Filed Pursuant to Rule 424(b)(3)
Registration No. 333-73552
PROSPECTUS
$275,000,000
[PLASTIPAK HOLDINGS, INC. LOGO]
OFFER TO EXCHANGE ALL
OUTSTANDING 10.75% SENIOR NOTES DUE 2011
FOR
10.75% SENIOR NOTES DUE 2011
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
We will exchange all of your outstanding notes that are properly delivered
and not properly withdrawn for an equal principal amount of exchange notes.
The exchange notes will be substantially identical to the outstanding
notes, except that, because we have registered the exchange notes under the
Securities Act of 1933, they will:
- be freely tradeable;
- will not bear legends restricting their transfer;
- will not be subject to any additional obligations regarding
registration under the Securities Act of 1933; and
- will not be subject to special interest payments.
The exchange notes will be issued under, and entitled to the benefits of,
the same indenture under which we issued the outstanding notes.
All of our domestic subsidiaries which, jointly and severally, guarantee
the outstanding notes fully and unconditionally on a senior basis will, jointly
and severally, guarantee the exchange notes fully and unconditionally, on a
senior basis.
The outstanding notes and the guarantees of the outstanding notes are, and
the exchange notes and the guarantees of the exchange notes will be, senior
obligations of Plastipak and the guarantors. Accordingly, they will rank equally
with all of our and our guarantors' existing and future unsecured obligations
and ahead of any of our and our guarantors' future debt that expressly provides
that it is subordinated to the notes and the guarantees.
The exchange offer expires at 5:00 p.m., New York City time, on March 27,
2002, unless extended. We do not currently intend to extend the expiration date.
We will not receive any proceeds from the exchange offer.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 11 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
THE DATE OF THIS PROSPECTUS IS FEBRUARY 25, 2002.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission. By this prospectus, we are offering to
exchange all outstanding 10.75% Senior Notes due 2011, which we placed in a
private offering on August 20, 2001, for 10.75% Senior Notes due 2011 that we
registered with the Securities and Exchange Commission. As part of the private
offering, we entered into a registration rights agreement with the initial
purchasers of the outstanding notes in which we agreed to deliver to you this
prospectus and to complete the exchange offer within 225 days after the date of
the original issuance of the outstanding notes.
This prospectus contains information about Plastipak Holdings, Inc., the
issuer of the outstanding notes and the exchange notes, and Plastipak Packaging,
Inc., Whiteline Express, Ltd., Clean Tech, Inc., and TABB Realty, LLC, the
material domestic subsidiaries of Plastipak Holdings, Inc. which are guarantors
of the outstanding notes and the exchange notes. This prospectus does not
contain, however, all of the information contained in the registration statement
or in the exhibits to the registration statement which we filed with it. For
more information regarding the registration statement, its exhibits and the
periodic reports and other information that we will file with the Securities and
Exchange Commission, see "Where You Can Find More Information" in this
prospectus.
You should rely only on the information provided in this prospectus. We
have not authorized anyone else to provide you with different or additional
information.
---------------
GEM-PAK and EXI-PAK are trademarks of Plastipak Packaging, Inc. All other
trademarks or trade names referred to in this prospectus are the property of
their respective owners.
PROSPECTUS SUMMARY
The following summary highlights material information from the prospectus,
and contains information about the exchange offer, the exchange notes and
Plastipak Holdings, Inc. and its subsidiaries. Because it is just a summary, it
may not contain all the information that may be important to you. You should
read this entire prospectus, including, in particular, the "Risk Factors"
beginning on page 11, and the financial statements and related notes.
OUR COMPANY
Plastipak Holdings, Inc. ("Plastipak") is a leading manufacturer of plastic
packaging containers for many of the world's largest consumer products
companies. During fiscal 2001, we manufactured and distributed approximately 6.5
billion containers worldwide for over 500 different customers. In North America,
we are the exclusive supplier of plastic containers to Procter & Gamble for
heavy-duty, liquid laundry detergents, and the largest supplier of plastic
containers to Kraft Foods for their salad dressings, barbecue sauces and grated
cheeses. We are recognized by our customers as an innovator in blow-molded
package design and manufacturing. We have obtained over 80 U.S. patents, many of
which are registered in foreign countries, for our state-of-the-art,
package-manufacturing processes. We believe that an integral part of Plastipak's
success has been our focus on customers' needs. For 35 years, we have worked as
a strategic partner with our customers in the early stages of their new
marketing initiatives. We provide integrated transportation and logistics
services, and satisfy our customers' needs for recycling, reliability and
dependability in plastic packaging. For the year ended November 3, 2001, our
revenue was $809.7 million, our earnings before extraordinary item and
cumulative effect of change in accounting principle were $7.1 million and our
EBITDA was $84.1 million.
The Freedonia Group estimates that the current U.S. plastic container
industry generates over $10 billion in revenue. From 1989-1999, Freedonia
estimates the U.S. plastic container industry grew at a rate of 7.0%, compared
to an estimated rate of 2.7% for the overall packaging industry. As a
beneficiary of this trend, we have increased our revenue between 1997 and 2001
at a compound annual growth rate ("CAGR") of 12.6%, exceeding the above industry
averages. Further, all of our revenue growth has been organic. Over the next ten
years, continued conversion to plastic bottles is estimated to result in an
annual growth rate of 5.0% for the plastic container industry, compared to an
annual growth rate of 3.4% for the overall packaging industry. This continued
superior growth is being driven by the advantages of plastic over glass and
metal (e.g., weight, strength and shatter resistance), customer preferences for
plastic and technological advances.
Approximately 95% of our revenue for fiscal 2001 was derived from the
design, manufacture and distribution of plastic containers for our customers in
five product categories. Our plastic container revenue by product category for
fiscal 2001 was as follows:
- carbonated and non-carbonated beverage, 48%;
- consumer cleaning, 30%;
- food and processed juices, 14%;
- industrial, automotive and agricultural, 6%; and
- health, personal care and distilled spirits, 2%.
The remaining 5% of our fiscal 2001 revenue was generated by miscellaneous
sources, including recycling and transportation. We operate ten plants in the
United States. The total square footage of our manufacturing and warehousing
facilities in the United States is approximately five million square feet. Our
expansion in Brazil has given us additional capacity and access to South
America's rapidly expanding plastic packaging market. We plan to use our
relationships with key customers to create new opportunities in North and South
America.
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OUR COMPETITIVE STRENGTHS
LONG-TERM RELATIONSHIPS WITH MAJOR CONSUMER PRODUCT COMPANIES IN DIVERSE, STABLE
INDUSTRIES
We enjoy long-standing relationships that average over 15 years with our
top ten customers, including Kraft Foods (over 15 years), Pepsi Cola (over 15
years), Procter & Gamble (over 25 years) and Reckitt Benckiser (over 25 years).
In many recession-resistant markets such as liquid laundry detergent, food
products and carbonated beverages, we are a top supplier for plastic packaging.
STRATEGICALLY LOCATED, STATE-OF-THE-ART OPERATING FACILITIES
Our plants feature top quality injection-molding machines, high speed blow
molders and computerized material and inventory handling in facilities
strategically located near the filling sites of most of our key customers. Over
the last five years, we have invested over $200 million in our facilities and
state-of-the-art production equipment, which have significantly reduced our
operating costs. The majority of our facilities currently have the capacity to
supply increased demand for our products.
TECHNOLOGY-DEVELOPMENT CAPABILITIES
Our technology center and our packaging development center have secured
over 80 U.S. patents and continue to incorporate leading technology into
customer-driven applications. We have produced prototypes from initial concepts
in as little as two weeks.
PROCESS REDESIGN INITIATIVES AND FLEXIBLE COST STRUCTURE
In 1999, we initiated an ongoing effort to redesign business processes to
reduce waste and non-value added costs. Our increased operating profit in fiscal
2001 is the direct result of the implementation of process redesign initiatives
and reliability improvements in our manufacturing facilities, which reduced
waste and non-value added costs. We have created a highly variable cost
structure that can adjust quickly to customer demand.
CUSTOMER-ORIENTED CULTURE
Plastipak's engineering teams participate in the early phases of our key
customers' new marketing initiatives. As an integrated team, we work alongside
these customers to shape the design features of new packaging containers and
develop new processes and equipment to manufacture those containers.
MANAGEMENT DEPTH AND EXPERIENCE
Our top 12 senior executives have on average 22 years experience in the
industry and 19 years experience at Plastipak. We believe our retention levels
are among the highest in the industry.
2
OUR BUSINESS STRATEGY
Our strategy is to continue to increase our revenues and profitability and
to further enhance our leading industry position. The key components of our
strategy include the following objectives:
CAPITALIZE ON INDUSTRY CONVERSION TO PLASTIC CONTAINERS
Driven by consumer preference, favorable packaging economics, technological
advances and improved functionality, the industries we serve are converting many
products from traditional glass and metal containers to plastic packaging,
including packages containing post-consumer recycled resin.
CONTINUE DEVELOPING VALUE-ADDED SERVICES AND PRODUCTS
Supported by our technology and packaging development centers, we have
successfully researched, developed and launched new patented technologies in our
marketplace. We believe our success in this area distinguishes us from our
competitors and will enable us to continue to gain market share. For many key
customers, our technology development is an integral part of their overall
marketing strategy and has helped secure and enhance our customer relationships.
EXPAND MARKET SHARE WITH KEY CUSTOMERS
Our high-quality products, low-cost manufacturing capabilities and track
record of focused customer service position us well to continue growing market
share with our customer base. As our customers continue to acquire new
businesses and brands, we believe that we will secure additional long-term
contracts and grow our product offerings.
PLASTIPAK AND THE GUARANTORS
The exchange notes will be issued by Plastipak Holdings, Inc., and
guaranteed by its material domestic subsidiaries, Plastipak Packaging, Inc.,
Whiteline Express, Ltd., Clean Tech, Inc. and TABB Realty, LLC. Plastipak's
other domestic subsidiaries and its foreign subsidiaries will not guarantee the
exchange notes.
Our principal executive offices are located at 9135 General Court,
Plymouth, Michigan 48170-0907. Our mailing address is P.O. Box 2500C, Plymouth,
Michigan 48170-0907, and our telephone number is (734) 455-3600.
3
SUMMARY OF TERMS OF THE EXCHANGE OFFER
On August 20, 2001, we completed the private offering of the outstanding
notes. We summarize below the principal terms of the exchange offer. For a more
complete description of the exchange offer, see "The Exchange Offer" in this
prospectus.
The Exchange Offer............ We are offering to exchange up to $275.0
million total principal amount of exchange
notes for up to $275.0 million total principal
amount of outstanding notes. You may exchange
outstanding notes only in integral multiples
of $1,000. The exchange notes will be
substantially identical to the outstanding
notes, except that, because we have registered
the exchange notes, they:
- will be freely tradeable;
- will not bear legends restricting their
transfer;
- will not be subject to any additional
obligations regarding registration
under the Securities Act of 1933; and
- will not be subject to the special
interest payments described in
"Description of Notes -- Registration
Rights; Special Interest" in this
prospectus.
We will issue the exchange notes under the
same indenture under which we issued the
outstanding notes. Consequently, the exchange
notes will be entitled to the benefits of, and
both series of notes will be treated as a
single class of debt securities, under the
indenture.
Resales....................... Based on interpretations of the staff of the
Securities and Exchange Commission contained
in no-action letters issued to other parties,
we believe that the exchange notes may be
offered for resale, resold and otherwise
transferred by you without compliance with the
registration and prospectus delivery
provisions of the Securities Act of 1933, if
you meet three requirements. These
requirements are:
- you are acquiring the exchange notes in
the ordinary course of your business;
- you have not engaged in, do not intend
to engage in, and have no arrangement
or understanding with any person to
participate in, a distribution of the
exchange notes; and
- you are not an "affiliate" of Plastipak
Holdings, Inc. within the meaning of
Rule 405 under the Securities Act of
1933.
If you do not meet these requirements, you
will need to comply with the registration and
prospectus delivery requirements of the
Securities Act of 1933 whenever you resell
your exchange notes, unless an exemption to
these requirements applies. The exchange offer
requires that each participating broker-dealer
which receives exchange notes for its own
account in exchange for outstanding notes that
were acquired as a result of market-making or
4
trading activity must acknowledge that it will
deliver a prospectus if it resells any of the
exchange notes. See "Plan of Distribution" in
this prospectus.
Expiration Date; Withdrawal of
Tender........................ The exchange offer expires at 5:00 p.m., New
York City time, on March 27, 2002, unless we
extend the expiration date. We do not
currently intend to extend the expiration
date. You may withdraw tenders of outstanding
notes at any time prior to the expiration of
the exchange offer.
Conditions to the Exchange
Offer......................... The exchange offer is subject to customary
conditions, which we may waive if, in our
reasonable determination, one or more
conditions have not been satisfied. We
currently expect that each of the conditions
will be satisfied and that no waivers will be
necessary. For more information regarding the
conditions to the exchange offer, "The
Exchange Offer -- Conditions to the Exchange
Offer" in this prospectus.
Procedures for Tendering
Outstanding Notes............. If you wish to accept the exchange offer, you
must:
- complete, sign and date the
accompanying letter of transmittal, or
a facsimile of the letter of
transmittal, according to the
instructions contained in this
prospectus and the letter of
transmittal; and
- mail or otherwise deliver the letter of
transmittal, or a facsimile of the
letter of transmittal, together with
the outstanding notes and any other
required documents to the exchange
agent at the address listed on the
cover page of the letter of
transmittal.
If you hold outstanding notes through The
Depository Trust Company and wish to
participate in the exchange offer, you must
comply with the Automated Tender Offer Program
procedures of The Depository Trust Company, by
which you will agree to be bound by the letter
of transmittal.
Special Procedures for
Beneficial Owners............. If you are a beneficial owner of outstanding
notes which are registered in the name of a
broker, dealer, commercial bank, trust company
or other nominee, and you wish to tender these
outstanding notes in the exchange offer, you
should contact promptly the person in whose
name your outstanding notes are registered and
instruct that person to tender them on your
behalf. If you wish to tender them on your own
behalf, you must, prior to completing and
executing the letter of transmittal and
delivering your outstanding notes, either make
appropriate arrangements to register ownership
of the outstanding notes in your name or
obtain a properly completed bond power from
the registered holder. The transfer of
registered ownership may take considerable
time and may not be able to be completed prior
to the expiration date.
5
Guaranteed Delivery
Procedures.................... If you wish to tender your outstanding notes
and, prior to the expiration date, you cannot:
- deliver your outstanding notes, the
letter of transmittal or any other
documents required by the letter of
transmittal; or
- comply with the applicable procedures
under The Depository Trust Company's
Automated Tender Offer Program,
then you must tender your outstanding notes
according to guaranteed delivery procedures.
We explain these procedures under "The
Exchange Offer -- Guaranteed Delivery
Procedures" in this prospectus.
Effects on Holders of
Outstanding Notes............. When we complete the exchange offer, we will
have fulfilled a covenant contained in the
registration rights agreement. If you do not
tender your outstanding notes in the exchange
offer, you will continue to be entitled to the
rights and benefits of the indenture, but will
not be entitled to an increase in the interest
rate on these notes.
Consequences of Failure to
Exchange...................... If you do not exchange your outstanding notes
for exchange notes, your outstanding notes
will continue to be subject to restrictions on
transfer. In general, outstanding notes may
not be offered or sold, unless registered
under the Securities Act of 1933, except if
offered or sold under an exemption from, or in
a transaction not subject to, the Securities
Act of 1933 and applicable state securities
laws. We do not currently anticipate that we
will register the outstanding notes under the
Securities Act of 1933. In addition, the
tender of outstanding notes in the exchange
offer will reduce the principal amount of the
outstanding notes outstanding, which may have
an adverse effect upon, and increase the
volatility of, the market price of the
outstanding notes due to a reduction in
liquidity.
U.S. Federal Income Tax
Considerations................ The exchange of outstanding notes for exchange
notes in the exchange offer will not be a
taxable event for U.S. federal income tax
purposes. See "U.S. Federal Income Tax
Consequences of the Exchange Offer."
Use of Proceeds............... We will not receive any cash proceeds from the
issuance of exchange notes.
Exchange Agent................ Wells Fargo Bank of Minnesota, National
Association, is the exchange agent for the
exchange offer. The address and telephone
number of the exchange agent are listed under
"Exchange Offer -- Exchange Agent" in this
prospectus.
6
SUMMARY OF TERMS OF THE EXCHANGE NOTES
Issuer........................ Plastipak Holdings, Inc.
Notes Offered................. $275.0 million aggregate principal amount of
10.75% Senior Notes due 2011, which have been
registered under the Securities Act of 1933.
Maturity...................... September 1, 2011.
Interest Payment Dates........ September 1 and March 1 of each year,
commencing on March 1, 2002.
Ranking....................... The exchange notes and guarantees are senior
obligations of Plastipak and the guarantors.
Accordingly, they will rank equally with all
of our and our guarantors' existing and future
senior unsecured obligations and ahead of any
of our and our guarantors' future debt that
expressly provides that it is subordinated to
the exchange notes and the guarantees. As of
January 5, 2002, we had approximately $53.1
million of debt outstanding that was senior to
the outstanding notes.
Guarantors.................... The exchange notes will be guaranteed by all
of Plastipak's current and future material
domestic subsidiaries. Each guarantor will
provide a guarantee of the payment, principal,
premium and interest on the exchange notes on
a senior unsecured basis. If we are unable to
make payments on the notes when they are due,
our guarantors must make them instead. The
guarantees will be effectively subordinated to
all secured indebtedness of those
subsidiaries, including their guarantees of
borrowings under our Amended Credit Agreement.
Optional Redemption........... On or after September 1, 2006, Plastipak may
redeem some or all of the exchange notes at
any time at the redemption prices listed in
"Description of Notes -- Optional Redemption."
Before September 1, 2004, Plastipak may redeem
up to 35% of the exchange notes with the net
cash proceeds of one or more sales of
Plastipak's common stock at the price listed
in "Description of Notes -- Optional
Redemption."
Mandatory Offer to
Repurchase.................... If Plastipak experiences specific kinds of
change of control events or sells certain
assets without applying the proceeds therefrom
in a specified manner, it must offer to
repurchase the exchange notes at the price set
forth in "Description of Notes -- Repurchase
at the Option of Holders." It is possible that
Plastipak will not have sufficient funds at
the time of the change of control to make the
required repurchase of the outstanding notes
and/or the exchange notes, or that
restrictions in the Amended Credit Agreement
will not allow such repurchases.
7
Basic Covenants of the
Indenture..................... The indenture under which the exchange notes
will be issued will, among other things,
restrict Plastipak's ability and the ability
of its restricted subsidiaries to:
- borrow money;
- pay dividends on stock or repurchase
stock;
- make investments;
- use assets as security in other
transactions;
- create liens;
- merge or consolidate; and
- transfer or sell all or substantially
all of its assets.
These covenants are subject to important
qualifications and exceptions. For more
details, see "Description of Notes -- Certain
Covenants."
Use of Proceeds............... There will be no cash proceeds to us from the
exchange offer. See "Use of Proceeds."
8
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data for the three fiscal
years ended November 3, 2001 were derived from our audited consolidated
financial statements that are included elsewhere in this prospectus. The
following summary consolidated financial data for the two years ended October
31, 1998 were derived from audited combined financial statements of the
predecessor companies, adjusted to reflect the pooling of interests discussed in
Note A to our consolidated financial statements. The summary consolidated
financial data should be read in conjunction with the consolidated financial
statements and the related notes, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information
included elsewhere in this prospectus.
<Table>
<Caption>
YEAR ENDED
--------------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
(dollar amounts in thousands)
STATEMENT OF OPERATIONS DATA:
Total revenues........................ $503,689 $565,639 $565,527 $701,872 $809,697
Costs and expenses.................... 439,710 501,644 491,009 625,688 708,737
Gross profit................... 63,979 63,995 74,518 76,184 100,960
Selling, general and administrative
expenses............................ 43,948 48,352 50,253 50,962 64,757
Operating profit............... 20,031 15,643 24,265 25,222 36,203
Interest expense...................... 15,063 21,253 26,021 27,028 28,874
Other expense (income)................ (5,032) (3,080) (8,259) (1,418) (3,102)
Earnings (loss) before income taxes,
extraordinary item and change in
accounting principle................ 10,000 (2,530) 6,503 (388) 10,431
INCOME TAXES:
Current............................. 2,813 1,344 1,685 223 2,111
Deferred............................ 1,025 (2,585) 1,967 (2,403) 1,173
-------- -------- -------- -------- --------
3,838 (1,241) 3,652 (2,180) 3,284
Earnings (loss) before extraordinary
Item and cumulative effect of change
in accounting principle............. 6,162 (1,289) 2,851 1,792 7,147
Extraordinary item(a)................. -- -- (3,794) -- --
Cumulative effect of change in
accounting principle(b)............. -- -- -- 3,125 --
-------- -------- -------- -------- --------
Net earnings (loss)............ $ 6,162 $ (1,289) $ (943) $ 4,917 $ 7,147
======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(c)............................. $ 54,674 $ 50,848 $ 71,458 $ 68,360 $ 84,099
Ratio of earnings to fixed
charges(d),(e)...................... 1.50x -- 1.21x -- 1.25x
Ratio of net debt to EBITDA(f)........ 3.38x 4.45x 3.79x 3.76x 3.32x
Ratio of EBITDA to interest expense... 3.63x 2.39x 2.75x 2.53x 2.91x
</Table>
9
<Table>
<Caption>
YEAR ENDED
--------------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
(dollar amounts in thousands)
BALANCE SHEET DATA
(AT END OF PERIOD):
Working capital(g).................... $ 28,919 $ 32,938 $ 41,872 $ 23,920 $ 32,034
Total assets.......................... 312,633 357,786 398,997 421,108 505,055
Total debt............................ 188,392 231,450 278,917 260,200 333,062
Stockholders' equity.................. 33,979 31,081 20,256 25,261 32,408
</Table>
- ---------------
(a) An extraordinary loss was recorded as a result of the early retirement of
senior subordinated notes and related warrants.
(b) A gain was recorded for a change in accounting principle due to a change in
accounting for parts and supplies. Through October 30, 1999, Packaging
expensed parts and supplies utilized in its manufacturing facilities.
Effective October 31, 1999, these items are inventoried and are charged to
expense when used. Due to increased volume of purchases of such items,
management believes that this method is preferable and it provides for a
better matching of revenues and expenses. The financial statements for years
preceding the fiscal year ended October 28, 2000 have not been restated. See
Note M to the Consolidated Financial Statements.
(c) EBITDA represents earnings (loss) before interest expense, income taxes,
depreciation and amortization. EBITDA is not presented as, and should not be
considered an alternative measure of operating results or cash flows from
operations (as determined by generally accepted accounting principles), but
it is a widely accepted financial indicator of a company's ability to incur
and service debt. While commonly used, however, EBITDA is not identically
calculated by companies presenting EBITDA and is, therefore, not necessarily
an accurate means of comparison and may not be comparable to similarly
titled measures disclosed by our competitors.
(d) The ratio of earnings to fixed charges was computed by dividing earnings
(loss) by fixed charges. For this purpose, earnings (loss) consists of
earnings (loss) before taxes, extraordinary item and change in accounting
principle plus the portion of rents representative of the interest factor,
interest expense and capitalized interest. Fixed charges consist of interest
incurred (whether expensed or capitalized), the portion of rent expense that
is representative of the interest factor, and amortization of debt discount
and issuance costs.
(e) For the years ended October 28, 2000 and October 31, 1998, earnings were
inadequate to cover fixed charges by $1,631 and $2,530, respectively.
(f) Net debt equals total debt less cash and cash equivalents.
(g) Working capital represents current assets less cash and cash equivalents
minus current liabilities less short-term debt and current portion of
long-term debt.
10
RISK FACTORS
Before you tender your outstanding notes in the exchange offer, you should
be aware that there are various risks, including those described below, relating
to an investment in the outstanding notes and the exchange notes. You should
consider carefully these risk factors, together with all of the other
information included in this prospectus, before you decide to participate in the
exchange offer. We have summarized below the material risks relating to your
participating in the exchange offer and an investment in the exchange notes. Any
of the following risks could materially adversely affect our business, financial
condition or results of operations. In such case, you may lose all or part of
your original investment.
RISKS RELATED TO AN INVESTMENT IN THE OUTSTANDING NOTES AND THE EXCHANGE NOTES
SUBSTANTIAL INDEBTEDNESS -- OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT
OUR FINANCIAL HEALTH AND ADVERSELY IMPACT OUR ABILITY TO REPAY THE OUTSTANDING
NOTES AND THE EXCHANGE NOTES.
We have now, and will continue to have (after the exchange offer), a
significant amount of indebtedness. On January 5, 2002, we had total
indebtedness of approximately $340.3 million (of which $275.0 million consisted
of the outstanding notes and the balance consisted of other debt). We and our
subsidiaries will be permitted to incur substantial additional indebtedness in
the future. See "Capitalization", "Selected Historical and Pro Forma
Consolidated Financial Data" and "Description of Notes."
Our substantial indebtedness could have important consequences to you. For
example, it could:
- make it more difficult for us to satisfy our obligations with respect to
the outstanding notes and the exchange notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to obtain additional financing for future working
capital, capital expenditures, research and development and other general
corporate requirements;
- require us to dedicate a substantial portion of our cash flow from
operations to the payment of our indebtedness, thereby reducing the
availability of such cash flow to fund working capital, capital
expenditures, research and development or other general corporate
purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry; and
- place us at a competitive disadvantage compared to our competitors that
have less debt.
In addition, the indenture and our $150.0 million amended revolving credit
facility (the "Amended Credit Agreement") contain financial and other
restrictive covenants that limit our ability to engage in activities that may be
in our long-term best interests. Our failure to comply with those covenants
could result in an event of default which, if not cured or waived, could result
in the acceleration of all of our debts.
ABILITY TO SERVICE DEBT -- WE ARE DEPENDENT ON OUR SUBSIDIARIES TO GENERATE A
SIGNIFICANT AMOUNT OF CASH TO SERVICE OUR INDEBTEDNESS. OUR SUBSIDIARIES'
ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND THEIR CONTROL.
Our debt service (which includes currently scheduled principal and
interest) for fiscal 2002 will be approximately $42.2 million. For each one
percent increase in interest rates, this amount will increase by $537,000. Our
ability to make payments on and to refinance our indebtedness, including the
outstanding notes and the exchange notes, and to fund planned capital
expenditures and research and development efforts will depend on our
subsidiaries' ability
11
to generate cash in the future. This, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors that
are beyond their control.
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe that cash flow from operations and available
cash, together with available borrowings under the Amended Credit Agreement,
will be adequate to meet our future liquidity needs for at least the next few
years. As of January 5, 2002, the amount outstanding under our Amended Credit
Facility was approximately $53.1 million, including letters of credit.
It is possible that our business may not generate sufficient cash flow from
operations, that anticipated revenue growth and operating improvements may not
be realized or that future borrowings will not be available under the Amended
Credit Agreement in an amount sufficient to enable us to service our
indebtedness, including the outstanding notes and the exchange notes, or to fund
our other liquidity needs. We may need to refinance all or a portion of the
principal amount of the outstanding notes and the exchange notes and our credit
facility on or prior to maturity and we may not be able to do so on commercially
reasonable terms or at all.
SUBORDINATION TO SECURED INDEBTEDNESS -- YOUR RIGHT TO RECEIVE PAYMENTS ON THE
OUTSTANDING NOTES AND THE EXCHANGE NOTES IS EFFECTIVELY SUBORDINATED TO OUR
EXISTING SECURED INDEBTEDNESS AND MOST OR ALL OF OUR FUTURE SECURED BORROWINGS.
Holders of any of our secured indebtedness or the secured indebtedness of
the guarantors will have claims that are prior to your claims as holders of the
outstanding notes and the exchange notes with respect to the assets securing
such other indebtedness. Notably, we and certain of our subsidiaries, including
the guarantors, are parties to the Amended Credit Agreement, which is secured by
liens on substantially all of the assets of Plastipak, the guarantors and
Plastipak Brazil. The outstanding notes and the exchange notes will be
effectively subordinated to all such secured indebtedness. In the event of any
distribution or payment of our assets in any foreclosure, dissolution,
winding-up, liquidation, reorganization, or other bankruptcy proceeding, holders
of secured indebtedness will have a prior claim to those assets of ours that
constitute their collateral. Holders of the outstanding notes and the exchange
notes will participate ratably with all holders of our unsecured indebtedness
that is deemed to be of the same class as these notes, and potentially with all
of our other general creditors, based upon the respective amounts owed to each
holder or creditor, in our remaining assets. In any of the foregoing events,
there may not be sufficient assets to pay amounts due on these notes. As a
result, holders of the outstanding notes and the exchange notes may receive
less, ratably, than holders of secured indebtedness.
As of January 5, 2002, the aggregate amount of our secured indebtedness and
the secured indebtedness of our subsidiaries was approximately $53.1 million,
and approximately $96.9 million was available for additional borrowing under the
Amended Credit Agreement. We are permitted to borrow substantial additional
indebtedness, including senior debt, in the future under the terms of the
indenture. See "Description of Other Indebtedness -- The Amended Credit
Agreement."
NOT ALL SUBSIDIARIES ARE GUARANTORS -- YOUR RIGHT TO RECEIVE PAYMENTS ON THE
OUTSTANDING NOTES AND THE EXCHANGE NOTES COULD BE ADVERSELY AFFECTED IF ANY OF
OUR NON-GUARANTOR SUBSIDIARIES DECLARE BANKRUPTCY, LIQUIDATE OR REORGANIZE.
Our existing and future foreign, and non-material domestic, subsidiaries
will not guarantee the outstanding notes and the exchange notes. In the event of
a bankruptcy, liquidation or reorganization 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. The
non-guarantor subsidiaries generated approximately 9% of our consolidated
revenue for the year ended
12
November 3, 2001 and held approximately 20% of our consolidated assets as of
November 3, 2001. See footnote O to our consolidated financial statements
included at the back of this prospectus.
FINANCING CHANGE OF CONTROL OFFER -- WE MAY NOT HAVE THE ABILITY TO RAISE THE
FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE
INDENTURE.
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all outstanding notes and exchange
notes at 101% of the principal amount thereof plus accrued and unpaid interest
and special interest, if any, to the date of repurchase. However, it is possible
that we will not have sufficient funds at the time of the change of control to
make the required repurchases of notes or that restrictions in the Amended
Credit Agreement will not allow such repurchases. In addition, certain 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. See "Description of Notes -- Repurchase at Option of Holders."
NO PRIOR MARKET FOR NOTES -- IF AN ACTIVE TRADING MARKET DOES NOT DEVELOP FOR
THE OUTSTANDING NOTES AND THE EXCHANGE NOTES, YOU MAY NOT BE ABLE TO RESELL
THEM.
If a liquid market for the exchange notes or outstanding notes does not
develop, you may not be able to sell these notes at attractive prices or at all.
The exchange notes constitute a new class of securities for which there is no
established trading market. We do not intend to list the outstanding notes or
exchange notes on any national securities exchange or to seek their quotation on
any automated dealer quotation system. The initial purchasers of the outstanding
notes were Goldman, Sachs & Co., ABN AMRO Incorporated, Banc One Capital
Markets, Inc., Fleet Securities, Inc. and NatCity Investments, Inc. Although the
initial purchasers of the outstanding notes stated they intend to make a market
in the outstanding notes and the exchange notes, they are not obligated to do so
and may cease market-making activities at any time without notice. The liquidity
of a market for the outstanding notes and the exchange notes may be adversely
affected by changes in the overall market for high yield securities or changes
in our financial performance. As a result, an active trading market may not
develop for the outstanding notes or the exchange notes. If a market does not
develop, you may not be able to resell these notes.
FRAUDULENT CONVEYANCE MATTERS -- FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER
SPECIFIC CIRCUMSTANCES, TO VOID GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN
PAYMENTS RECEIVED FROM GUARANTORS.
Under the federal bankruptcy law or comparable provisions of state
fraudulent transfer laws, a note or guarantee could be voided, or claims in
respect of a note or guarantee could be subordinated to all other debts of
Plastipak or that guarantor, as the case may be, if, among other things,
Plastipak or the guarantor, at the time it incurred the indebtedness evidenced
by the note or the guarantee:
- received less than reasonably equivalent value or fair consideration for
the incurrence of such indebtedness;
- was insolvent or rendered insolvent by reason of such incurrence;
- was engaged in a business or transaction for which Plastipak's or the
guarantor's remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment made by Plastipak pursuant to the outstanding notes or
the exchange notes or by a guarantor pursuant to a subsidiary guarantee could be
voided and required to be
13
returned to the person making such payment, or to a fund for the benefit of our
creditors or the guarantor, as the case may be.
The measures of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent conveyance has occurred. Generally, however, Plastipak or a
guarantor would be considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater than
the saleable value of all of its assets;
- if the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute
and mature; or
- it could not pay its debts as they become due.
RISKS RELATED TO OUR BUSINESS
COMPETITION -- WE FACE CONSIDERABLE COMPETITIVE RISKS.
We face substantial competition from a number of well-established national
and regional companies. Our primary national competitors include American
National Can, Inc., Ball Plastics, Consolidated Container Company, Crown Cork &
Seal Company, Inc., Graham Packaging Company, Liqui-Box Corporation,
Owens-Illinois, Inc., Schmalbach-Lubeca and Silgan Holdings, Inc. In addition,
we face substantial competition from a number of captive packaging operations
with significant in-house bottling and blow-molding capacity, such as Dean
Foods, The Kroger Company, The Perrier Group of America and Suiza Foods. Many of
our competitors have financial and other resources that are substantially
greater than ours. In order to compete successfully, we will need to continue to
make substantial capital expenditures to develop new products and streamline our
manufacturing processes. Competition in our industry could negatively affect our
business operations. See "Business -- Competition."
CONCENTRATION OF CUSTOMERS -- WE HAVE SEVERAL MAJOR CUSTOMERS, THE LOSS OF WHICH
COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
For the fiscal year ended November 3, 2001, our largest single customer
accounted for approximately 23% of our revenue. Our ten largest customers
accounted for approximately 70% of our revenue. Eight of our top ten customers
are under contracts with terms of between one and five years, and our contracts
with our ninth and tenth largest customers are scheduled to expire within the
next 12 months. These contracts, however, may be terminated earlier by us or our
customer upon a material breach of the contract or, in some cases, in the event
we determine it is not in our best interest to change our terms and conditions
through the procedures outlined in the contract to meet competitive prices. In
general, our customer contracts are requirements contracts that do not obligate
our customers to purchase any specific minimum amount of product from us. The
termination by any of these customers of their relationship with us could have a
material adverse effect on our business and results of operations.
ECONOMIC AND POLITICAL RISK IN SOUTH AMERICA -- WE HAVE SPECIAL RISKS ASSOCIATED
WITH OUR SOUTH AMERICAN OPERATIONS.
We have significant operations in Brazil. We currently have two plants
located in Brazil. We also have a sales office in Buenos Aires, Argentina. For
the year ended November 3, 2001, net sales of our Brazilian subsidiaries totaled
approximately $74 million, representing approximately 9% of our worldwide
revenue for such period. We experienced a net loss of approximately $13.3
million on our Brazilian sales for the year ended November 3, 2001.
Our results to date in Brazil have been less than we expected, as poor
weather, currency devaluations, high interest rates, inflation, power shortages,
import restrictions and a legal system which makes it difficult to enforce
contracts have reduced both revenue and profits.
14
Import duties on equipment needed to upgrade our production capabilities in
Brazil are significant, and minimum price requirements imposed by the Brazilian
government on imported preforms have increased our costs of doing business (we
are unable to meet our preform needs in the domestic Brazilian market). Recent
energy shortages in Brazil are increasing our operating costs, and may interfere
with production, which would have a material adverse effect on our progress. We
are working diligently to improve and expand our operations in Brazil to make
them profitable, but we cannot assure you that our Brazilian operations will
ever become profitable. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Foreign Operations."
The following factors create higher risks to our South American operations
than we experience in the United States:
- continuing high nominal interest rates;
- limitations on conversion of foreign currencies into U.S. dollars or
remittance of dividends and other payments;
- imposition or increase of withholding and other taxes on remittances and
other payments;
- inability to fully utilize foreign tax credits and fully pass through
foreign losses here in the U.S. due to limitations imposed by U.S. tax
laws;
- the potential for political instability and inflation and the imposition
or increase of restrictions on investments and other restrictions by
foreign governments;
- power shortages and imposition of restriction or penalties on energy use;
and
- inability of our foreign subsidiaries to enforce certain of their key
agreements through the legal systems in South America.
CURRENCY FLUCTUATIONS -- WE HAVE SIGNIFICANT FOREIGN EXCHANGE RISKS WITH RESPECT
TO OUR BRAZILIAN OPERATIONS THAT WE CANNOT CONTROL.
Our Brazilian contracts are priced in U.S. dollars; however, we invoice our
customers in the Brazilian Real. Following several significant devaluations of
Brazil's currency, despite "make whole" agreements in our contracts, some of our
customers agreed to only partial price increases. These increases accounted for
only a portion of the cost to us of devaluation, leading to a reduction in our
gross margin in Brazil.
Fluctuations in the value of the U.S. dollar may adversely affect our
results of operations. Because our consolidated financial results are reported
in dollars, if we generate sales or earnings in other currencies the translation
of those results into dollars can result in a significant increase or decrease
in the amount of those sales or earnings. In addition, our debt service
requirements are primarily in U.S. dollars, even though a portion of our cash
flow is generated in the Brazilian Real. Significant changes in the value of the
Brazilian Real relative to the U.S. dollar could have a material adverse effect
on our financial condition and our ability to meet interest and principal
payments on U.S. dollar denominated debt, including the exchange notes and
borrowings under the Amended Credit Agreement. Given the volatility of exchange
rates, we may not be able to effectively manage our currency transaction and/or
translation risks. It is expected that the volatility in currency exchange rates
will continue to have a material adverse effect on the financial condition or
results of operations of our foreign subsidiaries. We expect that the portion of
our revenue denominated in non-dollar currencies will continue to increase in
future periods. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Effects of Changes in Exchange Rates." In addition,
the value of our investment in Plastipak Brazil is partially a function of the
currency exchange rate between the U.S. dollar and the Brazilian Real. We have
not executed hedge transactions to endeavor to reduce our
15
exposure to foreign currency exchange rate risks, and do not believe that
hedging is a viable option for us in the immediate future.
