with any provision of the notes, the Guarantees thereof or the Indenture as it relates to the notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes). Amendments to the Collateral Documents will be made in accordance with their terms.

        Without the consent of each Holder affected, an amendment or waiver may not (with respect to any notes held by a non-consenting Holder):

    (1)
    reduce the principal amount of notes whose Holders must consent to an amendment, supplement or waiver;

    (2)
    reduce the principal of or change the fixed maturity of any note or alter the provisions, or waive any payment, with respect to the redemption of the notes;

    (3)
    reduce the rate of or change the time for payment of interest on any note;

    (4)
    waive a Default or Event of Default in the payment of principal of, or interest or premium, or liquidated damages, if any, on the notes (except a rescission of acceleration of the notes by the Holders of at least a majority in aggregate principal amount of the notes and a waiver of the payment default that resulted from such acceleration);

    (5)
    make any note payable in money other than U.S. dollars;

    (6)
    make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of notes to receive payments of principal of, or interest or premium or liquidated damages, if any, on the notes;

    (7)
    release any Guarantor from any of its obligations under its Guarantee, the Indenture or any Collateral Document, except in accordance with the terms of the Guarantee, the Indenture and any Collateral Document;

    (8)
    impair the right to institute suit for the enforcement of any payment on or with respect to the notes, the Guarantees of the notes or the Collateral Documents;

    (9)
    amend, change or modify the obligation of the Company to make and consummate an Asset Sale Offer with respect to any Asset Sale in accordance with the "—Repurchase at the Option of Holders—Asset Sales" covenant or the obligation of the Company to make and consummate a Change of Control Offer in the event of a Change of Control in accordance with the "—Repurchase at the Option of Holders—Change of Control" covenant, including, in each case, amending, changing or modifying any definition relating thereto;

    (10)
    except as otherwise permitted under the "—Merger, Consolidation and Sale of Assets" covenant, consent to the assignment or transfer by OI Group, the Company or any Guarantor of any of their rights or obligations under the Indenture;

    (11)
    amend or modify any of the provisions of the Indenture or any Guarantee of the notes in a manner material and adverse to the Holders of the notes except (a) in accordance with the terms of the Indenture or such Guarantee or (b) as permitted by the following paragraph;

    (12)
    amend or modify any of the provisions of the Collateral Documents except (a) in accordance with the terms of such documents or (b) as permitted by the following paragraph; or

    (13)
    make any change in the preceding amendment and waiver provisions.

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        Notwithstanding the preceding, without the consent of any Holder of notes, the Company, the Guarantors and the Trustee may amend or supplement the notes, the Guarantees, the Indenture as it relates to the notes and the Collateral Documents:

    (1)
    to cure any ambiguity, defect or inconsistency;

    (2)
    to provide for uncertificated notes in addition to or in place of certificated notes;

    (3)
    to provide for the assumption of the Company's or any Guarantor's obligations to Holders of notes in the case of a merger or consolidation or sale of all or substantially all the Company's or such Guarantor's assets;

    (4)
    to provide for the assumption of the Company's obligations to Holders of the notes by OI Inc. in accordance with the provisions of the Indenture;

    (5)
    to make any change that would provide any additional rights or benefits to the Holders of notes or that does not adversely affect the legal rights under the Indenture, the Guarantees of the notes or the Collateral Documents of any such Holder (including, but not limited to, adding a Guarantor under the Indenture and adding additional collateral for the benefit of the Holders of the notes);

    (6)
    to comply with requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act; or

    (7)
    to comply with the "Merger, Consolidation or Sale of Assets" covenant.

        The consent of the Holders of the notes is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment.

        After an amendment under the Indenture becomes effective, the Company is required to mail to the Holders of the notes a notice briefly describing such amendment. However, the failure to give such notice to all the Holders of the notes, or any defect therein, will not impair or affect the validity of the amendment.

Satisfaction and Discharge

        The Indenture will be discharged and will cease to be of further effect as to the notes, when:

    (1)
    either:

    (a)
    all notes that have been authenticated (except lost, stolen or destroyed notes that have been replaced or paid and notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company) have been delivered to the Trustee for cancellation; or

    (b)
    all notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise or will become due and payable within one year and the Company or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the notes not delivered to the Trustee for cancellation for principal, premium and liquidated damages, if any, and accrued interest to the date of maturity or redemption;

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    (2)
    no Default or Event of Default shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company or any Guarantor is a party or by which the Company or any Guarantor is bound;

    (3)
    the Company or any Guarantor has paid or caused to be paid all sums payable by it under the Indenture; and

    (4)
    the Company has delivered irrevocable instructions to the Trustee under the Indenture to apply the deposited money toward the payment of the notes at maturity or the redemption date, as the case may be.

        In addition, the Company must deliver an Officers' Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.

Intercreditor Agreement

        The Intercreditor Agreement governs, among other things, (i) the direction of the Collateral Agent with respect to the exercise of remedies under the Pledge Agreement, the Security Agreement and the Mortgages, (ii) the distribution of the proceeds of certain asset sales of collateral by OI Group and its subsidiaries and the proceeds of insurance and condemnation awards, and (iii) the distribution of proceeds of any foreclosure upon and sale of collateral under the Pledge Agreement, the Security Agreement and the Mortgages. Pursuant to the Intercreditor Agreement, the lenders under the Credit Agreement direct the Collateral Agent with respect to decisions relating to the exercise of remedies under the Pledge Agreement, the Security Agreement and the Mortgages, including whether to foreclose on the collateral following a default on the notes. Holders of the notes are generally not entitled to share in the proceeds of any asset sales of Collateral by OI Group or any subsidiary or insurance or condemnation proceeds unless pursuant to enforcement actions under the Collateral Documents. Net proceeds of any sales of collateral from an enforcement action are first shared ratably among the senior secured parties (including the Holders of the notes to the extent secured at such time by the collateral giving rise to such proceeds) based upon the relevant amounts due and payable to such senior secured party (less, in the case of the Holders of the notes, proceeds with respect to prior sales held by the Trustee, but not applied to payments on the notes). Amendments to the Intercreditor Agreement necessary to permit the incurrence of additional indebtedness secured by the collateral and to add additional secured parties thereto may be made without the consent of the Trustee or the Holders of the notes, insofar as the foregoing is not prohibited under the Indenture.

The Pledge Agreement

        The Pledge Agreement provides for the pledge by OI Group and OI Packaging of the Capital Stock of, and Intercompany Indebtedness owed to OI Group and OI Packaging by, their respective direct Subsidiaries to secure OI Group's and its Subsidiaries' obligations, including OI Packaging, under or in respect of the Credit Agreement, the Existing Senior Notes and certain other senior indebtedness, and under or in respect of the notes, including their respective Guarantees, in each case on a senior basis, and the obligations under or in respect of OI Inc.'s outstanding public debt securities on a junior basis. The notes will not be secured by the Capital Stock of OI General FTS Inc. and the Intercompany Indebtedness owed by OI General FTS Inc. to OI Group, which is pledged to the lenders under the Pledge Agreement. See "Risk Factors—Risks Relating to the Notes—Notes Effectively Subordinated to Certain Secured Credit Agreement Obligations and Obligations of OI Inc.—The notes are effectively subordinated to the obligations under the secured credit agreement, certain obligations owing to lenders or their affiliates as permitted under the secured credit agreement and obligations related to OI Inc.'s $1.7 billion of outstanding public debt securities to the extent these obligations are secured by collateral that does not secure the notes." Upon the occurrence of an Event of Default (as defined in

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the Pledge Agreement), the Pledge Agreement provides for the foreclosure upon and sale of the pledged collateral, including the Collateral pledged to secure the notes, by the Collateral Agent and the ratable distribution of the net proceeds of any such sale (to the extent secured by the applicable collateral) first to the holders of the senior secured obligations and second to the holders of the junior secured obligations, in each case in accordance with the Intercreditor Agreement. In general, the lenders under the Credit Agreement have the power to terminate the Pledge Agreement and release the collateral pledged thereunder when the obligations under the Credit Agreement have been paid in full, when the collateral thereunder no longer secures the obligations under the Credit Agreement, or when OI Inc. and OI Group achieve the investment grade ratings specified in the Credit Agreement and the Collateral Agent acknowledges such ratings. In addition, all or any portion of the collateral pledged under the Pledge Agreement may be released upon the approval of lenders under the Credit Agreement.

Security Agreement and Mortgages

        The Security Agreement and the Mortgages provide for the granting of security interests and liens by OI Group and substantially all its Domestic Subsidiaries in substantially all of their respective personal property (excluding the collateral pledged under the Pledge Agreement) and real property consisting of fee or ground leasehold interests with an individual value in excess of $25.0 million subject to certain exceptions. Subject to certain limitations and exceptions, the security interests granted under the Security Agreement secure the obligations of OI Group and its Subsidiaries under or in respect of the Credit Agreement, the Existing Senior Notes, certain other senior indebtedness and the notes, including their respective Guarantees, and the liens granted by the Mortgages secure the obligations of the applicable mortgagor under or in respect of the Credit Agreement, the Existing Senior Notes, certain other senior indebtedness and the notes, including their respective Guarantees. The collateral under the Security Agreement consisting of the Capital Stock of substantially all of the Domestic Subsidiaries of Credit Agreement Domestic Borrowers, Intercompany Indebtedness owed to the Credit Agreement Domestic Borrowers and substantially all of their Domestic Subsidiaries, and the Capital Stock of the first-tier foreign subsidiaries will not secure the notes. See "Risk Factors—Risks Relating to the Notes—Notes Effectively Subordinated to Certain Secured Credit Agreement Obligations and Obligations of OI Inc. The notes are effectively subordinated to the obligations under the secured credit agreement, certain obligations owing to lenders or their affiliates as permitted under the secured credit agreement and obligations related to OI Inc.'s $1.7 billion of outstanding public debt securities to the extent these obligations are secured by collateral that does not secure the notes." Upon the occurrence of an Event of Default (as defined in the Security Agreement and the Mortgages, as applicable), the Security Agreement and the Mortgages provide for the foreclosure upon and sale of the applicable collateral, including the Collateral pledged to secure the notes, by the Collateral Agent and the distribution of the net proceeds of any such sale (to the extent secured by the applicable collateral) first to the holders of the secured obligations in each case in accordance with the Intercreditor Agreement. In general, the lenders under the Credit Agreement have the power to terminate the Security Agreement and Mortgages and release the collateral thereunder when the obligations under the Credit Agreement have been paid in full, when the collateral thereunder no longer secures the obligations under the Credit Agreement, or when OI Inc. and OI Group achieve the investment grade ratings specified in the Credit Agreement and the Collateral Agent acknowledges such ratings. In addition, all or any portion of the collateral under the Security Agreement and the Mortgages may be released upon the approval of lenders under the Credit Agreement.

Releases of Collateral

        Under the terms of the Collateral Documents, the lenders under the Credit Agreement determine the circumstances and manner in which the collateral, including the Collateral securing the notes and the Guarantees of the notes, shall be disposed of, including, but not limited to, the determination of