FUTURE CAPITAL REQUIREMENTS -- IF WE CANNOT OBTAIN THE FUNDS TO MAKE THE
SIGNIFICANT CAPITAL EXPENDITURES THAT OUR BUSINESS WILL REQUIRE, WE MAY NOT BE
ABLE TO MAINTAIN OUR CURRENT LEVEL OF OPERATIONS OR GROW OUR BUSINESS.
To fund our growth plans and maintain our current level of operations, we
will continue to make substantial capital expenditures for product development
and improvements in our manufacturing processes. In fiscal 2000 and 2001, we
made capital expenditures of approximately $58 million and $56 million,
respectively. We estimate that capital expenditures in each of fiscal 2002 and
2003 will be approximately $60 million. In addition, we may be required to make
additional investments as the demands of our industry and our customers evolve.
We may not be able to fund any necessary investments, and the failure to do so
could have a material adverse effect on our business, financial condition and
results of operations.
ACQUISITION STRATEGY -- WE COULD FACE CONSIDERABLE BUSINESS AND FINANCIAL RISKS
IN IMPLEMENTING OUR ACQUISITION STRATEGY.
Our growth strategy may include acquisitions of other consumer goods
packaging businesses, although we do not currently have any commitments or
agreements with respect to any such acquisitions. Risks we could face with
respect to acquisitions include:
- problems in assimilating operations, technologies, services and products;
- diversion of management's attention from existing business concerns; and
- incurrence of debt and contingent liabilities.
Any of these risks could have a material adverse effect upon our business,
financial condition and results of operations. We may not be successful in
consummating future acquisitions on favorable terms or at all.
EXPOSURE TO FLUCTUATIONS IN RESIN PRICES AND DEPENDENCE ON RESIN SUPPLIERS -- WE
ARE EXPOSED TO THE RISKS ASSOCIATED WITH FLUCTUATIONS IN THE PRICES OF RESIN.
We face the risks that our access to resin is interrupted or that we may
not be able to purchase it at competitive prices. We use large quantities of
plastic resins in manufacturing our products. Plastic resin accounted for
approximately one-third of our cost of goods sold in fiscal 2001. Plastic resins
are subject to substantial price fluctuations caused by shortages in supply and
changes in the prices of natural gas, crude oil and other petrochemical products
from which these resins are produced. From time to time in the past, we have
experienced interruptions of supply, and we may experience supply interruptions
in the future. Our purchases of raw materials are subject to market prices.
Although we generally have pass through provisions in many of our customer
contracts, market conditions may not permit us to pass through any future raw
material price increases. The inability to procure resin or significant
increases in resin prices, coupled with an inability to promptly pass such
increases on to customers, would have a material adverse effect on our financial
condition and results of operations. Furthermore, a significant increase in
resin prices could slow the pace of conversion from paper, glass and metal
containers to plastic containers to the extent that these costs are passed on to
the customer. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business -- Raw Materials."
16
DELAY IN IMPLEMENTATION OF SOFTWARE -- A DELAY OR FAILURE IN THE INSTALLATION OF
SAP ENTERPRISE SOFTWARE COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATIONS.
We are in the process of installing SAP enterprise software to ensure that
all of our business locations are fully integrated and networked with each other
and with our significant customers and suppliers. The project involves
practically all phases of our operations. There is a risk that it may not be
installed on a timely basis or may fail to operate as designed. A system failure
which causes the temporary or permanent loss of any vital information, could
have a serious adverse effect on our ability to obtain raw materials or
manufacture and/or ship our products on a timely basis and could result in the
loss of suppliers and customers.
DEPENDENCE ON KEY PERSONNEL -- WE ARE DEPENDENT ON SEVERAL KEY SENIOR MANAGERS,
THE LOSS OF WHOM COULD HAVE A MATERIAL EFFECT ON OUR BUSINESS AND DEVELOPMENT.
Our business and our future success depend to a significant extent upon the
continued service of our executive officers and senior managers. In particular,
the loss of the services provided by William C. Young, William A. Slat, Michael
J. Plotzke, Gene W. Mueller, Pradeep Modi, Thomas Busard, Frank Pollock, Richard
Darr, J. Ronald Overbeck, Leann M. Underhill and David Daugherty, among others,
could have a material adverse effect on our business and results of operations.
Our failure to retain such key personnel could have a material adverse effect on
our business, financial condition and results of operations. We do not have key
man life insurance.
OTHER RISKS
CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK -- WE ARE CONTROLLED BY THE YOUNG
FAMILY.
William C. Young, our Chief Executive Officer, and members of his immediate
family own over 90% of our common stock on a fully-diluted basis and, therefore,
control our board of directors. As a result, the Young family will continue to
have the ability to elect and remove directors and determine the outcome of
matters presented for approval by our shareholders. Circumstances may occur in
which the interests of the Young family could be in conflict with the interests
of the holders of the notes.
REGULATION -- OUR OPERATIONS AND PRODUCTS ARE SUBJECT TO SUBSTANTIAL
ENVIRONMENTAL, HEALTH AND SAFETY REGULATIONS.
Our operations and properties are subject to laws and regulations relating
to environmental protection and workplace health and safety. Such laws and
regulations frequently change, are different in every jurisdiction, and can
impose substantial fines and sanctions for violations. Our operations must
comply with these laws, and must adapt to regulatory requirements in all
jurisdictions in which we operate as these requirements change.
Our properties are subject to stringent environmental laws and regulations.
Although we believe our operations are substantially in compliance, new laws and
regulation, stricter enforcement of existing laws and regulations or the
discovery of previously unknown contamination, the imposition of new clean-up
requirements, or claims for property damage or personal injury arising from
environmental matters could require us to incur costs or become the basis for
the new or increased liabilities that could have a material adverse effect on
our business, financial condition or results of operations.
Legislation concerning mandatory rates of recycling, mandatory use of
recycled materials, deposits or taxes on plastic packaging material or
requirements that retailers or manufacturers take back packaging used for their
products could reduce the demand for certain plastic packaging, result in
greater costs for plastic packaging manufacturers and, therefore, have a
material adverse effect on our business, financial condition and results of
operations.
17
PRODUCT LIABILITY RISK - WE FACE PRODUCTS LIABILITY RISK. IN ADDITION, OUR
BUSINESS IS EXPOSED TO THE PRODUCTS LIABILITY RISK OF OUR CUSTOMERS.
Because our plastic containers are used for consumer products, our business
is exposed to products liability risk and the risk of negative publicity. The
amount and scope of our product liability insurance may not be adequate to cover
a products liability claim that is successfully asserted against us.
In addition, we are exposed to the products liability risk and negative
publicity of our customers and suppliers. Because many of our customers are
carbonated soft drink, dairy, water and branded consumer products companies,
with their own products liability risk, our sales may decline if any of our or
our competitors' customers are sued on a products liability claim. We may also
suffer a decline in sales from the negative publicity associated with such a
lawsuit or with adverse public perceptions in general regarding our products or
our customers' products in our containers.
INTELLECTUAL PROPERTY PROTECTION -- WE ENJOY LIMITED PROTECTION FOR OUR
INTELLECTUAL PROPERTY, AND ARE SUBJECT TO A PATENT INFRINGEMENT CLAIM.
We have a number of patents covering design and construction of our
products and manufacturing equipment. Patents do not ensure that competitors
will not develop competing products or infringe upon our patents, or that the
patents will withstand challenge in litigation. The costs of litigation to
defend our patents could be substantial and may outweigh the benefits of
enforcing our rights under our patents. Patent laws of foreign countries may
offer less protection than the patent laws of the United States.
We also rely on unpatented proprietary technology, trade secrets and
know-how. Others may independently develop the same or similar technology or
otherwise obtain access to our unpatented technology. If we are unable to
maintain the proprietary nature of our technologies, we could be materially
adversely affected.
In 1999, North American Container filed a lawsuit against us and 41 other
defendants claiming some of our products infringe one of their patents and
requesting an unspecified amount in damages. If we do not prevail in the
litigation, our business and financial condition could be materially adversely
affected. See "Business -- Legal Proceedings".
THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS MAY NOT PROVE TO BE
ACCURATE.
This prospectus contains certain "forward-looking statements," including,
in particular, the statements about our plans, strategies, and prospects under
the headings "Offering Summary", "Management's Discussion and Analysis of
Financial Condition and Results of Operations", and "Business." Although we
believe that our plans, intentions and expectations reflected in such
forward-looking statements are reasonable, we cannot assure you that such plans,
intentions or expectations will be achieved. Important factors that could cause
actual results to differ materially from our forward looking statements are set
forth above in this "Risk Factors" section and elsewhere in this prospectus. All
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by the cautionary statements.
18
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement and related exhibits under the Securities Act of 1933 regarding the
exchange notes being offered, and the exchange offer described by, this
prospectus. This prospectus, which forms a part of the registration statement,
does not contain all of the information contained in, or filed as an exhibit to,
the registration statement. For further information about Plastipak and the
exchange notes, we refer you to the registration statement.
We are not currently subject to the informational requirements of the
Securities Exchange Act of 1934. Upon completion of the exchange offer, however,
we will become subject to the informational requirements of the Securities
Exchange Act of 1934. Accordingly, we will file periodic reports and other
information with the Securities and Exchange Commission. The registration
statement which we filed, and our periodic reports and other information which
we will file, with the Securities and Exchange Commission can be inspected and
copied at the Public Reference Section of the Securities and Exchange Commission
located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C.
20549. You can obtain copies of these materials from the Public Reference
Section of the Securities and Exchange Commission at prescribed rates and may
obtain information regarding the operation of the Public Reference Section by
calling 1-800-SEC-0330. You may also access this material electronically by
means of the Securities and Exchange Commission's home page on the Internet at
http://www.sec.gov.
Whether or not required by the Securities and Exchange Commission, so long
as any outstanding notes are outstanding, we will furnish to those holding
outstanding notes, within the time periods specified in the Securities and
Exchange Commission's rules and regulations:
- all quarterly and annual financial information that would be required to
be contained in a filing with the Securities and Exchange Commission on
Forms 10-Q and 10-K if we were required to file these Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and, for the annual information only, a report on the
annual financial statements by our independent auditors; and
- all current reports that we would be required to file with the Securities
and Exchange Commission on Form 8-K if we were required to file these
reports.
In addition, whether or not required by the Securities and Exchange
Commission, we will file a copy of all of the information and reports referred
to above with the Securities and Exchange Commission for public availability
within the time periods specified in the Securities and Exchange Commission's
rules and regulations, unless the Securities and Exchange Commission will not
accept the filing. We will also make this information available to securities
analysts and prospective investors upon request.
19
THE EXCHANGE OFFER
OVERVIEW
We are offering, upon the terms and subject to the conditions listed in
this prospectus and in the accompanying letter of transmittal, to exchange up to
$275.0 million aggregate principal amount of the exchange notes for a like
aggregate principal amount of outstanding notes which have been properly
tendered on, or prior to, the expiration date and which have not withdrawn as
permitted under the procedures described below. We are making the exchange offer
for all of the outstanding notes. The terms, conditions and other provisions of
the exchange offer are contained in this prospectus and the letter of
transmittal.
The form and terms of the exchange notes will be substantially identical to
the form and terms of the outstanding notes, except that the exchange notes:
- will be freely tradeable because we have registered them under the
Securities Act of 1933;
- will not bear legends restricting their transfer;
- will not be subject to any additional obligations regarding registration
under the Securities Act of 1933; and
- will not be subject to the special interest payments described in
"Description of Notes -- Registration Rights; Special Interest."
The exchange notes will be issued under, and entitled to the benefits of,
the same indenture under which we issued the outstanding notes. Consequently,
both series will be treated as a single class of debt securities under the
indenture.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We are making the exchange offer in order to satisfy our obligations under
the registration rights agreement, which we and the guarantors entered into on
August 20, 2001 with the initial purchasers of the outstanding notes. Under the
registration rights agreement, we and the guarantors agreed, among other things:
- to file with the Securities and Exchange Commission, within 90 days of
August 20, 2001, a registration statement under the Securities Act of
1933 relating to the exchange offer;
- to use all commercially reasonable efforts to cause the registration
statement to become effective on or prior to 180 days after August 20,
2001; and
- to commence the exchange offer promptly after the registration statement
has become effective, hold the offer open for at least 30 days, and
exchange the exchange notes for all outstanding notes properly delivered
and not withdrawn before the expiration of the offer.
If we fail to comply with our obligations under the registration rights
agreement, we will be required to pay additional interest to holders of the
outstanding notes. For more information regarding the registration rights
agreement, see "Description of Notes -- Registration Rights; Special Interest."
We have filed a copy of the registration rights agreement as an exhibit to the
registration statement, of which this prospectus forms a part.
Other than under the registration rights agreement, we are not required to
file any registration statement to register any outstanding notes which may
remain outstanding following the exchange offer. If you hold outstanding notes
and do not tender them or your outstanding notes are tendered but not accepted,
you will have to rely on exemptions to the registration requirements under the
securities laws, including the Securities Act of 1933, if you wish to sell your
outstanding notes.
20
RESALE OF EXCHANGE NOTES
Based on interpretations of the staff of the Securities and Exchange
Commission contained in no-action letters issued to other parties, we believe
that exchange notes that we will issue under the exchange offer in exchange for
outstanding notes may be offered for resale, resold and otherwise transferred by
any exchange note holder without compliance with the registration and prospectus
delivery provisions of the Securities Act of 1933, if three conditions apply.
These conditions are that:
- you are acquiring the exchange notes in the ordinary course of your
business;
- you have not engaged in, do not intend to engage in, and have no
arrangements or understandings with any person to participate in, a
distribution of the exchange notes; and
- that you are not our "affiliate," as defined in Rule 405 of the
Securities Act of 1933 of Plastipak Holdings, Inc., or if you are an
"affiliate," that you will comply with applicable registration and
prospectus delivery requirements of the Securities Act of 1933.
See K-III COMMUNICATIONS CORPORATION, SEC No-Action Letter (available May
14, 1993); MARY KAY COSMETICS, INC., SEC No-Action Letter (available June 5,
1991); MORGAN STANLEY & CO., INCORPORATED, SEC No-Action Letter (available June
5, 1991); and EXXON CAPITAL HOLDINGS CORPORATION, SEC No-Action Letter
(available May 13, 1988). If you do not meet these requirements, you:
- cannot rely on the position of the staff of the Securities and Exchange
Commission enunciated in "Exxon Capital Holdings Corporation" or similar
interpretive letters; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act of 1933 if you engage in a secondary resale
transaction.
This prospectus may be used for an offer to resell, resale or other
retransfer of exchange notes only as specifically stated in this prospectus.
With regard to broker-dealers, only broker-dealers that acquired the outstanding
notes as a result of market-making activities or other trading activities may
participate in the exchange offer. Each broker-dealer that receives exchange
notes for its own account in exchange for outstanding notes, where these
outstanding notes were acquired by that broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus whenever it resells any of the exchange notes. For
more details regarding the transfer of exchange notes, see "Plan of
Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions stated in this prospectus and
in the letter of transmittal, we will accept for exchange any outstanding notes
properly tendered and not withdrawn prior to the expiration date. We will issue
$1,000 principal amount of exchange notes in exchange for each $1,000 principal
amount of outstanding notes surrendered in the exchange offer. You may tender
only in integral multiples of $1,000.
As of the date of this prospectus, $275.0 million total principal amount of
the outstanding notes are outstanding. This prospectus and the letter of
transmittal are being sent to all registered holders of outstanding notes. There
will be no fixed record date for determining registered holders of outstanding
notes entitled to participate in the exchange offer.
We intend to conduct the exchange offer according to the provisions of the
registration rights agreement, the requirements of the Securities Act of 1933,
the Securities Exchange Act of 1934
21
and the rules and regulations of the Securities and Exchange Commission.
Outstanding notes that are not tendered for exchange will:
- remain outstanding;
- will continue to accrue interest at 10.75% per annum, payable
semi-annually in arrears;
- will be entitled to the rights and benefits under the indenture and the
registration rights agreement; but
- will not be entitled to Special Interest, as described under "Description
of Notes -- Registration Rights; Special Interest."
We will be considered to have accepted for exchange properly tendered
outstanding notes when we have given oral or written notice of the acceptance to
the exchange agent. The exchange agent will act as agent for the tendering
holders for the purposes of receiving the exchange notes from us and delivering
exchange notes to these holders. Subject to the terms of the registration rights
agreement, we expressly reserve the right to amend or terminate the exchange
offer, and not to accept for exchange any outstanding notes not previously
accepted for exchange, upon the occurrence of any of the conditions specified
below under "-- Conditions to the Exchange Offer."
If you tender outstanding 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 on the exchange of outstanding notes.
We will pay all charges and expenses, other than applicable taxes described
below, regarding the exchange offer. It is important that you read the section
"-- Fees and Expenses" below for more details regarding fees and expenses
incurred in the exchange offer.
EXPIRATION DATE, EXTENSIONS AND AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time, on March
27, 2002, unless in our sole discretion we extend it.
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
outstanding notes of the extension no later than 5:00 p.m., New York City time,
on the business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion:
- to delay accepting for exchange any outstanding notes;
- to extend the exchange offer or to terminate the exchange offer and to
refuse to accept outstanding notes which we have not previously accepted
if any of the conditions listed below under "-- Conditions to the
Exchange Offer" have not been satisfied, by giving oral or written notice
of that delay, extension or termination to the exchange agent; or
- to amend the terms of the exchange offer in any manner, subject to the
terms of the registration rights agreement.
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. Consequently, we may
delay acceptance of any outstanding notes by giving oral or written notice of
that extension to their holders. During any extensions, all outstanding notes
previously tendered will remain subject to the exchange offer, and we may accept
them for exchange. We will return any outstanding notes that we do not accept
for exchange for any reason without expense to their tendering holder as
promptly as practicable after the expiration or termination of the exchange
offer.
22
We expressly reserve the right to amend or terminate the exchange offer,
and to reject for exchange any outstanding notes not previously accepted for
exchange, upon the occurrence of any of the conditions of the exchange offer
specified above. We will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the outstanding notes
as promptly as practicable. In the case of any extension, that notice will be
issued no later than 5:00 p.m., New York City time, on the business day after
the previously scheduled expiration date.
If we delay accepting exchange notes, extend or terminate the exchange
offer or amend the terms of the exchange offer, then we will provide oral or
written notice as promptly as possible to registered holders of outstanding
notes. If we amend the exchange offer in a manner that we determine to
constitute a material change to it, then we will promptly disclose the amendment
in a manner reasonably calculated to inform you of the amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we shall have no obligation to publish, advertise or
otherwise communicate any public announcement, other than by making a timely
release to a financial news service.
CONDITIONS TO THE EXCHANGE OFFER
Despite any other provision of the exchange offer, we will not be required
to accept for exchange, or exchange any exchange notes for, any outstanding
notes, and we may terminate the exchange offer as provided in this prospectus
before accepting any outstanding notes for exchange if, in our reasonable
judgment:
- any action or proceeding is instituted or threatened in any court or by
or before any governmental agency or regulatory authority, or any
injunction, order or decree is issued regarding the exchange offer which,
in our sole judgment, might materially impair our ability to proceed with
the exchange offer or have a material adverse effect on the contemplated
benefits of the exchange offer to us;
- any change, or any development involving a prospective change, shall have
occurred or been threatened in our business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects that is or may be adverse to us, or we shall have become aware
of facts that have or may have adverse significance on the value of the
outstanding notes or the exchange notes or that may materially impair the
contemplated benefits of the exchange offer to us;
- any law, rule or regulation or applicable interpretations of the staff of
the Securities and Exchange Commission is issued or promulgated which, in
our good faith determination, does not permit us to effect the exchange
offer;
- any governmental approval has not been obtained, which approval we, in
our sole discretion, deem necessary to complete the exchange offer;
- there shall have been proposed, adopted or enacted any law, statute, rule
or regulation, or an amendment to any existing law, statute, rule or
regulation, which, in our sole judgment, might materially impair our
ability to proceed with the exchange offer or have a material adverse
effect on the contemplated benefits of the exchange offer to us; or
- there shall occur a change in the current interpretation by the staff of
the Securities and Exchange Commission which permits outstanding notes to
be offered for resale, resold and otherwise transferred by holders who
are not "affiliates" of Plastipak Holdings, Inc., within the meaning of
Rule 405 under the Securities Act, without compliance with the
registration and prospectus delivery provisions of the Securities Act of
1933; provided that
23
these notes are acquired in the ordinary course of the holder's business and the
holder has no arrangement with any person to participate in the distribution of
these notes.
In addition, we will not be obligated to accept for exchange your
outstanding notes if you have not made to us the following representations:
- any exchange notes that you receive will be acquired in the ordinary
course of your business;
- you have no arrangement or understanding with any person to participate
in, and do not intend to engage in, the distribution of the exchange
notes;
- if you are not a broker-dealer that will receive exchange notes for your
own account in exchange for outstanding notes that you acquired as a
result of market-making or trading activities, that you will deliver a
prospectus, as required by law, if you resell any of those exchange
notes;
- you are not an "affiliate," as defined in Rule 405 of the Securities Act
of 1933 of Plastipak Holdings, Inc., or if you are an "affiliate," that
you will comply with applicable registration and prospectus delivery
requirements of the Securities Act of 1933; and
- other representations as may be reasonably necessary under applicable
Securities and Exchange Commission rules, regulations or interpretations
to make available to us an appropriate form for registration of the
exchange notes under the Securities Act of 1933.
These conditions are for our sole benefit, and we may assert them
regardless of the circumstances that may give rise to them or waive them in
whole or in part at any or at various times in our sole discretion if we
reasonably determine that one or more conditions have not been satisfied. If we
fail at any time to exercise any of the rights above, this failure will not
constitute a waiver of this right. Each right is an ongoing right that we may
assert at any time or at various times. If we waive or amend the foregoing
conditions, we will, if required by law, extend the exchange offer for a minimum
of five business days from the date that we first gave notice, by public
announcement or otherwise, of such waiver or amendment, if the exchange offer
would otherwise expire within such five business-day period. Any determination
by us concerning the events described above will be final and binding on all
parties.
In addition, we will not accept for exchange any outstanding notes
tendered, and will not issue exchange notes in exchange for any outstanding
notes, if at that time any stop order will be threatened or in effect regarding
the registration statement, of which this prospectus forms a part, or the
qualification of the indenture under the Trust Indenture Act of 1939.
The exchange offer is not conditioned, however, upon our receiving a
minimum principal amount of outstanding notes being tendered for exchange.
PROCEDURES FOR TENDERING
TENDER ONLY BY REGISTERED HOLDERS
Only a registered holder of outstanding notes may tender outstanding notes in
the exchange offer. If you are a registered holder of outstanding 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 signature on the letter of transmittal
guaranteed if the letter of transmittal so requires; and mail or deliver
that letter of transmittal or facsimile to the exchange agent prior to
the expiration date; or
24
- comply with The Depository Trust Company's Automated Tender Offer Program
procedures described below.
In addition, regarding the delivery of outstanding notes, one of the
following must occur:
- the exchange agent must receive outstanding notes with the letter of
transmittal; or
- the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of these outstanding notes into the
exchange agent's account at The Depository Trust Company according to the
procedure for book-entry transfer described below or a properly
transmitted agent's message; or
- the holder must comply with the guaranteed delivery procedures described
below.
If your outstanding notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you wish to tender them, you
should contact that party promptly and instruct it to tender on your behalf. If
your outstanding notes are registered in the name of a nominee and you wish to
tender on their or your behalf, you must, prior to completing and executing the
letter of transmittal and delivering outstanding notes, either:
- make appropriate arrangements to register ownership of the outstanding
notes in your name; or
- obtain a properly completed bond power from the nominee. The bond power
must be signed by you as your name appears on the outstanding notes, and
an eligible institution must guarantee the signature on the bond power.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
If you tender your outstanding notes and do not withdraw your tender prior
to the expiration date, your tender will constitute an agreement between you and
us according to the terms of and subject to the conditions listed in, this
prospectus and in the letter of transmittal.
REQUIREMENTS REGARDING DELIVERY
If you physically deliver the letter of transmittal and other required
documents, the exchange agent must receive them at the address listed below
under "-- Exchange Agent" prior to the expiration date.
The method of delivery of outstanding notes, the letter of transmittal and
all other required documents to the exchange agent is at your election and risk.
Rather than mail these items, we recommend that you use an overnight or hand
delivery service. In all cases, you should allow sufficient time to assure
delivery to the exchange agent before the expiration date. You should not send
the letter of transmittal or outstanding notes to us. You may request your
broker, dealer, commercial bank, trust company or other nominee to effect the
transactions described above for you.
REQUIREMENTS REGARDING SIGNATURES
If you sign the letter transmittal, your signature on it, or a notice of
withdrawal described below, must be guaranteed by 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 another "eligible institution" within the
meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, unless:
- you are the registered owner of the outstanding notes, and you have not
completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the letter of transmittal; or
25
- you are an eligible institution.
If the letter of transmittal is signed by a person other than you, the
outstanding notes must be endorsed or accompanied by a properly completed bond
power. The bond power must be signed by you as your name appears on the
outstanding notes and an eligible institution must guarantee the signature on
the bond power. If the letter of transmittal or any outstanding 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, these persons should indicate that fact when signing.
Unless waived by us, they should also submit evidence satisfactory to us of
their authority to deliver the letter of transmittal.
THE AUTOMATED TENDER OFFER PROGRAM
The exchange agent and The Depository Trust Company have confirmed that any
financial institution that is a participant in The Depository Trust Company's
system may use The Depository Trust Company's Automated Tender Offer Program to
tender their outstanding notes. Participants in the program may, instead of
physically completing and signing the letter of transmittal and delivering it to
the exchange agent, transmit their acceptance of the exchange offer
electronically. They may do so by causing The Depository Trust Company to
transfer the outstanding notes to the exchange agent according to its procedures
for transfer. The Depository Trust Company will then send an agent's message to
the exchange agent. The term "agent's message" means a message transmitted by
The Depository Trust Company, received by the exchange agent and forming part of
the book-entry confirmation, to the effect that:
- The Depository Trust Company has received an express acknowledgment from
a participant in its Automated Tender Offer Program that is tendering
outstanding notes that are the subject of that book-entry confirmation;
- that participant has received and agrees to be bound by the terms of the
letter of transmittal or, in the case of an agent's message relating to
guaranteed delivery, that participant has received and agrees to be bound
by the applicable notice of guaranteed delivery; and
- the agreement may be enforced against that participant.
OTHER MATTERS
We will determine in our sole discretion all questions as to the validity,
form, eligibility, time of receipt, acceptance of tendered outstanding notes and
withdrawal of tendered outstanding notes. Our determination will be final and
binding. We reserve the absolute right to reject any outstanding notes not
properly tendered or any outstanding 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 outstanding
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, any defects or irregularities in the
tender of outstanding notes must be cured within that time as we shall
determine. Although we intend to notify holders of defects or irregularities in
the tenders of outstanding notes, neither we, the exchange agent nor any other
person will be liable for failure to give that notification. Tenders of
outstanding notes will not be considered made until these defects or
irregularities have been cured or waived. Any outstanding notes received by the
exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the exchange
agent without cost to the tendering holder, unless otherwise provided in the
letter of transmittal, as soon as practicable following the expiration date.
26
In all cases, we will issue exchange notes for outstanding notes that we
have accepted for exchange under the exchange offer only after the exchange
agent timely receives:
- outstanding notes or a timely book-entry confirmation of these
outstanding notes into the exchange agent's account at The Depository
Trust Company; and
- a properly completed and properly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The letter of transmittal contains, among other things, the following terms
and conditions, which are part of the exchange offer.
- The party tendering, or transferring, outstanding notes for exchange
notes exchanges, assigns and transfers the outstanding notes to us and
irrevocably constitutes and appoints the exchange agent as the
transferor's agent and attorney-in-fact to cause the outstanding notes to
be assigned, transferred and exchanged.
- The transferor represents, warrants and agrees that:
- it has full power and authority to tender, exchange, assign and transfer
the outstanding notes and to acquire exchange notes issuable upon the
exchange of the tendered outstanding notes, and that, when the
outstanding notes are accepted for exchange, we will acquire good and
unencumbered title to the tendered outstanding notes, free and clear of
all liens, restrictions, charges and encumbrances and not subject to any
adverse claim;
- it will, upon request, execute and deliver any additional documents
considered by the exchange agent or us to be necessary or desirable to
complete the exchange, assignment and transfer of tendered outstanding
notes or transfer ownership of these outstanding notes on the account
books maintained by a book-entry transfer facility; and
- acceptance of any tendered outstanding notes by us and the issuance of
exchange notes in exchange for these outstanding notes will constitute
performance in full by us and our subsidiaries guaranteeing the
outstanding notes of our obligations under the registration rights
agreement.
- All authority conferred by the transferor will survive the death or
incapacity of the transferor and every obligation of the transferor shall
be binding upon the heirs, legal representatives, successors, assigns,
executors and administrators of the transferor.
By signing the letter of transmittal and tendering outstanding notes you
will represent to us that, among other things:
- any exchange notes that you receive will be acquired in the ordinary
course of your business;
- you have no arrangement or understanding with any person or entity to
participate in and do not intend to engage in, the distribution of the
exchange notes;
- if you are a broker-dealer that will receive exchange notes for your own
account in exchange for outstanding notes, that you acquired as a result
of market-making or trading activities, that you will deliver a
prospectus, as required by law, regarding any resale of those exchange
notes; and
- you are not an "affiliate," as defined in Rule 405 of the Securities Act
of 1933 of Plastipak Holdings, Inc., or if you are an "affiliate," that
you will comply with applicable registration and prospectus delivery
requirements of the Securities Act of 1933.
27
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account regarding
the outstanding notes at The Depository Trust Company for purposes of the
exchange offer promptly after the date of this prospectus. If you are a
financial institution participating in The Depository Trust Company's system,
you may make book-entry delivery of outstanding notes by causing The Depository
Trust Company to transfer the outstanding notes into the exchange agent's
account at The Depository Trust Company according to The Depository Trust
Company's procedures for transfer. If you are unable to deliver confirmation of
the book-entry tender of your outstanding notes into the exchange agent's
account at The Depository Trust Company or all other documents required by the
letter of transmittal to the exchange agent on or prior to the expiration date,
you must tender your outstanding notes according to the guaranteed delivery
procedures described below.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your outstanding notes but (1) your outstanding notes
are not immediately available, (2) you cannot deliver your outstanding notes,
the letter of transmittal or any other required documents to the exchange agent
or (3) you are not able to comply with the applicable procedures under The
Depository Trust Company's Automated Tender Offer Program prior to the
expiration date, then you may still tender your outstanding notes in the
exchange offer if you follow, or cause to be followed, the specified procedures.
The procedures are:
- you make the tender through an eligible institution;
- prior to the expiration date, the exchange agent receives from the
eligible institution either a properly completed and properly executed
notice of guaranteed delivery by facsimile transmission, receipt
confirmed by telephone and an original delivered by guaranteed overnight
courier, mail or hand delivery or a properly transmitted agent's message
and notice of guaranteed delivery:
- listing your name and address, the registered number(s) of the
outstanding notes and the principal amount of outstanding notes
tendered;
- stating that the tender is being made by the notice of guaranteed
delivery; and
- guaranteeing that, within three New York Stock Exchange trading days
after the expiration date, (1) the letter of transmittal or a facsimile
of it, (2) the outstanding notes or a book-entry confirmation of the
transfer and (3) any other documents required by the letter of
transmittal will be deposited by the eligible institution with the
exchange agent; and
- the exchange agent receives a properly completed and executed letter of
transmittal or facsimile of it, as well as all tendered outstanding notes
in proper form for transfer or a book-entry confirmation, and all other
documents required by the letter of transmittal, within three New York
Stock Exchange trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to you.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
tender at any time prior to the expiration date. For a withdrawal to be
effective:
- the exchange agent must receive a written notice, which may be by
telegram, telex, facsimile transmission or letter of withdrawal at one of
the addresses listed below under "-- Exchange Agent"; or
28
- you must comply with the appropriate procedures of The Depository Trust
Company's Automated Tender Offer Program system.
A notice of withdrawal must:
- specify the name of the person who tendered the outstanding notes to be
withdrawn;
- identify the outstanding notes to be withdrawn, including the principal
amount of these outstanding notes; and
- where certificates for outstanding notes have been transmitted, specify
the name or names in which these outstanding notes were registered, if
different from that of the withdrawing holder.
If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of these
certificates, the withdrawing holder must also submit:
- the serial numbers of the particular certificates to be withdrawn; and
- a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless the holder is an eligible institution.
If you have tendered outstanding notes according to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at The Depository Trust Company to be credited
with the withdrawn outstanding notes and otherwise comply with the procedures of
that facility. We will determine all questions as to the validity, form and
eligibility, including time of receipt, of these notices, and our determination
shall be final and binding on all parties. We will conclude that any outstanding
notes properly withdrawn not to have been validly tendered for exchange for
purposes of the exchange offer. Any outstanding notes that you have tendered for
exchange but that are not exchanged for any reason will be returned to you
without cost as soon as practicable after the withdrawal, rejection of tender or
termination of the exchange offer. In the case of outstanding notes being
tendered by book-entry transfer into the exchange agent's account at The
Depository Trust Company according to the procedures described above, these
outstanding notes will be credited to an account maintained with The Depository
Trust Company for outstanding notes as soon as practicable after the withdrawal,
rejection of tender or termination of the exchange offer. Properly withdrawn
outstanding notes may be re-tendered by following one of the procedures
described under "-- Procedures for Tendering" above at any time on or prior to
the expiration date.
29
EXCHANGE AGENT
We have appointed Wells Fargo Bank of Minnesota, National Association, to
act as exchange agent for the exchange offer. You should direct questions and
requests for assistance, requests for additional copies of this prospectus or of
the letter of transmittal and requests for the notice of guaranteed delivery to
the exchange agent addressed as follows:
For Delivery by Registered Mail, Certified Mail, Overnight Delivery or by Hand:
Wells Fargo Bank of Minnesota,
National Association
Corporate Trust Services
213 Court Street, Suite 902
Middletown, CT 06457
By Facsimile Transmission (For Eligible Institutions Only):
Wells Fargo Bank of Minnesota,
National Association
860-704-6219
Confirm by Telephone:
860-704-6216
For Information Call:
860-704-6216
FEES AND EXPENSES, TRANSFER TAXES
We will bear the expenses of soliciting tenders. We are making the
principal solicitation by mail. We may make, however, additional solicitations
by telegraph, telephone or in person by our officers and regular employees and
those of our affiliates. We have not retained any dealer-manager for the
exchange offer and will not make any payments to broker-dealers or others
soliciting acceptances of the exchange offer.
We will pay the expenses to be incurred under the exchange offer. We
estimate that these expenses will be approximately $500,000. They include:
- registration fee of the Securities and Exchange Commission;
- fees and expenses of the exchange agent, including the reasonable and
customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses and the trustee;
- accounting and legal fees;
- printing costs;
- transfer taxes, if any, as described below; and
- related fees and expenses.
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. If you tender outstanding notes,
however, you will be required to pay any transfer taxes, whether imposed on
yourself directly, or any other person, if:
- certificates representing outstanding notes for principal amounts not
tendered or accepted for are to be delivered to, or are to be issued in
the name of, any person other than the registered holder of outstanding
notes tendered;
- tendered outstanding notes are registered in the name of any person other
than the person signing the letter of transmittal; or
30
- a transfer tax is imposed for any reason other than the exchange of
outstanding notes under the exchange offer.
If you do not submit satisfactory evidence of payment of these taxes with
the letter of transmittal, then we will bill the amount of these transfer taxes
to you.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not tender your outstanding notes in the tender offer, the
outstanding notes which you will hold will continue to have transfer
restrictions and may be less liquid and more volatile in price.
If you do not exchange your outstanding notes for exchange notes, your
outstanding notes will continue to be subject to restrictions on transfer. In
general, outstanding notes may not be offered or sold unless registered under
the Securities Act of 1933, except if offered or sold under an exemption from,
or in a transaction not subject to, the Securities Act of 1933 and applicable
state securities laws. We do not currently anticipate that we will register the
outstanding notes under the Securities Act of 1933. In addition, the tender of
outstanding notes in the exchange offer will reduce the principal amount of the
outstanding notes outstanding, which may have an adverse effect upon, and
increase the volatility of, the market price of the outstanding notes due to a
reduction in liquidity.
ACCOUNTING TREATMENT
We will record the exchange notes in our accounting records at the same
carrying value as the outstanding notes, which is the total principal amount, as
reflected in our accounting records on the date of exchange. Accordingly, we
will not recognize any gain or loss for accounting purposes under the exchange
offer. We will capitalize the expenses of the exchange offer and amortize them
over the life of these notes.
OTHER
You are not required to exchange your outstanding notes for exchange notes
and to participate in the exchange offer. You should consider carefully whether
to accept the offer to exchange the outstanding notes for exchange notes. We
urge you to consult your financial and tax advisors in making your own decision
on what action to take.
In the future, we may seek to acquire untendered outstanding notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plans to acquire any outstanding notes that are
not tendered in the exchange offer or to file a registration statement to permit
resales of any untendered outstanding notes.
31
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes.
The net proceeds from the sale of the outstanding notes were approximately
$263.2 million after deducting underwriting discounts and other fees and
expenses. We used the net proceeds, together with borrowings under our Amended
Credit Agreement, to:
- increase our cash balance by approximately $27.9 million;
- repay indebtedness outstanding under our former credit facility
(including letters of credit) in the aggregate amount of $216.2 million;
and
- repay subordinated notes due March 2009 and notes due at various dates
through October 2009, held by former stockholders of Plastipak, in the
aggregate amount of $19.1 million.
Interest under our former credit facility was payable quarterly at a rate
that varied from 6.0% to 9.6% at August 20, 2001.