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whether to release all or any portion of the Collateral from the Liens created by the Collateral Documents and whether to foreclose on the Collateral following a default on the notes. Generally, upon any sale, transfer or other disposition of Collateral in a transaction not prohibited by the Credit Agreement and the Collateral Documents, including an Asset Sale, the Collateral will be released from the Liens created by the Collateral Documents. Moreover, when the obligations under the Credit Agreement have been paid in full, when the collateral under the Collateral Documents no longer secures the obligations under the Credit Agreement and upon election of the applicable grantors or pledgors, or when OI Inc. and OI Group achieve the investment grade ratings specified in the Credit Agreement and the Collateral Agent acknowledges such ratings, each of the Collateral Documents may be terminated and the collateral, including the Collateral securing the notes and the Guarantees of the notes, thereunder released. The Holders of the notes, however, are entitled, under certain circumstances, to their ratable share of the distribution of the proceeds of the Collateral as described in the Intercreditor Agreement. In connection with releases of collateral, the Company will comply with Section 314(d)(1) of the Trust Indenture Act, as applicable. See "—Intercreditor Agreement." In addition, the Collateral Documents provide that upon release of a Guarantee under the Indenture, the security interest in the assets of that Guarantor securing the notes and the Guarantees of the notes will be released simultaneously. Under the indemnification provisions contained in the Intercreditor Agreement, any pro rata payments due to the Collateral Agent from the Holders of the notes will be deducted from their portion of the proceeds from the Collateral prior to the distribution of such proceeds. The amount of indebtedness secured under the Collateral Documents may be increased without the consent of the Trustee or the Holders of the notes.

Concerning the Trustee

        If the Trustee becomes a creditor of the Company or any Guarantor, the Indenture limits its right to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue or resign.

        The Holders of a majority in principal amount of the then outstanding notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur and be continuing, the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense.

Additional Information

        Anyone who receives this prospectus may obtain a copy of the Indenture and the Registration Rights Agreements without charge by writing to Owens-Brockway Glass Container Inc., One SeaGate, Toledo, Ohio 43666, Attention: Investor Relations.

Book-Entry, Delivery and Form

        The exchange notes will be issued in registered, global form in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof. The exchange notes will be represented by one or more exchange notes in registered, global form without interest coupons (collectively, the "Global Notes"). The Global Notes will be deposited upon issuance with the Trustee as custodian for The Depository Trust Company ("DTC"), in New York, New York, and registered in the name of DTC or

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its nominee, in each case for credit to an account of a direct or indirect participant in DTC as described below.

        Except as set forth below, the Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominees. Beneficial interests in the Global Notes may not be exchanged for exchange notes in certificated form except in the limited circumstances described below. See "—Exchange of Book-Entry Notes for Certificated Notes." Except in the limited circumstances described below, owners of beneficial interests in the Global Notes will not be entitled to receive physical delivery of Notes in certificated form.

        Transfers of beneficial interests in the Global Notes will be subject to the applicable rules and procedures of DTC and its direct or indirect participants (including, if applicable, those of Euroclear and Clearstream), which may change from time to time.

Depository Procedures

        The following description of the operations and procedures of DTC, Euroclear and Clearstream are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to changes by them. The Company takes no responsibility for these operations and procedures and urges investors to contact the system or their participants directly to discuss these matters.

        DTC has advised the Company that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants.

        DTC has also advised the Company that, pursuant to procedures established by it:

    (1)
    upon deposit of the Global Notes, DTC will credit the accounts of Participants designated by the exchange agent with portions of the principal amount of the Global Notes; and

    (2)
    ownership of these interests in the Global Notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interest in the Global Notes).

        Investors in the Global Notes who are Participants in DTC's system may hold their interests therein directly through DTC. Investors in the Global Notes who are not Participants may hold their interests therein indirectly through organizations (including Euroclear and Clearstream) which are Participants in such system. Euroclear and Clearstream will hold interests in the Global Notes on behalf of their participants through customers' securities accounts in their respective names on the books of their respective depositories, which are Morgan Guaranty Trust Company of New York, Brussels office, as operator of Euroclear, and Citibank, N.A., as operator of Clearstream. All interests in a Global Note, including those held through Euroclear or Clearstream, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear or Clearstream may also be subject to the procedures and requirements of such systems. The laws of some states require that certain Persons take physical delivery in definitive form of securities that they own. Consequently, the

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ability to transfer beneficial interests in a Global Note to such Persons will be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants, the ability of a Person having beneficial interests in a Global Note to pledge such interests to Persons that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests.

        Except as described below, owners of an interest in the Global Notes will not have exchange notes registered in their names, will not receive physical delivery of exchange notes in certificated form and will not be considered the registered owners or "Holders" thereof under the Indenture for any purpose.

        Payments in respect of the principal of, and interest and premium and liquidated damages, if any, on a Global Note registered in the name of DTC or its nominee will be payable to DTC in its capacity as the registered Holder under the Indenture. Under the terms of the Indenture, the Company and the Trustee will treat the Persons in whose names the notes, including the Global Notes, are registered as the owners thereof for the purpose of receiving payments and for all other purposes. Consequently, neither the Company, the Trustee nor any agent of the Company or the Trustee has or will have any responsibility or liability for:

    (1)
    any aspect of DTC's records or any Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interest in the Global Notes or for maintaining, supervising or reviewing any of DTC's records or any Participant's or Indirect Participant's records relating to the beneficial ownership interests in the Global Notes; or

    (2)
    any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants.

        DTC has advised the Company that its current practice, upon receipt of any payment in respect of securities such as the exchange notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date unless DTC has reason to believe it will not receive payment on such payment date. Each relevant Participant is credited with an amount proportionate to its beneficial ownership of an interest in the principal amount of the relevant security as shown on the records of DTC. Payments by the Participants and the Indirect Participants to the beneficial owners of exchange notes will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the Trustee or the Company. Neither the Company nor the Trustee will be liable for any delay by DTC or any of its Participants in identifying the beneficial owners of the notes, and the Company and the Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes.

        Transfers between Participants in DTC will be effected in accordance with DTC's procedures, and will be settled in same-day funds, and transfers between participants in Euroclear and Clearstream will be effected in accordance with their respective rules and operating procedures.

        Cross-market transfers between the Participants in DTC, on the one hand, and Euroclear or Clearstream participants, on the other hand, will be effected through DTC in accordance with DTC's rules on behalf of Euroclear or Clearstream, as the case may be, by its respective depositary; however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Note in DTC, and making or receiving payment in accordance with normal

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procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to the depositories for Euroclear or Clearstream.

        DTC has advised the Company that it will take any action permitted to be taken by a Holder of notes only at the direction of one or more Participants to whose account DTC has credited the interests in the Global Notes and only in respect of such portion of the aggregate principal amount of the notes as to which such Participant or Participants has or have given such direction. However, if there is an Event of Default under the notes, DTC reserves the right to exchange the Global Notes for legended notes in certificated form, and to distribute such notes to its Participants.

        Although DTC, Euroclear and Clearstream have agreed to the foregoing procedures to facilitate transfers of interests in the Global Notes among participants in DTC, Euroclear and Clearstream, they are under no obligation to perform or to continue to perform such procedures, and may discontinue such procedures at any time. Neither the Company nor the Trustee nor any of their respective agents will have any responsibility for the performance by DTC, Euroclear or Clearstream or their respective Participants or Indirect Participants of their respective obligations under the rules and procedures governing their operations.

Exchange of Global Notes for Certificated Notes

        A Global Note is exchangeable for definitive notes in registered certificated form ("Certificated Notes") if:

    (1)
    DTC (a) notifies the Company that it is unwilling or unable to continue as depositary for the Global Notes and the Company fails to appoint a successor depositary or (b) has ceased to be a clearing agency registered under the Exchange Act;

    (2)
    the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of the Certificated Notes; or

    (3)
    there shall have occurred and be continuing a Default or Event of Default with respect to the notes.

        In addition, beneficial interests in a Global Note may be exchanged for Certificated Notes upon prior written notice given to the Trustee by or on behalf of DTC in accordance with the Indenture. In all cases, Certificated Notes delivered in exchange for any Global Note or beneficial interests in Global Notes will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures) and will bear the applicable restrictive legend referred to in "Notice to Investors," unless that legend is not required by applicable law.

Same Day Settlement and Payment

        The Company will make payments in respect of the notes represented by the Global Notes (including principal, premium, if any, interest and liquidated damages, if any) by wire transfer of immediately available funds to the accounts specified by the Global Note Holder. The Company will make all payments of principal, interest and premium and liquidated damages, if any, with respect to Certificated Notes by wire transfer of immediately available funds to the accounts specified by the Holders thereof or, if no such account is specified, by mailing a check to each such Holder's registered address. The notes represented by the Global Notes are eligible to trade in DTC's Same-Day Funds Settlement System, and any permitted secondary market trading activity in such notes will, therefore, be required by DTC to be settled in immediately available funds. The Company expects that secondary trading in any Certificated Notes will also be settled in immediately available funds.

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        Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in a Global Note from a Participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or Clearstream participant, during the securities settlement processing day (which must be a business day for Euroclear and Clearstream) immediately following the settlement date of DTC. DTC has advised the Company that cash received in Euroclear or Clearstream as a result of sales of interests in a Global Note by or through a Euroclear or Clearstream participant to a Participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Clearstream cash account only as of the business day for Euroclear or Clearstream following DTC's settlement date.

Certain Definitions

        Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided.

        "Acquired Debt" means, with respect to any specified Person:

    (1)
    Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person; and

    (2)
    Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.

        "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" shall have correlative meanings.

        "Asset Sale" means:

    (1)
    the sale, lease, conveyance or other disposition of any assets; provided that the sale, conveyance or other disposition of all or substantially all of the assets of OI Group and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption "—Certain Covenants—Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant; and

    (2)
    the issuance of Equity Interests by any of OI Group's Restricted Subsidiaries or the sale of Equity Interests in any of OI Group's Restricted Subsidiaries.

    Notwithstanding the preceding, the following items shall not be deemed to be Asset Sales:

    (1)
    any single transaction or series of related transactions that involves assets or Equity Interests having a Fair Market Value of less than $10.0 million;

    (2)
    a transfer of assets between or among OI Group and its Restricted Subsidiaries;

    (3)
    an issuance of Equity Interests by a Restricted Subsidiary of OI Group to OI Group or to another Restricted Subsidiary of OI Group;

    (4)
    the sale or lease of equipment, inventory, accounts receivable or other assets in the ordinary course of business;

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    (5)
    the sale, lease, conveyance or other disposition of any assets securing the Indenture or the Credit Agreement in connection with the enforcement of the security interests contained therein pursuant to the terms of the Intercreditor Agreement;
    (6)
    the sale or other disposition of cash or Cash Equivalents;
    (7)
    a Restricted Payment that is permitted by the covenant described above under the caption "—Certain Covenants—Restricted Payments"; and
    (8)
    the exchange of assets held by OI Group or a Restricted Subsidiary of OI Group for assets held by any Person or entity (including Equity Interests of such Person or entity), provided that (i) the assets received by OI Group or such Restricted Subsidiary of OI Group in any such exchange will immediately constitute, be part of, or be used in a Permitted Business; and (ii) any such assets received are of a comparable Fair Market Value to the assets exchanged as determined in good faith by OI Group.

        "Board of Directors" means:

    (1)
    with respect to a corporation, the board of directors of the corporation;
    (2)
    with respect to a partnership, the Board of Directors of the general partner of the partnership; and
    (3)
    with respect to any other Person, the board or committee of such Person serving a similar function.

        "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP.

        "Capital Stock" means:

    (1)
    in the case of a corporation, corporate stock;
    (2)
    in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
    (3)
    in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and
    (4)
    any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.

        "Cash Equivalents" means:

    (1)
    United States dollars;
    (2)
    securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof and (a) backed by the full faith and credit of the United States or (b) having a rating of at least AAA from S&P or at least Aaa from Moody's, in each case maturing not more than one year from the date of acquisition;
    (3)
    securities issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year of the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's;
    (4)
    certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case, with any lender under the Credit Agreement or any domestic commercial bank having capital and surplus of not less than $250.0 million;

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    (5)
    repurchase and reverse repurchase obligations for underlying securities of the types described in clauses (2) and (4) above entered into with any financial institution meeting the qualifications specified in clause (4) above;
    (6)
    commercial paper having the highest rating obtainable from Moody's or S&P and in each case maturing within one year from the date of creation thereof; and
    (7)
    money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (6) of this definition or that has a rating of at least AAA from S&P or at least Aaa from Moody's.