The subordinated note due March 2009 bore interest at 6.5% per annum, and
was payable in monthly installments of approximately $84,000, including
interest, with a balloon payment of approximately $9.7 million at maturity.
The subordinated notes due at various dates through October 2009 bore
interest at 6.4% per annum. These notes were payable in monthly installments of
approximately $45,000, including interest, with a balloon payment of
approximately $6.1 million at maturity.
32
CAPITALIZATION
The following table sets forth cash and cash equivalents, our long-term
debt and our capitalization at August 20, 2001 and at November 3, 2001. The
table should be read in conjunction with the consolidated financial statements
and related notes thereto included elsewhere in this prospectus.
In consideration for issuing the exchange notes as contemplated by this
prospectus, we will receive in exchange a like principal amount of outstanding
notes. For accounting purposes, the exchange notes will evidence the same debt
as the outstanding notes. The outstanding notes surrendered in exchange for the
exchange notes will be retired and canceled and will not be able to be reissued.
Accordingly, the issuance of the exchange notes will not result in any change in
our capitalization.
<Table>
<Caption>
AUGUST 20, NOVEMBER 3,
2001 2001
------------ -------------
(dollar amounts in thousands)
Cash and cash equivalents................................... $ 46,460 $ 53,483
======== ========
Long-term debt, including current portion:
Credit agreement and other secured debt................... $ 53,587 $ 61,079
Senior unsecured notes (net of unamortized discount of
$4,057)................................................ 270,943 270,943
Subordinated notes........................................ 1,096 1,040
-------- --------
Total long-term debt................................. 325,626 333,062
-------- --------
Common Stock, no par value, 60,000 shares authorized 27,753
shares issued and outstanding............................. 28 28
Retained earnings........................................... 32,003 32,380
-------- --------
Total stockholders' equity........................... 32,031 32,408
-------- --------
Total capitalization................................. $357,657 $365,470
======== ========
</Table>
33
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the three fiscal
years ended November 3, 2001 were derived from our audited consolidated
financial statements that are included elsewhere in this prospectus. The
following selected financial data for the two years ended October 31, 1998 were
derived from audited combined financial statements of the predecessor companies,
adjusted to reflect the pooling of interests discussed in Note A to our
consolidated financial statements. The selected consolidated financial data
should be read in conjunction with the consolidated financial statements and the
related notes, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other financial information included elsewhere in
this prospectus.
<Table>
<Caption>
YEAR ENDED
-----------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- ---------
(dollar amounts in thousands)
STATEMENT OF OPERATIONS DATA:
Total revenues................................ $503,689 $565,639 $565,527 $701,872 $809,697
Costs and expenses............................ 439,710 501,644 491,009 625,688 708,737
Gross profit................................ 63,979 63,995 74,518 76,184 100,960
Selling, general and administrative
expenses.................................... 43,948 48,352 50,253 50,962 64,757
Operating profit............................ 20,031 15,643 24,265 25,222 36,203
Interest expense.............................. 15,063 21,253 26,021 27,028 28,874
Other expense (income)........................ (5,032) (3,080) (8,259) (1,418) (3,102)
Earnings (loss) before income taxes,
extraordinary item and change in accounting
principle................................... 10,000 (2,530) 6,503 (388) 10,431
INCOME TAXES:
Current..................................... 2,813 1,344 1,685 223 2,111
Deferred.................................... 1,025 (2,585) 1,967 (2,403) 1,173
-------- -------- -------- -------- --------
3,838 (1,241) 3,652 (2,180) 3,284
Earnings (loss) before extraordinary item and
cumulative effect of change in accounting
principle................................... 6,162 (1,289) 2,851 1,792 7,147
Extraordinary item(a)......................... -- -- (3,794) -- --
Cumulative effect of change in accounting
principle(b)................................ -- -- -- 3,125 --
-------- -------- -------- -------- --------
Net earnings (loss)......................... $ 6,162 $ (1,289) $ (943) $ 4,917 $ 7,147
======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(c)..................................... $ 54,674 $ 50,848 $ 71,458 $ 68,360 $ 84,099
Ratio of earnings to fixed charges(d), (e).... 1.50x -- 1.21x -- 1.25x
Ratio of net debt to EBITDA(f)................ 3.38x 4.45x 3.79x 3.76x 3.32x
Ratio of EBITDA to interest expense........... 3.63x 2.39x 2.75x 2.53x 2.91x
</Table>
34
<Table>
<Caption>
YEAR ENDED
-----------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- ---------
(dollar amounts in thousands)
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital(g)............................ $ 28,919 $ 32,938 $ 41,872 $ 23,920 $ 32,034
Total assets.................................. 312,633 357,786 398,997 421,108 505,055
Total debt.................................... 188,392 231,450 278,917 260,200 333,062
Stockholders' equity.......................... 33,979 31,081 20,256 25,261 32,408
</Table>
- ---------------
(a) An extraordinary loss was recorded as a result of the early retirement of
senior subordinated notes and related warrants.
(b) A gain was recorded for a change in accounting principle due to a change in
accounting for parts and supplies. Through October 30, 1999, Packaging
expensed parts and supplies utilized in its manufacturing facilities.
Effective October 31, 1999, these items are inventoried and are charged to
expense when used. Due to increased volume of purchases of such items,
management believes that this method is preferable and it provides for a
better matching of revenues and expenses. The financial statements for years
preceding the fiscal year ended October 28, 2000 have not been restated. See
Note M to the Consolidated Financial Statements.
(c) EBITDA represents earnings (loss) before interest expense, income taxes,
depreciation and amortization. EBITDA is not presented as, and should not be
considered an alternative measure of operating results or cash flows from
operations (as determined by generally accepted accounting principles), but
it is a widely accepted financial indicator of a company's ability to incur
and service debt. While commonly used, however, EBITDA is not identically
calculated by companies presenting EBITDA and is, therefore, not necessarily
an accurate means of comparison and may not be comparable to similarly
titled measures disclosed by our competitors.
(d) The ratio of earnings to fixed charges was computed by dividing earnings
(loss) by fixed charges. For this purpose, earnings (loss) consists of
earnings (loss) before taxes extraordinary item and change in accounting
principle plus the portion of rents representative of the interest factor,
interest expense and capitalized interest. Fixed charges consist of interest
incurred (whether expensed or capitalized), the portion of rent expense that
is representative of the interest factor, and amortization of debt discount
and issuance costs.
(e) For the years ended October 28, 2000 and October 31, 1998, earnings were
inadequate to cover fixed charges by $1,631 and $2,530, respectively.
(f) Net debt equals total debt less cash and cash equivalents.
(g) Working capital represents current assets less cash and cash equivalents
minus current liabilities less short-term debt and current portion of
long-term debt.
35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis should be read in conjunction with the
consolidated financial statements and the accompanying notes. Please refer to
the "Risk Factors" section for a summary of factors that could cause actual
results to differ materially from those projected in a forward-looking
statement. As you read the material below, we urge you to carefully consider our
financial statements and related information provided herein.
All statements other than statements of historical fact included in this
prospectus, including statements regarding our future financial position,
economic performance and results of operations, as well as our business
strategy, budgets and projected costs and plans and objectives of management for
future operations are forward-looking statements. In addition, forward-looking
statements generally can be identified by the use of forward-looking terminology
such as "may", "will", "expect", "intend", "estimate", "anticipate", "believe",
or "continue" or the negative thereof or variations thereon or similar
terminology. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, we can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from our expectations include, without
limitation, risks associated with our Brazilian operations, the risk that the
implementation of our SAP enterprise software will not be completed on time or
in accordance with our budget, competition in our product categories, including
the impact of possible new technologies, our high degree of leverage and
substantial debt service obligations, the restrictive covenants contained in
instruments governing our indebtedness, changes in the economies of the United
States and foreign countries that may result from the attacks on the World Trade
Center and the Pentagon, our exposure to fluctuations in resin and energy
prices, our dependence on significant customers and the risk that customers will
not purchase our products in the amounts we expect, our dependence on key
management and our labor force and the material adverse effect that could result
from the loss of their services. All forward-looking statements attributable to
us, or persons acting on our behalf, are expressly qualified in their entirety
by the cautionary statements set forth in this paragraph.
36
RESULTS OF OPERATIONS
We report our results of operations on the basis of a 52-53 week period.
Our fiscal year end is the closest Saturday to October 31 each year. The fiscal
year ended November 3, 2001 was 53 weeks long. The prior fiscal years ended
October 28, 2000, October 30, 1999 and October 31, 1998 were 52 weeks long.
Listed in the table below are our revenues and related percentages of
revenue for the years ended November 3, 2001 and October 28, 2000. Our historic
revenue growth has been achieved organically due to increased business with new
and existing customers, as well as the recent effect of purchasing additional
corrugated packaging and labels and reselling them to our customers to satisfy
their packaging needs.
<Table>
<Caption>
CONSOLIDATED REVENUE BY
PRODUCT CATEGORY
---------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
NOVEMBER 3, OCTOBER 28, OCTOBER 30,
2001 2000 1999
----------------- ----------------- -----------------
(dollar amounts in thousands)
Carbonated and non-carbonated beverage
revenue.................................. $373,091 46.1% $320,987 45.7% $272,897 48.3%
Consumer cleaning revenue.................. 233,223 28.8 187,966 26.8 116,162 20.5
Food and processed juices revenue.......... 109,892 13.6 104,728 14.9 94,216 16.7
Industrial, automotive and agricultural
revenue.................................. 45,280 5.6 34,531 4.9 36,779 6.5
Health, personal care and distilled spirits
revenue.................................. 11,089 1.4 12,498 1.8 10,819 1.9
Other revenue(a)........................... 37,122 4.5 41,162 5.9 34,654 6.1
-------- ----- -------- ----- -------- -----
TOTAL REVENUE.............................. $809,697 100.0% $701,872 100.0% $565,527 100.0%
======== ===== ======== ===== ======== =====
</Table>
- ---------------
(a) Other revenue includes Clean Tech (recycling), Whiteline (transportation and
logistics) and other miscellaneous sources of revenue.
YEAR ENDED NOVEMBER 3, 2001 COMPARED TO YEAR ENDED OCTOBER 28, 2000
REVENUE
Revenue increased 15.4% to $809.7 million for the year ended November 3,
2001. Excluding $37.1 million of other revenue and approximately $82.7 million
of revenue from corrugated box and label sales to Procter and Gamble, revenue
generated by unit sales increased 9.8% to $689.9 million for the year ended
November 3, 2001. Unit sales for the year ended November 3, 2001 increased 12.6%
to approximately 6.5 billion units from the year ended October 28, 2000. Revenue
increased at a slower pace than unit sales primarily due to decreases in the
cost of resin. Decreases in the cost of resin were passed on to our customers in
corresponding lower product prices. The increases in revenue and unit sales are
due to a number of factors:
- Carbonated and non-carbonated beverage revenue increased 16.2% to $373.1
million. Additional growth was driven by increased demand for water
containers along with new business commitments in the Northeast. Also, we
continue to develop the plastic beer bottle market with increased sales
to several regional breweries.
- Consumer cleaning revenue increased 24.1% to $233.2 million. The increase
in revenue was attributable to our sales of corrugated boxes and labels
to Procter & Gamble. Procter & Gamble previously purchased corrugated
boxes and labels from another supplier, but requested in June 2000 that
we begin to sell these materials to them in order to streamline their
production process. As a result, we now ship our plastic containers to
Procter & Gamble in corrugated boxes with labels in place. Procter &
Gamble simply fills and caps the containers, seals the cartons and ships
the filled containers to their
37
customers. We began this arrangement with Procter & Gamble by purchasing
their existing inventory of corrugated boxes and labels, and we now
purchase these items from vendors approved by Procter & Gamble. The
prices we charge Procter & Gamble include an amount to cover our costs of
boxing and labeling the plastic containers we sell them. We estimate that
$82.7 million of consumer cleaning revenue in 2001 was attributable to
this new arrangement with Procter & Gamble, which represented a $50.3
million increase of revenue from this arrangement over fiscal 2000. If
the effect of sales of corrugated boxes and labels to Procter & Gamble
were excluded for both 2001 and 2000, consumer cleaning revenue would
have declined by approximately $5.5 million. In addition, the increased
consumer cleaning revenue related to the sales of corrugated boxes and
labels to Procter and Gamble in 2001 was partially offset by decreased
unit sales of 2.1% from the prior period primarily related to reduced
volume with one customer and the effect of lower resin costs.
- Food and processed juices revenue increased 4.9% to $109.9 million. This
growth is attributable to increased business in juice-type products,
pourable dressings, and squeezable mayonnaise containers. These volume
gains were partially offset by the divestiture of volume previously
supplied to Sunny Delight.
- Industrial, agricultural and automotive revenue increased 31.1% to $45.3
million. This increase was driven by growth primarily from F Style
gallons, motor oil quarts and our proprietary Handi-Grip container.
- Health, personal care and distilled spirits revenue decreased 11.3% to
$11.1 million. This decrease is attributable to reduced business activity
with customers within this product category and a shift to smaller, lower
priced packages within our product mix.
- Other revenue decreased 9.8% to $37.1 million. This decrease is
attributable to less project revenue with existing customers.
GROSS PROFIT
Gross profit increased 32.5% to $100.9 million for the year ended November
3, 2001. The increase in gross profit resulted primarily from higher unit sales
volume as compared to the prior year period. Gross profit increases were also
the result of improved manufacturing reliability and throughput in fiscal 2001.
In addition, current process redesign initiatives generated increased gross
profit.
Gross profit as a percent of revenue improved to 12.5% from 10.9% in the
prior period. The improvement in gross profit as a percent of revenue was
partially due to lower resin costs which decreased revenue without decreasing
associated gross profit. Gross profit as a percent of revenue was also improved
by increased gross profit generated by current process redesign initiatives.
Increases in gross profit as a percent of revenue were partially offset by $50.3
million of additional sales of corrugated boxes and labels to Procter and
Gamble. These sales did not increase gross profit and therefore negatively
affected gross profit as a percent of revenue.
Our primary raw materials consist of PET and HDPE resins. Although our
revenue is affected by fluctuations in resin prices, our gross profit is, in
general, substantially unaffected by these fluctuations. Industry practice and
contractual arrangements with our customers permit price changes to be passed
through to customers by means of generally corresponding changes in product
pricing. As a result, we have in the past experienced revenue changes without
corresponding changes in gross profit.
38
Looking forward, we expect gross profit to remain at current levels.
However, gross profit as a percent of revenue will continue to fluctuate as our
product prices rise and fall in relation to corresponding changes in the cost of
resin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 27.1% to $64.8
million for the year ended November 3, 2001. As a percentage of revenue,
selling, general and administrative expenses increased to 8.0% in the year ended
November 3, 2001 from 7.3% in the year ended October 28, 2000. The increase was
related to non-recurring charges including expenses related to the SAP
implementation and an increase in our reserve for doubtful accounts by
approximately $2.0 million related to our operations in South America. The
increase was also the result of higher spending on property taxes, state and
local taxes, deferred salary continuation, legal expenses and employee wages.
INTEREST EXPENSE
Interest expense increased by 6.8% to $28.9 million. The increase was due
to an increase in our working capital borrowings required to support our revenue
growth. The increase was also due to the sale on August 20, 2001 of $275.0
million of the outstanding notes. The average interest rate for the year ended
November 3, 2001 was approximately 9.44% compared to an average interest rate of
approximately 8.38% for the prior period.
OTHER (INCOME) AND EXPENSE
Other income increased to $3.1 million principally due to improvement in
foreign currency exchange rates.
INCOME TAXES
Our tax provision for 2001 was $3.2 million, which represents an effective
tax rate for fiscal 2001 of 31.5%. This compares to a tax benefit of $2.2
million, which represents an effective tax rate of 563% in fiscal 2000. The
effective tax rates for both periods were reduced by utilization of research and
experimentation tax credits that we determined were applicable to our operations
in fiscal 2000.
NET EARNINGS
Net earnings increased $2.2 million from net earnings of $4.9 million for
the year ended October 28, 2000 to net earnings of $7.1 million for the year
ended November 3, 2001. This increase is largely due to increased gross profit
generated by additional sales unit volume and reduced manufacturing costs and
improved performance.
YEAR ENDED OCTOBER 28, 2000 COMPARED TO YEAR ENDED OCTOBER 30, 1999
REVENUE
Overall revenue increased 24.1% to $701.9 million for the year ended
October 28, 2000. This increase is primarily attributable to an increase of
approximately 10% in unit volume while average resin prices significantly
increased. Specifically, our revenue by product category was as follows:
- Carbonated and non-carbonated beverage revenue increased 18% to $321.0
million. This growth is attributable to additional business from Beverage
Associates Cooperative, Dr Pepper and Pepsi.
39
- Consumer cleaning revenue increased 62.0% to $188.0 million. The increase
in revenue was attributable primarily to our sales of corrugated boxes
and labels to Procter & Gamble, which we began to sell Procter & Gamble
in June 2000 in order to streamline their production process, as
discussed above. We now ship our plastic containers to Procter & Gamble
in corrugated boxes with labels in place. Procter & Gamble simply fills
and caps the containers, seals the cartons and ships the filled
containers to their customers. We estimate that $32 million of our
increased revenue for 2000 was attributable to this new arrangement with
Procter & Gamble. Additional growth was gained by incremental volume
increases with Procter & Gamble and Reckitt Benckiser.
- Food and processed juices revenue increased 11.0% to $104.7 million. This
growth is attributable to increased business with AC Humko, Ken's Foods
and Kraft Foods. Additional volume was gained through earning new
business with Marzetti.
- Industrial, automotive and agricultural revenue decreased 6.0% to $34.5
million. This decrease is attributable primarily to a weak antifreeze
market during the year.
- Health, personal care and distilled spirits revenue increased 16.0% to
$12.5 million. This growth is attributable to additional volume with
Johnson & Johnson and Procter & Gamble.
GROSS PROFIT
Gross profit for the year ended October 28, 2000 increased $1.7 million to
$76.2 million from the year ended October 30, 1999. This increase in gross
profit resulted primarily from the higher unit sales volume as compared to the
prior year period. The increase in gross profit was not in line with our 10%
increase in unit volume. The increase in gross profit was partially offset by
$4.5 million of additional material scrap over the prior year period related to
the introduction of new products. The increase in gross profit was also reduced
by $1.0 million of additional transportation costs over the prior year.
Gross profit as a percent of revenue decreased to 10.9% as compared to
13.2% in the prior period. The decrease is partially the result of significant
increases in the cost of resin from the prior period. The decrease is also the
result of approximately $32.4 million of revenue generated from the sale of
corrugated boxes and labels to Procter and Gamble with no contribution to gross
profit. In addition, the decrease in gross profit as a percent of revenue was
also caused by the additional material scrap, introduction of new products and
increased transportation costs over the prior year period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 1.4% to $51.0
million in fiscal 2000. As a percentage of revenue, selling, general and
administrative expenses decreased to 7.3% from 8.9% due to increased economies
of scale in our business.
INTEREST EXPENSE
Interest expense increased 3.9% to $27.0 million. This increase is
primarily due to an increase in interest rate during the period.
OTHER (INCOME) EXPENSE
Other income decreased 83.1% to $1.4 million for fiscal 2000. This resulted
primarily from the realization of an approximate $1.3 million loss from currency
devaluation versus a currency gain in fiscal 1999 of $5.9 million.
40
INCOME TAXES
Our tax benefit for 2000 was $2.2 million, which represents an effective
tax rate of 563%. This compares to a tax provision of $3.7 million that
represents an effective rate of 56% for fiscal 1999. The effective tax rate for
2000 was reduced by utilization of research and experimentation tax credits that
we determined were applicable to our operations in fiscal 2000. The effective
tax rate for 1999 was increased primarily as a result of the termination of an S
corporation election, offset in part by S corporation and partnership income
that was not subject to tax and the effect of non-deductible items.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES
Through October 30, 1999, we expensed parts and supplies utilized in our
manufacturing facilities. Effective October 31, 1999, these items are
inventoried and are charged to expense when used. Due to the increased volume of
purchases of such items, management believes that this method is preferable and
it provides for a better matching of revenue and expenses. For these reasons,
the after-tax cumulative effect of changes in accounting principles was $3.1
million in fiscal 2000.
NET EARNINGS (LOSS)
Net earnings increased from a net loss of $0.9 million to net earnings of
$4.9 million for fiscal 2000. The increase is primarily due to an improvement in
operating profit of $1.0 million and changes in accounting principle of $3.1
million.
YEAR ENDED OCTOBER 30, 1999 COMPARED TO YEAR ENDED OCTOBER 31, 1998
REVENUE
Revenue in the fiscal year ended October 30, 1999 was relatively flat
compared to revenue for the period ending October 31, 1998. This was a result of
material resin price decreases that we passed on to our customers, according to
the terms of our contracts. Unit revenue sales actually increased by 1.1% for
the fiscal year ending October 30, 1999 versus October 31, 1998. During the
year, we reorganized our water, dairy and juice product category. Specifically,
we included water and dairy in carbonated and non-carbonated beverage and
included juices in food and processed juices. This relatively flat revenue is
attributable to a number of factors including an increase of approximately 1% in
unit volume while average resin prices declined. Specifically, our revenue by
product category was as follows:
- Carbonated and non-carbonated beverage revenue remained relatively flat
increasing 1.4% to $272.9 million. This modest growth is attributable to
moving some of our dairy business into this product category. This
increase was mostly offset by a revenue decrease in Brazil.
- Consumer cleaning revenue increased by 35.4% to $116.2 million. The
increase is attributable primarily to moving the trigger spray revenue
from the health, personal care and distilled spirits category. The
increase was also attributable to additional business with Clorox and
Proctor & Gamble.
- Food and processed juices revenue increased by 28.7% to $94.2 million.
This growth is attributable to moving some of our dairy business into
this category.
- Industrial, automotive and agricultural revenue decreased by 5.4% to
$36.8 million. This decrease is attributable primarily to unfavorable
weather conditions which reduced antifreeze sales.
41
- Health, personal care and distilled spirits revenue decreased by 56.5% to
$10.8 million. This decrease is attributable to moving our trigger spray
business into the consumer cleaning category.
GROSS PROFIT
Gross profit for the year ended October 30, 1999 increased $10.5 million to
$74.5 million. Gross profit as a percent of revenue improved to 13.2% as
compared to 11.3% in the prior period. This increase in gross profit primarily
resulted from improvements in manufacturing reliability and process
improvements. Improvements in the profitability of our Brazilian operations also
contributed to the improvement in our overall gross profit.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 3.9% to $50.3
million for the year ended October 30, 1999. As a percent of revenue, selling,
general and administrative expenses increased to 8.9% from 8.5% due to the
impact of reduced revenue as a result of the above resin price decrease pass
throughs to our customers.
INTEREST EXPENSE
Interest expense increased 22.4% to $26.0 million. The increase resulted
from an increase in outstanding debt used to support additional inventory and
purchase of equipment.
OTHER (INCOME) EXPENSE
Other income increased 168.1% to $8.3 million for fiscal 1999. This
resulted primarily from a currency gain of $5.9 million for fiscal 1999 versus a
currency loss of $0.3 million in 1998.
INCOME TAXES
Our tax expense for 1999 was $3.7 million, which represents an effective
tax rate of 56%. This compares to a tax benefit of $1.2 million that represents
an effective tax rate of 49%. The increase in the expense for 1999 was primarily
a result of the termination of an S corporation election, offset, in part, by S
corporation and partnership income that was not subject to tax, and
non-deductible items.
EXTRAORDINARY ITEM
In fiscal 1999, an extraordinary after-tax loss of $3.8 million was
incurred as a result of early retirement of senior subordinated notes and
related warrants.
NET EARNINGS (LOSS)
Net loss decreased from a net loss of $1.3 million in fiscal 1998 to a net
loss of $0.9 million for fiscal 1999. The decrease in net loss was largely due
to improvements in operating profit and increases in other income.
FINANCIAL CONDITION
We intend to expand our business, both domestically and internationally. We
have a significant amount of debt-borrowing capacity for continued growth of our
business. Past expenditures have been used to maintain equipment and expand
capacity for revenue growth. These expenditures were funded with cash flow from
operations, bank debt and additional operating leases. Future capital
expenditures will be used in the same manner as past expenditures.
42
As part of our process redesign initiatives, we are investing heavily in
information systems, process management and training. In addition, we expect to
complete the implementation of SAP enterprise software in fiscal 2002. We expect
to spend from $10 to $15 million in the aggregate on these projects, which are
anticipated to result in approximately $15 million in annual cost savings by
2004. During fiscal 2001, we spent approximately $56 million to cover the
capital requirements of our operations.
We are using technology that will allow us to pursue opportunities in the
beer, condiments, sauce and beverage markets. South America provides significant
opportunities with our current customer base. Our largest customer in Brazil,
AmBev, is also the largest brewer in South America.
Our overall financial condition improved during fiscal 2001. We had
positive cash flow from operations of $43.8 million, which in part funded our
capital expenditures of approximately $56.0 million. The remaining balance of
capital expenditures was covered by financing activities.
SEASONALITY
The carbonated soft drink (CSD) and, to a lesser extent, the other beverage
portions of our business are highly seasonal, with peak demand during warmer
summer months, and reduced demand during the winter. We normally add temporary
staff and build inventory of products for our CSD and water customers in
anticipation of seasonal demand in the quarter preceding the summer.
INFLATION
We use large quantities of plastic resins in manufacturing our products.
These resins accounted for approximately one-third of our cost of goods sold in
fiscal 2001, and are subject to substantial price fluctuations resulting from
shortages in supply and changes in the prices of natural gas, crude oil and
other petrochemical products from which these resins are produced. We generally
enter into three-year agreements with our resin suppliers, and our purchases of
raw materials are subject to market prices and inflation.
EFFECT OF CHANGES IN EXCHANGE RATES
In general, our results of operations are partially affected by changes in
foreign exchange rates. We invoice our Brazilian customers in the Brazilian
Real. A portion of those invoices is pegged to the U.S. exchange rate. As a
result, subject to market conditions, a decline in the value of the U.S. dollar
relative to the Brazilian Real can have a favorable effect on our profitability.
Conversely, an increase in the value of the dollar relative to the Brazilian
Real can have a negative effect on our profitability. Exchange rate fluctuations
had a material effect on the results of operations for the fiscal year ended
October 30, 1999, resulting in a gain of $5.9 million.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE CONTRACTS
At November 3, 2001, we had no material foreign exchange contracts. We do
not enter into foreign exchange contracts for trading or speculative purposes.
43
SHORT-TERM AND LONG-TERM DEBT
We are exposed to interest rate risk primarily through our borrowing
activities. Our policy has been to utilize United States dollar denominated
borrowings to fund our working capital and investment needs. Short-term debt, if
required, is used to meet working capital requirements, while long-term debt is
generally used to finance long-term investments. There is inherent rollover risk
for borrowings as they mature and are renewed at current market rates. The
extent of this risk is not quantifiable or predictable because of the
variability of future interest rates and our future financing requirements.
We do not enter into financial instrument transactions for trading or other
speculative purposes or to manage interest rate exposure.
INFORMATION SYSTEMS INITIATIVE
We have completed an evaluation and assessment of our business systems and
processes in calendar year 2000 that involved 75 internal staff members and an
external consulting resource. The two major activities of this evaluation
included an internal effort to redesign our business practices through an
initiative called "Process Redesign," and a comprehensive project to evaluate
SAP enterprise resource planning software and functionality. As a result of
these evaluations, we decided to purchase and install this industry leading
manufacturing and distribution software solution. At the end of fiscal 2001, we
had 61 employees and consultants working on the SAP project, down from 86 at the
end of July 2001. As of early January 2002, we have completed implementation of
SAP in 6 of our North American operations. The project is scheduled to be
completed in fiscal 2002. We have incurred expenses of approximately $7.0
million to purchase, test and install SAP hardware and software. We expect to
incur $1.5 million of additional expenses in fiscal year 2002 to test and
install SAP software.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operating activities decreased 42.0% to $43.8
million from the fiscal year ended October 28, 2000 to the fiscal year ended
November 3, 2001. The decrease is primarily the result of net working capital
and other asset and liability changes. The increase in working capital resulted
primarily from decreases in accounts payable and accounts receivable. The
reductions were partially offset by improved operating performance with net
earnings increasing $2.2 million from fiscal 2000. The decrease was also offset
by an increase in depreciation and amortization of $2.5 million from fiscal
2000. The reduction was also offset by increased deferred tax expense of $2.0
million from fiscal 2000. For the fiscal years 2000, 1999, and 1998 net cash
generated from operations was $75.6, $24.7, and $25.2 million, respectively. The
increase in 2000 was primarily the result of net working capital and other asset
and liability improvements that increased net cash $46.3 million from 1999.
Net cash used in investing activities was $52.8 million and $55.7 million
for fiscal 2001 and 2000, respectively. Investing activities were primarily
attributed to the acquisition of property and equipment. For the years ended
November 3, 2001 and October 28, 2000, property and equipment acquisitions were
$56.0 and $58.0 million, respectively. For the fiscal years 2000, 1999, and 1998
net cash used in investing activities was $55.7, $38.1, and $63.6 million,
respectively. Investing activities were primarily attributed to the acquisition
of property and equipment. In 2000, 1999, and 1998 property and equipment
acquisitions were $58.0, $61.0, and $65.1 million, respectively.
Net cash (used in) provided from financing activities was $59.1 and $(25.0)
million for the years ended November 3, 2001 and October 28, 2001, respectively.
In the year ended November 3, 2001, net cash provided from borrowings was
partially used to finance property and equipment acquisitions. The remaining net
cash provided from borrowings will be used to finance
44
property and equipment acquisitions in fiscal year 2002. In the year ended
October 28, 2000, cash was used to pay $15.4 million in long-term obligations
and $7.0 million of borrowings under the revolving credit facility. For the
fiscal years 2000, 1999, and 1998 net cash (used in) provided from financing
activities was $(25.0), $16.9, and $39.4 million, respectively. In 2000, cash
was used to pay $15.4 million of long-term obligations, $7.0 million of
revolving credit facility debt, and pay capitalized loan costs of $2.6 million.
In 1999 and 1998, net cash provided from borrowings was used to finance property
and equipment acquisitions.
On August 20, 2001, we sold an aggregate total principal amount of $275
million of outstanding notes to qualified institutional buyers. The notes have a
maturity date of 2011, and we have the option to redeem all or a portion of the
notes at any time on or after September 1, 2006. The proceeds from these notes
were used to pay off existing debt. Interest under the notes is 10.75% per annum
and is payable on September 1 and March 1 of each year. The indenture under
which the notes were issued places restrictions on our ability to declare or pay
dividends, purchase or acquire equity interests of Plastipak, and retire
indebtedness that is subordinate to the notes. The notes also have covenants
that place restrictions on the incurrence of debt, the issuance of stock, and
granting of liens.
On August 20, 2001, in conjunction with the sale of the outstanding notes,
we entered into an Amended Credit Agreement which allows us to borrow up to $150
million, subject to a borrowing base consisting of 85% of eligible domestic
accounts receivable, 65% of the value of eligible domestic inventory and 50% of
the value of domestic property, plant and equipment. The Amended Credit
Agreement has a five-year term. Interest under the Amended Credit Agreement is
payable at 200 to 350 basis points per annum over Eurodollar or at prime rates,
as we select. The Amended Credit Agreement is secured by substantially all of
our assets, including pledges of the stock of Plastipak and all of its material
foreign subsidiaries. Packaging, Whiteline, Clean Tech, and TABB are the
borrowers and guarantors under the Amended Credit Agreement and Plastipak
guarantees obligations under the Amended Credit Agreement. As of November 3,
2001, $53.1 million in letters of credit were outstanding under the Amended
Credit Agreement and we had $96.9 million available for borrowing.
Looking forward, we have the following short-term and medium-term capital
needs. We will need between $4.0 and $5.0 million of additional capital to
expand our new facility in Manaus, Brazil and add machinery and equipment. The
expansion is necessary to qualify for tax-free benefits within the tax free
trade zone in which our new facility is located. We estimate that our existing
operations in Brazil will require between $5.0 to $7.0 million in working
capital to cover seasonal increases in inventory that will be required during
the Brazilian winter months. Our overall capital expenditure budget for each of
fiscal 2002 and 2003 is approximately $60 million, a majority of which is
expected to be discretionary capital expenditures. We expect to finance all of
our capital expenditures with operating cash flows and to cover any shortfalls
with borrowings under the Amended Credit Agreement.
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe that cash flow from operations and available
cash, together with available borrowings under the Amended Credit Agreement,
will be adequate to meet our future liquidity needs for at least the next few
years. As of November 3, 2001, we had $44.5 million in short-term highly liquid
securities. We expect to use the short-term securities for capital expenditures
in 2002. It is possible, however, that our business will not generate sufficient
cash flow from operations, that anticipated revenue growth and operating
improvements will not be realized or that future borrowings will not be
available under the Amended Credit Agreement in an amount sufficient to enable
us to service our indebtedness, or to fund our other liquidity needs. In
addition, we may not be able to refinance any of our indebtedness, including the
Amended Credit Agreement and our outstanding and exchange notes when they
mature, on commercially reasonable terms or at all. See "Risk Factors."
45
BUSINESS
Plastipak Holdings, Inc. ("Plastipak") is a privately held Michigan
corporation that was formed in 1998 to act as a holding company for several
related companies. On October 30, 1999, Plastipak acquired all of the equity
interests in Plastipak Packaging, Inc. ("Packaging"), Whiteline Express, Ltd.
("Whiteline"), Clean Tech, Inc. ("Clean Tech") and TABB Realty, LLC ("TABB"),
and a portion of the equity interests of Plastipak Packaging do Brasil, Ltda
("Plastipak Brazil"), through a reorganization (the "Reorganization").
Packaging, our principal operating company whose business commenced operations
in 1967, designs and manufactures rigid plastic containers, and was incorporated
in Delaware in 1982. Packaging also owns the remainder of Plastipak Brazil.
Whiteline is a trucking company which serves our transportation and logistics
needs, and was incorporated in Delaware in 1982. Clean Tech, a plastics
recycling operation, provides a source of clean, high quality post-consumer
recycled plastic raw material, and was incorporated in Michigan in 1989. TABB
owns real estate and leases it to Packaging and Clean Tech. Plastipak Brazil
produces injection-molded plastic preforms, blow molds rigid plastic packaging
in Paulinia and is expanding into Manaus. Plastipak Brazil also maintains a
sales office in Buenos Aires, Argentina. Other than Plastipak Brazil and its
subsidiaries, all of the Plastipak group of companies are headquartered in
Plymouth, Michigan.
Plastipak is a leading manufacturer of plastic packaging containers for
many of the world's largest consumer products companies. During fiscal 2001, we
manufactured and distributed approximately 6.5 billion containers worldwide for
over 500 customers. In North America, we are the exclusive supplier of plastic
containers to Procter & Gamble for heavy-duty, liquid laundry detergents and the
largest supplier of plastic containers to Kraft Foods for their salad dressings,
barbecue sauces and grated cheeses. We are recognized by our customers as an
innovator in blow-molded package design and manufacturing, and we have obtained
over 80 U.S. patents, many of which are registered in foreign countries, for our
state-of-the-art, package-manufacturing processes. For almost 35 years, we have
worked as a strategic partner with our customers in the early stages of their
new marketing initiatives. We provide integrated transportation and logistics
services, and satisfy our customers' needs for recycling, reliability and
dependability in plastic packaging. For the year ended November 3, 2001, our
revenue was $809.7 million, our earnings before extraordinary item and
cumulative effect of change in accounting principle were $7.1 million and our
EBITDA was $84.1 million.
The Freedonia Group estimates that the current U.S. plastic container
industry is over $10.0 billion in revenue. From 1989-1999, Freedonia estimates
the U.S. plastic container industry grew at a rate of 7.0%, compared to an
estimated rate of 2.7% for the overall packaging industry. As a beneficiary of
this trend, we have increased our revenue between 1997 and 2001 at a CAGR of
approximately 12.6%, exceeding the above industry averages. Further, all of our
revenue growth has been organic. Over the next ten years, continued conversion
to plastic bottles is expected to result in an annual growth rate of 5.0% for
the plastic container industry, compared to an annual growth rate of 3.4% for
the overall packaging industry. This continued superior growth is being driven
by the advantages of plastic over glass and metal (e.g., weight, strength and
shatter resistance), customer preferences for plastic and technological
advances. We believe that we are well positioned to capitalize on the conversion
trend and to increase our market share in our product categories.
We locate our manufacturing plants near the filling sites of our key
customers. In addition to our track record of innovative design, superior
customer service and low-cost manufacturing processes, the proximity of our
locations to our key customers helps us retain our major customers. To meet the
demand of our diverse customer base, we operate ten plants in the United States.
The total square footage of our manufacturing and warehousing in the United
States is approximately five million square feet. Our expansion in Brazil has
given us additional customer service capability and access to South America's
rapidly expanding plastic packaging
46
market. We plan to use our relationships with key customers to create new
opportunities in North and South America.
OVERVIEW
Because our broad range of product lines serves customers in diverse
industries and geographic regions, we believe our revenue and cash flow are
relatively predictable, reducing our exposure to market or economic
fluctuations. We have increased revenue organically between 1997 and 2001 at a
CAGR of approximately 12.6%. To support our revenue growth, we have invested
more than $200.0 million in facilities, machinery and equipment over the last
five years. We believe our commitment to investing in state-of-the-art
facilities, machinery and equipment has resulted in significant additional
capacity to serve our customers' needs, and enables us to produce plastic
containers at competitive prices.
In 1999, we initiated a continuous effort to redesign business processes to
reduce waste and non-value added costs. Our recent results of operations reflect
a strong gross profit improvement. In fiscal 2001, our gross profit improved by
$24.7 million over fiscal 2000. This improvement is substantially the result of
the implementation of process redesign initiatives and reliability improvements
in our manufacturing facilities. We believe we will continue to improve
operating margins through further development and implementation of process
redesigns.