        "Change of Control" means the occurrence of any of the following:

    (1)
    OI Inc. or OI Group becomes aware of (by way of a report or any other filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written notice or otherwise) the acquisition by any Person or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision), including any group acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than the Principals and their Related Parties, in a single transaction or in a related series of transactions, by way of merger, consolidation or other business combination or purchase of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision) of 35% or more of the total voting power of the Voting Stock of OI Inc.; or
    (2)
    the first day on which a majority of the members of the Board of Directors of OI Inc. are not Continuing Directors; or
    (3)
    the Company consolidates with, or merges with or into, any Person, or any Person consolidates with, or merges with or into the Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company or such other Person is converted into or exchanged for cash, securities or other property, other than any such transaction where (A) the Voting Stock of the Company outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance) and (B) immediately after such transaction, no "person" or "group" (as such terms are used in Section 13(d) and 14(d) of the Exchange Act), other than the Principals and their Related Parties, becomes, directly or indirectly, the beneficial owner (as defined above) of 35% or more of the voting power of all classes of Voting Stock of the Company; or
    (4)
    the first day on which OI Inc. fails to own 100% of the issued and outstanding Equity Interests of OI Group.

        "Collateral" means all of the property from time to time in which Liens are purported to be granted to secure the notes or Guarantees of the notes pursuant to the Collateral Documents.

        "Collateral Agent" shall have the meaning given to it in the Credit Agreement.

        "Collateral Documents" means, collectively, the Intercreditor Agreement, the Pledge Agreement and the Security Agreement, each as in effect on the Issue Date and as amended, amended and restated, modified, renewed, replaced or restructured from time to time and the Mortgages each as in effect on the Issue Date and any additional Mortgages created from time to time, and as amended, amended and restated, modified, renewed or replaced from time to time.

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        "Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus:

    (1)
    an amount equal to any extraordinary loss realized by such Person or any of its Restricted Subsidiaries in connection with any sale or other disposition of assets, to the extent such losses were deducted in computing such Consolidated Net Income; plus
    (2)
    provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus
    (3)
    consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including without limitation amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income; plus
    (4)
    depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash charges and expenses (excluding any amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash charges and expenses were deducted in computing such Consolidated Net Income; minus
    (5)
    an amount equal to any extraordinary gain realized by such Person or any of its Restricted Subsidiaries in connection with any sale or other disposition of assets, to the extent such gains were included in computing such Consolidated Net Income; minus
    (6)
    pension expenses, retiree medical expenses and any other material non-cash items increasing Consolidated Net Income for such period that are disclosed in such Person's financial statements, other than accrual of revenue in the ordinary course of business, in each case without duplication, on a consolidated basis and determined in accordance with GAAP; minus
    (7)
    net cash payments to OI Inc. by OI Group for (i) claims of persons for exposure to asbestos containing products and expenses related thereto and (ii) dividends on any outstanding preferred stock of OI Inc., in each case without duplication, on a consolidated basis and determined in accordance with GAAP.

        Notwithstanding the preceding, the provision for taxes based on the income or profits of, and the depreciation, amortization and other non-cash charges and expenses of, a Restricted Subsidiary of OI Group will be added to Consolidated Net Income to compute Consolidated Cash Flow of OI Group only to the extent that a corresponding amount would be permitted at the date of determination to be dividended to OI Group by such Restricted Subsidiary without prior governmental approval (that has not been obtained), and would not be prohibited, directly or indirectly, by the operation of the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Restricted Subsidiary or its stockholders, other than agreements, instruments, judgments, decrees, orders, statutes, rules and government regulations existing on January 24, 2002.

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        "Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that:

    (1)
    the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Wholly Owned Restricted Subsidiary of the specified Person;
    (2)
    the Net Income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, is prohibited, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, other than agreements, instruments, judgments, decrees, orders, statutes, rules and government regulations existing on January 24, 2002;
    (3)
    the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition will be excluded;
    (4)
    the cumulative effect of a change in accounting principles under GAAP will be excluded;
    (5)
    all extraordinary, unusual or nonrecurring gains and losses (including without limitation any one-time costs incurred in connection with acquisitions) (together with any related provision for taxes) will be excluded;
    (6)
    any gain or loss (together with any related provision for taxes) realized upon the sale or other disposition of any property, plant or equipment of the specified Person or its Restricted Subsidiaries (including pursuant to any sale and leaseback arrangement) which is not sold or otherwise disposed of in the ordinary course of business and any gain or loss (together with any related provision for taxes) realized upon the sale or other disposition by the specified Person or any Restricted Subsidiary of the specified Person of any Capital Stock of any Person or any Asset Sale will be excluded to the extent that any such gain or loss exceeds $5.0 million with respect to any one occurrence or $15.0 million in the aggregate with respect to gains or losses during any twelve-month period;
    (7)
    the Net Income of any Unrestricted Subsidiary will be excluded, whether or not distributed to the specified Person or one of its Subsidiaries; and
    (8)
    any deduction for minority owners' interest in earnings of Subsidiaries will be excluded.

        "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of OI Inc., who:

    (1)
    was a member of such Board of Directors on the Issue Date; or
    (2)
    was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election.

        "Credit Agreement" means that certain Secured Credit Agreement, dated as of April 23, 2001, by and among the Borrowers named therein, OI Group and Owens-Illinois General, Inc., as Borrower's Agent, Deutsche Bank Securities Inc., formerly Deutsche Banc Alex. Brown, and Banc of America Securities, LLC, as Joint Lead Arrangers and Joint Book Managers, Deutsche Bank AG, London Branch, as UK Administrative Agent, Deutsche Bank Trust Company Americas, formerly Bankers Trust Company, as Administrative Agent, and the other Agents and the other Lenders named therein, including any related notes, guarantees, collateral documents, instruments and agreements executed in

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connection therewith, and in each case as amended, amended and restated, modified, renewed, refunded, replaced, substituted or refinanced or otherwise restructured (including but not limited to, the inclusion of additional borrowers thereunder) from time to time.

        "Credit Agreement Domestic Borrowers" means the Company, OI General FTS Inc. and OI Plastic Products FTS Inc., to the extent at the time of determination such entity is a borrower under the Credit Agreement and any other Domestic Subsidiary of OI Group that is, at the relevant time, a borrower under the Credit Agreement.

        "Credit Facilities" means (1) one or more debt facilities (including, without limitation, the Credit Agreement) or commercial paper facilities, in each case with banks or other lenders providing for revolving credit loans, term loans, bankers acceptances, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced, refinanced or otherwise restructured in whole or in part from time to time (collectively, "Bank Facilities"); and (2) notes, debentures or other financing instruments or any combination thereof incurred after the Issue Date ("Non-Bank Refinancing"), including any refinancing thereof, to the extent such Non-Bank Refinancing replaces, refinances or otherwise restructures Indebtedness under Credit Facilities.

        "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.

        "Designated Noncash Consideration" means the noncash consideration received by OI Group or one of its Restricted Subsidiaries in connection with an Asset Sale that is so designated as Designated Noncash Consideration pursuant to an Officers' Certificate setting forth the basis of such valuation, executed by an officer of OI Group or the Company, less the amount of cash or Cash Equivalents received in connection with a subsequent sale of such Designated Noncash Consideration.

        "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable (other than as a result of a change of control or asset sale), pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof (other than as a result of a change of control or asset sale), in whole or in part, on or prior to the date that is 91 days after the date on which the notes mature or are no longer outstanding. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require OI Group or the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that OI Group or the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption "—Certain Covenants—Restricted Payments."

        "Domestic Subsidiary" means any Restricted Subsidiary of OI Group other than a Foreign Subsidiary.

        "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

        "Equity Offering" means any public or private sale of common stock (other than Disqualified Stock) of OI Inc. (other than public offerings with respect to common stock registered on Form S-8 or otherwise relating to equity securities issuable under any employee benefit plan of OI Inc.).

        "Existing Indebtedness" means the aggregate principal or commitment amount of Indebtedness of OI Group and its Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the Issue Date, until such amounts are repaid or terminated.

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        "Existing IRBs" means the Holmes County Ohio 5.85% Industrial Revenue Bonds due 2007, the Kansas City, Missouri Industrial Development Revenue Bonds due 2008 and the City of Mentor, Ohio Industrial Development Bonds due 2004, and any extensions, renewals or refinancings thereof to the extent that such extensions, renewals and refinancings thereof do not result in an increase in the aggregate principal amount of such Existing IRBs.

        "Existing Senior Notes" means the Company's 878% Senior Secured Notes due 2009 issued under an indenture dated as of January 24, 2002, as supplemented by the first supplemental indenture dated as of January 24, 2002, and the second supplemental indenture dated as of August 5, 2002, among the Company, the Guarantors and U.S. Bank National Association, as Trustee.

        "Fair Market Value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under pressure or compulsion to complete the transaction.

        "Fixed Charge Coverage Ratio" means with respect to any specified Person and its Restricted Subsidiaries for any period, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such period to the Fixed Charges of such Person and its Restricted Subsidiaries for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases or redeems any Indebtedness or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom as if the same had occurred at the beginning of the applicable four-quarter reference period.

        In addition, for purposes of calculating the Fixed Charge Coverage Ratio:

    (1)
    acquisitions and dispositions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be given pro forma effect as if they had occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated on a pro forma basis in accordance with Regulation S-X under the Securities Act;
    (2)
    the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded;
    (3)
    the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Subsidiaries following the Calculation Date;
    (4)
    the consolidated interest expense attributable to interest on any Indebtedness computed on a pro forma basis and (a) bearing a floating interest rate shall be computed as if the rate in effect on the date of computation had been the applicable rate for the entire period and (b) that was not outstanding during the period for which the computation is being made but which bears, at the option of such Person, a fixed or floating rate of interest, shall be computed by applying at the option of such Person either the fixed or floating rate; and

137


    (5)
    the consolidated interest expense attributable to interest on any working capital borrowings under a revolving credit facility computed on a pro forma basis shall be computed based upon the average daily balance of such working capital borrowings during the applicable period.

        "Fixed Charges" means, with respect to any specified Person and its Restricted Subsidiaries for any period, the sum, without duplication, of:

    (1)
    the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to attributable debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations; plus
    (2)
    the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period; plus
    (3)
    interest actually paid by the Company or any such Restricted Subsidiary under any Guarantee of Indebtedness or other obligation of any other Person; plus
    (4)
    the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of Disqualified Stock or preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of OI Group (other than Disqualified Stock) or to OI Group or a Restricted Subsidiary of OI Group, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP.

        "Foreign Subsidiary" means any Restricted Subsidiary of OI Group which is organized under the laws of a jurisdiction other than the United States of America or any State thereof.

        "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on January 24, 2002.

        "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit.

        "Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness.

        "Guarantors" means:

    (1)
    OI Group;
    (2)
    each direct or indirect Domestic Subsidiary of OI Group (other than the Company) that guarantees the Credit Agreement as of the Issue Date; and
    (3)
    each future direct or indirect Domestic Subsidiary of OI Group that guarantees the Credit Agreement and executes a Guarantee of the notes in accordance with the provisions of the Indenture;

and their respective successors and assigns.