In the year ended November 3, 2001, 70% of our revenue was generated by our
top ten customers, eight of whom are under contracts having terms of between one
and five years. These contracts, however, may be terminated earlier by the
customer or ourselves under certain circumstances. Terms and conditions of our
customer contracts vary, but in general the contracts are requirements contracts
that do not obligate the customer to purchase any given amount of product from
us.
Our primary raw materials consist of PET and HDPE resins. Although revenue
is affected by fluctuations in resin prices, our gross margin is, in general,
substantially unaffected by these fluctuations. Industry practice and
contractual arrangements historically have permitted us to pass price increases
through to our customers by means of corresponding changes in product pricing.
As a result, we believe that our gross profits are relatively insulated from
resin price fluctuations.
We design, manufacture and distribute plastic containers in five product
categories:
- carbonated and non-carbonated beverage;
- consumer cleaning;
- food and processed juices;
- industrial, automotive and agricultural; and
- health, personal care and distilled spirits.
We have experienced the most significant growth in our food and processed
juices and in our carbonated and non-carbonated beverage categories.
OUR PRODUCT CATEGORIES
CARBONATED AND NON-CARBONATED BEVERAGE
We are a leader in the beverage packaging industry. Our carbonated and
non-carbonated beverage business has continued to grow, as plastic has continued
to make inroads in replacing other packaging materials. This product category
includes carbonated soft drinks ("CSD"), bottled water, milk, cold-filled juices
and beer. We have seen significant growth in non-CSD demand for PET bottles,
which are clear and light-weight, and have become the standard for the
47
premium bottled water industry. We are one of the largest suppliers of PET
bottles used for Pepsi's Aquafina and Dr Pepper's Deja Blue water.
We are also a leading producer of bottles for the CSD industry, where
production complexity is relatively low and production runs are relatively long.
We are a leading supplier to Pepsi Cola Bottlers of PET bottles for all of its
Pepsi brands, including Pepsi, Diet Pepsi and Mountain Dew. Our other large CSD
customers include AmBev (South America's largest brewer), Beverage Associates
(Cadbury Beverages), Dr Pepper/Seven Up Bottling Group, and National Beverage.
We are poised to move into a newly emerging market for plastic beer
bottles. The beer industry is particularly brand conscious, relying on
distinctive packaging and labeling to establish brand identity. In venues such
as sports arenas, amusement parks, outdoor theaters, pools and beaches where
breakage is a concern, plastic bottles with improved barrier technology offer
beer bottlers the opportunity to maintain brand identity and product quality. We
are the first manufacturer to have licensed and installed a plasma coating
system (a barrier technology), in both the U.S. and Brazil, and are currently
producing bottles for three micro-breweries in the U.S. and for Isenbeck, a
large beer bottler in Argentina. We create the plasma coating by injecting
acetylene (a food safe gas) into the bottle. When energy is added to the gas,
through microwaves, the gas is converted into a plasma state, and the particles
collide with the inner walls of the bottle. The sudden loss of energy as the
particles hit the walls causes the material to immediately return to the solid
state, thus creating a plasma coating on the inside of the bottle. We expect
continued improvements in this barrier technology will lead to a progressively
larger portion of the 50 billion U.S. single serving beer market converting from
glass to plastic. In total, carbonated and non-carbonated beverage container
sales accounted for 46.1% of our revenue for the year ended November 3, 2001.
CONSUMER CLEANING
Procter & Gamble and Reckitt Benckiser are among our largest customers in
this product category. We are the sole supplier for all of Procter & Gamble's
branded heavy-duty, liquid laundry detergent containers in North America,
including Tide, Cheer, Era and Gain. We also supply containers for various
household products, such as Procter & Gamble's Bounce and Febreeze and Reckitt's
Lysol, Spray'n Wash and Electrasol. We partner with many of our customers to
create distinctive containers such as Procter & Gamble's award-winning 300-oz.
Tide dispenser bottle launched in 2000. We have long been an industry leader in
developing new proprietary plastic packaging for consumer cleaning products. In
1984, also with Procter & Gamble, we developed the system for applying the "Drip
Proof" spout for Tide liquid laundry detergent. We also use many of our patents
for value-added features such as in-mold labeling, where a plastic or paper
brand label is molded into and becomes part of the actual plastic container in a
single process, replacing glued-on, post-manufacture labeling. We use a
sophisticated preferential heating process to produce oval PET bottles suitable
for trigger spray applications, a product with growing popularity among
consumers. We are pursuing significant growth opportunities associated with the
continued conversion to HDPE and PET packaging of household cleaners. We
continue to grow as liquid detergents, which are primarily packaged in plastic,
capture market share from powdered detergents, which are primarily packaged in
cardboard. Consumer cleaning container sales provided 28.8% of our revenue for
the year ended November 3, 2001.
FOOD AND PROCESSED JUICES
We produce both HDPE and PET containers for customers in the food industry,
with a focus on customers for whom proprietary packaging designs are critical to
product identification and distinction. AC Humko, Everfresh, Ken's Foods, Kraft
Foods, The Kroger Company, Marzetti and Tropicana are among our primary
customers in this product category. We are the largest supplier of plastic
containers to Kraft Foods in North America for their salad dressings, 10 and
18-oz.
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squeeze mayonnaise and Miracle Whip, barbecue sauces and grated cheeses. We also
produce plastic containers for such popular processed foods as coffee creamers,
relishes and vegetable oils.
From 1997 through 2001, we grew our food and processed juices revenue at a
CAGR of 15.4%. This substantial growth has been driven by the continuing
conversion from metal, glass and paper containers to plastic bottles, as the
superior functionality, safety and improving economics of plastic became more
apparent, and as consumer preference for plastic packaging continued to grow.
PET squeeze bottles for such condiments as salad dressing and mayonnaise have
proven extremely popular with consumers who are willing to pay a premium for the
added convenience that plastic provides.
We are increasing our activity and presence in the production of PET
bottles required for the hot-fill packaging of shelf-stable juices and juice
drinks. The hot-fill process, in which bottles are filled at between 180 to 190
degrees Fahrenheit to kill bacteria, permits the shipment and display of juices
and juice drinks without refrigeration. The manufacturing process for hot-fill
PET packaging is significantly more demanding than that used for cold-fill
beverage containers, and typically involves slower processing speeds, greater
shape complexity and closer production integration with customers. We believe
our patented EXI-PAK technology will enable us to economically create
multi-layer preforms for blow molding hot-fill containers with added barrier
protection. Food and processed juices container sales accounted for 13.6% of our
revenue in the year ended November 3, 2001.
INDUSTRIAL, AUTOMOTIVE AND AGRICULTURAL
Castrol, Equilon, Exxon/Mobil, Old World Industries (Peak), Pennzoil/Quaker
State and Turtle Wax are among our major customers in this product category. To
increase our product diversity, we have targeted end markets in this product
category, including motor oil, antifreeze, windshield washer fluid and other
specialty automotive aftermarket products. We also supply containers for BEHR
deck cleaners and BASF chemical products. Industrial, automotive and
agricultural container sales generated 5.6% of our revenue in the year ended
November 3, 2001.
HEALTH, PERSONAL CARE AND DISTILLED SPIRITS
Our primary customers in this product category include Johnson & Johnson
and Seagram's. We manufacture a wide range of plastic containers for branded
products, including Johnson's Baby Oil, Johnson's Baby Lotion and Cepacol
mouthwash. We manufacture a full line of liquor bottles, ranging from the 50
milliliter "airplane" miniatures to the 1.75 liter bottle, for Seagram's, Hiram
Walker, Black Prince and Kittling Ridge. Our in-mold labeling capabilities are
of significant competitive value in this category. We expect to grow alongside
our customers in this product category as they expand and build or acquire new
brands and products. In the year ended November 3, 2001, we generated 1.4% of
our revenue from this category.
OUR COMPETITIVE STRENGTHS
LONG-TERM RELATIONSHIPS WITH MAJOR CONSUMER PRODUCT COMPANIES IN DIVERSE, STABLE
INDUSTRIES
We enjoy long-standing relationships that average over 15 years with our
top ten customers, including Kraft Foods (over 15 years), Pepsi Cola (over 15
years), Procter & Gamble (over 25 years) and Reckitt Benckiser (over 25 years).
With our key customers, we have strategic-supply arrangements, many of which
have three years or more remaining before renewal. We attribute these close
relationships to our creative design and engineering capabilities, high level of
customer service, high quality products, efficient manufacturing, reliable
delivery, speed to market and experienced and stable management team and
workforce. We supply several of
49
these customers with 100% of their plastic packaging needs nationally,
regionally or for a specific brand, including Kraft Foods salad dressings and
Tide liquid laundry detergent.
Our long-term relationships with our customers are strengthened by our
ability to meet their need for cooperative package design and development
processes. Our skilled and creative engineering staff and location of plants
near key customers' filling facilities encourage continued customer loyalty.
Because the blow-molds we create for each product are typically created
specifically for the customer at the customer's expense, our customers have a
strong incentive to remain with us.
STRATEGICALLY LOCATED, STATE-OF-THE-ART OPERATING FACILITIES
We serve our U.S. customers through a nationwide network of ten
strategically located, technologically advanced manufacturing facilities,
through our Technology Center in Jackson Center, Ohio, through our Packaging
Development Center in Medina, Ohio, and a network of strategically located
warehouse facilities. Brazil is served by manufacturing facilities in Paulinia
and Manaus. Our plants feature top quality injection molding machines, high
speed blow molders (including the multi-station GEM-PAK, which we developed and
patented and which doubles production capability as compared to older
blow-molding machines), computerized material and inventory handling, and
machines modified to allow the quick changeover of molds to meet varying
customer needs. Over the last five years, we have invested over $200.0 million
in our facilities and state-of-the-art production equipment, which have
significantly reduced our costs. The majority of our facilities currently have
the capacity to supply increased demand for our products. Our facilities are
strategically located near the filling sites of most of our key customers, which
we believe enables us to facilitate just-in-time inventory management, eliminate
costly shipping and handling charges, reduce working capital needs and foster
the development of long-term manufacturing and distribution relationships. We
believe that locating our facilities near our key customers also creates entry
barriers for our competition. With our fleet of approximately 300 tractors and
900 trailers, we offer same-day delivery to many of our customers. Our 98%
on-time delivery rate is among the best in the industry.
TECHNOLOGY-DEVELOPMENT CAPABILITIES
We are proud of our industry leading engineering and design capabilities
and believe that we often earn and retain business as a result of these skills.
Our packaging development and technology centers have secured over 80 patents
and continue to incorporate leading technology into customer-driven
applications. We also believe we have a sustainable competitive advantage
because we can produce prototypes of new designs with great speed and creativity
for our customers. Recently, we were able to design and deliver a prototype to a
customer just two weeks after they first explained their packaging concept to
us. We have re-engineered existing manufacturing equipment to allow quick mold
changeovers, reducing the changeover process from days to hours, giving us
greater production flexibility.
We have invented and patented new machines such as the GEM-PAK
multi-station wheel blow molder, which doubles production capability from older
blow-molding machines. We developed and patented the EXI-PAK process, which
allows us to manufacture multi-layer barrier PET preforms which run on the same
machines as standard non-barrier preforms, a competitive edge. We were among the
first in the industry to have in-mold labeling capabilities, using a proprietary
system we developed.
The production of custom containers involves a high degree of design,
engineering and manufacturing complexity in terms of bottle shapes, production
tolerance and performance requirements. Our ability to quickly design and
manufacture highly customized packaging has enabled us to secure contractual
commitments and to enjoy a history of stable orders from our top customers at
attractive profit margins. We also have the in-house engineering ability to
design new machines to make new containers.
50
Our nationally recognized Packaging Development Center creates innovative
product designs for our customers, and our Technology Center has developed major
process improvements in the manufacture of our containers. Our customers rely on
our design and technical expertise because brand distinctive package design is a
critical component in many of their marketing programs. We have centered a
substantial portion of our growth strategy on customers that require custom, as
opposed to stock, plastic containers as a critical component of their marketing
efforts.
PROCESS REDESIGN INITIATIVES AND FLEXIBLE COST STRUCTURE
In 1999, we initiated an ongoing effort to redesign our business processes,
which has reduced waste, increased safety, improved reliability, decreased
claims and returns and increased accuracy of orders, resulting in reduced costs
and increased revenue per worker. Results for the two years since this
re-engineering initiative began show an increase in monthly net revenue from
$15,000 to $18,000 for each employee. Our increased operating profit in fiscal
2001 is the direct result of the implementation of process redesign initiatives
and reliability improvements in our manufacturing facilities. We believe that we
can achieve further savings through continued process improvements. We also
expect to complete implementation of SAP software initiatives in fiscal 2002.
This enterprise software will integrate and automate many of our sales,
purchasing and administrative functions, and assist in our process
re-engineering initiatives, which we believe will create significant cost
reductions. Additionally, we have created a highly variable cost structure that
can adjust quickly to customer demand. Our long-term customer contracts are
structured with pricing mechanisms to adjust for fluctuations in raw material
prices.
CUSTOMER-ORIENTED CULTURE
In our 35 years in business, we have created a special culture focused on
customer service. Plastipak's engineering teams participate in the early phases
of our key customers' new marketing initiatives. As an integrated team, we work
alongside our customers to shape the design features of new packaging containers
and develop new processes and equipment to manufacture those containers. For
example, Plastipak and Procter & Gamble received the 1998 Silver Award for the
consumer container category in the Technology of the Year competition from
Packaging Technology & Engineering (a packaging journal) for the Tide 300-oz.
container that we manufacture. Further, to ensure that our employees' incentives
are aligned with our customers' objectives, compensation for approximately 500
key manufacturing employees with managerial responsibility is based on operating
and logistics performance measures. We believe these employee incentives will
further enhance our strong relationships with key customers, help us attract new
customers and allow us to control costs.
MANAGEMENT DEPTH AND EXPERIENCE
Our management team has an impressive track record of cultivating our
customer base of major consumer product companies, launching innovative product
designs and achieving profitable, organic growth. Our top 12 senior executives
have on average 22 years experience in the industry and 19 years experience at
Plastipak. Our executives are invested in our success through their over 90%
ownership of our equity. We believe our retention levels are among the highest
in the industry. Our management team includes engineers who have developed many
of the processes that we have patented and use to our competitive advantage.
OUR BUSINESS STRATEGY
Our strategy is to continue to increase our revenues and profitability and
to further enhance our leading industry positions. From fiscal 1997 to 2001, we
increased our revenues by 60.8% to
51
$809.7 million, our earnings before extraordinary item and cumulative effect of
change in accounting principle by 16% to $7.1 million, our EBITDA by 53.8% to
$84.1 million and our production volume by 42% to 6.5 billion units, all through
organic growth. We will continue to prudently invest in production equipment
only after establishing contracts with our customers and completing our normal
rigorous internal review process. The key components of our strategy include the
following objectives:
CAPITALIZE ON CONTINUED INDUSTRY CONVERSION TO PLASTIC CONTAINERS
We expect the conversion of food products from glass, paper and cans to
plastic containers, which we believe is being driven by consumer preference,
favorable total packaging economics, technology advances and improved
functionality, will continue. We are well positioned to capitalize on the
continuation of these trends. For example, our new product initiatives include
PET pickle jars, coffee canisters and various juice bottles. We anticipate that
our newly developed wide-mouth PET jars will soon be used to convert mayonnaise
packaging from glass.
In addition to opportunities in the domestic hot-fill PET arena, and
increased use of PET containers for household cleaners, we believe that
additional conversions to HDPE packaging will occur in various snack, dairy and
juice drink applications.
Additionally, we expect that over the next three to five years, as barrier
technology progresses, a portion of the single serving beer container market
will be converted to plastic, for use in venues where breakage is a concern.
Brewers in the beer industry are strongly committed to brand identity and
differentiation, and would prefer serving their product to customers in
stadiums, concerts, sporting events, and at pools and beaches, in a way that
permits them to maintain that identity (rather than in paper or plastic cups).
Single serving plastic beer bottles offer that method. Once barrier technology
becomes more economical, we believe a meaningful segment of the single serving
beer market could convert to plastic. We intend to participate in this move to
PET packaging in the beer industry.
We also believe that as barrier technology for smaller size plastic
containers progresses, we will be positioned to compete for the conversion of
single serving CSD packaging from aluminum cans and 10-oz. glass to plastic, a
60 billion unit market.
Also, owing to environmental concerns about disposable plastic waste, the
industries we serve are requiring more high-quality, recycled content in their
plastic packaging. We have significant experience in producing high quality HDPE
plastics with high recycled content for Procter & Gamble, who is a leader in
environmentally conscious manufacturing. We own a dedicated facility that
produces post-consumer recycled plastic resin that offers us a secure source for
recycled resin for our products. We believe we are well positioned to capitalize
on this growing consumer interest toward recycling.
CONTINUE DEVELOPING VALUE-ADDED SERVICES AND PRODUCTS
Supported by our technology and packaging development centers, we have
successfully researched, developed and launched new patented technologies in our
marketplace. We believe our success in this area differentiates us from our
competitors and will enable us to continue to gain market share. For key
customers, our technology development is an integral part of their overall
marketing strategy and has helped our customers drive innovation in the
marketplace.
EXPAND MARKET SHARE WITH KEY CUSTOMERS
Our high-quality, low-cost manufacturing capabilities and track record of
focused customer service position us well to continue growing market share with
our customer base of major consumer product companies. As our customers continue
to acquire new businesses and brands, we believe that we will secure additional
long-term contracts with them and grow our
52
product offerings. In many of our customer contracts, we have a right of first
refusal on new products and new packaging for many current products. Central to
our strategy to expand market share with key customers are the continued:
- delivery of focused customer service;
- location of facilities close to customer plants;
- innovation in packaging design; and
- provision of low cost manufacturing processes.
We also intend to target strategic new customers who require our core
competencies in blow molding and customization. We are working to translate
relationships we have developed with multi national customers in Brazil into
additional business in North and South America.
INDUSTRY OVERVIEW
Industry analysts estimate that the overall packaging industry generated
approximately $100 billion in revenue in 1999 (latest data available from
Freedonia Research, August 2000). Paper, plastic and metal packaging constituted
49%, 30% and 16% of this market, respectively. Of the overall $30 billion U.S.
plastic packaging industry, the U.S. plastic container market generated over $10
billion in revenue in 1999. PET and HDPE bottles comprise approximately 90% of
this $10 billion market.
Conversion from glass, paper and metal containers to plastic packaging
began in the 1980s and has continued to drive growth in plastic packaging. From
1989-1999, Freedonia estimates that annual sales of plastic containers grew 7.0%
per year, outpacing overall packaging industry growth of 2.7%. Similarly, from
1999-2009, industry analysts predict U.S. plastic container packaging will grow
5.0% per year, while projecting overall packaging shipments to expand 3.4% per
year to $136 billion.
Plastic container packaging is growing faster than the overall plastic
packaging market due to technological innovation and customer demand. Plastic's
inherent advantages over glass, paperboard and metal packaging include its
clarity, light weight, strength, shatter resistance, good barrier properties and
ease of opening. Freedonia expects plastic bottles, which already account for
greater than 75% of all plastic containers by weight, will contribute the
greatest growth. While HDPE is currently the most widely used plastic resin, PET
containers are expected to exhibit the fastest growth due to their clarity,
barrier characteristics and performance capabilities. From 1999-2004, industry
sales of PET and HDPE containers are expected to grow 7.0% and 2.4%,
respectively, according to Freedonia.
In 1999, industry analysts estimated the overall plastic container market
to be approximately 106 billion units. Summarized below are trends in each
blow-molded plastic container product category in which we compete, ranked by
relative revenue contribution to Plastipak. We believe we are well positioned to
capitalize on the evolving changes in each product category and to continue
growing our respective market shares.
CARBONATED AND NON-CARBONATED BEVERAGE
Over 43 billion plastic beverage bottle units were shipped in 1999,
accounting for 59% of all plastic bottle shipments. Carbonated soft drinks
represent 34% of all plastic bottle units sold. Freedonia projects that plastic
beverage bottle demand will grow 6.3% annually to 58.5 billion units in 2004,
while overall beverage demand is expected to grow 2.7% annually over this
period. Driving demand will be the proliferation of single-serving PET
carbonated-drink bottles, which are expected to compete with 12-oz. aluminum
cans. HDPE container growth is expected to be more limited because it has
already displaced alternative containers in non-carbonated products such
53
as milk, water and chilled juice. Other beverage plastic bottles are similarly
expected to take market share away from other containers.
CONSUMER CLEANING
Over five billion plastic consumer cleaning bottles were shipped in 1999,
accounting for 7% of total plastic bottles shipped. The household cleaning
market is mature and largely stable, with demand determined by demographic
factors, housing activity and consumer spending. Consumer cleaning plastic
container shipments are forecasted to grow 2.6% annually through 2004. HDPE is
the primary resin used in plastic containers due to its cost advantage, good
material properties and chemical resistance. There is additional growth
opportunity in this product category from the use of PET resin, such as the
oval, trigger-spray bottle.
Demand is driven by:
- new product introductions;
- brand-line extensions;
- trends toward liquid versus powdered detergents; and
- increased export demand as living standards increase worldwide.
Additional factors supporting growth are lifestyle trends, such as the
acceptance of casual, washable clothes in the workplace. Factors limiting growth
include a decrease in the number of U.S. families with young children who are
target customers using the largest amount of detergent and other cleaning
products.
FOOD AND PROCESSED JUICES
Over seven billion plastic food containers were shipped in 1999, accounting
for approximately 9% of total plastic bottle shipments. Major end-use food
products include edible oils, such as corn oil, peanut butter and salad
dressings, and condiments, such as ketchup, mustard and mayonnaise. Plastic's
squeezability offers a distinct advantage over glass and other alternative
containers. Technological improvements in plastic's barrier properties combined
with its clarity (PET) and shatter resistance are expected to help grow this
product category faster than the overall market. For example, improved heat
resistance capabilities and impact resistance is creating PET opportunities in
jams, jellies and sauces. Owing to these trends, PET food bottle demand is
projected to grow 7.6% per year through 2004.
Processed juice plastic containers similarly benefit from advances in
hot-fill plastic technology. Such products are expected to grow approximately 8%
annually through 2004. In both food and processed juices, demand also continues
to rise for smaller plastic bottles and custom blow-molded bottles in distinct
shapes that can provide product differentiation. Additional factors supporting
growth of fruit juice plastic containers include the popularity of fruit juices
as healthy beverages and the acceptance of processed juices as anytime
beverages.
INDUSTRIAL, AUTOMOTIVE AND AGRICULTURAL
Almost six billion plastic industrial, automotive and agricultural
containers were shipped in 1999, accounting for about 8% of the total plastic
bottle shipments. Demand for plastic packaging in industrial and agricultural
products such as paint thinners, pesticides and lawn products is projected to
increase over 3% annually through 2004. HDPE is typically favored over
non-plastic materials in these applications because of HDPE's chemical and
corrosion resistance, light weight, low cost and other performance advantages.
Automotive plastic bottles accounted for about three billion units in 1999.
While motor oil bottles drive the majority of sales, plastic packaging is used
in a broad range of automotive
54
performance, maintenance products, antifreeze/coolant washer fluid, and waxes.
Automotive plastic bottle sales are projected to increase 1.3% annually through
2004. This slower growth is attributable to the increasing use of longer-lasting
motor oils and antifreezes, which must be changed less frequently. The trend
away from do-it-yourself auto maintenance is also driving a decline in plastic
bottle sales. Professional establishments typically purchase their fluids in
bulk containers (e.g., 55-gallon drums) rather than individual bottles like
do-it-yourself consumers. Industry analysts believe that these declines will be
offset in large part by slightly increasing sales of plastic containers for high
performance automotive products such as fuel-injection cleaners.
HEALTH, PERSONAL CARE AND DISTILLED SPIRITS
Over 12 billion plastic health and personal care (including pharmaceutical)
product containers were shipped in 1999, accounting for approximately 17% of the
total plastic bottle shipments. Plastic container health care products such as
mouthwash, hair spray and baby lotion are expected to rise 4.6% per year through
2004. Due to its inherent cost advantage, HDPE is the primary resin used in
health and personal care products.
Plastic alcoholic beverage bottle demand is projected to rise almost 9% per
year through 2004. The recent advent of plastic beer bottles has represented the
first major advance in beer packaging since the entrance of the two-piece
aluminum can more than 30 years ago. The ability for beer companies to use
plastic bottles at venues that prohibit glass containers (e.g., sports stadiums)
helps improve freshness and increase marketing identity with their labels.
Industry analysts expect that plastic beer bottle demand will grow to 500
million units by 2004.
OUR CUSTOMERS
Substantially all of our sales are made to major branded consumer products
companies, primarily in the United States. Our customers demand a high degree of
packaging design and engineering to accommodate complex bottle shapes,
performance requirements, materials, speed to market and reliable delivery. As a
result, many customers opt for long-term contracts, many of which have terms of
one to five years. Eight of our top ten customers are under contracts with terms
of between one and five years, and our contracts with our ninth and tenth
largest customers are scheduled to expire within the next 12 months. These
contracts, however, may be terminated earlier by us or our customer upon a
material breach of the contract or, in some cases, in the event we determine it
is not in our best interest to change our terms and conditions through the
procedures outlined in the contract to meet competitive prices. Our contracts
typically contain provisions allowing for price adjustments based on market
changes in the price of resins and colorants, as well as extraordinary energy
and labor cost increases.
In many cases, we are the sole supplier of all of a customer's custom
plastic bottle requirements nationally, regionally or for a specific brand. Our
largest customer is Procter & Gamble. For fiscal 1999, 2000 and 2001, Procter &
Gamble accounted for approximately 12%,
55
20% and 23% of our revenue, respectively. For fiscal 1999, Pepsi COBO accounted
for 10% of our revenue. Our largest customers include:
<Table>
<Caption>
CUSTOMER
CUSTOMER PRODUCT CATEGORY SINCE(A)
- -------------------------------- ----------------------------------------------------- ----------------
Procter & Gamble Consumer Cleaning Mid 1970s
Reckitt Benckiser Consumer Cleaning Mid 1970s
Clorox Consumer Cleaning; Food and Processed Juices Late 1970s
Saxco Health, Personal Care and Distilled Spirits Early 1980s
Kraft Foods Food and Processed Juices Mid 1980s
Old World Industrial, Automotive and Agricultural Mid 1980s
The Kroger Company Carbonated and Non-Carbonated Beverage, Food and Late 1980s
Processed Juices
National Beverage Carbonated and Non-Carbonated Beverage Late 1980s
Pepsi COBO Carbonated and Non-Carbonated Beverage Late 1980s
AC Humko Food and Processed Juices Early 1990s
PepsiAmerica Carbonated and Non-Carbonated Beverage Early 1990s
AmBev Carbonated and Non-Carbonated Beverage Mid 1990s
Beverage Associates Cooperative
(Cadbury Beverages) Carbonated and Non-Carbonated Beverage Mid 1990s
Pepper Bottling Carbonated and Non-Carbonated Beverage Mid 1990s
Pepsi CPG Carbonated and Non-Carbonated Beverage Mid 1990s
Southern Beverage Carbonated and Non-Carbonated Beverage Mid 1990s
Ken's Foods Food and Processed Juices Late 1990s
Johnson & Johnson Health, Personal Care and Distilled Spirits Late 1990s
</Table>
- ---------------
(a) These companies include their predecessors, if applicable.
While our business is concentrated with our major customers, we believe
that our superior technological skills and low-cost position, coupled with
long-term "partnering" relationships with our customers, make the complete loss
of any of these major customers less likely. Our ten largest customers have been
associated with us for an average of over 15 years.
RAW MATERIALS
Resin and energy, the principal raw materials of our plastics business,
have remained widely available to our U.S. operations, though subject to
considerable price volatility. The great majority of Plastipak's customer
contracts allow us to pass through resin price increases on 30 days' notice.
Since we usually receive 30 days' notice of price increases from our resin
suppliers, we are generally able to tolerate price increases without substantial
harm to profits, although contracts containing pass-through provisions may not
be available to us in the future. See "Risk Factors -- Risks Related to Our
Business." As a major consumer of resin, we also leverage our bulk purchasing
power to gain favorable pricing and terms.
Clean Tech has continued to be able to meet almost all of our needs for
post-consumer recycled material. Post-consumer recycled material prices tend to
fluctuate in tandem with the virgin resin markets, since demand for
post-consumer recycled material increases as prices for virgin material rise
above those for post-consumer recycled material.
Energy availability and price have become problematic in Brazil, where a
drought and resulting governmental regulations limiting energy use have reduced
the availability of electric energy, most of which is generated by hydroelectric
plants. Trade restrictions and currency
56
devaluations have driven up the cost of imported resin in Brazil. See "Risk
Factors -- Risks Related to Our Business."
MANUFACTURING AND DISTRIBUTION
We serve our customers with a wide range of state-of-the-art manufacturing
capabilities and services. Our 11 manufacturing facilities are strategically
located near the filling sites of our key customers. We believe that our
proximity to key customers enables us to work closely with our customers, to
facilitate just-in-time inventory management, to eliminate costly shipping and
handling charges, to reduce working capital needs and to foster the development
of long-term manufacturing and distribution relationships.
We continue to be an industry leader in production technologies for plastic
containers by:
- efficiently manufacturing containers with specialized features, such as
multiple layers, barrier coatings, in-mold labeling and bottles designed
to accommodate trigger sprayers;
- improving manufacturing technology to allow ever increasing production
volumes without increasing the need for floor space (including the
multi-station GEM-PAK, which we developed and patented and which doubles
production capability as compared to older blow-molding machines); and
- making innovative modifications to our blow molders to effect tooling
changes in a matter of hours, instead of days, allowing quick shifts in
product mix.
To meet demand and reduce our inventory costs, our facility managers
receive real-time order and forecasting information from our customers. We are
presently implementing the first phase of SAP enterprise software, which will
integrate, automate and streamline many of our supply chain functions. As a
result, we will better serve our customers' needs.
Our subsidiary, Whiteline, is a fully licensed ICC common carrier, and
serves approximately 70% of our transportation needs. With Whiteline's fleet of
approximately 300 tractors and 900 trailers, we offer same-day delivery to many
of our customers. Our 98% on-time delivery rate is among the best in the
industry.
PACKAGING DEVELOPMENT
Our nationally recognized Technology and Packaging Development Centers
create innovative product designs for our customers and process improvements in
the manufacture of our containers. Our customers rely on our design and
technical expertise because package design is a critical component in many of
their marketing programs. We have an in-house staff of 40 employees at our
Technology and Packaging Development Centers dedicated to product development
and improvement. These professionals work closely with customers to develop new
products and designs, often using sophisticated computer-aided design software.
We are capable of generating new product designs within weeks of customer
requests. We also believe that our customized designs help our customers
differentiate their products in the marketplace while also improving the appeal
and performance of their products. We believe that these capabilities have given
us a significant competitive advantage in certain high-margin niche container
product markets where the ability to produce sophisticated package designs and
deliver high quality graphics at a reasonable cost is crucial to a product's
success. Additionally, we have the engineering capabilities in-house to create
new machines, which can more efficiently produce the proprietary products
developed for our customers. Packaging development expenses were approximately
$7.1 million, $6.3 million and $6.8 million for fiscal 2001, 2000 and 1999,
respectively.
57
SALES AND MARKETING
We reach our large and diversified base of over 500 customers primarily
through our direct field sales force. A large number of our sales
representatives focus their work on particular product lines and national
accounts, while the remaining field sales staff covers specific geographic
territories. We believe that our direct field sales force is able to focus on
target markets and create strong, enduring customer relationships. A direct
sales force also allows us to coordinate centralized pricing strategies.
FOREIGN OPERATIONS
Since 1996, we have expanded our operations into South America. We are
working to leverage our relationships with new customers in Brazil into new
opportunities in North and South America. Our initial operation was a plant
located in suburban Sao Paulo (Paulinia), Brazil. We recently opened a facility
in Manaus, a tax-free zone in the state of Amazonia, Brazil, which will be our
twelfth manufacturing facility. We have also opened a sales office in Buenos
Aires, Argentina. Our Brazilian net revenue has grown from $8.0 million in 1996
to $74.2 million for the year ended November 3, 2001. We believe that the global
trend in the conversion of glass, metal and paper to plastic packaging will
continue, particularly in the developing world, as consumer economies expand and
industrialization continues.
FACILITIES
We occupy a number of owned and leased properties located throughout the
United States, Brazil and Argentina for our technical centers, manufacturing
plants, corporate headquarters and sales offices. We currently utilize 36
facilities, 13 of which we own and 23 of which we lease. Our interests in all of
our U.S. facilities are pledged to secure our current credit facility.
The following table lists the location, square footage, principal use and
ownership interest in our facilities.
<Table>
<Caption>
LOCATION SQUARE FOOTAGE PRINCIPAL USE OWNED/LEASED
- ------------------------------------ -------------- ------------------ ------------
Medina, OH 74,000 Packaging Owned
Development Center
Jackson Center, OH 66,000 Technology Center Owned
Jackson Center, OH 952,000 Manufacturing Owned
Champaign, IL 620,000 Manufacturing Owned
East Longmeadow, MA 257,000 Manufacturing Owned
Medina, OH 222,000 Manufacturing Owned
Westland, MI 198,000 Manufacturing Owned
Paulinia, Brazil 161,000 Manufacturing Owned(a)
Garland, TX 113,000 Manufacturing Owned
Manaus, Brazil 70,000 Manufacturing Owned
Dundee, MI 85,800 Manufacturing Owned
Highland, TX 82,500 Manufacturing Owned
Lima, OH 127,000 Warehouse Owned
Alsip, IL 165,000 Manufacturing, Leased
Warehouse
Atlanta, GA 108,000 Manufacturing Leased
Garland, TX 200,000 Warehouse Leased
Champaign, IL 187,000 Warehouse Leased
Medina, OH 153,000 Warehouse Leased
Romulus, MI 150,000 Warehouse Leased
Champaign, IL 135,000 Warehouse Leased
</Table>
58
<Table>
<Caption>
LOCATION SQUARE FOOTAGE PRINCIPAL USE OWNED/LEASED
- ------------------------------------ -------------- ------------------ ------------
Lima, OH 100,000 Warehouse Leased
Champaign, IL 88,000 Warehouse Leased
Garland, TX 87,500 Warehouse Leased
Houston, TX 80,000 Warehouse Leased
Ayer, MA 77,000 Warehouse Leased
Atlanta, GA 64,800 Warehouse Leased
Lodi, OH 35,000 Warehouse Leased
Atlanta, GA 64,800 Warehouse Leased
Alsip, IL 60,000 Warehouse Leased
Houston, TX 60,000 Warehouse Leased
Champaign, IL 40,000 Warehouse Leased
Houston, TX 40,000 Warehouse Leased
Westland, MI 40,000 Warehouse Leased
Canton, MI 35,000 Warehouse Leased
Westland, MI 18,000 Warehouse Leased
Plymouth, MI 31,000 Headquarters Leased
</Table>
- ---------------
(a) The City of Paulinia on June 9, 1995 authorized the donation of, and the
indefinite right to use, the land on which the Paulinia plant is built to
Plastipak Brazil. Transfer of title of the land to Plastipak Brazil is
pending the resolution of an outstanding issue involving the City of
Paulinia's unpaid taxes with the Brazilian federal government. We do not
know when that issue may be resolved.
We believe that our plants, which are of varying ages and types of
construction, are in good condition, are suitable for our operations and
generally provide sufficient capacity to meet our requirements for the
forseeable future.
COMPETITION
We face substantial competition throughout our product categories from a
number of well-established national and regional companies. Our primary national
competitors include American National Can, Inc., Ball Plastics, Consolidated
Container Company, Crown Cork & Seal Company, Inc., Graham Packaging Company,
Liqui-Box Corporation, Owens-Illinois, Inc., Schmalbach-Lubeca and Silgan
Holdings, Inc. In addition, we face substantial competition from a number of
captive packaging operations with significant in-house bottling and blow-molding
capacity, such as Dean Foods, The Kroger Company, The Perrier Group of America
and Suiza Foods.
INTELLECTUAL PROPERTY
We own over 80 U.S. patents, and have over 20 patent applications currently
pending at the United States Patent and Trademark Office. In addition,
approximately 200 foreign patents have been issued and 150 are pending, although
not all of our U.S. patents are registered in foreign countries. Our patents
include patents for our GEM-PAK molding system, a gas clamping electronically
controlled molding machine, and EXI-PAK, a multi-layer barrier system for clear
bottles developed in conjunction with Husky, one of the most respected PET
preform producers in the industry. EXI-PAK allows us to produce PET bottles
under 20-oz. capacity which are highly impermeable to carbon dioxide and oxygen.
Our EXI-PAK technology allows plastic to compete in a variety of areas requiring
barrier performance, and we intend to vigorously pursue these opportunities.
We are continually developing new patents. Because our patented packaging
designs create goodwill and result in product differentiation, we believe that
these intellectual property assets are important to our business. Our business
is not dependent on any one of these patents, since plastics manufacturing
technology continues to move forward rapidly. Patent licensing, however,
59
serves to keep the new technologies we develop proprietary, giving us a short,
but important, window of competitive advantage.
In addition, we rely on proprietary know-how, continuing technological
innovation and other trade secrets to develop products and maintain our
competitive position. We attempt to protect our proprietary know-how and our
other trade secrets by executing, when appropriate, confidentiality agreements
with our customers and employees. We cannot assure you that our competitors will
not discover comparable or the same knowledge and techniques through independent
development or other means.
We have also licensed or sub-licensed certain of our intellectual property
rights to third parties. These range from trimming systems that eliminate any
plastic waste or "chips" from containers to our unique "in-mold labeling"
equipment for bottle decoration. Many bottle designs are also licensed for
revenue generation. In some cases, patented bottle designs are assigned or used
by our customers, as their needs arise. Since our unique customer relationships
allow us to be in on the ground floor in bottle design development, our
customers often attain patent coverage for our joint design efforts.
ENVIRONMENTAL COMPLIANCE
We are subject to national, state, local and foreign laws and regulations
that impose limitations and prohibitions on the discharge and emission of, and
establish standards for the use, disposal, and management of, some kinds of
materials and waste, and impose liability for the costs of investigating and
cleaning up, and damages resulting from, present and past spills, disposals, or
other releases of hazardous substances or materials. Environmental laws and
regulations can be complex and may change often. Compliance with these laws and
regulations can require significant capital expenditures, and violations may
result in substantial fines and penalties. In addition, environmental laws in
the United States, such as the Comprehensive Environmental Response,
Compensation and Liability Act, impose liability on several grounds for the
investigation and cleanup of contaminated soil, groundwater, and buildings, and
for damages to natural resources, at a wide range of properties. For example,
contamination at properties formerly owned or operated by us, as well as at
properties we currently own or operate, and properties to which hazardous
substances were sent by us, may result in liability for us under these
environmental laws and regulations. As a manufacturer, we also have an inherent
risk of liability under environmental laws and regulations regarding ongoing
operations.
From time to time, we have been subject to claims asserted against us by
regulatory agencies for environmental matters relating to the generation and
disposal of hazardous substances and wastes. Some of these claims have related
to properties or business lines acquired by us after a release has occurred. In
each known instance, however, we believe that the claims asserted against us, or
obligations incurred by us, will not result in a material adverse effect upon
our business, financial position or results of operations. Nonetheless, there
can be no assurance that activities at these facilities or facilities acquired
in the future, or changes in environmental laws and regulations, will not result
in additional environmental claims being asserted against us or additional
investigations or remedial actions being required.
In addition, a number of governmental authorities in the United States and
in other countries have enacted and are expected to continue to enact
legislation aimed at reducing the amount of disposed plastic wastes. These
programs have included, for example, mandating rates of recycling and/or the use
of recycled materials, imposing deposits or taxes on plastic packaging material,
and/or requiring retailers or manufacturers to take back packaging used for
their products. This legislation, as well as voluntary initiatives similarly
aimed at reducing the level of plastic wastes, could reduce the demand for some
plastic packaging, result in greater costs for plastic packaging manufacturers
or otherwise affect our business. To date, these initiatives and developments
have not materially and adversely affected us. Some consumer products
60
companies (including some of our customers) have responded to these governmental
initiatives and to perceived environmental concerns of consumers by, for
example, using bottles made in whole or in part of recycled plastic. Our
subsidiary, Clean Tech, is among the top 20 suppliers of post-consumer recycled
materials in the United States. Clean Tech supplies approximately 90% of
Plastipak's post-consumer recycled materials needs.
LEGAL PROCEEDINGS
We are a party to various litigation matters arising in the ordinary course
of our business. We cannot estimate with certainty the ultimate legal and
financial liability of this litigation but we believe, based on our examination
of these matters, experience to date and discussions with counsel, that the
ultimate liability will not be material to our business, financial condition or
results of operations.
In the fall of 1999, North American Container, Inc. ("NAC") filed suit in
the U.S. District Court for the Northern District of Texas (Civil Action No.
3-99CV1749-D), claiming damages in an unspecified amount against Plastipak and
41 other defendants for the alleged infringement of NAC U.S. Patent No.
5,072,841. On April 4, 2000 this patent reissued as patent RE 36,639, with 14
new claims. The new claims were the primary focus of NAC's case against
Plastipak and the major manufacturers, as well as major food and beverage
distributors. Plastipak is spending approximately $50,000 per month to
vigorously defend this suit for the alleged patent infringement of NAC's
"plastic container." The claim construction phase of the litigation is coming to
a close. The proposed claim construction has already eliminated a large number
of bottles produced by us from consideration in the lawsuit. The court has
ordered limited discovery. Defendants have filed a motion for summary
disposition and we expect the court will schedule oral arguments in the coming
months. In the event defendants fail on this motion, our cost of defending this
action for a protracted period of time could exceed $1.0 million.
Camplas, one of Plastipak Brazil's customers, failed to pay for bottles
supplied to it by Plastipak Brazil. In 1998, Plastipak Brazil filed suit for
payment. In response to Plastipak Brazil's suit, Camplas filed a counterclaim
alleging that the bottles were defective. Camplas seeks damages from Plastipak
Brazil in the amount of approximately R$12,200,000 (reais), which as of the date
of this prospectus was approximately $4.8 million. We intend to vigorously
defend Camplas' counterclaim and do not believe that this litigation presents
the risk of a material adverse effect on our business or financial condition.
EMPLOYEES
Plastipak has approximately 3,300 non-union employees in the U.S., and
expects to reduce head count by approximately 4% of employees by the middle of
2002 as a result of process re-engineering and the implementation of SAP
software. Plastipak Brazil currently has approximately 145 employees and is
expected to add approximately 25 employees in connection with the expansion of
the Manaus facility. Given the seasonality of the plastic bottling industry, we
expect to continue to employ temporary and seasonal workers during peak
production months, in both the United States and Brazil. We have not had any
material labor disputes in the past five years and consider our relations with
our employees to be good.
61
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information with respect to the
executive officers, directors and certain key employees of Plastipak and its
subsidiaries.
<Table>
<Caption>
NAME AGE POSITION
- ---------------------------------- --- ---------------------------------------------------------
William C. Young 61 Chairman and Director, President & Chief Executive
Officer, Manager
William A. Slat 54 Vice President -- Operations and Manufacturing
Michael J. Plotzke 44 Chief Financial Officer, Vice President -- Finance and
Treasurer and Assistant Secretary
Gene W. Mueller 44 Vice President -- Sales and Marketing
Thomas Busard 50 President -- Clean Tech
Pradeep Modi 46 Vice President -- Controller and Strategic Operation
Planning
Frank Pollock 46 Vice President -- International Sales/Marketing
Richard Darr 52 Vice President -- Packaging Development
J. Ronald Overbeck 53 Vice President -- Product Supply
Leann M. Underhill 56 Corporate Legal Counsel and Secretary
David Daugherty 46 Chief Information Officer
John Michel 52 Vice President -- Transportation
Thomas L. Schellenberg 55 Director
</Table>
WILLIAM C. YOUNG has been the Chairman of the Board, President and the
Chief Executive Officer of Plastipak since its inception in 1998, and has been
Chairman and Chief Executive Officer of Packaging, Whiteline and Clean Tech
since he founded each company. Mr. Young has been the sole Manager of TABB since
its inception in 1999. Mr. Young is a Trustee of the University of
Detroit -- Mercy, where he serves as chairman of the Enrollment Committee. He is
also a Director of Midwest Guaranty Bank.
WILLIAM A. SLAT has been our Vice President -- Operations and Manufacturing
since 1982. Prior to that he was Manufacturing Manager. He has been with us for
30 years and served in various capacities ranging from customer service to plant
and regional management. Mr. Slat holds more than 30 domestic patents with
corresponding international patents. Mr. Slat is a senior member of Society of
Plastic Engineers.
MICHAEL J. PLOTZKE, CPA has served as our Chief Financial Officer, Vice
President of Finance and Treasurer since 1988. Throughout his 17 years with us,
Mr. Plotzke has served in many capacities including his current role as
Treasurer for Packaging, Whiteline, Clean Tech and TABB, all of which he has
held since 1992. Mr. Plotzke serves on the President's Advisory Council of Walsh
College. Prior to joining us, Mr. Plotzke worked for Deloitte & Touche and
KPMG -- Peat Marwick where he served as a Manager in the Financial Services
division of the consulting practice.
GENE W. MUELLER joined us in February 1997 and has served as our Vice
President -- Sales and Marketing since 1999. Before coming to us, Mr. Mueller
worked for Constar, a subsidiary of Crown, Cork & Seal for 18 years, where he
served as the Vice President of Sales until 1997.
THOMAS BUSARD is President -- Clean Tech and has served in that position
since 1989. Mr. Busard has been with us for over 25 years. Mr. Busard is a
member of the Board of the Michigan Recycling Coalition and is our
representative to the Council on Plastics and Packaging
62
in the Environment. Mr. Busard is a member of the Michigan Plastic Recycling
Development Fund Consortium.
PRADEEP MODI has been our Vice President -- Controller and Strategic
Operation Planning since 1999. Prior to that he was Vice-President/Controller
since 1993. He has been with us for 17 years and has served in various
capacities. Prior to joining us, Mr. Modi was a partner with Ampee Marble. Prior
to that he worked for Southland Corporation, a retail chain.
FRANK POLLOCK has served as our Vice President -- International
Sales/Marketing since 1997. He has been with us for seven years. Prior to
joining us, Mr. Pollock worked for Constar International, a subsidiary of Crown,
Cork and Seal, for 17 years, where he held positions as Sales Representative,
District Sales Manager and Regional Sales Manager, the latter until 1994, when
he began his career with us.
RICHARD DARR, our Vice President -- Packaging Development since 1993, is
our chief design and packaging engineer. He has worked in research and
development during his 22-year tenure with us.
J. RONALD OVERBECK, our Vice President -- Product Supply, has worked in
that position since 1999 and has been with us for over 25 years. Prior to
joining us, Mr. Overbeck worked for Anchor Glass where he served as a Marketing
Manager.
LEANN M. UNDERHILL, J.D., has served as our Corporate Legal Counsel since
1985 and, since 1999, has served as Secretary to Plastipak, Packaging,
Whiteline, and TABB. She has been with us since 1984. Prior to joining us, Ms.
Underhill was in private law practice.
DAVID DAUGHERTY has served as our Chief Information Officer since February
2000. Prior to joining us, from 1977 to January 2000, Mr. Daugherty was Manager
of Data Processing for both Earle Equipment Corporation and Safran Printing
Corporation. He was IT Manager for Mohawk Liqueur Company, Director of the New
York Data Center for McKesson Corporation and held several positions with Allied
Domecq Spirits and Wine of Windsor, Ontario, Canada, including Director of ADSW
Global I.T. Development and Director of Global I.T. Architecture.
JOHN MICHEL, has been our Vice President -- Transportation since 1998. He
has been with us for seven years. Prior to joining us he owned his own business.
THOMAS L. SCHELLENBERG has been a Director of Plastipak since its inception
and has served as a Director of Packaging since 1996, of Whiteline since 1999
and of Clean Tech since 1998. Mr. Schellenberg is a tax attorney, certified
public accountant and President of Schellenberg & Associates, P.C., a tax and
business consulting firm. Prior to founding Schellenberg & Associates, Mr.
Schellenberg worked for Deloitte & Touche for over 8 years. He is also a
director of The Private Bank, Bloomfield Hills, Michigan.
63
EXECUTIVE COMPENSATION
The following table sets forth a summary of compensation paid to the Chief
Executive Officer and the four other most highly compensated executives of
Plastipak (the "Named Executives") for services rendered in all capacities to
Plastipak and its subsidiaries during the last three fiscal years.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
ANNUAL COMPENSATION
--------------------------------------
FISCAL OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY(A) BONUS COMPENSATION(B)
- --------------------------- ------ --------- -------- ---------------
William C. Young............................. 2001 $601,248 $594,532
Chairman and Director, 2000 $601,248 $992,000
President and Chief Executive Officer 1999 $601,248 $ 18,400 $831,175
William A. Slat.............................. 2001 $204,560 $178,550
Vice President -- Operations 2000 $204,560 $ 85,000
and Manufacturing 1999 $159,560 $120,000
Michael J. Plotzke........................... 2001 $202,667 $188,000
Chief Financial Officer, 2000 $200,000 $115,000
Vice President -- Finance 1999 $158,333 $160,000
and Treasurer, and Assistant Secretary
Gene W. Mueller.............................. 2001 $168,720 $147,420
Vice President -- Sales and Marketing 2000 $164,935 $ 83,640
1999 $155,597 $140,000
Thomas Busard................................ 2001 $178,313 $154,700
President -- Clean Tech 2000 $174,811 $123,133
1999 $165,345 $ 57,000
</Table>
- ---------------
(a) Salary includes amounts deferred, if any, under our 401(k) plan.
(b) Other Annual Compensation for fiscal 1999 and 2000 consists of payments we
made to Mr. Young to satisfy his income tax liability for S corporation and
limited liability company income that we and our affiliates attributed to
him.
OPTION GRANTS IN FISCAL 2001
We did not grant any stock options in fiscal 2001.
AGGREGATE OPTION EXERCISES IN FISCAL 2001 AND 2001 FISCAL YEAR-END OPTION VALUES
None of the Named Executives exercised any options in fiscal 2001. The
following table sets forth, for each of the Named Executives holding unexercised
options, certain information regarding the value of options held at November 3,
2001:
<Table>
<Caption>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(A)
- ---- -------------------------- ---------------------------------
Michael J. Plotzke............ 545/0 $864,000/0
Thomas Busard................. 218/0 $346,000/0
</Table>
- ---------------
(a) None of Plastipak's common stock is currently publicly traded. The values
reflect the adjusted per share book value of Plastipak's common stock (as
defined in Plastipak's Restricted Stock Bonus Plan, as amended) at November
3, 2001, less the exercise price.
64
RESTRICTED STOCK BONUS PLAN
The board of directors of Plastipak adopted the Restricted Stock Bonus Plan
(the "Restricted Stock Bonus Plan") effective as of October 30, 1999. All of our
employees are eligible to participate in the Restricted Stock Bonus Plan,
subject to the board's discretion. The board makes all administrative decisions
under the Restricted Stock Bonus Plan. The board has reserved 5,000 shares of
Plastipak's common stock for distribution under the Restricted Stock Bonus Plan.
As of the date of this prospectus, 2,578 of the 5,000 reserved shares had been
allocated to our employees and 2,422 shares remain available for allocation.
Once the board has allocated restricted shares to an employee, the employee
must satisfy all of the following terms and conditions prior to receiving
certificates representing bonus shares:
- A period of five years must have lapsed since the date that the board
allocated the shares to the employee;
- The employee must have remained in continuous employment with us or one
of our affiliates during this five year period;
- The employee must have paid us $1.00 for each bonus share; and
- If required, we must have received the written consent of our secured
creditors.
Shares issued under the Restricted Stock Bonus Plan are non-transferrable
and, once received, the difference between the price paid for the shares and the
adjusted book value of the shares are taxed to the employee as non-qualified
deferred compensation.
Employees who have received certificates representing restricted stock
pursuant to the Restricted Stock Benefits Plan are required to sell those shares
back to us upon the occurrence of certain "trigger events". These "trigger
events" include the employee's death and the employee's employment termination,
whether because of resignation, retirement, dismissal or otherwise. The
redemption price is based upon our per share book value, subject to certain
adjustments.
The board is currently in the process of considering amendments to the
Restricted Stock Bonus Plan, which would give effect to the following material
changes in the Plan:
- A "change in control" provision would be added, which would provide that
all bonus shares would vest immediately upon change in control, subject
to the golden parachute payment limitations of Code Section 280G.
- An additional 450 shares of our common stock would be reserved for
allocation under the Restricted Stock Bonus Plan.
- "Bring along" and "come along" provisions would be added so that holders
of the restricted stock will be (1) entitled to participate in any
voluntary sale of our capital stock; and (2) required to participate in
certain voluntary sales of our capital stock.
- A covenant not to compete and a confidentiality agreement would be added
as a condition to participation in the Restricted Stock Bonus Plan.
- A provision will be added granting employees who are issued bonus shares
under the plan certain "piggy back" registration rights in the event we
initiate an SEC registered public offering of our common stock.
2002 RESTRICTED STOCK BONUS PLAN
In addition to the Restricted Stock Bonus Plan, the board is considering a
proposed 2002 Restricted Stock Bonus Plan (the "2002 Restricted Stock Bonus
Plan"). Although the 2002 Restricted Stock Bonus Plan has not yet been adopted
by the board, we anticipate that
65
participation in this plan will include additional employees, as well as our
directors. It is anticipated that vesting of shares issued pursuant to the 2002
Restricted Stock Bonus Plan will be as follows:
<Table>
0 to 6 years of service..................................... 0%
6 to 7 years of service..................................... 20%
7 to 8 years of service..................................... 40%
8 to 9 years of service..................................... 60%
9 to 10 years of service.................................... 80%
10 or more years of service................................. 100%
</Table>
Under the terms of the proposed 2002 Restricted Stock Bonus Plan, we will be
entitled to redeem restricted stock for $1.00 per share upon the occurrence of
certain events, including employment termination "for cause."
SALARY CONTINUATION PLAN
The board of directors of Packaging adopted a Salary Continuation Plan
effective September 1985, which has been amended from time to time (the "Salary
Continuation Plan"). The Salary Continuation Plan is a non-qualified deferred
compensation plan administered by an administrative committee comprised of
William C. Young and Michael J. Plotzke. All of Packaging's employees are
eligible to participate in the Salary Continuation Plan, subject to selection by
the administrative committee.
The Salary Continuation Plan provides for the payment of normal retirement
and death benefits, and in some cases early retirement benefits, to
participants, as specified in the participant's adoption agreement. An adoption
agreement between the participant and Packaging sets forth the age, years of
service and other requirements a participant must attain in order to receive a
particular benefit. In general, a participant must have participated in the
Salary Continuation Plan for at least 10 years, and must have attained the age
of at least 59, but not age 65, in order to receive early retirement benefits. A
participant generally must have participated in the Salary Continuation Plan for
at least 10 years, and must have attained the age of 65, in order to receive
normal retirement benefits. The Salary Continuation Plan does not specify
minimum age or years of service requirements for death benefits.
Following satisfaction of all eligibility requirements and a notice by the
participant or his or her representative requesting the payment of benefits, we
are required to pay the early retirement, normal retirement or death benefits
specified in the participant's adoption agreement. Participants do not vest
ratably in any benefit over the term of their employment with Packaging.
Participants are entitled to receive only one benefit (early retirement, normal
retirement or death), and each benefit is payable on a monthly basis for a
period of 180 months. Packaging's obligation to pay benefits to a participant
ceases if the participant violates the terms of a non-competition agreement
contained in his or her adoption agreement. Packaging may amend or terminate the
Salary Continuation Plan at any time, unless a participant has fully vested in
his or her benefits. All benefits payable under the Salary Continuation Plan are
paid out of Packaging's general assets, and Packaging has purchased life
insurance to fund death benefits for the participants.
Named Executives William A. Slat, Michael J. Plotzke, Gene W. Mueller and
Thomas Busard are participants in the Salary Continuation Plan, and Messrs.
Slat, Plotzke and Busard have each participated in the Salary Continuation Plan
for over 10 years and therefore are fully vested for purposes of retirement
benefits. Mr. Mueller began his 10-year vesting requirement for retirement
benefits in February 1997. The monthly early retirement and pre-retirement death
benefits for Messrs. Plotzke, Mueller and Busard currently are $5,292, $3,967
and $3,967, respectively, and
66
the monthly pre-retirement death benefits for Mr. Slat are $5,292. The monthly
normal retirement and post-retirement death benefits for Messrs. Slat, Plotzke,
Mueller and Busard currently are $8,333, $8,333, $6,250 and $6,250,
respectively.
DIRECTOR COMPENSATION
Mr. Young receives no cash consideration for serving on the board of
directors of any of our companies. Mr. Schellenberg receives compensation in the
amount of $235 per hour for his service on the board of directors of our
companies, plus out-of-pocket expenses incurred in connection with his duties as
a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the year ended November 3, 2001, compensation for our Named Executives
was determined by William C. Young, our President and Chief Executive Officer.
For information regarding transactions between us and Mr. Young, his affiliates
and entities he controls, see "Certain Relationships and Related Transactions."
67
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the outstanding capital stock of Plastipak with respect to the following:
- each person known by Plastipak to own more than 5% of its outstanding
capital stock;
- each director;
- each Named Executive; and
- the directors and executive officers of Plastipak, as a group.
Each shareholder has sole voting and investment power with respect to the
shares beneficially owned. The address for each shareholder is c/o Plastipak
Holdings, Inc., 9135 General Court, P.O. Box 2500C, Plymouth, Michigan
48170-0907.
<Table>
<Caption>
SHARES OF
COMMON PERCENTAGE OF
NAME OF SHAREHOLDER STOCK COMMON STOCK
- ------------------------------------------------------------ --------- -------------
William C. Young............................................ 21,414(a) 77.16%
Multi-Investments Limited Partnership(b).................... 3,936 14.18%
William A. Slat............................................. 725 2.61%
Michael J. Plotzke.......................................... 545(c) 1.93%
Thomas Busard............................................... 218(d) 0.78%
Gene W. Mueller............................................. 0 0.00%
Thomas L. Schellenberg...................................... 0 0.00%
Directors and executive officers as a group (6 persons)..... 26,838(e) 94.12%
</Table>
- ---------------
(a) Represents 21,414 shares held by the Revocable Trust Agreement of William C.
Young dated 12/23/88, as amended.
(b) Multi-Investments Limited Partnership is a Michigan limited partnership that
is owned by the Young family. The partnership is comprised of one General
Partner and four Limited Partners. The General Partner is William C. Young,
Trustee of the Revocable Trust Agreement of William C. Young dated 12/23/88.
The Limited Partners are: (i) W.C. Young Trust FBO W. Patrick Young dated
12/23/89, or successors in trust, W.C. Young and W. Patrick Young, Trustees;
(ii) W.C. Young Trust FBO Amy L. Young dated 12/23/89, or successors in
trust, W.C. Young and Amy L. Morgan, Trustees; (iii) W.C. Young Trust FBO
Tracey L. Young dated 12/23/89, or successors in trust, W.C. Young and
Tracey L. Deal, Trustees; and (iv) W.C. Young Trust FBO Brittany M.G. Young
dated 12/29/92, or successors in interest, W. Patrick Young, Amy L. Morgan
and Tracey L. Deal, Trustees.
(c) Represents options to acquire 545 shares which are presently exercisable.
(d) Represents options to acquire 218 shares which are presently exercisable.
(e) Includes the shares described in footnotes (a), (b), (c) and (d) above.
68
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
REORGANIZATION
On October 30, 1999, Packaging, Clean Tech, Whiteline, TABB and Plastipak
Brazil were placed under a holding company structure and became subsidiaries of
Plastipak, a newly-organized corporation (the "Reorganization"). In the
Reorganization, TABB Investment, Inc. ("TABB Investment") and W.P. Young
Marketing, Inc. ("Marketing"), both of which were formerly Michigan
corporations, were merged into Packaging. Immediately prior to the
Reorganization, each of Packaging, Clean Tech, Whiteline, TABB, Plastipak
Brazil, TABB Investment and Marketing were owned by William C. Young and members
of his immediate family, with no outside investors other than certain other
security holders of Packaging, as described below. Packaging is our principal
operating company, which began operations in 1967 as a division of Absopure
Water Company. Beatrice Foods acquired Absopure in 1973, and retained William C.
Young to manage Absopure and Packaging as divisions of Beatrice Foods. In 1982,
the Young family reacquired Absopure and Packaging from Beatrice Foods. Later in
1982, Packaging was incorporated in the State of Delaware as a separate entity.
As a result of the Reorganization, all of the outstanding shares of
Packaging common stock, as well as all outstanding options to acquire shares of
Packaging common stock, were exchanged for shares and options of Plastipak.
Clean Tech had outstanding 5,000 shares of common stock, all of which were
held by the William C. Young Trust prior to the Reorganization. These shares
were exchanged for 856 shares of the common stock of Plastipak.
Whiteline had outstanding 10,000 shares of common stock, all of which were
held by the William C. Young Trust prior to the Reorganization. These shares
were exchanged for 122 shares of the common stock of Plastipak.
TABB's limited liability company membership interests were owned 51% by the
William C. Young Trust and 49% by the W.P. and M.E. Young Trust prior to the
Reorganization. Prior to the Reorganization, TABB redeemed the 49% membership
interest owned by the W.P. and M.E. Young Trust. As partial consideration for
the membership interest, TABB issued to the W.P. and M.E. Young Trust a
promissory note in the principal amount of $6,024,000 (the "TABB Note"). The
TABB Note accrued interest at a rate of 6.4% per annum and was payable in
monthly installments of $37,680.72. Although the maturity date was October 1,
2009, a portion of the net proceeds of the offering of the outstanding notes was
used to pay the TABB Note in full on August 20, 2001. In connection with the
Reorganization, the remaining outstanding membership interest held by the
William C. Young Trust was exchanged for 4,489 shares of Plastipak common stock.
Plastipak Brazil was owned 80% by Multi-Investment Limited Partnership, a
Michigan limited partnership ("Multi-Investment"), and 20% by Packaging, prior
to the Reorganization. William C. Young is the general partner of
Multi-Investment and members of the Young family own all of the limited
partnership interests in this company. In connection with the Reorganization,
Multi-Investment exchanged its 80% equity in Plastipak Brazil for 3,936 shares
of the common stock of Plastipak.
Marketing had outstanding 50,000 shares of common stock, 25,000 of which
were held by the William C. Young Trust and 25,000 of which were held by the
W.P. and M.E. Young Trust, prior to the Reorganization. Before the
Reorganization occurred, the W.P. and M.E. Young Trust sold their shares in
Marketing to the William P. and Mary E. Young Irrevocable Trust, dated October
27, 1999 (the "Irrevocable Trust"). Following this sale, Marketing redeemed all
of the shares held by the Irrevocable Trust. As partial consideration for these
shares, Marketing issued to the Irrevocable Trust its promissory note in the
principal amount of $1,226,244.62 (the "Marketing Note"). The Marketing Note
also accrued interest at a rate of 6.4% per annum and
69
was payable in monthly installments of $7,670. Although the maturity date for
the Marketing Note was October 2009, a portion of the net proceeds from the
offering of the outstanding notes was used to pay the Marketing Note in full on
August 20, 2001. The amount of the payoff was $1,205,470, including principal
and interest. As part of the Reorganization, Marketing was merged with and into
Packaging, with Packaging as the surviving entity. As consideration for its
25,000 shares, the William C. Young Trust was issued 2,175 shares of the common
stock of Packaging. These 2,175 shares were subsequently exchanged for shares of
Plastipak at an exchange ratio of .9175 to 1.
TABB Investment had outstanding 5,000 shares of common stock, all of which
were held by the William C. Young Trust, prior to the Reorganization. In
connection with the Reorganization, TABB Investment was merged with and into
Packaging, with Packaging as the surviving entity. As consideration for its
5,000 shares, the William C. Young Trust was given 1,076 shares of the common
stock of Packaging. These 1,076 shares were subsequently exchanged for shares of
Plastipak at an exchange ratio of .9175 to 1.
BUSINESS RELATIONSHIPS AND TRANSACTIONS
We have maintained business relationships and entered into business
transactions with companies owned or controlled by Mr. William C. Young or
managed by members of his immediate family (each an "affiliate" and collectively
"affiliates"). A brief summary of the agreements, leases, and arrangements
between the affiliates and us follows. We believe, based on our general
awareness of market pricing and standards, that transactions with our affiliates
are on terms no less favorable to us than those that would be available to us in
arm's-length transactions with unaffiliated third parties for similar products
and services, with the exception of extended payment terms afforded to Absopure
Water Company (as discussed below). As a result of the Reorganization, certain
transactions which would formerly have been transactions with affiliates are now
intercompany transactions among our subsidiaries, which are eliminated in
consolidation in our consolidated financial statements and are not disclosed
separately in this prospectus.
FACILITIES, EQUIPMENT RENTAL AND MANUFACTURING, AND RELATED SERVICES
TABB owns and leases to us most of our manufacturing locations and some
warehouse facilities. Prior to the Reorganization, the real estate we now lease
from TABB had been owned by either William P. Young (William C. Young's father)
and William C. Young as partners, or by William C. Young individually. All of
these properties were transferred to TABB in anticipation of the Reorganization.
Written leases with terms expiring on September 1 and December 7, 2002 are
currently in effect (the "Affiliate Real Estate Leases") for all of the
properties now leased from TABB (now an intercompany transaction eliminated in
consolidation in our consolidated financial statements). In addition, we lease a
warehouse in Westland, MI from WCY Realty, LLC, a limited liability company
which is wholly owned by a trust that is controlled by William C. Young, our
chief executive officer and largest shareholder. William C. Young is also the
manager (chief executive officer) of WCY Realty, LLC. In fiscal 1999, Packaging
made lease payments of $2,998,110 to TABB (now an intercompany transaction
eliminated in consolidation in our consolidated financial statements),
$2,376,103 to William P. and William C. Young (now an intercompany transaction
eliminated in consolidation in our consolidated financial statements), and
$106,500 to William C. Young. In fiscal 2000 and 2001, Packaging made lease
payments to WCY Realty, LLC of $120,000 and $144,000, respectively.
Packaging subleased warehouse space in Plymouth, Michigan to Absopure Water
Company on a rent pass-through basis for monthly rental payments of $11,500.
Recently, the warehouse lease has been assumed by Whiteline. Absopure is a
corporation owned by William C. Young, members of his immediate family and
trusts they control. William C. Young serves as President
70
and a director of Absopure. Members of his immediate family also serve as
officers and directors of Absopure.
Packaging rents two blow-molding machines from The William P. Young Company
("WPY Co.") on a month-to-month basis at a monthly equipment rental rate of
$34,256 for both machines. WPY Co. is owned by the W.P. and M.E. Young Trust.
William C. Young serves as President and as a director of WPY Co. Pursuant to an
agreement among WPY Co., Packaging, Whiteline and Clean Tech, WPY Co. provides
engineering, planning, design, equipment manufacturing, marketing consultation,
logistic services and equipment rental on a project-by-project basis. The fees
WPY Co. charges Packaging, Whiteline and Clean Tech for services are comparable
to those it charges unaffiliated third parties. For equipment rentals, the
monthly charge is 1 1/2% of the original cost of the equipment. The equipment
lessees have the right to purchase the equipment at any time at fair market
value, or at 80% of depreciated book value after the eighth anniversary of the
agreement. WPY Co. invoiced Packaging $4,356,822, $6,673,081 and $2,385,435 for
engineering and machine services in fiscal 1999, 2000 and 2001, respectively.
WPY Co. invoiced Clean Tech $53,332 for equipment and services in fiscal 2000.
TABB Investment (which was merged into Packaging in connection with the
Reorganization) purchased equipment and entered into month-to-month operating
leases for the equipment with Packaging (now an intercompany transaction
eliminated in consolidation in our consolidated financial statements). Packaging
paid equipment rent expense to TABB Investment in fiscal 1999 in the amount of
$6,776,241.
Marketing (which was also merged into Packaging in connection with the
Reorganization) provided equipment leasing and outside sales services to
Packaging (now an intercompany transaction eliminated in consolidation in our
consolidated financial statements). Packaging paid equipment rent expense and
sales commissions to Marketing in fiscal 1999 in the amount of $7,472,817.
TRANSPORTATION SERVICES
Whiteline, a fully licensed ICC common carrier, operates a fleet of
approximately 300 trucks and 900 trailers and is Packaging's primary supplier of
trucking and shipping services. Whiteline services approximately 70% of
Packaging's trucking needs, and also leases trucks and provides empty trailers
under a "drop trailer" arrangement with Packaging to facilitate distribution and
transportation services to Packaging's customers. Whiteline also supplies
trucking and other transportation-related personnel to Packaging on an
as-requested basis. Whiteline invoiced Packaging $26,401,484 for services in
fiscal 1999 (now an intercompany transaction eliminated in consolidation in our
consolidated financial statements). Whiteline also provides shipping services to
Clean Tech. Whiteline invoiced Clean Tech $161,689 for services in fiscal 1999
(now an intercompany transaction eliminated in consolidation in our consolidated
financial statements).
Whiteline also provides shipping services to affiliates Absopure and
Buffalo Don's Artesian Wells, Ltd. Buffalo Don's is a corporation owned by
William C. Young, members of his immediate family and trusts they control.
William C. Young serves as Chairman and a director of Buffalo Don's. Members of
his immediate family are also officers and directors of Buffalo Don's. Whiteline
has entered into a transportation contract with each of Buffalo Don's and
Absopure under which it provides shipping services at standard rates comparable
to those it charges unaffiliated third parties. These transportation contracts
are terminable by either party upon 30 days' notice. Whiteline invoiced Buffalo
Don's $733,143, $583,351 and $516,499 for services in fiscal 1999, 2000 and
2001, respectively. Whiteline invoiced Absopure $3,190,659, $3,258,211 and
$3,331,100 for services in fiscal 1999, 2000 and 2001, respectively.
71
RECYCLING SERVICES
Clean Tech recycles post-consumer plastics and provides Packaging with
post-consumer recycled materials for use in its products. Approximately 90%
percent of Packaging's post-consumer recycled material needs are supplied by
Clean Tech. Clean Tech invoiced Packaging $9,180,300 for products and recycling
services in fiscal 1999 (now an intercompany transaction eliminated in
consolidation in our consolidated financial statements).
PLASTIC CONTAINER SALES
Packaging sells plastic containers to affiliate Absopure for its bottled
water business. The sales by Packaging to Absopure are not covered by a written
agreement; however, sales to Absopure are on terms no less favorable to
Packaging than those with unaffiliated third parties. Packaging invoiced
Absopure for containers in the amounts of $7,800,565, $9,016,227 and $8,302,489
in fiscal 1999, 2000 and 2001, respectively. There is currently an outstanding
balance of $4,260,614 due from Absopure to Packaging, out of which $1,435,551
was over 90 days old at November 3, 2001.
Packaging also sells plastic containers to affiliate Buffalo Don's under a
sales agreement dated February 2, 1993. The sales agreement has a term of four
years with automatic annual extensions, subject to a 90-day cancellation notice.
Sales to Buffalo Don's under the sales agreement are on terms no less favorable
to Packaging than those with unaffiliated third parties. Packaging invoiced
Buffalo Don's $2,709,702, $2,372,164 and $2,173,748 in fiscal 1999, 2000, 2001,
respectively. Buffalo Don's currently owes Packaging $780,808, out of which
$219,907 was over 90 days old at November 3, 2001.
Packaging sells plastic containers to Waters of America, LLC for its
bottled water business under a five-year product supply agreement dated July 1,
2000. The agreement is a full requirements contract for all of Waters' HDPE and
PET container needs. Sales to Waters are on terms are no less favorable to
Packaging than those with unaffiliated third parties. Waters of America is a
Delaware limited liability company which was organized in 2000. Fifty per cent
of the ownership interests of Waters of America is held by the Clean Drink
Company, a Michigan limited liability company, which is in turn 100% owned by
members of William C. Young's immediate family, or by trusts controlled by
William C. Young. Packaging invoiced Waters for plastic containers in the
amounts of $791,151 and $3,019,466 in fiscal 2000 and 2001, respectively. There
is currently an outstanding balance due of $569,231.
SALES AND MARKETING SERVICES
Plastipak Brazil provided expertise in the areas of sales and marketing for
Packaging for the entire South American continent. Under the terms of their
agreement, Packaging pays Plastipak Brazil the actual cost of the services
Plastipak Brazil provides, plus a profit margin of 15% plus taxes. Packaging
paid Plastipak Brazil $636,000 for these services in fiscal 2001 (now an
intercompany transaction eliminated in consolidation in our consolidated
financial statements).
ADMINISTRATIVE SERVICES AND INSURANCE
Packaging provided administrative services (i.e., marketing, accounting,
legal services) to the companies that became subsidiaries of Plastipak in the
Reorganization. Packaging billed each of these companies according to a formula
based upon the company's use of these services and for their share of items such
as insurance. Packaging invoiced Whiteline $150,000 for administrative services
in fiscal 1999 (now an intercompany transaction eliminated in consolidation in
our consolidated financial statements). Packaging invoiced Clean Tech $99,600
for administrative services in fiscal 1999 (now an intercompany transaction
eliminated in consolidation in our consolidated financial statements).
72
Plastipak and Packaging provided and continue to provide administrative
services to several affiliated companies. Packaging invoiced Absopure $60,000,
$60,000 and $60,000 for administrative services in fiscal 1999, 2000 and 2001,
respectively, pursuant to a service agreement dated September 12, 1994. The
service agreement continues until written notice of cancellation by either
party. There is currently outstanding a balance of $40,000 due to us from
Absopure. Packaging invoiced Buffalo Don's $30,000, $30,000 and $30,000 for
administrative services in fiscal 1999, 2000 and 2001, respectively, pursuant to
a service agreement dated September 12, 1994. The service agreement continues
until written notice of cancellation by either party.
Packaging purchased and provided insurance to all of the companies which
became subsidiaries of Plastipak in the Reorganization. Packaging billed each
company for the amounts due from them for their coverage, and purchased
insurance for these companies (together with affiliated companies). We believe
that combining our insurance buying power with that of the affiliated companies
helps us to get lower premiums. Whiteline reimbursed Packaging for insurance
premiums in the amount of $1,512,721 for fiscal 1999 (now an intercompany
transaction eliminated in consolidation in our consolidated financial
statements). Clean Tech reimbursed Packaging for insurance premiums in the
amount of $171,194 for fiscal 1999 (now an intercompany transaction eliminated
in consolidation in our consolidated financial statements).
Plastipak and Packaging provided and continue to provide insurance to
several affiliated companies. Plastipak and/or Packaging invoiced Absopure for
insurance premiums in the amounts of $833,491, $1,093,301 and $1,229,591 in
fiscal 1999, 2000 and 2001, respectively. Absopure currently owes us $847,773
for insurance premiums. Plastipak and/or Packaging invoiced Buffalo Don's for
insurance premiums in the amounts of $134,792, $164,750 and $182,523 in fiscal
1999, 2000 and 2001, respectively. Buffalo Don's currently owes us $33,949 for
insurance premiums. Plastipak and/or Packaging invoiced WPY Co. for insurance
premiums in the amounts of $29,279, $51,936 and $61,707 for fiscal 1999, 2000
and 2001, respectively. WPY Co. currently owes us $10,883 for insurance
premiums.
CERTAIN FINANCING TRANSACTIONS
In June 2001, Dresdner Bank loaned Plastipak Brazil $4.9 million for
working capital purposes. This loan was backed by a letter of credit guaranteed
by William C. Young. This loan was repaid with the net proceeds of the offering
of the outstanding notes, and the related letter of credit and guarantee were
extinguished.
At various dates from December 1991 to December 1993, Whiteline issued to a
trust controlled by William C. Young several demand notes (the "Whiteline
Notes"), which accrued interest at annual rates ranging from 6 to 7% per annum.
Interest only was payable in quarterly installments. The loan proceeds were used
by Whiteline for working capital purposes. The Whiteline Notes were paid in full
in December 2001, and the amount of the payoff was $740,000.