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        "Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under:

    (1)
    interest rate swap agreements, interest rate cap agreements, interest rate collar agreements and other agreements or arrangements designed to protect such Person against fluctuations in interest rates;
    (2)
    currency exchange swap agreements, currency exchange cap agreements, currency exchange collar agreements and other agreements or arrangements designed to protect such Person against fluctuations in currency values; and
    (3)
    commodity swap agreements; commodity cap agreements, commodity collar agreements and other agreements or arrangements designed to protect such Person against fluctuations in commodity prices.

        "Holder" means a Person in whose name a note is registered on the registrar's books.

        "Indebtedness" means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent, in respect of:

    (1)
    borrowed money;
    (2)
    evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);
    (3)
    banker's acceptances;
    (4)
    representing Capital Lease Obligations;
    (5)
    the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued liability or trade payable; or
    (6)
    representing any Hedging Obligations,

if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes the lesser of the Fair Market Value on the date of incurrence of any asset of the specified Person subject to a Lien securing the Indebtedness of others and the amount of such Indebtedness secured and, to the extent not otherwise included, the Guarantee by the specified Person of any indebtedness of any other Person.

        The amount of any Indebtedness outstanding as of any date shall be:

    (1)
    the accreted value thereof, in the case of any Indebtedness issued with original issue discount; and
    (2)
    the principal amount thereof, in the case of any other Indebtedness.

        "Intercompany Indebtedness" means any Indebtedness of OI Group or any Subsidiary of OI Group which, in the case of OI Group, is owing to OI Inc. or any Subsidiary of OI Group and, in the case of any Subsidiary of OI Group, is owing to OI Group or any other Subsidiary of OI Group.

        "Intercreditor Agreement" means the intercreditor agreement, dated as of April 23, 2001, by and among Deutsche Bank Trust Company Americas, formerly Bankers Trust Company, as administrative agent for the lenders party to the Credit Agreement, Deutsche Bank Trust Company Americas, formerly Bankers Trust Company, as Collateral Agent and any other parties thereto, as amended, amended and restated or otherwise modified from time to time.

139


        "Investment Grade Permitted Liens" means:

    (1)
    Liens arising under the Collateral Documents other than Liens securing the OI Inc. Senior Notes on the Issue Date;

    (2)
    Liens incurred after the Issue Date on the assets (including shares of Capital Stock and Indebtedness) of OI Group or any Domestic Subsidiary of OI Group; provided, however, that the aggregate amount of Indebtedness and other obligations at any time outstanding secured by such Liens pursuant to clause (1) above and this clause (2) shall not exceed the sum of $5.5 billion plus 50% of Tangible Assets acquired by the Company or any Domestic Subsidiary after January 24, 2002;

    (3)
    Liens in favor of OI Group or any Domestic Subsidiary of OI Group;

    (4)
    Liens on property or shares of capital stock of a Person existing at the time such Person is merged with or into or consolidated with OI Group or any Domestic Subsidiary of OI Group; provided that such Liens were not incurred in connection with or in contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with OI Group or the Domestic Subsidiary;

    (5)
    Liens on property or shares of capital stock existing at the time of acquisition thereof by OI Group or any Domestic Subsidiary of OI Group, provided that such Liens were not incurred in connection with or in contemplation of such acquisition and do not extend to any property other than the property so acquired by OI Group or the Domestic Subsidiary;

    (6)
    Liens (including extensions and renewals thereof) upon real or personal (whether tangible or intangible) property acquired after the Issue Date, provided that:

    (a)
    such Lien is created solely for the purpose of securing Indebtedness incurred to finance all or any part of the purchase price or cost of construction or improvement of property, plant or equipment subject thereto and such Lien is created prior to, at the time of or within 12 months after the later of the acquisition, the completion of construction or the commencement of full operation of such property, plant or equipment or to refinance any such Indebtedness previously so secured;

    (b)
    the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such cost; and

    (c)
    any such Lien shall not extend to or cover any property or assets other than such item of property or assets and any improvements on such item;

    (7)
    Liens to secure any Capital Lease Obligation or operating lease;

    (8)
    Liens encumbering customary initial deposits and margin deposits;

    (9)
    Liens securing Indebtedness under Hedging Obligations;

    (10)
    Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by OI Group or any of its Domestic Subsidiaries in the ordinary course of business of OI Group and its Domestic Subsidiaries;

    (11)
    Liens on or sales of receivables and customary cash reserves established in connection therewith;

    (12)
    Liens securing OI Group's or any of its Domestic Subsidiary's obligations in respect of bankers' acceptances issued or created to facilitate the purchase, shipment or storage of inventory or other goods; and

140


    (13)
    Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor.

        "Investment Grade Ratings" means a debt rating of the notes of BBB- or higher by S&P and Baa3 or higher by Moody's or the equivalent of such ratings by S&P or Moody's or in the event S&P or Moody's shall cease rating the notes and the Company shall select any other Rating Agency, the equivalent of such ratings by such other Rating Agency.

        "Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons in the forms of loans (including Guarantees thereof), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If OI Group or any Restricted Subsidiary of OI Group sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of OI Group such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of OI Group, OI Group shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption "—Certain Covenants—Restricted Payments." The acquisition by OI Group or any Restricted Subsidiary of OI Group of a Person that holds an Investment in a third Person shall be deemed to be an Investment by OI Group or such Restricted Subsidiary in such third Person in an amount equal to the Fair Market Value of the Investment held by the acquired Person in such third Person in an amount determined as provided in the final paragraph of the covenant described above under the caption "—Certain Covenants—Restricted Payments."

        "Issue Date" means November 13, 2002.

        "KKR" means Kohlberg Kravis Roberts & Co., L.P., a Delaware limited partnership.

        "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any agreement to give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.

        "Moody's" means Moody's Investors Service, Inc. or any successor rating agency.

        "Mortgages" means mortgages as defined under the Credit Agreement securing real property in the United States of America.

        "Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends.