In 1994, Packaging redeemed 7,680 shares of common stock that were owned by
the W.P. and M.E. Young Trust. As partial consideration for the shares,
Packaging issued a secured promissory note in the principal amount of
$13,289,472 (the "Packaging Note"). The Packaging Note accrues interest at a
rate of 6.55% per annum and is payable in monthly installments of $84,436.
Although the maturity date of the Packaging Note was March 31, 2009, a portion
of the net proceeds from the offering of the outstanding notes was used to pay
the Packaging Note in full. The amount of the payoff was $12,014,871. The
Packaging Note was secured by the pledge of the shares acquired from the W.P.
and M.E. Young Trust. Since the Packaging Note was paid in full, these shares
have been canceled.
In March 2001, Madras Packaging, L.L.C., a Delaware limited liability
company, redeemed Packaging's 49% membership interest. In connection with the
redemption, Packaging sold certain equipment to Madras. As partial consideration
for this equipment, Madras issued to Packaging a secured promissory note in the
principal amount of $3,000,000 (the "Madras Note"). The
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Madras Note accrues interest at a rate of 8% per annum and is payable in monthly
installments of $25,000 with a balloon payment of $2,400,000 due in March 2003.
OTHER
Packaging sold pallets to Absopure and to certain of the companies that
became subsidiaries of Plastipak in the Reorganization. Packaging invoiced Clean
Tech $28,303 for pallets in fiscal 1999 (now an intercompany transaction
eliminated in consolidation in our consolidated financial statements). Packaging
invoiced Whiteline $97,560 for pallets in fiscal 1999 (now an intercompany
transaction eliminated in consolidation in our consolidated financial
statements). Packaging invoiced Absopure $231,000 for pallets in each of fiscal
1999 and 2000, and $277,000 in fiscal 2001.
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DESCRIPTION OF OTHER INDEBTEDNESS
THE AMENDED CREDIT AGREEMENT
The Amended Credit Agreement is a five-year revolving credit facility
priced at 200 to 350 basis points per annum over Eurodollar or at prime rates,
as we select, based on a debt to EBITDA ratio. We are able to borrow up to 85%
of the value of eligible domestic accounts receivable, 65% of the value of
eligible domestic inventory, and 50% of the value of domestic property, plant
and equipment. As of January 5, 2002, the amount outstanding under our Amended
Credit Agreement was $53.1 million, and approximately $96.9 million was
available for additional borrowing under the Amended Credit Agreement.
Packaging, Whiteline, Clean Tech and TABB are borrowers and guarantors of the
Amended Credit Agreement, while Plastipak is only a guarantor of the debt. The
Amended Credit Agreement also allows for additional investment in Plastipak
Brazil by Packaging.
The Amended Credit Agreement is secured by substantially all of our assets,
including pledges of all of the stock of Plastipak and all of its material
domestic subsidiaries and 65% of the stock of Plastipak Brazil. The Amended
Credit Agreement allows us to refinance our real estate with another lender,
retaining net proceeds in excess of 65% of the appraised fair market value of
the properties refinanced. It also provides for the release of liens on our
stock and the stock of our subsidiaries if we meet certain leverage and debt to
tangible net worth ratios. The Amended Credit Agreement also permits us to use
50% of the proceeds of any public or private issuance of our capital stock.
The Amended Credit Agreement contains typical affirmative and negative
covenants and financial covenants. The financial covenants include:
- A minimum consolidated interest coverage ratio of 2.25 to 1 through
October 29, 2004, and 2.50 to 1 from October 30, 2004 and at all times
thereafter;
- A minimum consolidated debt service coverage ratio of 1.2 to 1 through
November 1, 2002, and 1.25 to 1 from November 2, 2002 and at all times
thereafter;
- A maximum senior secured debt to EBITDA ratio of 2.25 to 1 through
November 1, 2002, and 2.0 to 1 from November 2, 2002 and at all times
thereafter;
- A maximum total debt to EBITDA ratio of not more than 4.25 to 1 through
November 1, 2002, not more than 4.0 to 1 from November 2, 2002 through
October 31, 2003 and not more than 3.75 to 1 from November 1, 2003 and at
all times thereafter; and
- A minimum tangible worth of $12.5 million as of November 3, 2001 plus 50%
of net income thereafter.
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DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description
under "-- Certain Definitions" below. In this description, the word "Plastipak"
refers only to Plastipak Holdings, Inc. and not to any of its subsidiaries.
The outstanding notes were issued, and the exchange notes will be issued,
under an Indenture (the "Indenture") among Plastipak, the Guarantors and Wells
Fargo Bank of Minnesota, National Association, as trustee (the "Trustee"). Upon
the issuance of the exchange notes, the Indenture will be subject to and
governed by the Trust Indenture Act of 1939. All references to the "Notes" are
to the outstanding notes and the exchange notes, collectively. 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.
The following description is a summary of the material provisions of the
indenture and the registration rights agreement. It does not restate those
agreements in their entirety. We urge you to read the indenture and the
registration rights agreement because they, and not this description, define
your rights as holders of the notes. The indenture and registration rights
agreement are exhibits to the registration statement of which this prospectus is
a part. Certain defined terms used in this description but not defined below
under "-- Certain Definitions" have the meanings assigned to them in the
indenture.
The registered Holder of a note will be treated as the owner of it for all
purposes. Only registered Holders will have rights under the indenture.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
THE NOTES
The notes:
- are general unsecured obligations of Plastipak;
- are pari passu in right of payment with all existing and future
Indebtedness of Plastipak that is not expressly subordinated to the
notes;
- are senior in right of payment to any future subordinated Indebtedness
of Plastipak; and
- are unconditionally guaranteed by the Guarantors.
The notes are effectively subordinated to all borrowings under the Amended
Credit Agreement, which is secured by substantially all of the assets of
Plastipak and the Guarantors. See "Risk Factors -- Subordination to Secured
Indebtedness -- Your right to receive payments on the outstanding notes and the
exchange notes is effectively subordinated to our existing secured indebtedness
and all of our future secured borrowings."
THE GUARANTEES
The notes are guaranteed by all of Plastipak's Domestic Subsidiaries.
Each guarantee of the notes:
- is a general unsecured obligation of the Guarantor;
- is pari passu in right of payment with all existing and future
Indebtedness of that Guarantor; and
- is senior in right of payment to any future subordinated Indebtedness
of that Guarantor that is not expressly subordinated to the
guarantees.
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As of November 3, 2001, the aggregate amount of our secured Indebtedness
and the secured Indebtedness of our subsidiaries to which the notes would have
been effectively subordinated was approximately $53.1 million, and approximately
$96.9 million was available for additional borrowing under the Amended Credit
Agreement. The indenture will permit us and the Guarantors to incur additional
secured Indebtedness.
None of our foreign subsidiaries will guarantee the notes. In the event of
a bankruptcy, liquidation or reorganization of any of these non-guarantor
subsidiaries, the non-guarantor subsidiaries will pay the holders of their debt
and their trade creditors before they will be able to distribute any of their
assets to us. The non-guarantor subsidiaries generated approximately 9% of our
consolidated revenue in fiscal 2001 and held approximately 20% of our
consolidated assets as of November 3, 2001. For more details about the division
of our consolidated revenues and assets between our guarantor and non-guarantor
subsidiaries, see footnote O to our consolidated financial statements included
at the back of this prospectus.
As of the date of the indenture, all of our subsidiaries were "Restricted
Subsidiaries." In the future, we may create a Securitization Entity, to serve as
a special purpose entity in connection with a permitted Receivables Facility.
Such Securitization Entity will be an "Unrestricted Subsidiary" for indenture
purposes. However, under the circumstances described below under the subheading
"-- Certain Covenants -- Designation of Restricted and Unrestricted
Subsidiaries", we will be permitted to designate certain of our subsidiaries as
"Unrestricted Subsidiaries." Our Unrestricted Subsidiaries (including a
Securitization Entity) will not be subject to many of the restrictive covenants
in the indenture. Our Unrestricted Subsidiaries will not guarantee the notes.
PRINCIPAL, MATURITY AND INTEREST
Plastipak may issue notes with a maximum aggregate principal amount of up
to $500 million under the indenture, of which Plastipak issued $275 million
principal amount of outstanding notes on August 20, 2001. As a result, Plastipak
may issue a total principal amount of $225 million of additional notes from time
to time after the offering of the outstanding notes. Any offering of additional
notes is subject to the covenant described below under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock." The
notes and any additional notes subsequently issued under the indenture will be
treated as a single class for all purposes under the indenture, including,
without limitation, waivers, amendments, redemptions and offers to purchase.
Plastipak will issue notes in denominations of $1,000 and integral multiples of
$1,000. The notes will mature on September 1, 2011.
Interest on the notes will accrue at the rate of 10.75% per annum and will
be payable semi-annually in arrears on September 1 and March 1 of each year,
commencing on March 1, 2002. Plastipak will make each interest payment to the
Holders of record on the immediately preceding August 15 and February 15,
respectively.
Interest on the notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
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 Plastipak, Plastipak
will pay all principal, interest and premium and Special Interest, 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 Plastipak elects to make interest
payments by check mailed to the Holders at their address set forth in the
register of Holders.
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PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee will initially act as paying agent and registrar. Plastipak may
change the paying agent or registrar without prior notice to the Holders of the
notes, and Plastipak 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 to furnish appropriate
endorsements and transfer documents in connection with a transfer of notes.
Holders will be required to pay all taxes due on transfer. Plastipak is not
required to transfer or exchange any note previously selected for redemption.
Also, Plastipak is not required to transfer or exchange any note for a period of
15 days before a selection of notes to be redeemed.
SUBSIDIARY GUARANTEES
The notes will be guaranteed by each of Plastipak's current and future
Domestic Subsidiaries. These Subsidiary Guarantees will be joint and several
obligations of the Guarantors. The obligations of each Guarantor under its
Subsidiary Guarantee will be limited as necessary to minimize the chances of
that Subsidiary Guarantee constituting a fraudulent conveyance under applicable
law.
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 Plastipak or
another Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; 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, if other than such Guarantor, assumes all the obligations of
that Guarantor under the indenture, its Subsidiary Guarantee and, if the
Exchange Offer has not been consummated or Special Interest remains due
and owing, under the registration rights agreement pursuant to a
supplemental indenture satisfactory to the trustee and completes all
other required documentation; or
(b) in the case of a sale or disposition constituting an Asset
Sale, the Net Proceeds of such sale or other disposition are applied in
accordance with the provisions of the indenture described in the first
paragraph under "-- Repurchase at the Option of Holders -- Asset Sales"
below;
The Subsidiary 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 Subsidiary of Plastipak, if the sale
or other disposition complies with the provisions of the indenture
described in the first paragraph under "-- Repurchase at the Option of
Holders -- Asset Sales" below;
(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 Subsidiary of Plastipak, if the sale complies with the
provisions of the indenture described in the first paragraph under
"-- Repurchase at the Option of Holders -- Asset Sales" below; or
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(3) if Plastipak designates any Restricted Subsidiary that is a
Guarantor as an Unrestricted Subsidiary in accordance with the applicable
provisions of the indenture.
See "-- Repurchase at the Option of Holders -- Asset Sales."
OPTIONAL REDEMPTION
At any time prior to September 1, 2004, Plastipak may on any one or more
occasions redeem up to 35% of the aggregate principal amount of notes issued
under the indenture at a redemption price of 110.750% of the principal amount,
plus accrued and unpaid interest and Special Interest, if any, to the redemption
date, with the net cash proceeds of one or more sales of Common Stock of
Plastipak; provided that:
(1) at least 65% of the aggregate principal amount of notes issued
under the indenture remains outstanding immediately after the occurrence of
such redemption (excluding notes held by Plastipak and its Subsidiaries);
and
(2) the redemption occurs within 45 days of the date of the closing of
the applicable sale of Common Stock.
Except pursuant to the preceding paragraph, the notes will not be
redeemable at Plastipak's option prior to September 1, 2006.
After September 1, 2006, Plastipak 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 Special Interest, if any, on the notes redeemed, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on September 1 of the years indicated below:
<Table>
<Caption>
YEAR PERCENTAGE
- ---- ----------
2006........................................................ 105.375%
2007........................................................ 103.583%
2008........................................................ 101.792%
2009 and thereafter......................................... 100.000%
</Table>
MANDATORY REDEMPTION
Plastipak 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, each Holder of notes will have the right to
require Plastipak to repurchase all or any part (equal to $1,000 or an integral
multiple of $1,000) of that Holder's notes pursuant to a Change of Control Offer
on the terms set forth in the indenture. In the Change of Control Offer,
Plastipak will offer a Change of Control Payment in cash equal to 101% of the
aggregate principal amount of notes repurchased plus accrued and unpaid interest
and Special Interest, if any, on the notes repurchased, to the date of purchase.
Within ten business days following any Change of Control, Plastipak 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 Change of Control
Payment Date specified in the notice, which date will 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. Plastipak
will comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent those laws and
regulations are applicable in connection with
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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, Plastipak 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, Plastipak will, to the extent
lawful:
(1) accept for payment all notes or portions of notes 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 of notes properly
tendered; and
(3) deliver or cause to be delivered to the trustee the notes properly
accepted together with an officers' certificate stating the aggregate
principal amount of notes or portions of notes being purchased by
Plastipak.
The paying agent will promptly mail to each Holder of notes properly
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 new note will be in a
principal amount of $1,000 or an integral multiple of $1,000. Plastipak 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 provisions described above that require Plastipak to make a Change of
Control Offer following a Change of Control will be applicable whether or not
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 Plastipak repurchase or
redeem the notes in the event of a takeover, recapitalization or similar
transaction.
Plastipak 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 Plastipak and
purchases all notes properly tendered and not withdrawn under the Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the
direct or indirect sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the properties or assets of Plastipak and its
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of notes to require Plastipak to repurchase its notes as a result of a
sale, lease, transfer, conveyance or other disposition of less than all of the
assets of Plastipak and its Subsidiaries taken as a whole to another Person or
group may be uncertain.
ASSET SALES
Plastipak will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless:
(1) Plastipak (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of the Asset Sale at least equal to the
fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
80
(2) in the case of Asset Sales involving consideration in excess of
$10.0 million, the fair market value is determined by Plastipak's Board of
Directors and evidenced by a resolution of the Board of Directors set forth
in an officers' certificate delivered to the trustee promptly after the
consummation of such Asset Sale; and
(3) at least 75% of the consideration received in the Asset Sale by
Plastipak or such Restricted Subsidiary is in the form of cash. For
purposes of this provision, each of the following will be deemed to be
cash:
(a) any liabilities, as shown on Plastipak's or such Restricted
Subsidiary's most recent balance sheet, of Plastipak or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are
by their terms subordinated to the notes or any Subsidiary Guarantee)
that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases Plastipak or such Restricted
Subsidiary from further liability; and
(b) any securities, notes or other obligations received by
Plastipak or any such Restricted Subsidiary from such transferee that
are contemporaneously, subject to ordinary settlement periods, converted
by Plastipak or such Restricted Subsidiary into cash, to the extent of
the cash received in that conversion.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
Plastipak may apply those Net Proceeds at its option:
(1) to repay secured Indebtedness under a Credit Facility and, if such
secured Indebtedness repaid is revolving credit Indebtedness, to
correspondingly reduce commitments with respect thereto;
(2) to acquire all or substantially all of the assets of, or a
majority of the Voting Stock of, another Permitted Business;
(3) to make a capital expenditure; or
(4) to acquire other long-term assets that are used or useful in a
Permitted Business.
Pending the final application of any Net Proceeds, Plastipak may
temporarily reduce revolving credit borrowings or otherwise invest the Net
Proceeds in any manner that is not prohibited by the indenture.
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 $5.0 million, Plastipak will make 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 such
indebtedness with the proceeds of sales of assets 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
Special Interest, 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,
Plastipak may use those Excess Proceeds for any purpose not otherwise prohibited
by the indenture. If the aggregate principal amount of notes and other pari
passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of
Excess Proceeds, the trustee will select the notes and such other pari passu
Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset
Sale Offer, the amount of Excess Proceeds will be reset at zero.
Plastipak will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with each
repurchase of notes pursuant to an Asset Sale Offer. To the
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extent that the provisions of any securities laws or regulations conflict with
the Asset Sale provisions of the indenture, Plastipak 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 Plastipak's other Indebtedness contain
prohibitions on 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 Plastipak 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 Plastipak. Finally, Plastipak's ability
to repurchase notes upon a Change of Control may be limited by Plastipak's then
existing financial resources. See "Risk Factors -- Financing Change of Control
Offer."
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 on any national securities exchange, in
compliance with the requirements of the principal national securities
exchange on which the notes are listed; or
(2) if the notes are not listed on any national securities exchange,
on a pro rata basis, by lot or by such method as the trustee deems fair and
appropriate.
No notes of $1,000 or less can 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, except that redemption notices may be mailed more than 60 days prior to
a redemption date if the notice is issued in connection with a defeasance of the
notes or a satisfaction and discharge of the indenture. 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 of that note
that is to be redeemed. A new note in the principal amount equal to the
unredeemed portion of the original note will be issued in the name of the Holder
of the notes upon cancellation of the original note. Notes called for redemption
become due on the date fixed for redemption. On and after the redemption date,
interest ceases to accrue on notes or portions of them called for redemption.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
Plastipak 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 payment or
distribution on account of Plastipak's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving Plastipak or any
of its Restricted Subsidiaries) or to the direct or indirect holders of
Plastipak'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 Plastipak or to
Plastipak or a Restricted Subsidiary of Plastipak);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving Plastipak) any Equity Interests of Plastipak;
82
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated to the notes or the Subsidiary Guarantees, except a payment of
interest or principal at the Stated Maturity thereof; or
(4) make any Restricted Investment (all such payments and other
actions set forth in these 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 has occurred and is continuing or
would occur as a consequence of such Restricted Payment; and
(2) Plastipak 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 Plastipak and its Restricted Subsidiaries
after the date of the indenture (excluding Restricted Payments permitted by
clauses (2), (3), (4) and (5) of the next succeeding paragraph), is less
than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of Plastipak for the period
(taken as one accounting period) from the beginning of the fiscal
quarter during which notes were first issued to the end of Plastipak's
most recently ended 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 received by Plastipak
since the date of the indenture as a contribution to its common equity
capital or from the issue or sale of Equity Interests of Plastipak
(other than Disqualified Stock) or from the issue or sale of convertible
or exchangeable Disqualified Stock or convertible or exchangeable debt
securities of Plastipak 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 Plastipak), plus
(c) to the extent that any Restricted Investment that was made
after the date of the indenture is sold for cash or otherwise liquidated
or repaid for cash, the lesser of (i) the cash return of capital with
respect to such Restricted Investment (less the cost of disposition, if
any) and (ii) the initial amount of such Restricted Investment, plus
(d) to the extent that any Unrestricted Subsidiary of Plastipak is
redesignated as a Restricted Subsidiary after the date of the indenture,
the fair market value of Plastipak's Investment in such Subsidiary as of
the date of such redesignation.
So long as no 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 of the dividend, if at the date of declaration the dividend
payment would have complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of Plastipak or any Guarantor
or of any Equity Interests of Plastipak in exchange for, or out of the net
cash proceeds of the substantially concurrent
83
sale (other than to a Restricted Subsidiary of Plastipak) of, Equity
Interests of Plastipak (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 will be
excluded from clause (3)(b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of Plastipak or any Guarantor with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend by a Restricted Subsidiary of
Plastipak to the holders of its Equity Interests on a pro rata basis;
(5) the use of the proceeds of this offering as described above under
"Use of Proceeds"; or
(6) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of Plastipak or any Restricted Subsidiary of
Plastipak held by any member of Plastipak's (or any of its Subsidiaries')
management; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests may not exceed
$3.0 million in any calendar year (which amount shall be increased by the
amount of any cash proceeds of any "key-man" life insurance policies,
whenever received, that are used to make such repurchases or redemptions).
The amount of all Restricted Payments (other than cash) will be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by Plastipak 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 will be
determined by the Board of Directors whose resolution with respect thereto will
be delivered to the trustee. The Board of Directors' determination must be based
upon an opinion or appraisal issued by an accounting, appraisal or investment
banking firm of national standing if the fair market value exceeds $10.0
million. Not later than the third business day after making any Restricted
Payment, Plastipak will deliver to the trustee an officers' certificate stating
that such Restricted Payment is permitted and setting forth the basis upon which
the calculations required by this "Restricted Payments" covenant were computed,
together with a copy of any fairness opinion or appraisal required by the
indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
Plastipak 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
Plastipak will not issue any Disqualified Stock and will not permit any of its
Restricted Subsidiaries to issue any shares of preferred stock; provided,
however, that Plastipak or any Guarantor may incur Indebtedness (including
Acquired Debt) or issue Disqualified Stock, if the Fixed Charge Coverage Ratio
for Plastipak'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 or such Disqualified Stock or preferred
stock is issued would have been at least 2.0 to 1, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred or the preferred stock or
Disqualified Stock had been issued, as the case may be, 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 Plastipak or any of the Guarantors of additional
Indebtedness and letters of credit under Credit Facilities, in an aggregate
principal amount at any one time
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outstanding under this clause (1) (with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of
Plastipak and the Guarantors thereunder) not to exceed the greater of:
(a) $100.0 million less the aggregate amount of all Net Proceeds of
Asset Sales applied by Plastipak or any of its Restricted Subsidiaries
since the date of the indenture to repay term Indebtedness under a
Credit Facility or to repay revolving credit Indebtedness and effect a
corresponding commitment reduction thereunder, in each case, pursuant to
the covenant described above under the caption "-- Repurchase at the
Option of Holders -- Asset Sales"; or
(b) the amount of the Borrowing Base as of the date of such
incurrence;
(2) the incurrence by Plastipak and its Restricted Subsidiaries of the
Existing Indebtedness;
(3) the incurrence by Plastipak and the Guarantors of Indebtedness
represented by the notes and the related Subsidiary Guarantees to be issued
on the date of the indenture and the Exchange Notes and the related
Subsidiary Guarantees to be issued pursuant to the registration rights
agreement;
(4) the incurrence by Plastipak or any of its Restricted Subsidiaries
of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of Plastipak or such Restricted Subsidiary, in an aggregate
principal amount, including all Permitted Refinancing Indebtedness incurred
to refund, refinance or replace any Indebtedness incurred pursuant to this
clause (4), not to exceed, at any time outstanding, the greater of (a)
$15.0 million or (b) 5% of Consolidated Net Tangible Assets;
(5) the incurrence by Plastipak or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are 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),
(4), (5), or (11) of this paragraph;
(6) the incurrence by Plastipak or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among Plastipak and any of its
Restricted Subsidiaries; provided, however, that:
(a) if Plastipak 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 Plastipak, or the Subsidiary Guarantee, in the
case of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than
Plastipak or a Restricted Subsidiary of Plastipak and (ii) any sale or
other transfer of any such Indebtedness to a Person that is not either
Plastipak or a Restricted Subsidiary of Plastipak will be deemed, in
each case, to constitute an incurrence of such Indebtedness by Plastipak
or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (6);
(7) the incurrence by Plastipak or any of its Restricted Subsidiaries
of Hedging Obligations in the ordinary course of business and not for
speculative purposes;
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(8) the guarantee by Plastipak or any of the Guarantors of
Indebtedness of Plastipak or a Restricted Subsidiary of Plastipak that was
permitted to be incurred by another provision of this covenant;
(9) 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
or an issuance of Disqualified Stock for purposes of this covenant;
provided, in each such case, that the amount thereof is included in Fixed
Charges of Plastipak as accrued;
(10) the incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is non-recourse to Plastipak or
any Restricted Subsidiary of Plastipak (except for Standard Securitization
Undertakings); and
(11) the incurrence by Plastipak 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 (11), not to exceed $25.0
million.
Notwithstanding the foregoing, Plastipak will not, and will not permit any
Guarantor to, incur any Indebtedness (including Permitted Debt) that is
contractually subordinated in right of payment to any other Indebtedness of
Plastipak or such Guarantor unless such Indebtedness is also contractually
subordinated in right of payment to the notes and the applicable Guarantee on
substantially identical terms; provided, however, that no Indebtedness of
Plastipak or any Guarantor will be deemed to be contractually subordinated in
right of payment to any other Indebtedness of Plastipak or any Guarantor 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 an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (11) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant,
Plastipak will be permitted to classify such item of Indebtedness on the date of
its incurrence in any manner that complies with this covenant.
LIENS
Plastipak will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien of
any kind securing Indebtedness on any asset now owned or hereafter acquired,
except Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
Plastipak 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 Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
to Plastipak 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 Plastipak or any of its Restricted Subsidiaries;
(2) make loans or advances to Plastipak or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to Plastipak 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 and Credit Facilities
as in effect or proposed to be entered into on the date of the indenture
and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings of those agreements,
provided that the amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings of such
instrument are no more restrictive, taken as a whole, with respect to such
dividend and other payment restrictions than those contained in such
agreement on the date of the indenture;
(2) the indenture, the notes and the Subsidiary Guarantees;
(3) applicable law or other restrictions imposed by governmental
entities in foreign countries;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by Plastipak or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness or
Capital Stock 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 for property acquired in the ordinary
course of business that impose restrictions on that property of the nature
described in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions 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;
(9) Liens securing Indebtedness otherwise permitted to be incurred
under the provisions of the covenant described above under the caption
"-- Liens" that limit the right of the debtor to dispose of the assets
subject to such Liens;
(10) any Purchase Money Note or other Indebtedness or other
contractual requirements of a Securitization Entity in connection with a
Qualified Securitization Transaction; provided that such restrictions apply
only to such Securitization Entity;
(11) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements, assets sale agreements,
stock sale agreements and other similar agreements entered into in the
ordinary course of business; and
(12) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Plastipak may not, directly or indirectly: (1) consolidate or merge with or
into another Person (whether or not Plastipak is the surviving corporation); or
(2) sell, assign, transfer, convey or otherwise dispose of all or substantially
all of the properties or assets of Plastipak and
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its Restricted Subsidiaries taken as a whole, in one or more related
transactions, to another Person; unless:
(1) either: (a) Plastipak is the surviving corporation; or (b) the
Person formed by or surviving any such consolidation or merger (if other
than Plastipak) or to which such sale, assignment, transfer, conveyance or
other disposition has been made is a corporation organized or existing
under the laws of the United States, any state of the United States or the
District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than Plastipak) or the Person to which such sale, assignment,
transfer, conveyance or other disposition has been made assumes all the
obligations of Plastipak under the notes, the indenture and, if the
Exchange Offer has not been consummated or Special Interest remains due and
owing with respect to all of the notes initially issued, the registration
rights agreement pursuant to agreements reasonably satisfactory to the
trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) Plastipak or the Person formed by or surviving any such
consolidation or merger (if other than Plastipak), or to which such sale,
assignment, transfer, conveyance or other disposition has been made will,
on the date of such transaction after giving pro forma effect thereto and
any related financing transactions as if the same had occurred at the
beginning of the applicable four-quarter period, be 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 above under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock."
In addition, Plastipak may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This "Merger, Consolidation or Sale of
Assets" covenant will not apply to a sale, assignment, transfer, conveyance or
other disposition of assets between or among Plastipak and any of its Restricted
Subsidiaries.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate
fair market value of all outstanding Investments owned by Plastipak and its
Restricted Subsidiaries in the Subsidiary properly designated will be deemed to
be an Investment made as of the time of the designation and will reduce the
amount available for Restricted Payments under the first paragraph of the
covenant described above under the caption "-- Restricted Payments" or Permitted
Investments, as determined by Plastipak. That designation will only be permitted
if the Investment would be permitted at that time and if the Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The
Board of Directors may redesignate any Unrestricted Subsidiary to be a
Restricted Subsidiary if the redesignation would not cause a Default.
TRANSACTIONS WITH AFFILIATES
Plastipak 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,
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agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms that are no less favorable
to Plastipak or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by Plastipak or such
Restricted Subsidiary with an unrelated Person; and
(2) Plastipak delivers to the trustee:
(a) 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; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing.
The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by Plastipak or any of its
Restricted Subsidiaries in the ordinary course of business and consistent
with the past practice of Plastipak or such Restricted Subsidiary;
(2) transactions between or among Plastipak and/or its Restricted
Subsidiaries;
(3) transactions with a Person that is an Affiliate of Plastipak
solely because Plastipak owns an Equity Interest in, or controls, such
Person;
(4) payment of reasonable directors fees to Persons who are not
otherwise Affiliates of Plastipak;
(5) sales of Equity Interests (other than Disqualified Stock) to
Affiliates of Plastipak;
(6) transactions effected as part of a Qualified Securitization
Transaction;
(7) transactions effected pursuant to written agreements, as the same
are in effect on the date of the indenture, on the terms described under
"Certain Relationships and Related Transactions", and amendments,
replacements or extensions to those agreements that do not alter the
payment terms of those agreements;
(8) transactions with Absopure Water Company and/or Buffalo Don's
Artesian Wells Ltd. in the ordinary course of business consistent with past
practice on the terms described under "Certain Relationships and Related
Transactions";
(9) the use of proceeds of this offering as described above under "Use
of Proceeds"; and
(10) Restricted Payments that are permitted by the provisions of the
indenture described above under the caption "-- Restricted Payments."
ADDITIONAL SUBSIDIARY GUARANTEES
If Plastipak or any of its Restricted Subsidiaries acquires or creates
another Domestic Subsidiary after the date of the indenture or if any Restricted
Subsidiary becomes a Domestic Subsidiary, then that newly acquired or created
Domestic Subsidiary will become a Guarantor and execute a supplemental indenture
and deliver an opinion of counsel satisfactory to the trustee within ten
Business Days of the date on which it was acquired or created or became a
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Domestic Subsidiary, provided, however, that all Subsidiaries that have properly
been designated as Unrestricted Subsidiaries in accordance with the indenture
for so long as they continue to constitute Unrestricted Subsidiaries will not
have to comply with the requirements of this covenant.
SALE AND LEASEBACK TRANSACTIONS
Plastipak will not, and will not permit any of its Restricted Subsidiaries
to, enter into any sale and leaseback transaction; provided that Plastipak or
any Guarantor may enter into a sale and leaseback transaction if:
(1) Plastipak or that Guarantor, as applicable, could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt relating
to such sale and leaseback transaction under the Fixed Charge Coverage
Ratio test in the first paragraph of the covenant described above under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock" and
(b) incurred a Lien to secure such Indebtedness pursuant to the covenant
described above under the caption "-- Liens";
(2) the gross cash proceeds of that sale and leaseback transaction are
at least equal to the fair market value, as determined in good faith by the
Board of Directors and set forth in an officers' certificate delivered to
the trustee, of the property that is the subject of such sale and leaseback
transaction; and
(3) the transfer of assets in such sale and leaseback transaction is
permitted by, and Plastipak applies the proceeds of such transaction in
compliance with, the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales."
BUSINESS ACTIVITIES
Plastipak will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent as
would not be material to Plastipak and its Restricted Subsidiaries taken as a
whole.
PAYMENTS FOR CONSENT
Plastipak 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 or the
notes 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, and in
accordance with the other terms and conditions, set forth in the solicitation
documents relating to such consent, waiver or agreement.
REPORTS
Whether or not required by the Commission, so long as any notes are
outstanding, Plastipak will furnish to the Holders of notes, within the time
periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if Plastipak 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 Plastipak's certified independent
accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if Plastipak were required to file such reports.
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In addition, following the consummation of the exchange offer whether or
not required by the Commission, Plastipak will file a copy of all of the
information and reports referred to in clauses (1) and (2) above with the
Commission for public availability within the time periods specified in the
Commission's rules and regulations (unless the Commission will not accept such a
filing) and make such information available to securities analysts and
prospective investors upon request. In addition, Plastipak and the Restricted
Subsidiary Guarantors have agreed that, for so long as any notes remain
outstanding, it/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.
If Plastipak has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph will include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of Plastipak
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of Plastipak.
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
Special Interest with respect to, the notes;
(2) default in payment when due of the principal of, or premium, if
any, on the notes;
(3) failure by Plastipak or any of its 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", "-- Certain Covenants -- Restricted Payments",
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock" or "-- Certain Covenants -- Merger, Consolidation or Sale
of Assets";
(4) failure by Plastipak or any of its Subsidiaries for 30 days after
notice to comply with any of the other agreements in the indenture;
(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 Plastipak or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by Plastipak or any of
its Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the indenture, 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
expressed maturity,
and, in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness or the maturity of
which has been so accelerated, aggregates $10.0 million or more;
(6) failure by Plastipak or any of its Restricted Subsidiaries to pay
final judgments aggregating in excess of $10.0 million, which judgments are
not paid, discharged or stayed for a period of 60 days; and
(7) except as permitted by the indenture, any Subsidiary Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full
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force and effect or any Guarantor, or any Person acting on behalf of any
Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee; and
(8) certain events of bankruptcy or insolvency described in the
indenture with respect to Plastipak or any of its Restricted Subsidiaries.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to Plastipak, any Restricted Subsidiary
that is a Significant Subsidiary or any group of Restricted Subsidiaries that,
taken together, would constitute a Significant Subsidiary, 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.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. 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 if it determines that
withholding notice is in their interest, except a Default or Event of Default
relating to the payment of principal or interest or Special 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 Special Interest on, or the principal of, the notes.
If an Event of Default occurs prior to September 1, 2006, by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of Plastipak
with the intention of avoiding the prohibition on redemption of the notes prior
to September 1, 2006, then the premium specified in the indenture will become
immediately due and payable to the extent permitted by law upon the acceleration
of the notes.
Plastipak 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, Plastipak 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 Plastipak or
any Guarantor, as such, will have any liability for any obligations of Plastipak
or the Guarantors under the notes, the indenture, the Subsidiary Guarantees, 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
Plastipak 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 Subsidiary Guarantees ("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 Special Interest,
if any, on such notes when such payments are due from the trust referred to
below;
(2) Plastipak'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;
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(3) the rights, powers, trusts, duties and immunities of the trustee,
and Plastipak's and the Guarantor's obligations in connection therewith;
and
(4) the Legal Defeasance provisions of the indenture.
In addition, Plastipak may, at its option and at any time, elect to have
the obligations of Plastipak 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 will 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 and insolvency events) described under "-- Events
of Default and Remedies" will no longer constitute an Event of Default with
respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Plastipak 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 of cash in U.S. dollars and
non-callable Government Securities, in 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 Special
Interest, if any, on the outstanding notes on the stated maturity or on the
applicable redemption date, as the case may be, and Plastipak must specify
whether the notes are being defeased to maturity or to a particular
redemption date;
(2) in the case of Legal Defeasance, Plastipak must deliver to the
trustee an opinion of counsel reasonably acceptable to the trustee
confirming that (a) Plastipak has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the date
of the indenture, 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 will 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, Plastipak must deliver to the
trustee an opinion of counsel reasonably acceptable to the trustee
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 may have occurred and be continuing
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);
(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 (other than the indenture) to which Plastipak or
any of its Subsidiaries is a party or by which Plastipak or any of its
Subsidiaries is bound;
(6) Plastipak must deliver to the trustee an officers' certificate
stating that the deposit was not made by Plastipak with the intent of
preferring the Holders of notes over the other creditors of Plastipak with
the intent of defeating, hindering, delaying or defrauding creditors of
Plastipak or others; and
(7) Plastipak 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 three succeeding paragraphs, the indenture
or 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 indenture or 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).
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 with respect to the redemption of the notes (other
than provisions relating to the covenants described above under the caption
"-- Repurchase at the Option of Holders");
(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 Special Interest, 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 that stated in the
notes;
(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 Special Interest, if
any, on the notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the caption
"-- Repurchase at the Option of Holders");
(8) release any Guarantor from any of its obligations under its
Subsidiary Guarantee or the indenture, except in accordance with the terms
of the indenture; or
(9) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any Holder of notes,
Plastipak, the Guarantors and the trustee may amend or supplement the indenture
or the notes:
(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 Plastipak's obligations to
Holders of notes in the case of a merger or consolidation or sale of all or
substantially all of Plastipak's assets;
(4) 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 of any such Holder;
(5) to add a Guarantor;
(6) to comply with the provisions described under "-- Subsidiary
Guarantees" requiring execution of a supplemental indenture; or
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(7) to comply with requirements of the Commission in order to effect
or maintain the qualification of the indenture under the Trust Indenture
Act.
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder, 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 been deposited in trust and thereafter repaid to
Plastipak, 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 mailing of a
notice of redemption or otherwise or will become due and payable within
one year and Plastipak 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 of cash in U.S. dollars and
non-callable Government Securities, in 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 Special Interest, if
any, and accrued interest to the date of maturity or redemption;
(2) no Default or Event of Default has occurred and is continuing on
the date of the deposit or will occur as a result of the deposit and the
deposit will not result in a breach or violation of, or constitute a
default under, any other instrument to which Plastipak or any Guarantor is
a party or by which Plastipak or any Guarantor is bound;
(3) Plastipak or any Guarantor has paid or caused to be paid all sums
payable by it under the indenture; and
(4) Plastipak 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, Plastipak 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.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of Plastipak 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 Commission 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
occurs and is 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 has offered to the trustee security and
indemnity satisfactory to it against any loss, liability or expense.
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ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the indenture and
registration rights agreement without charge by writing to Plastipak Packaging,
Inc. 9135 General Court, P.O. Box 2500C, Plymouth, Michigan 48170-0907,
Attention: Chief Financial Officer.
FORM, BOOK ENTRY PROCEDURES AND TRANSFER
The exchange notes will be issued in the form of one or more global notes.
The global notes will be deposited with, or on behalf of, The Depository Trust
Company ("DTC") and registered in the name of DTC or its nominee, who will be
the global notes holder. Except as set forth below, the global notes may be
transferred, in whole and not in part, only to DTC or another nominee of DTC.
Investors may hold their beneficial interests in the global notes directly
through DTC if they are participating organizations or "participants" in such
system or indirectly through organizations that are participants in such system.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC 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 from time to time. Plastipak 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 Plastipak that DTC is a limited-purpose trust company that
was created to hold securities for its participants and to facilitate the
clearance and settlement of transactions in such securities between participants
through electronic book-entry changes in accounts of its participants. The
participants include securities brokers and dealers (including the initial
purchasers), banks and 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, which we refer to as "indirect
participants," that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. Persons who are not participants may
beneficially own securities held by or on behalf of DTC only through the
participants or the indirect participants.
Plastipak expects that pursuant to procedures established by DTC:
- 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
- ownership of the exchange notes evidenced by 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 interests of the
participants), the participants and the indirect participants.
So long as the global notes holder is the registered owner of any exchange
notes, the global notes holder will be considered the sole holder under the
indenture of any exchange notes evidenced by the global notes. Beneficial owners
of exchange notes evidenced by the global notes will not be considered the
owners or holders thereof under the indentures for any purpose, including with
respect to the giving of any directions, instructions or approvals to the
trustee thereunder. Neither Plastipak nor the applicable trustee will have any
responsibility or liability for any aspect of the records of DTC or for
maintaining, supervising or reviewing any records of DTC relating to the
exchange notes.
Payments in respect of the principal of, and premium, if any, and interest
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, Plastipak and the trustee
96
will treat the persons in whose names the exchange notes, including the global
notes, are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, neither
Plastipak nor the trustee has or will have any responsibility or liability for
the payment of such amounts to beneficial owners of exchange notes. Plastipak
believes, however, that it is currently the policy of DTC to immediately credit
the accounts of the relevant participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in 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 practice and will be the
responsibility of the participants or the indirect participants.
EXCHANGES OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A beneficial interest in a global note may not be exchanged for a note in
certificated form unless (i) DTC (x) notifies Plastipak that it is unwilling or
unable to continue as Depository for such global note or (y) has ceased to be a
clearing agency registered under the Exchange Act, (ii) in the case of a global
note held for an account of Euroclear or Clearstream, Euroclear or Clearstream,
as the case may be, (A) is closed for business for a continuous period of 14
days (other than by reason of statutory or other holidays) or (B) announces an
intention permanently to cease business or does in fact do so, (iii) there shall
have occurred and be continuing an Event of Default with respect to the Notes or
(iv) a request for certificates has been made upon 60 days' prior written notice
given to the trustee in accordance with DTC's customary procedures and a copy of
such notice has been received by Plastipak from the trustee. In all cases,
certificated notes delivered in exchange for any global note or beneficial
interests therein will be registered in the names, and issued in approved
denominations, requested by or on behalf of DTC (in accordance with its
customary procedures). Neither Plastipak nor the trustee will be liable for any
delay by the global notes holder or DTC in identifying the beneficial owners of
exchange notes and Plastipak and the trustee may conclusively rely on, and will
be protected in relying on, instructions from the global notes holder or DTC for
all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The indenture will require that payments in respect of the exchange notes
represented by the global notes (including principal, premium, if any, and
interest) be made by wire transfer of immediately available funds to the
accounts specified by the global notes holder. With respect to certificated
securities, if any, Plastipak will make all payments of principal, premium, if
any, and interest by wire transfer of immediately available funds to the
accounts specified by the holders thereof or, if no such accounts is specified,
by mailing a check to each such holder's registered address.
REGISTRATION RIGHTS; SPECIAL INTEREST
The following description is a summary of the material provisions of the
registration rights agreement. It does not restate that agreement in its
entirety. We urge you to read the registration rights agreement in its entirety
because it, and not this description, defines your registration rights as
Holders of these notes. See "-- Additional Information."
Plastipak, the Guarantors and the initial purchasers of the outstanding
notes entered into the registration rights agreement. Pursuant to the
registration rights agreement, Plastipak and the Guarantors agreed to file with
the Commission the Exchange Offer Registration Statement on the appropriate form
under the Securities Act with respect to the Exchange Notes. Promptly following
the effectiveness of the Exchange Offer Registration Statement, Plastipak and
the Guarantors will offer to the Holders of Transfer Restricted Securities
pursuant to the Exchange Offer who are able to make certain representations the
opportunity to exchange their Transfer Restricted Securities for Exchange Notes.
97
If:
(1) Plastipak and the Guarantors are not:
(a) required to file the Exchange Offer Registration Statement; or
(b) permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or Commission policy;
(2) any Holder of Transfer Restricted Securities notifies Plastipak
prior to the 20th day following consummation of the Exchange Offer that:
(a) it is prohibited by law or Commission policy from participating
in the Exchange Offer; or
(b) 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) it is a broker-dealer and owns notes acquired directly from
Plastipak or an affiliate of Plastipak, or
(3) the Exchange Offer has not been completed within 225 days of the
Closing Date,
Plastipak and the Guarantors will file with the Commission a Shelf Registration
Statement to cover resales of the notes by the Holders of the notes who satisfy
certain conditions relating to the provision of information in connection with
the Shelf Registration Statement.
Plastipak and the Guarantors will use all commercially reasonable efforts
to cause the applicable registration statement to be declared effective by the
Commission no later than the Effectiveness Target Date.
For purposes of the preceding, "Transfer Restricted Securities" means each
outstanding note until:
(1) the date on which such outstanding 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
an outstanding 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 the outstanding note has been effectively
registered under the Securities Act and disposed of in accordance with the
Shelf Registration Statement;
(4) the date on which the outstanding note is distributed to the
public pursuant to Rule 144 under the Securities Act; or
(5) such note shall cease to be outstanding.
The registration rights agreement provides that:
(1) Plastipak and the Guarantors will file an Exchange Offer
Registration Statement with the Commission on or prior to 90 days after the
closing of the offering of the outstanding notes;
(2) Plastipak and the Guarantors will use all commercially reasonable
efforts to have the Exchange Offer Registration Statement declared
effective by the Commission on or prior to 180 days after the closing of
the offering of the outstanding notes;
98
(3) unless the Exchange Offer would not be permitted by applicable law
or Commission policy, Plastipak and the Guarantors will
(a) commence the Exchange Offer; and
(b) use all commercially reasonable efforts to issue on or prior to
30 business days, or longer, if required by the federal securities laws,
after the date on which the Exchange Offer Registration Statement was
declared effective by the Commission, Exchange Notes in exchange for all
outstanding notes tendered prior thereto in the Exchange Offer; and
(4) if obligated to file the Shelf Registration Statement, Plastipak
and the Guarantors will use all commercially reasonable efforts to file the
Shelf Registration Statement with the Commission on or prior to 60 days
after such filing obligation arises and to cause the Shelf Registration to
be declared effective by the Commission on or prior to 120 days after such
obligation arises.
If:
(1) Plastipak and the Guarantors fail to file any of the registration
statements required by the registration rights agreement on or before the
date specified for such filing; or
(2) any of such registration statements is not declared effective by
the Commission on or prior to the date specified for such effectiveness
(the "Effectiveness Target Date"); or
(3) Plastipak and the Guarantors fail to consummate the Exchange Offer
within 30 business days of the Effectiveness Target Date with respect to
the Exchange Offer Registration Statement; 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 of Transfer Restricted
Securities during the periods specified in the registration rights
agreement (each such event referred to in clauses (1) through (4) above, a
"Registration Default"),
then Plastipak and the Guarantors will pay Special Interest to each Holder of
notes affected thereby, with respect to the first 90-day period immediately
following the occurrence of the first Registration Default in an amount equal to
$.05 per week per $1,000 principal amount of outstanding notes held by such
Holder.
The amount of the Special Interest will increase by an additional $.05 per
week per $1,000 principal amount of outstanding notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Special Interest for all Registration Defaults of $.50 per
week per $1,000 principal amount of outstanding notes.
All accrued Special Interest will be paid by Plastipak and the Guarantors
on each Damages Payment Date to the Global Note Holder by wire transfer of
immediately available funds or by federal funds check and to Holders of
Certificated Notes by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified.
Following the cure of all Registration Defaults, the accrual of Special
Interest will cease.
Holders of outstanding notes will be required to make certain
representations to Plastipak (as described in the registration rights agreement)
in order to participate in the Exchange Offer and will be required to deliver
certain information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within the
time periods set forth in the registration rights agreement in order to have
their notes included in the Shelf Registration Statement and benefit from the
provisions regarding Special Interest set
99
forth above. By acquiring Transfer Restricted Securities, a Holder will be
deemed to have agreed to indemnify Plastipak and the Guarantors against certain
losses arising out of information furnished by such Holder in writing for
inclusion in any Shelf Registration Statement. Holders of outstanding notes will
also be required to suspend their use of the prospectus included in the Shelf
Registration Statement under certain circumstances upon receipt of written
notice to that effect from Plastipak.
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 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
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, means 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; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person will be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings.
Notwithstanding the foregoing, no Person (other than Plastipak or any
Subsidiary of Plastipak) in whom a Securitization Entity makes an Investment in
connection with a Qualified Securitization Transaction shall be deemed to be an
Affiliate of Plastipak or any of its Subsidiaries solely by reason of such
Investment.
"AMENDED CREDIT AGREEMENT" means that certain Amended Credit Agreement
entered into on August 20, 2001 by and among Comerica Bank, Plastipak Holdings,
Inc., Plastipak Packaging, Inc., Whiteline Express, Ltd., TABB Realty, LLC and
Clean Tech, Inc., providing for up to $150 million of revolving credit
borrowings including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, and in each case as
amended, modified, renewed, refunded, replaced or refinanced from time to time.
"ASSET SALE" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory in the ordinary course of business
consistent with past practices; provided that the sale, conveyance or other
disposition of all or substantially all of the assets of Plastipak and its
Restricted Subsidiaries taken as a whole will be governed by the provisions
of the indenture described above under the caption "-- Repurchase at the
Option of Holders -- Change of Control" and/or the provisions 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 in any of Plastipak's Restricted
Subsidiaries or the sale of Equity Interests in any of its Subsidiaries.
100
Notwithstanding the preceding, the following items will not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that
involves assets having a fair market value of less than $2.0 million;
(2) a transfer of assets between or among Plastipak and its Restricted
Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary to
Plastipak or to another Restricted Subsidiary;
(4) the sale or lease of equipment, inventory, accounts receivable or
other assets in the ordinary course of business;
(5) the sale or exchange of obsolete or damaged equipment in the
ordinary course of business;
(6) the sale or other disposition of cash or Cash Equivalents;
(7) any sales of accounts receivable (including contract rights) of
the type specified in the definition of "Qualified Securitization
Transaction" to a Securitization Entity for the fair market value thereof
as determined in accordance with GAAP. For the purposes of this clause (7),
Purchase Money Notes shall be deemed to be cash; or
(8) a Restricted Payment or Permitted Investment that is permitted by
the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments."
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"BENEFICIAL OWNER" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" will be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.
"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.
"BORROWING BASE" means, as of any date, an amount equal to:
(1) 85% of the face amount of all accounts receivable owned by
Plastipak and the Guarantors as of the end of the most recent fiscal
quarter preceding such date for which internal financial statements are
available that were not more than 90 days past due; plus
(2) 65% of the book value of all inventory owned by Plastipak and the
Guarantors as of the end of the most recent fiscal quarter preceding such
date for which internal financial statements are available,
all calculated on a consolidated basis and in accordance with GAAP.
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"CAPITAL LEASE OBLIGATION" means, at the time any determination 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 of the United
States government (provided that the full faith and credit of the United
States is pledged in support of those securities) having maturities of not
more than six months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case, with any lender party to the Amended Credit
Agreement or with any domestic commercial bank having capital and surplus
in excess of $500.0 million and a Thomson Bank Watch Rating of "B" or
better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Rating Services and in each
case maturing within six months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the
properties or assets of Plastipak and its Restricted Subsidiaries taken as
a whole to any "person" (as that term is used in Section 13(d)(3) of the
Exchange Act) other than the Principal or a Related Party of the Principal;
(2) the adoption of a plan relating to the liquidation or dissolution
of Plastipak;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than the Principal and his Related
Parties becomes the Beneficial Owner, directly or indirectly, of more than
35% of the Voting Stock of Plastipak, measured by voting power rather than
number of shares;
(4) the first day on which a majority of the members of the Board of
Directors of Plastipak are not Continuing Directors; or
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(5) Plastipak consolidates with, or merges with or into, any Person,
or any Person consolidates with, or merges with or into, Plastipak, in any
such event pursuant to a transaction in which any of the outstanding Voting
Stock of Plastipak or such other Person is converted into or exchanged for
cash, securities or other property, other than any such transaction where
the Voting Stock of Plastipak 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).
"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 plus any net loss
realized by such Person or any of its Restricted Subsidiaries in connection
with an Asset Sale, 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, 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), 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 expenses (excluding any
such non-cash expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period or 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 expenses were deducted in
computing such Consolidated Net Income; minus
(5) non-cash items increasing such Consolidated Net Income for such
period, other than the accrual of revenue in the ordinary course of
business,
in each case, on a consolidated basis and determined in accordance with GAAP.
"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 Restricted
Subsidiary of the 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, directly or indirectly, by operation of
the terms of
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its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted Subsidiary or
its stockholders;
(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 will be
excluded; and
(5) the Net Income (but not loss) of any Unrestricted Subsidiary will
be excluded, whether or not distributed to the specific Person or one of
its Subsidiaries.
"CONSOLIDATED NET TANGIBLE ASSETS" of any Person means, as of any date, the
amount which, in accordance with GAAP, would be set forth under the caption
"Total Assets" (or any like caption) on a consolidated balance sheet of such
Person and its Restricted Subsidiaries, as of the end of the most recently ended
fiscal quarter for which internal financial statements are available, less all
intangible assets, including, without limitation, goodwill, organization costs,
patents, trademarks, copyrights, franchises, and research and development costs.
"CONSOLIDATED NET WORTH" means, with respect to any specified Person as of
any date, the sum of:
(1) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date; plus
(2) the respective amounts reported on such Person's balance sheet as
of such date with respect to any series of preferred stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
preferred stock.
"CONTINUING DIRECTORS" means, as of any date of determination, any member
of the Board of Directors of Plastipak who:
(1) was a member of such Board of Directors on the date of the
indenture; 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; or
(3) in the event all directorships are vacant, is appointed by the
Principal or his Related Parties.
"CREDIT FACILITIES" means, one or more debt facilities (including, without
limitation, the Amended Credit Agreement) or commercial paper facilities, in
each case with banks or other institutional lenders providing for revolving
credit loans, term loans, 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 or refinanced in whole
or in part from time to time.
"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.
"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 of the Capital Stock), or
upon the happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or redeemable at the option of the
holder of the Capital Stock, in whole or in part, on or prior to the date that
is 91 days after the date on which the notes mature. Notwithstanding the
preceding sentence, any Capital Stock
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that would constitute Disqualified Stock solely because the holders of the
Capital Stock have the right to require Plastipak to repurchase such Capital
Stock upon the occurrence of a Change of Control or an Asset Sale will not
constitute Disqualified Stock if the terms of such Capital Stock provide that
Plastipak 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 Plastipak that was
formed under the laws of the United States or any state of the United States or
the District of Columbia or that guarantees or otherwise provides direct credit
support for any Indebtedness of Plastipak; provided that a Restricted Subsidiary
with assets having an aggregate fair market value of less than $100,000 will not
be deemed a Domestic Subsidiary unless and until it acquires assets having an
aggregate fair market value in excess of that amount.
"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).
"EXISTING INDEBTEDNESS" means the Indebtedness of Plastipak and its
Restricted Subsidiaries (other than Indebtedness under the Amended Credit
Agreement) in existence on the date of the indenture, until such amounts are
repaid.
"EXISTING SUBORDINATED NOTES" means:
(1) the 6.5% subordinated notes due March 2009, in aggregate principal
amount as of May 5, 2001 of $12,025,832, payable to former stockholders and
(2) the subordinated notes payable to former stockholders, in
aggregate principal amount as of May 5, 2001 of $8,268,306, plus interest
ranging from 6% to 10% due through October 2009.
"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) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries,
whether or not such Guarantee or Lien is called upon; plus
(4) the product of (a) all dividends, whether paid or accrued and
whether or not in cash, on any series of preferred stock of such Person or
any of its Restricted Subsidiaries, other than dividends on Equity
Interests payable solely in Equity Interests of Plastipak (other than
Disqualified Stock) or to Plastipak or a Restricted Subsidiary of
Plastipak, 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.
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"FIXED CHARGE COVERAGE RATIO" means with respect to any specified Person
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 (other than ordinary working
capital borrowings) 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 will 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 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 will 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 will be calculated on a pro forma basis in
accordance with Regulation S-X under the Securities Act, but without giving
effect to clause (3) of the proviso set forth in the definition of
Consolidated Net Income;
(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, will be excluded; and
(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, will 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 Restricted Subsidiaries
following the Calculation Date.
"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 from time to time.
"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, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"GUARANTORS" means each of:
(1) Plastipak Packaging, Inc., Whiteline Express, Ltd., Clean Tech,
Inc., and TABB Realty, LLC; and
(2) any other subsidiary that executes a Subsidiary Guarantee 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 and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in currency exchange rates or interest rates.
"INDEBTEDNESS" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations; or
(5) 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 all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any indebtedness of any other Person.
For purposes of calculating the amount of Indebtedness of a Securitization
Entity outstanding as of any date, the face or notional amount of any interest
in receivables or equipment that is outstanding as of such date shall be deemed
to be Indebtedness but any such interests held by Affiliates of such
Securitization Entity shall be excluded for purposes of such calculation.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value of the Indebtedness, in the case of any
Indebtedness issued with original issue discount; and
(2) the principal amount of the Indebtedness, together with any
interest on the Indebtedness that is more than 30 days past due (after
giving effect to all grace periods) in the case of any other Indebtedness.
"INVESTMENTS" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), 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 Plastipak or
any Subsidiary of Plastipak sells or otherwise disposes of any Equity Interests
of any direct or indirect Subsidiary of Plastipak such that, after giving effect
to any such sale or disposition, such Person is no longer a Subsidiary of
Plastipak, Plastipak will 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 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
Plastipak or any Subsidiary of Plastipak of a Person that holds an Investment in
a third Person will be deemed to be an Investment by Plastipak or such
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
107
determined as provided in the final paragraph of the covenant described above
under the caption "-- Certain Covenants -- Restricted Payments."
"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 option or other agreement to sell or 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.
"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, excluding, however:
(1) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with: (a) any
Asset Sale; or (b) the disposition of any securities by such Person or any
of its Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received by Plastipak 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 the direct costs
relating to such Asset Sale, including, without limitation, legal, accounting
and investment banking fees, and sales commissions, and any relocation expenses
incurred as a result of the Asset Sale, taxes paid or payable as a result of the
Asset Sale, 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 secured by a Lien on the asset or assets that
were the subject of such Asset Sale and any reserve for adjustment in respect of
the sale price of such asset or assets established in accordance with GAAP.
"NON-RECOURSE DEBT" means Indebtedness:
(1) as to which neither Plastipak 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 of the Indebtedness 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 Plastipak or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment of the Indebtedness 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 Plastipak 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.
"PERMITTED BUSINESS" means any business that derives a majority of its
revenues from the businesses engaged in by Plastipak and its Restricted
Subsidiaries on the date of original issuance of the notes and/or activities
that are reasonably similar, ancillary or related to, or a
108
reasonable extension, development or expansion of, the businesses in which
Plastipak and its Restricted Subsidiaries are engaged on the date of original
issuance of the notes.
"PERMITTED INVESTMENTS" means:
(1) any Investment in Plastipak or in a Restricted Subsidiary of
Plastipak that is a Guarantor, including purchases of the notes in open
market purchases from time to time;
(2) any Investment in Cash Equivalents;
(3) any Investment by Plastipak or any Restricted Subsidiary of
Plastipak in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of Plastipak and a
Guarantor; or
(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, Plastipak or a Restricted Subsidiary of Plastipak that
is a Guarantor;
(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 Plastipak;
(6) any Investments received in compromise of obligations of such
persons incurred in the ordinary course of trade creditors or customers
that were incurred in the ordinary course of business, including pursuant
to any plan of reorganization or similar arrangement upon the bankruptcy or
insolvency of any trade creditor or customer;
(7) Hedging Obligations;
(8) any Investment by Plastipak or a Restricted Subsidiary in a
Securitization Entity or any Investment by a Securitization Entity in any
other Person in connection with a Qualified Securitization Transaction;
provided that any Investment in a Securitization Entity is in the form of a
Purchase Money Note, equity interest or limited liability company interest;
(9) other Investments in Restricted Subsidiaries or Permitted Joint
Ventures that are not Guarantors 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
Investments made pursuant to this clause (9) since the date of the
indenture that are still outstanding, not to exceed $20.0 million; 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 Investments made pursuant to this clause (10) since the date of the
indenture that are still outstanding, not to exceed $10.0 million.
"PERMITTED JOINT VENTURE" means any entity owned 50% or more by Plastipak
and/or any of its Restricted Subsidiaries, if such entity is engaged in a
Permitted Business, and Plastipak has the right to appoint at least half of the
Board of Directors or similar governing body of such entity.
"PERMITTED LIENS" means:
(1) Liens of Plastipak or any Guarantor securing Indebtedness under a
Credit Facility that was permitted by the terms of the indenture to be
incurred;
(2) Liens in favor of Plastipak or the Guarantors;
109
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with Plastipak or any Subsidiary of
Plastipak; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with
Plastipak or the Subsidiary;
(4) Liens on property existing at the time of acquisition of the
property by Plastipak or any Subsidiary of Plastipak, provided that such
Liens were in existence prior to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant entitled
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock" covering only the assets acquired with such Indebtedness;
(7) Liens existing on the date of the indenture;
(8) 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 is required in
conformity with GAAP has been made therefor;
(9) Liens incurred in the ordinary course of business of Plastipak or
any Restricted Subsidiary of Plastipak with respect to obligations that do
not exceed $10.0 million at any one time outstanding; and
(10) Liens on assets transferred to a Securitization Entity or on
assets of a Securitization Entity, in either case incurred in connection
with a Qualified Securitization Transaction.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of Plastipak or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of Plastipak or any of its Restricted Subsidiaries (other than
intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness extended, refinanced,
renewed, replaced, defeased or refunded (plus all accrued interest on the
Indebtedness and the amount of all expenses and premiums incurred in
connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes, such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the
notes on terms at least as favorable to the Holders of notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
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(4) such Indebtedness is incurred either by Plastipak or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"PRINCIPAL" means William C. Young.
"PURCHASE MONEY NOTE" means a promissory note of a Securitization Entity
evidencing amounts owed to Plastipak or any Guarantor in connection with a
Qualified Securitization Transaction by a Securitization Entity, which note
shall be repaid from cash available to a Securitization Entity other than
amounts required to be established as reserves pursuant to agreements, amounts
paid to investors in respect of interest and principal and amounts paid in
connection with the purchase of newly generated receivables.
"QUALIFIED SECURITIZATION TRANSACTION" means any transaction or series of
transactions that may be entered into by Plastipak or any Guarantor pursuant to
which Plastipak or any Guarantor may sell, convey or otherwise transfer to:
(1) a Securitization Entity (in the case of a transfer by Plastipak or
any Guarantor); and
(2) any other Person (in the case of a transfer by a Securitization
Entity),
or may grant a security interest in any accounts receivable (whether now
existing or arising or acquired in the future) of Plastipak or any Guarantor,
and any assets related thereto, including, without limitation, all collateral
securing such accounts receivable, all contracts and contract rights and all
guarantees or other obligations in respect of such accounts receivable, proceeds
of such accounts receivable (including contract rights) which are customarily
transferred or in respect of which security interests are customarily granted in
connection with asset securitization transactions involving accounts
receivables.
"RECEIVABLES FACILITY" means a new off-balance sheet receivables purchase
facility entered into through a Securitization Entity.
"RELATED PARTY" means:
(1) any controlling stockholder, 80% (or more) owned Subsidiary, or
immediate family member (in the case of an individual) of any Principal; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding an 80% or more controlling interest of which consist of any one or
more Principal and/or such other Persons referred to in the immediately
preceding clause (1).
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"SECURITIZATION ENTITY" means any Person in which Plastipak or any
Guarantor of Plastipak makes an Investment and to which Plastipak or any
Guarantor of Plastipak transfers accounts receivable (including contract rights)
which engages in no activities other than in connection with the financing of
accounts receivable (including contract rights), and all activities ancillary
thereto to be conducted by such an entity in connection with a receivables
securitization, and which is designated by the Board of Directors as a
Securitization Entity.
111
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"STANDARD SECURITIZATION UNDERTAKINGS" means representations, warranties,
covenants and indemnities entered into by Plastipak or any Guarantor which are
reasonably customary in an accounts receivable securitization transaction.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and will not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which
more than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees of the corporation, association
or other business entity is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that
Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are that Person or one or more
Subsidiaries of that Person (or any combination thereof).
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of Plastipak that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with Plastipak or any Restricted Subsidiary of Plastipak
unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to Plastipak or such Restricted
Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of Plastipak;
(3) is a Person with respect to which neither Plastipak nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of Plastipak or any of its Restricted
Subsidiaries other than Standard Securitization Undertakings; and
(5) has at least one director on its Board of Directors that is not a
director or executive officer of Plastipak or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director
or executive officer of Plastipak or any of its Restricted Subsidiaries.
Any designation of a Subsidiary of Plastipak as an Unrestricted Subsidiary
will be evidenced to the trustee by filing with the trustee a certified copy of
the Board Resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the caption
"-- Certain Covenants -- Restricted Payments". If, at any time, any Unrestricted
Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it will thereafter
112
cease to be an Unrestricted Subsidiary for purposes of the indenture and any
Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted
Subsidiary of Plastipak as of such date and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under the
caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock", Plastipak will be in default of such covenant. The Board of
Directors of Plastipak may at any time designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; provided that such designation will be deemed to be
an incurrence of Indebtedness by a Restricted Subsidiary of Plastipak of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
will 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.
"VOTING STOCK" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect of the Indebtedness, by (b) the number of years (calculated to the
nearest one-twelfth) that will elapse between such date and the making of
such payment; by
(2) the then outstanding principal amount of such Indebtedness.
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
OVERVIEW
We summarize below the material U.S. federal income tax consequences of:
- the exchange of outstanding notes for exchange notes; and
- the ownership and sale of exchange notes by U.S. persons, based on
current U.S. federal income tax law.
Regarding the ownership and sale of exchange notes, this summary addresses only
exchange notes that were exchanged for outstanding notes that were purchased in
the initial offering at their issue price and that are held as capital assets.
This summary does not deal with special situations and does not represent a
detailed description of the U.S. federal income tax consequences applicable to
you if you are subject to special treatment under the U.S. federal income tax
laws, including: if you are a dealer in securities or currencies, a financial
institution, an insurance company, a tax exempt organization, a person holding
the exchange notes as part of a hedging, integrated or conversion transaction,
constructive sale or straddle, a trader in securities that has elected the
mark-to-market method of accounting for your securities or a U.S. person whose
functional currency is not the U.S. dollar.
The discussion below is based upon the provisions of the Internal Revenue
Code of 1986, as amended, and current regulations, rulings and judicial
decisions. Those authorities may be changed, perhaps retroactively, so as to
result in U.S. federal income tax consequences different from those discussed
below. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR CONCERNING THE FEDERAL INCOME TAX
CONSEQUENCES TO YOU AND ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER
TAXING JURISDICTION.
113
"United States person" means a beneficial owner of an exchange note that
is:
- a citizen or resident of the United States;
- a corporation or partnership created or organized under the laws of the
United States or any political subdivision of the United States;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust that:
(1) is subject to the supervision of a court within the United States
and the control of one or more U.S. persons; or
(2) has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person.
EXCHANGE OF OUTSTANDING NOTES FOR EXCHANGE NOTES
The following summary describes the material United States federal income
tax consequences of the exchange offer. The exchange of outstanding notes for
exchange notes in the exchange offer will not constitute a taxable event to
holders. Consequently, no gain or loss will be recognized by you upon receipt of
an exchange note, the holding period of the exchange notes will include the
holding period of the outstanding note and the basis of the exchange notes will
be the same as the basis of the outstanding note immediately before the
exchange.
IN ANY EVENT, YOU SHOULD CONSULT YOUR OWN TAX ADVISORS CONCERNING THE
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF YOUR PARTICULAR
SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER
TAXING JURISDICTION.
OWNERSHIP AND SALE OF EXCHANGE NOTES
Interest on an exchange note will generally be taxable to you as ordinary
income from domestic sources at the time it is paid or accrued in accordance
with your method of accounting for tax purposes.
Upon the sale, exchange, retirement or other disposition, which we refer to
as a "sale" of an exchange note, you will recognize gain or loss equal to the
difference between:
- the amount you realize upon the sale less an amount equal to any accrued
stated interest which will be taxable as interest if you did not
previously include that amount in income; and
- your tax basis in the exchange note.
That gain or loss will be capital gain or loss. Capital gains of individuals
derived from capital assets held for more than one year are eligible for reduced
rates of taxation. The deductibility of capital losses is subject to
limitations.
In general, information reporting requirements will apply to the payment of
principal and interest on the exchange notes and to the proceeds of sale of the
exchange notes made to you, unless you are an exempt recipient, such as a
corporation. A 31% backup withholding tax will apply to these payments if you
(1) fail to provide a taxpayer identification number, (2) fail to provide a
certification of exempt status or (3) fail to report in full dividend and
interest income.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against your United States federal income tax liability
provided the required information is furnished to the Internal Revenue Service.
114
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account under
the exchange offer must acknowledge that it will deliver a prospectus if it
resells any of the exchange notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer if it resells
exchange notes received in exchange for outstanding notes where the outstanding
notes were acquired as a result of market-making activities or other trading
activities. To the extent that any broker-dealer participates in the exchange
offer and notifies us of this participation, or causes us to be notified in
writing, we have agreed that for a period of 180 days after the date of this
prospectus, that we will make this prospectus, as amended or supplemented,
available to that broker-dealer for use with any resale, and will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests these documents in the letter of
transmittal.
We will not receive any proceeds from the sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
under the exchange offer may be sold from time to time in one or more
transactions through any of the following methods:
- in the over-the-counter market;
- in negotiated transactions;
- through the writing of options on the exchange notes; or
- a combination of these methods of resale, at prevailing market prices at
the time of resale, at prices related to prevailing market prices or at
negotiated prices.
Any resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer or the purchasers or these exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account under the exchange offer and any broker or dealer that participates in a
distribution of the exchange notes may be considered to be an "underwriter"
within the meaning of the Securities Act of 1933, and any profit on any resale
of exchange notes and any commissions or concessions received by these persons
may be considered to be underwriting compensation under the Securities Act of
1933. The letter of transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be considered
to admit that it is an "underwriter" within the meaning of the Securities Act of
1933.
We have agreed to pay all expenses incident to the exchange offer, other
than commissions and concessions of any broker-dealers, subject to specified
prescribed limitations. In addition, we have agreed to indemnify the holders of
the outstanding notes against specified liabilities, including specified
liabilities that may arise under the Securities Act of 1933.
By its acceptance of the exchange offer, any broker-dealer that receives
exchange notes under the exchange offer hereby agrees to notify us prior to
using the prospectus in the sale or transfer of exchange notes, and acknowledges
and agrees that, upon receipt of notice from us of the happening of any event
which makes any statement in this prospectus untrue in any material respect or
which requires the making of any changes in this prospectus in order to make the
statements in this prospectus not misleading or which may impose upon us
disclosure obligations that may have a material adverse effect on us which
notice we agree to deliver promptly to that broker-dealer, that broker-dealer
will suspend its use of this prospectus until we have notified that
broker-dealer that delivery of this prospectus may resume and has furnished
copies of any amendment or supplement to the prospectus to that broker-dealer.
115
LEGAL MATTERS
The validity of the exchange notes and the related guarantees will be
passed upon for Plastipak and the Guarantors by Seyburn, Kahn, Ginn, Bess and
Serlin, P.C., Southfield, Michigan.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The consolidated financial statements of Plastipak Holdings, Inc. and
subsidiaries as of November 3, 2001, and for each of the three years in the
period ended November 3, 2001, included in this prospectus have been audited by
Grant Thornton LLP, independent certified public accountants, as stated in their
reports appearing therein and elsewhere in the prospectus, and have been so
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
116
INDEX TO FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
Report of Independent Certified Public Accountants.......... F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of November 3, 2001 and
October 28, 2000....................................... F-3
Consolidated Statements of Operations for the years ended
November 3, 2001, October 28, 2000 and October 30,
1999................................................... F-5
Consolidated Statements of Stockholders' Equity for the
years ended November 3, 2001, October 28, 2000 and
October 30, 1999....................................... F-6
Consolidated Statements of Cash Flows for the years ended
November 3, 2001, October 28, 2000 and October 30,
1999................................................... F-7
Notes to the Consolidated Financial Statements............ F-9
</Table>
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Plastipak Holdings, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Plastipak
Holdings, Inc. and Subsidiaries as of November 3, 2001 and October 28, 2000 and
the related consolidated statements of operations, stockholders' equity and cash
flows for the three years in the period ended November 3, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Plastipak
Holdings, Inc. and Subsidiaries as of November 3, 2001 and October 28, 2000 and
the results of their operations and their cash flows for each of the three years
in the period ended November 3, 2001, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note M to the consolidated financial statements, during the
year ended October 28, 2000, the Company changed its method of accounting for
the purchase of parts and supplies used in its manufacturing facilities.
We have also audited Schedule II of Plastipak Holdings, Inc. and
Subsidiaries for the years ended November 3, 2001, October 28, 2000 and October
30, 1999. In our opinion these schedules present fairly, in all material
respects, the information required to be set forth therein.
/s/ GRANT THORNTON, LLP
Southfield, Michigan
January 22, 2002
F-2
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
NOVEMBER 3, OCTOBER 28,
2001 2000
ASSETS ------------ ------------
CURRENT ASSETS
Cash and cash equivalents................................. $ 53,483,389 $ 3,346,970
Accounts receivable
Trade (net of allowance of $6,111,236 and $3,529,283 at
November 3, 2001 and October 28, 2000)............... 48,906,619 62,713,515
Related parties........................................ 6,695,143 6,826,622
Prepaid expenses.......................................... 10,707,870 5,881,720
Inventories............................................... 77,930,887 65,883,292
Prepaid federal income taxes.............................. 1,100,000 270,634
Deferred income taxes..................................... 6,437,000 2,572,000
Other current assets...................................... 5,202,346 5,976,349
------------ ------------
Total Current Assets.............................. 210,463,254 153,471,102
------------ ------------
PROPERTY, PLANT AND EQUIPMENT -- NET........................ 270,382,231 255,134,804
------------ ------------
OTHER ASSETS
Cash surrender value of life insurance.................... 1,650,845 1,567,081
Deposits.................................................. 6,066,405 4,004,271
Capitalized loan costs.................................... 10,679,904 1,891,468
Intangible assets, (net of accumulated amortization of
$7,447,400 and $5,385,852 at November 3, 2001 and
October 28, 2000)...................................... 3,282,302 3,185,550
Investments in and advances to affiliates................. -- 690,976
Deferred income taxes..................................... -- 749,000
Note receivable........................................... 2,529,736 413,978
------------ ------------
Total Other Assets................................ 24,209,192 12,502,324
------------ ------------
$505,054,677 $421,108,230
============ ============
</Table>
The accompanying notes are an integral part of these financial statements.
F-3
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
<Table>
<Caption>
NOVEMBER 3, OCTOBER 28,
2001 2000
LIABILITIES AND STOCKHOLDERS' EQUITY ------------ ------------
CURRENT LIABILITIES
Accounts payable -- trade................................. $ 95,649,181 $104,456,595
Current portion of long-term obligations.................. 6,615,597 9,801,553
Accrued liabilities
Taxes other than income................................ 4,454,849 4,585,110
Other accrued expenses................................. 23,761,086 17,001,008
Income taxes........................................... 1,081,560 161,000
------------ ------------
Total Current Liabilities......................... 131,562,273 136,005,266
------------ ------------
SENIOR NOTES (NET OF UNAMORTIZED DISCOUNT OF $4,056,688).... 270,943,312 --
LONG-TERM OBLIGATIONS....................................... 55,503,756 250,398,212
DEFERRED INCOME TAXES....................................... 11,238,000 6,949,000
OTHER NON-CURRENT LIABILITIES............................... 3,399,352 2,495,144
STOCKHOLDERS' EQUITY
Common stock, no par value, 60,000 shares authorized;
27,753 shares issued and outstanding................... 27,753 27,753
Retained earnings......................................... 32,380,231 25,232,855
------------ ------------
Total Stockholders' Equity........................ 32,407,984 25,260,608
------------ ------------
$505,054,677 $421,108,230
============ ============
</Table>
The accompanying notes are an integral part of these financial statements.
F-4
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
YEARS ENDED
------------------------------------------
NOVEMBER 3, OCTOBER 28, OCTOBER 30,
2001 2000 1999
------------ ------------ ------------
Revenues........................................ $809,697,135 $701,872,292 $565,527,063
Costs and expenses.............................. 708,736,685 625,687,851 491,009,437
------------ ------------ ------------
Gross profit............................... 100,960,450 76,184,441 74,517,626
Selling, general and administrative expenses.... 64,757,837 50,961,712 50,252,501
------------ ------------ ------------
Operating profit........................... 36,202,613 25,222,729 24,265,125
Other expense (income)
Equity in earnings of affiliate............... (38,437) (200,078) (213,858)
Interest expense.............................. 28,873,832 27,027,534 26,021,008
Interest income............................... (915,237) (526,105) (456,818)
Royalty income................................ (883,599) (1,008,694) (1,239,365)
Loss on sale of equipment..................... 10,862 130,853 43,721
(Gain) loss on foreign currency translation... (468,105) 1,297,853 (5,863,770)
Sundry income................................. (808,079) (1,111,928) (528,423)
------------ ------------ ------------
25,771,237 25,609,435 17,762,495
------------ ------------ ------------
Earnings (loss) before income taxes,
extraordinary item and cumulative effect of
change in accounting principle................ 10,431,376 (386,706) 6,502,630
Income tax expense (benefit)
Current....................................... 2,111,000 223,000 1,685,000
Deferred...................................... 1,173,000 (2,403,000) 1,967,000
------------ ------------ ------------
3,284,000 (2,180,000) 3,652,000
------------ ------------ ------------
Earnings before extraordinary item and
cumulative effect of change in accounting
principle................................ 7,147,376 1,793,294 2,850,630
Extraordinary item-loss on early extinguishment
of debt (net of income tax benefit of
$1,955,000)................................... -- -- (3,793,555)
Cumulative effect of change in accounting
principle (net of income taxes of
$1,610,000)................................... -- 3,124,946 --
------------ ------------ ------------
Net earnings (loss)...................... $ 7,147,376 $ 4,918,240 $ (942,925)
============ ============ ============
</Table>
The accompanying notes are an integral part of these financial statements.