        "Net Proceeds" means the aggregate cash proceeds received by OI Group or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of any bona fide direct costs relating to such Asset Sale, including, without limitation, reasonable legal, accounting and investment banking fees, reasonable sales commissions, any reasonable relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness that is paid with the proceeds of such Asset Sale and any

141



reasonable reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP and for the after-tax cost of any indemnification payments (fixed and contingent) attributable to sellers' indemnities to the purchaser.

        "Non-Recourse Debt" means Indebtedness:

    (1)
    as to which neither OI Group nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender;

    (2)
    no default with respect to which (including any rights that the Holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any Holder of any other Indebtedness of OI Group or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and

    (3)
    as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of OI Group or any of its Restricted Subsidiaries.

        "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness.

        "Offshore Collateral Documents" means the Offshore Security Agreements and mortgages (as defined in the Credit Agreement) securing real property outside of the United States of America.

        "Offshore Security Agreements" has the meaning assigned to such term in the Credit Agreement.

        "OI Inc. Ordinary Course Payments" means dividends or other distributions by, or payments of Intercompany Indebtedness from, OI Group to OI Inc. necessary to permit OI Inc. to pay any of the following items which are then due and payable: (i) Permitted OI Inc. Debt Obligations; (ii) claims of persons for exposure to asbestos-containing products and expenses related thereto; (iii) consolidated tax liabilities of OI Inc. and its Subsidiaries; and (iv) general administrative costs and other on-going expenses of OI Inc. in the ordinary course of business consistent with past practices.

        "OI Inc. Senior Notes" means the Indebtedness of OI Inc. outstanding as of any date pursuant to its $300.0 million aggregate principal amount of 7.85% Senior Notes due 2004, $350.0 million aggregate principal amount of 7.15% Senior Notes due 2005, $300.0 million aggregate principal amount of 8.10% Senior Notes due 2007, $250.0 million aggregate principal amount of 7.35% Senior Notes due 2008, $250.0 million aggregate principal amount of 7.50% Senior Debentures due 2010, and $250.0 million aggregate principal amount of 7.80% Senior Debentures due 2018.

        "Permitted Business" means any business conducted or proposed to be conducted (as described in the offering memorandum relating to the private notes) by OI Group and its Restricted Subsidiaries on the Issue Date and other businesses reasonably related or ancillary thereto.

        "Permitted Investments" means:

    (1)
    any Investment in the Company, OI Group or in a Restricted Subsidiary of OI Group;

    (2)
    any Investment in cash or Cash Equivalents and, with respect to Foreign Subsidiaries, short term Investments similar to Cash Equivalents customarily used in the countries in which such Foreign Subsidiaries are located;

    (3)
    any Investment by OI Group or any Restricted Subsidiary of OI Group in a Person, if as a result of such Investment:

    (a)
    such Person becomes a Restricted Subsidiary of OI Group; or

142


      (b)
      such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, OI Group or a Restricted Subsidiary of OI Group;

    (4)
    any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "—Repurchase at the Option of Holders—Asset Sales";

    (5)
    any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of OI Inc., the Company or OI Group;

    (6)
    Hedging Obligations;

    (7)
    advances to employees, officers and directors not in excess of $2.0 million outstanding at any one time, in the aggregate;

    (8)
    obligations of employees, officers and directors, not in excess of $2.0 million outstanding at any one time, in the aggregate, in connection with such employees', officers' or directors' acquisition of shares of OI Inc. common stock, so long as no cash is actually advanced to such employees, officers or directors in connection with the acquisition of any such shares;

    (9)
    any Investment existing on the Issue Date; and

    (10)
    other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other such Investments outstanding at any such time, not to exceed $150.0 million.

        "Permitted Liens" means:

    (1)
    Liens arising under the Collateral Documents other than Liens securing the OI Inc. Senior Notes on the Issue Date;

    (2)
    Liens incurred after the Issue Date on the assets (including shares of Capital Stock and Indebtedness) of OI Group or any Restricted Subsidiary of OI Group; provided, however, that the aggregate amount of Indebtedness and other obligations at any time outstanding secured by such Liens pursuant to clause (1) above and this clause (2) shall not exceed the sum of $5.5 billion plus 50% of Tangible Assets acquired by the Company or any Guarantor or that are owned by any Restricted Subsidiary that becomes a Guarantor after January 24, 2002;

    (3)
    Liens in favor of OI Group or any Restricted Subsidiary of OI Group;

    (4)
    Liens on property or shares of capital stock of a Person existing at the time such Person is merged with or into or consolidated with OI Group or any Restricted Subsidiary of OI Group; provided that such Liens were not incurred in connection with or in contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with OI Group or the Restricted Subsidiary;

    (5)
    Liens on property or shares of capital stock existing at the time of acquisition thereof by OI Group or any Restricted Subsidiary of OI Group, provided that such Liens were not incurred in connection with or in contemplation of such acquisition and do not extend to any property other than the property so acquired by OI Group or the Restricted Subsidiary;

    (6)
    Liens on property or shares of capital stock of any Foreign Subsidiary, including shares of capital stock of any Foreign Subsidiary owned by a Domestic Subsidiary, to secure Indebtedness of a Foreign Subsidiary permitted to be incurred under the Indenture;

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    (7)
    Liens (including extensions and renewals thereof) upon real or personal (whether tangible or intangible) property acquired after the Issue Date, provided that:

    (a)
    such Lien is created solely for the purpose of securing Indebtedness incurred to finance all or any part of the purchase price or cost of construction or improvement of property, plant or equipment subject thereto and such Lien is created prior to, at the time of or within 12 months after the later of the acquisition, the completion of construction or the commencement of full operation of such property, plant or equipment or to refinance any such Indebtedness previously so secured;

    (b)
    the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such cost; and

    (c)
    any such Lien shall not extend to or cover any property or assets other than such item of property or assets and any improvements on such item;

    (8)
    Liens to secure any Capital Lease Obligation or operating lease;

    (9)
    Liens encumbering customary initial deposits and margin deposits;

    (10)
    Liens securing Indebtedness under Hedging Obligations;

    (11)