F-5
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<Table>
<Caption>
COMMON RETAINED
STOCK EARNINGS TOTAL
------- ----------- -----------
Balance, October 31, 1998............................. $30,121 $31,050,870 $31,080,991
------- ----------- -----------
Net loss.............................................. -- (942,925) (942,925)
Purchase of 25,000 shares of W.P. Young Marketing
Common Stock........................................ (2,368) (3,042,804) (3,045,172)
Stockholders' distributions........................... -- (1,045,000) (1,045,000)
Restricted stock options.............................. -- 232,154 232,154
Purchase of 49% of W.P. Young Real Estate............. -- (6,024,000) (6,024,000)
------- ----------- -----------
Balance, October 30, 1999............................. 27,753 20,228,295 20,256,048
Net earnings.......................................... -- 4,918,240 4,918,240
Restricted stock options.............................. -- 86,320 86,320
------- ----------- -----------
Balance, October 28, 2000............................. 27,753 25,232,855 25,260,608
Net earnings.......................................... -- 7,147,376 7,147,376
------- ----------- -----------
Balance, November 3, 2001............................. $27,753 $32,380,231 $32,407,984
======= =========== ===========
</Table>
The accompanying notes are an integral part of these financial statements.
F-6
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEARS ENDED
-------------------------------------------
NOVEMBER 3, OCTOBER 28, OCTOBER 30,
2001 2000 1999
------------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)........................... $ 7,147,376 $ 4,918,240 $ (942,925)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating
activities
Depreciation and amortization.............. 44,793,683 42,245,133 39,391,094
Bad debt expense........................... 2,695,156 405,855 776,453
Deferred salaries.......................... 1,264,000 625,000 --
Deferred tax expense (benefit)............. 1,173,000 (793,000) 1,967,000
Loss on sale of equipment.................. 10,862 130,853 43,721
Loss on investment in affiliate............ 722,413 -- --
Equity in earnings of affiliate............ (38,437) (200,078) (213,858)
Change in accounting principle............. -- (4,734,946) --
Foreign currency translation (gain) loss... (2,077,144) 520,592 (3,230,798)
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable............................ 11,243,219 (16,474,321) (75,226)
Increase in inventories.................. (12,047,595) (3,776,880) (12,830,628)
(Increase) decrease in prepaid expenses
and other current assets.............. (4,385,648) 225,211 3,481,755
(Increase) decrease in cash surrender
value................................. (83,765) 52,440 (735,918)
(Increase) decrease in prepaid federal
income taxes.......................... (829,366) 5,885,565 (4,009,769)
Increase (decrease) in other
liabilities........................... 6,307,863 9,202,787 (6,134,843)
(Increase) decrease in deposits.......... (2,060,410) 10,374,903 (2,648,898)
(Increase) decrease in accounts
payable............................... (8,807,414) 26,621,838 9,653,951
(Increase) decrease in sundry............ (2,108,758) 222,887 189,852
Increase in income taxes................. 920,560 161,000 --
------------- ------------ ------------
Net cash provided by operating
activities.......................... 43,839,595 75,613,079 24,680,963
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment......... (50,469,057) (54,694,075) (39,047,983)
Proceeds from sale of equipment............... -- -- 1,013,864
Acquisition of intangible assets.............. (2,287,917) (1,008,084) (50,000)
------------- ------------ ------------
Net cash used in investing
activities.......................... (52,756,974) (55,702,159) (38,084,119)
</Table>
F-7
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<Table>
<Caption>
YEARS ENDED
-------------------------------------------
NOVEMBER 3, OCTOBER 28, OCTOBER 30,
2001 2000 1999
------------- ------------ ------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
(Repayments) net borrowings under revolving
credit facility............................ $(174,547,855) $ (7,018,557) $ 76,524,282
Payments on long-term obligations............. (29,265,504) (15,362,913) (66,914,127)
Proceeds from long-term obligations........... 273,142,417 -- 16,172,072
Stockholder distributions..................... -- -- (1,045,000)
Capitalized loan costs........................ (10,275,260) (2,629,549) (750,000)
Stock redemption.............................. -- -- (6,024,000)
Repurchase of common stock warrants........... -- -- (1,070,000)
------------- ------------ ------------
Net cash provided by (used in) financing
activities............................... 59,053,798 (25,011,019) 16,893,227
------------- ------------ ------------
Net increase (decrease) in cash................. 50,136,419 (5,100,099) 3,490,071
Cash and cash equivalents at beginning of
period........................................ 3,346,970 8,447,069 4,956,998
------------- ------------ ------------
Cash and cash equivalents at end of period...... $ 53,483,389 $ 3,346,970 $ 8,447,069
============= ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes.................... $ 2,120,000 $ 240,000 $ 3,000,000
============= ============ ============
Cash paid for interest........................ $ 26,500,000 $ 25,000,000 $ 26,245,000
============= ============ ============
SUPPLEMENTAL NONCASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition of common stock through issuance
of long-term obligations and assignment of
officers life insurance.................... $ -- $ -- $ 2,820,000
============= ============ ============
Acquisition of equipment through the
assumption of long-term obligations........ $ 5,491,086 $ 3,099,382 $ 22,127,000
============= ============ ============
</Table>
The accompanying notes are an integral part of these financial statements.
F-8
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 3, 2001, OCTOBER 28, 2000 AND OCTOBER 30, 1999
NOTE A -- BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING
POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Plastipak Holdings, Inc. ("Plastipak") is a privately held Michigan
corporation that was formed in 1998 to act as a holding company for several
companies which were under common control. On October 30, 1999, Plastipak
acquired all of the equity interests in Plastipak Packaging, Inc. ("Packaging"),
W.P. Young Marketing, TABB Investments, Inc., Whiteline Express, Ltd.
("Whiteline"), Clean Tech, Inc. ("Clean Tech") and TABB Realty, LLC ("TABB"),
and a portion of the equity interests of Plastipak Packaging do Brasil, Ltda
("Plastipak Brazil"), through a reorganization (the "Reorganization").
Packaging, our principal operating company whose business commenced operations
in 1967, designs and manufactures rigid plastic containers, and was incorporated
in Delaware in 1982. Packaging also owns the remainder of Plastipak Brazil.
Whiteline is a trucking company which serves our transportation and logistics
needs, and was incorporated in Delaware in 1982. Clean Tech, a plastics
recycling operation, provides a source of clean, high quality post-consumer
recycled plastic raw material, and was incorporated in Michigan in 1989. TABB
owns real estate and leases it to Packaging and Clean Tech. Plastipak Brazil
produces injection-molded plastic preforms, blow molds rigid plastic packaging
in Paulinia and is expanding into Manaus. Plastipak Brazil also maintains a
sales office in Buenos Aires, Argentina. Other than Plastipak Brazil and its
subsidiaries, all of the Plastipak group of companies are headquartered in
Plymouth, Michigan. The combination of these companies has been accounted for in
a manner similar to a pooling-of-interests. Accordingly, Plastipak's financial
statements have been restated to include the results of operations, financial
position and cash flows of these companies for all periods presented. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Substantially all of the acquired companies' business prior to the mergers
was conducted with Packaging. Accordingly, pre-combination operating data of the
individual companies excluding intercompany transactions, is not significant.
SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements follows.
FISCAL PERIOD
Plastipak has elected a 52/53 week fiscal period for tax and financial
reporting purposes. Plastipak's fiscal period ends on the Saturday closest to
October 31. The period ended November 3, 2001 contained 53 weeks. The periods
ended October 28, 2000 and October 30, 1999 contained 52 weeks.
CASH EQUIVALENTS
For purposes of the statement of cash flows, all investments with a
maturity of less than three months are considered to be cash equivalents.
F-9
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 3, 2001, OCTOBER 28, 2000 AND OCTOBER 30, 1999
NOTE A -- BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING
POLICIES (CONTINUED)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Plastipak provides an allowance for losses on accounts receivable based on
a review of the current status of existing receivables, historical collection
experience and management's evaluation of the effect of existing economic
conditions.
INVENTORIES
Inventories are stated at the lower of cost or market. Values are
determined on a first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is provided
principally on the straight-line method based upon estimated useful lives
ranging from 3 to 10 years for machinery and equipment and up to 39 years for
buildings. Amortization of leasehold improvements is provided over the lesser of
the useful lives of the improvements or the terms of the various leases.
Interest costs associated with construction in process of approximately
$1,550,000, $1,362,000 and $1,136,000 were capitalized during the years ending
November 3, 2001, October 28, 2000 and October 30, 1999, respectively.
CAPITALIZED LOAN COSTS
Capitalized loan costs are amortized over the term of the related debt
agreement.
INTANGIBLE ASSETS
Periodically, Packaging acquires exclusive manufacturing contracts from a
customer. Consideration paid by Packaging for these arrangements is recorded as
an intangible asset and amortized over the term of the related contract.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and the effects of tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes
enactment date.
SELF-INSURANCE
Plastipak is self-insured for health costs and workers' compensation. The
estimated liability is based upon a review by Plastipak and an independent
broker of claims filed and claims incurred but not reported.
F-10
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 3, 2001, OCTOBER 28, 2000 AND OCTOBER 30, 1999
NOTE A -- BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING
POLICIES (CONTINUED)
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Plastipak's financial instruments include accounts receivable, accounts
payable and long-term obligations. The carrying amounts of financial instruments
approximate their fair values.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Research and
development costs were approximately $7,100,000, $6,300,000 and $6,800,000,
respectively for the years ended November 3, 2001, October 28, 2000 and October
30, 1999, respectively.
FOREIGN CURRENCY TRANSLATION
The functional currency for Plastipak Brazil is the U.S. dollar. The
financial statements for Plastipak Brazil are maintained in the functional
currency. Gains and losses associated with exchange rate fluctuations are
reflected in operations.
INDUSTRY SEGMENTS
Plastipak reports information about operating segments pursuant to SFAS No.
131, "Disclosure About Segments of an Enterprise and Related Information."
Plastipak is organized and managed on a geographic basis in two operating
segments: North America and South America. See Note O.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142 ("SFAS 142"), Accounting for
Goodwill and Other Intangibles. SFAS 142 requires that goodwill and certain
other intangible assets no longer be amortized to earnings, but instead be
reviewed periodically for potential impairment. The standard is effective for
fiscal years beginning after December 15, 2001.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets," which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. While SFAS 144 supersedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," it retains many of the fundamental provisions of that
statement. The standard is effective for fiscal years beginning after December
15, 2001.
Plastipak expects that the adoption of these standards will not have a
material impact on its financial position or results from operations.
F-11
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 3, 2001, OCTOBER 28, 2000 AND OCTOBER 30, 1999
NOTE B -- INVENTORIES
Inventories consisted of the following at:
<Table>
<Caption>
NOVEMBER 3, OCTOBER 28,
2001 2000
------------ -----------
Raw materials............................................... $28,166,931 $30,089,295
Finished goods.............................................. 38,922,590 28,286,774
Parts and supplies.......................................... 10,841,366 7,507,223
----------- -----------
$77,930,887 $65,883,292
=========== ===========
</Table>
NOTE C -- PROPERTY, PLANT AND EQUIPMENT
The principal categories of property, plant and equipment may be summarized
as follows:
<Table>
<Caption>
NOVEMBER 3, OCTOBER 28,
2001 2000
------------ ------------
Land........................................................ $ 4,547,843 $ 4,547,843
Buildings................................................... 64,031,367 64,019,526
Machinery and equipment..................................... 306,268,181 278,792,162
Tooling..................................................... 72,898,842 66,072,394
Automobiles, trucks and trailers............................ 3,120,292 1,007,371
Furniture and fixtures...................................... 2,706,263 2,467,996
Lease acquisition cost...................................... 299,293 99,095
Computers................................................... 14,552,961 7,792,808
Leasehold improvements...................................... 26,127,775 22,486,536
Construction in process..................................... 28,970,148 24,321,999
------------ ------------
523,522,965 471,607,730
Less accumulated depreciation and amortization.............. 253,140,734 216,472,926
------------ ------------
$270,382,231 $255,134,804
============ ============
</Table>
Construction in process represents expenditures for assets which have not
been placed in service. No depreciation or amortization expense is taken on
these assets until they become operational.
Depreciation and amortization for property, plant and equipment was
approximately $41,000,000, $40,000,000 and $31,000,000 for the years ended
November 3, 2001, October 28, 2000 and October 30, 1999, respectively.
F-12
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 3, 2001, OCTOBER 28, 2000 AND OCTOBER 30, 1999
NOTE D -- LONG-TERM OBLIGATIONS
<Table>
<Caption>
NOVEMBER 3, OCTOBER 28,
2001 2000
------------ ------------
Revolving credit facility pursuant to which Plastipak is
permitted to borrow up to $150,000,000. Interest is
payable quarterly at Eurodollar or prime-based rates which
varied from 9.15% to 9.64% at November 3, 2001. Principal
is due on August 20, 2006. The facility is secured by all
assets of Plastipak ...................................... $ -- $190,633,463
Subordinated notes payable to former stockholders, $84,436
due in monthly installments including interest at 6.5%
with a balloon payment of $9,693,964 due March 2009. The
notes are secured by stock pledges and escrow agreements.
Notes were paid off with the proceeds from the senior
notes, see Note E......................................... -- 12,136,479
Notes payable to banks with interest rates varying from 4.3%
to 12%, and are due at various times through August 2006.
Borrowings are collateralized by letters of credit........ 45,972,834 30,464,420
Notes payable with interest rates varying from 2.4% to 7.5%
due in various installments at various dates through 2005.
Borrowings are collateralized by certain equipment and, in
part, by letters of credit................................ 8,369,865 44,291,178
Subordinated notes payable to former stockholders due in
monthly installments ranging from $7,670 to $26,850, plus
interest ranging from 6% to 10%. Notes are due through
October 2009.............................................. 1,040,300 8,429,546
Other....................................................... 6,736,354 4,709,099
----------- ------------
62,119,353 260,199,765
Less current portion................................. 6,615,597 9,801,553
----------- ------------
$55,503,756 $250,398,212
=========== ============
</Table>
Minimum principal payments on long-term obligations to maturity as of
November 3, 2001 are as follows:
<Table>
2002........................................................ $ 6,615,597
2003........................................................ 10,523,905
2004........................................................ 2,285,800
2005........................................................ 1,391,899
2006........................................................ 41,302,152
-----------
$62,119,353
===========
</Table>
In 1997, Packaging issued 10.64% senior subordinated notes together with
detachable stock warrants which entitled the holder to acquire up to 6.64% of
the fully diluted common stock of Packaging. In October 1999, Packaging retired
the debt and the related warrants by paying approximately $52,000,000 to the
subordinated note holders. As a result, Packaging recorded an extraordinary
loss, net of income taxes of $3,793,555.
F-13
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 3, 2001, OCTOBER 28, 2000 AND OCTOBER 30, 1999
NOTE D -- LONG-TERM OBLIGATIONS (CONTINUED)
The revolving credit facility contains various covenants pertaining to
maintenance of net worth and debt to equity ratios and various other
restrictions.
At November 3, 2001 and October 28, 2000, Plastipak had outstanding letters
of credit aggregating $53,100,000 and $42,200,000, respectively.
NOTE E -- SENIOR NOTES
On August 20, 2001, the Company issued $275,000,000 of 10.75% senior notes
due in 2011. Interest is payable semi-annually. The indenture under which the
notes were issued place restrictions on the payment of dividends, the
acquisition of our common stock, the payment of indebtedness that is subordinate
to the notes, asset sales, and the incurrence of debt and issuance of preferred
stock. The senior notes are unconditionally guaranteed by all of the Company's
domestic subsidiaries. Prior to September 1, 2004, subject to certain
limitations, in the event of a common stock offering, the Company may redeem up
to 35% of the outstanding notes at a redemption price of 110.75% of the
principal amount plus accrued interest. After September 1, 2006, the Company may
redeem all or any portion of the outstanding notes at premiums which decline
from 105.375% at September 1, 2006 to 101.792% at September 1, 2008. On or after
September 1, 2009, the notes may be redeemed at par. The net proceeds received,
after underwriting discounts and other fees and expenses, were approximately
$263,200,000.
NOTE F -- INCOME TAXES
The components of earnings (loss) before income taxes and extraordinary
item are as follows:
<Table>
<Caption>
YEARS ENDED
------------------------------------------
NOVEMBER 3, OCTOBER 28, OCTOBER 30,
2001 2000 1999
------------ ----------- -----------
United States..................................... $ 23,957,855 $ 5,572,834 $5,863,416
Foreign........................................... (13,526,479) (5,959,540) 639,214
------------ ----------- ----------
$ 10,431,376 $ (386,706) $6,502,630
============ =========== ==========
</Table>
F-14
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 3, 2001, OCTOBER 28, 2000 AND OCTOBER 30, 1999
NOTE F -- INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities consist of the following:
<Table>
<Caption>
NOVEMBER 3, OCTOBER 28, OCTOBER 30,
2001 2000 1999
------------ ------------ ------------
Deferred tax assets:
Net operating loss carryforwards.............. $ 2,254,000 $ 4,755,000 $ 3,751,000
Insurance..................................... 1,122,000 979,000 702,000
Allowance for doubtful accounts............... 2,077,000 1,200,000 1,084,000
Vacation...................................... 229,000 192,000 166,000
Inventory..................................... 589,000 44,000 43,000
Restricted stock options...................... 368,000 368,000 368,000
Accrued expenses.............................. 575,000 1,381,000 952,000
Foreign tax credit............................ 901,000 901,000 801,000
Contributions................................. -- 56,000 --
Deferred salary............................... 775,000 483,000 --
U.S. tax credits.............................. 5,797,000 3,861,000 1,500,000
Deposits received............................. 1,278,000 -- --
------------ ------------ ------------
15,965,000 14,220,000 9,367,000
Deferred tax liabilities:
Earnings in affiliates........................ (513,000) (194,000) (300,000)
Depreciation.................................. (15,266,000) (13,059,000) (11,310,000)
Property and equipment........................ -- -- (183,000)
Foreign exchange gain......................... (1,543,000) (1,460,000) (1,995,000)
Capitalized interest.......................... (183,000) (183,000) --
Parts and supplies inventory.................. (2,861,000) (2,552,000) --
Other......................................... (400,000) (400,000) --
------------ ------------ ------------
(20,766,000) (17,848,000) (13,788,000)
------------ ------------ ------------
Net deferred tax liability...................... $ (4,801,000) $ (3,628,000) $ (4,421,000)
============ ============ ============
</Table>
Net operating loss carryforwards expire in years ending through 2019.
A reconciliation of the actual federal income tax expense to the expected
amounts computed by applying the statutory tax rate percent to earnings or
losses before income taxes and extraordinary item is as follows:
<Table>
<Caption>
YEARS ENDED
-----------------------------------------
NOVEMBER 3, OCTOBER 28, OCTOBER 30,
2001 2000 1999
----------- ----------- -----------
Expected federal income tax (benefit)............. $3,547,000 $ (115,000) $ 2,210,000
S corporations and partnerships................... -- -- (1,225,000)
Effect of termination of S election............... -- -- 1,680,000
Effect of non-deductible items.................... 46,000 69,000 987,000
Research and Experimentation credit............... (320,000) (2,200,000) --
Foreign tax credit................................ -- (100,000) --
Other............................................. 11,000 166,000 --
---------- ----------- -----------
$3,284,000 $(2,180,000) $ 3,652,000
========== =========== ===========
</Table>
F-15
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 3, 2001, OCTOBER 28, 2000 AND OCTOBER 30, 1999
NOTE G -- COMMITMENTS
Plastipak leases office, equipment and warehouse and manufacturing
facilities under operating leases which expire at various dates through 2008.
Long-term lease commitments are as follows:
<Table>
<Caption>
YEAR ENDING
- -----------
2002........................................................ $26,712,589
2003........................................................ 20,459,275
2004........................................................ 15,485,864
2005........................................................ 11,991,082
2006........................................................ 6,278,084
Thereafter.................................................. 3,365,697
</Table>
The total rent expense for the years ended November 3, 2001, October 28,
2000 and October 30, 1999 was approximately $36,154,000, $42,411,000 and
$44,073,000, respectively.
NOTE H -- RELATED PARTY TRANSACTIONS
Included in revenues for the periods ended November 3, 2001, October 28,
2000 and October 30, 1999 are approximately $20,363,000, $16,083,000 and
$13,600,000, respectively, of sales to companies affiliated through common
ownership.
A company affiliated through common ownership provides engineering services
and customizes machinery. During the fiscal years ended 2001, 2000 and 1999,
Packaging was invoiced $2,385,000, $6,673,000 and $4,357,000, respectively. This
Company invoiced Clean Tech $53,000 in fiscal 2000.
Included in accounts receivable for the periods ending November 3, 2001 and
October 28, 2000 are approximately $6,695,000 and $6,826,000, respectively of
receivables from companies affiliated through common ownership.
NOTE I -- PROFIT SHARING/401(K) PLAN
Plastipak has a profit sharing plan and a 401(k) plan which cover
substantially all employees. The profit sharing expense for the periods ended
November 3, 2001, October 28, 2000 and October 30, 1999 was approximately
$2,365,000, $1,930,000 and $1,550,000, respectively.
NOTE J -- MAJOR CUSTOMERS
During the years ended November 3, 2001 and October 28, 2000 one customer
in each year generated revenues representing approximately 23% and 20% of total
revenues, respectively. Accounts receivable from this customer at November 3,
2001 and October 28, 2000, amounted to approximately $2,483,000 and $5,477,000,
respectively. During the year ending October 30, 1999 two customers generated
revenues representing approximately 12% and 10% of total revenues.
NOTE K -- STOCK OPTION PLAN
Plastipak has a Restricted Stock Bonus Plan, with 5,000 shares of common
stock to be granted for options that may be issued under the plan. Under the
plan certain employees receive
F-16
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 3, 2001, OCTOBER 28, 2000 AND OCTOBER 30, 1999
NOTE K -- STOCK OPTION PLAN (CONTINUED)
options to purchase stock for $1. Under the option agreement the employee is
required to be employed for a minimum of 5 years.
At October 31, 1998 shares outstanding under the option agreement were
1,199 at an option price per share of $1.00. There have been no changes through
November 3, 2001.
Included in general and administrative expenses in 2001, 2000 and 1999 is
$0, $79,000 and $232,000, respectively. This represents compensation expense
associated with the excess of estimated fair value over purchase price and is
amortized to earnings over the life of the options.
NOTE L -- SALARY CONTINUATION PLAN
Packaging sponsors a nonqualified salary continuation plan that provides
for the payment of normal retirement and death benefits, and in some cases early
retirement benefits, to participants, as specified in the participant's adoption
agreement. An adoption agreement between the participant and Packaging sets
forth the age, years of service and other requirements a participant must attain
in order to receive a particular benefit. The plan provides a monthly benefit,
as defined by the participants' contract for a stated period of time, upon
reaching the age of 65. This Plan is noncontributory, although certain life
insurance policies have been acquired for the purpose of funding these benefits.
The life insurance policies are not assets of the Plan. The accumulated
postretirement obligation is not significant.
NOTE M -- CHANGE IN ACCOUNTING PRINCIPLE
Through October 30, 1999, Plastipak expensed parts and supplies utilized in
its manufacturing facilities. Effective October 28, 2000, these items are
inventoried and are charged to expense when used. Due to the increased volume of
purchases of such items, management believes that this method is preferable and
it provides for a better matching of revenues and expenses.
The effect of this change in accounting principle in 2000 was to increase
earnings before extraordinary item and cumulative effect of change in accounting
principle by approximately $1,836,000.
The proforma effects on earnings (loss) in 1999 before extraordinary item
and cumulative effect of change in accounting principle is not determinable in
as much as the related parts and supplies were not inventoried prior to October
31, 1999.
NOTE N -- LEGAL PROCEEDINGS
The Company is a party to various litigation matters arising in the
ordinary course of business. The ultimate legal and financial liability of this
litigation cannot be estimated with certainty but management believes, based on
their examination of these matters, experience to date and discussions with
counsel, that the ultimate liability will not be material to the Company's
business, financial condition or results of operations.
NOTE O -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS
The Senior Notes are unsecured, and guaranteed by each of Plastipak's
current and future material domestic subsidiaries.
F-17
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 3, 2001, OCTOBER 28, 2000 AND OCTOBER 30, 1999
NOTE O -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
The following condensed consolidating financial information presents:
(1)Condensed consolidating financial statements as of November 3, 2001
and October 28, 2000 and the three years in the period ending
November 3, 2001, of (a) Plastipak the parent; (b) the guarantor
subsidiaries (North American Operating Segment); (c) the nonguarantor
subsidiaries (South American Operating Segment); (d) Plastipak on a
consolidated basis, and
(2)Elimination entries necessary to consolidate Plastipak Holdings,
Inc., the parent, with the guarantor (North American operating
segment) and nonguarantor (South American operating segment)
subsidiaries.
Each subsidiary guarantor is wholly-owned by Plastipak, all guarantees are
full and unconditional; and all guarantees are joint and several.
F-18
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 3, 2001, OCTOBER 28, 2000 AND OCTOBER 30, 1999
NOTE O -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF NOVEMBER 3, 2001
<Table>
<Caption>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------ ------------- ------------- ------------ ------------
CURRENT ASSETS
Cash and cash equivalents......... $ 1,000 $ 51,476,877 $ 2,005,512 $ -- $ 53,483,389
Accounts receivable
Trade........................... -- 36,490,035 12,416,584 -- 48,906,619
Related parties................. 6,186,005 7,487,568 13,486 (6,991,916) 6,695,143
Prepaid expenses.................. -- 5,642,605 5,065,265 -- 10,707,870
Inventories....................... -- 60,687,715 17,243,172 -- 77,930,887
Prepaid federal income taxes...... -- 1,100,000 -- -- 1,100,000
Deferred income taxes............. (1,000) 3,760,000 2,678,000 -- 6,437,000
Other current assets.............. -- 739,964 4,462,382 -- 5,202,346
------------ ------------- ------------ ------------ ------------
Total current assets.......... 6,186,005 167,384,764 43,884,401 (6,991,916) 210,463,254
PROPERTY, PLANT AND EQUIPMENT --
NET............................... -- 213,264,728 57,117,503 -- 270,382,231
OTHER ASSETS
Cash surrender value of life
insurance....................... -- 1,650,845 -- -- 1,650,845
Deposits.......................... -- 6,066,405 -- -- 6,066,405
Investments in and advances to
affiliates...................... 300,364,511 (252,548,602) -- (47,815,909) --
Capitalized loan costs............ -- 10,679,904 -- -- 10,679,904
Intangible assets................. -- 2,969,666 312,636 -- 3,282,302
Deferred tax asset -- long-term... (814,000) 814,000 -- -- --
Notes Receivable.................. -- 7,529,736 -- (5,000,000) 2,529,736
------------ ------------- ------------ ------------ ------------
Total other assets............ 299,550,511 (22,838,046) 312,636 (52,815,909) 24,209,192
------------ ------------- ------------ ------------ ------------
Total assets.................. $305,736,516 $ 157,811,446 $101,314,540 $(59,807,825) $505,054,677
============ ============= ============ ============ ============
CURRENT LIABILITIES
Accounts payable.................. -- $ 64,500,951 $ 38,140,146 $ (6,991,916) $ 95,649,181
Current portion of long-term
liabilities..................... -- 2,230,150 4,385,447 -- 6,615,597
Taxes other than income........... -- 3,993,001 461,848 -- 4,454,849
Income taxes...................... (168,440) 1,250,000 -- -- 1,081,560
Other accrued expenses............ 6,240,972 13,531,214 3,988,900 -- 23,761,086
------------ ------------- ------------ ------------ ------------
Total current liabilities..... 6,072,532 85,505,316 46,976,341 (6,991,916) 131,562,273
SENIOR NOTES........................ 275,000,000 (4,056,688) -- -- 270,943,312
LONG-TERM OBLIGATIONS............... -- 4,755,203 55,748,553 (5,000,000) 55,503,756
DEFERRED INCOME TAXES............... (7,744,000) 17,392,000 1,590,000 -- 11,238,000
OTHER LONG-TERM LIABILITIES......... -- 2,817,367 581,985 -- 3,399,352
------------ ------------- ------------ ------------ ------------
Total liabilities............. 273,328,532 106,413,198 104,896,879 (11,991,916) 472,646,693
STOCKHOLDERS' EQUITY (DEFICIT)...... 32,407,984 51,398,248 (3,582,339) (47,815,909) 32,407,984
------------ ------------- ------------ ------------ ------------
Total liabilities and
stockholders' equity........ $305,736,516 $ 157,811,446 $101,314,540 $(59,807,825) $505,054,677
============ ============= ============ ============ ============
</Table>
F-19
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 3, 2001, OCTOBER 28, 2000 AND OCTOBER 30, 1999
NOTE O -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF OCTOBER 28, 2000
<Table>
<Caption>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
----------- ------------ ------------ ------------ ------------
CURRENT ASSETS
Cash and cash equivalents.. $ -- $ 1,805,335 $ 1,541,635 $ -- $ 3,346,970
Accounts receivable........ -- 56,393,056 17,682,413 (4,535,332) 69,540,137
Prepaid expenses........... -- 5,881,720 -- -- 5,881,720
Inventories................ -- 54,657,920 11,225,372 -- 65,883,292
Prepaid federal income
taxes.................... 104,000 270,634 -- (104,000) 270,634
Deferred income taxes...... 3,483,440 2,302,000 2,260,822 (5,474,262) 2,572,000
Other current assets....... -- 1,669,471 4,306,878 -- 5,976,349
----------- ------------ ----------- ------------ ------------
Total current assets..... 3,587,440 122,980,136 37,017,120 (10,113,594) 153,471,102
PROPERTY, PLANT AND
EQUIPMENT -- NET........... -- 203,666,686 51,468,118 -- 255,134,804
OTHER ASSETS
Cash surrender value of
life insurance........... -- 1,567,081 -- -- 1,567,081
Deposits................... -- 6,532,056 -- (2,527,785) 4,004,271
Investments in and advances
to affiliates............ 21,673,169 16,819,058 -- (37,801,251) 690,976
Capitalized loan costs..... -- 1,891,468 -- -- 1,891,468
Intangible assets.......... -- 2,694,507 491,043 -- 3,185,550
Deferred tax asset --
long-term................ -- 749,000 -- -- 749,000
Sundry..................... -- 5,413,978 -- (5,000,000) 413,978
----------- ------------ ----------- ------------ ------------
Total other assets....... 21,673,169 35,667,148 491,043 (45,329,036) 12,502,324
----------- ------------ ----------- ------------ ------------
Total assets............. $25,260,609 $362,313,970 $88,976,281 $(55,442,630) $421,108,230
=========== ============ =========== ============ ============
CURRENT LIABILITIES
Accounts payable........... $ -- $ 79,297,219 $29,601,122 $ (4,441,746) $104,456,595
Current portion of
long-term liabilities.... -- 2,186,393 7,615,160 -- 9,801,553
Taxes other than income.... -- 3,761,871 823,239 -- 4,585,110
Income taxes............... -- 265,000 -- (104,000) 161,000
Other accrued expenses..... -- 14,031,482 5,590,897 (2,621,371) 17,001,008
----------- ------------ ----------- ------------ ------------
Total current
liabilities............ -- 99,541,965 43,630,418 (7,167,117) 136,005,266
LONG-TERM OBLIGATIONS........ -- 213,043,341 42,354,871 (5,000,000) 250,398,212
DEFERRED INCOME TAXES........ -- 11,006,000 1,417,262 (5,474,262) 6,949,000
OTHER LONG-TERM
LIABILITIES................ -- 1,641,944 853,200 -- 2,495,144
----------- ------------ ----------- ------------ ------------
Total liabilities........ -- 325,233,250 88,255,751 (17,641,379) 395,847,622
STOCKHOLDERS' EQUITY......... 25,260,609 37,080,720 720,530 (37,801,251) 25,260,608
----------- ------------ ----------- ------------ ------------
Total liabilities and
stockholders' equity... $25,260,609 $362,313,970 $88,976,281 $(55,442,630) $421,108,230
=========== ============ =========== ============ ============
</Table>
F-20
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 3, 2001, OCTOBER 28, 2000 AND OCTOBER 30, 1999
NOTE O -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 3, 2001
<Table>
<Caption>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
----------- ------------ ------------ ----------- ------------
Revenues................ $ -- $737,978,723 $74,218,412 $(2,500,000) $809,697,135
Cost and expenses....... -- 637,738,854 73,414,294 (2,416,463) 708,736,685
----------- ------------ ------------ ----------- ------------
Gross profit....... -- 100,239,869 804,118 (83,537) 100,960,450
Selling, general and
administrative
expenses.............. -- 55,067,911 9,053,926 636,000 64,757,837
----------- ------------ ------------ ----------- ------------
Operating profit... -- 45,171,958 (8,249,808) (719,537) 36,202,613
Other expense (income)
Equity in loss
(earnings) of
affiliates......... (3,692,343) 3,653,906 -- -- (38,437)
Interest expense...... 6,240,972 16,745,361 6,248,803 (361,304) 28,873,832
Interest income....... (6,186,005) 5,726,552 (455,784) -- (915,237)
Royalty income........ -- (883,599) -- -- (883,599)
Loss (gain) on sale of
equipment.......... -- 19,691 (8,829) -- 10,862
Sundry income......... -- (768,665) (39,414) -- (808,079)
Gain on foreign
currency
translation........ -- -- (468,105) -- (468,105)
----------- ------------ ------------ ----------- ------------
(3,637,376) 24,493,246 5,276,671 (361,304) 25,771,237
Earnings (loss) before
income taxes.......... 3,637,376 20,678,712 (13,526,479) (358,233) 10,431,376
Income taxes
Current............... (65,000) 2,176,000 -- -- 2,111,000
Deferred.............. (3,445,000) 4,863,000 (245,000) -- 1,173,000
----------- ------------ ------------ ----------- ------------
(3,510,000) 7,039,000 (245,000) -- 3,284,000
----------- ------------ ------------ ----------- ------------
Net earnings (loss)..... $ 7,147,376 $ 13,639,712 $(13,281,479) $ (358,233) $ 7,147,376
=========== ============ ============ =========== ============
</Table>
F-21
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 3, 2001, OCTOBER 28, 2000 AND OCTOBER 30, 1999
NOTE O -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED OCTOBER 28, 2000
<Table>
<Caption>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
----------- ------------ ------------ ----------- ------------
Revenues.................. $ -- $639,576,090 $63,584,178 $(1,287,976) $701,872,292
Cost and expenses......... -- 569,612,025 57,363,802 (1,287,976) 625,687,851
----------- ------------ ----------- ----------- ------------
Gross profit....... -- 69,964,065 6,220,376 -- 76,184,441
Selling, general and
administrative
expenses................ -- 45,167,712 5,794,000 -- 50,961,712
----------- ------------ ----------- ----------- ------------
Operating profit
(loss).......... -- 24,796,353 426,376 -- 25,222,729
Other expense (income)
Equity in loss
(earnings) of
affiliates........... (3,578,364) 990,459 -- 2,387,827 (200,078)
Interest expense........ -- 21,969,188 5,480,750 (422,404) 27,027,534
Interest income......... -- (595,641) (352,868) 422,404 (526,105)
Royalty income.......... -- (1,008,694) -- -- (1,008,694)
Loss on sale of
equipment............ -- 130,853 -- -- 130,853
Sundry income........... -- (1,071,234) (39,819) (875) (1,111,928)
Loss on foreign currency
translation.......... -- -- 1,297,853 -- 1,297,853
----------- ------------ ----------- ----------- ------------
(3,578,364) 20,414,931 6,385,916 2,386,952 25,609,435
Earnings (loss) before
income taxes and
extraordinary items..... 3,578,364 4,381,422 (5,959,540) (2,386,952) (386,706)
Income taxes.............. (1,339,876) (884,000) 43,000 876 (2,180,000)
Earnings (loss) before
extraordinary item...... 4,918,240 5,265,422 (6,002,540) (2,387,828) 1,793,294
Change in accounting
principal (net of
tax).................... -- 3,124,946 -- -- 3,124,946
----------- ------------ ----------- ----------- ------------
Net earnings (loss)....... $ 4,918,240 $ 8,390,368 $(6,002,540) $(2,387,828) $ 4,918,240
=========== ============ =========== =========== ============
</Table>
F-22
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 3, 2001, OCTOBER 28, 2000 AND OCTOBER 30, 1999
NOTE O -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED OCTOBER 30, 1999
<Table>
<Caption>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
--------- ------------ ------------ ----------- ------------
Revenues.................... $ -- $511,634,039 $53,893,024 $ -- $565,527,063
Cost and expenses........... -- 441,959,268 49,050,169 -- 491,009,437
--------- ------------ ----------- --------- ------------
Gross profit........... -- 69,674,771 4,842,855 -- 74,517,626
Selling, general and
administrative expenses... -- 45,668,196 4,584,305 -- 50,252,501
--------- ------------ ----------- --------- ------------
Operating profit....... -- 24,006,575 258,550 -- 24,265,125
Other expense (income)
Equity in loss (earnings)
of affiliates.......... 513,550 (341,671) -- (385,737) (213,858)
Interest expense.......... -- 20,363,363 6,023,187 (365,542) 26,021,008
Interest income........... -- (216,074) (606,286) 365,542 (456,818)
Royalty income............ -- (1,239,365) -- -- (1,239,365)
Loss on sale of
equipment.............. -- 43,721 -- -- 43,721
Gain on foreign currency
translation............ -- (105,619) (5,758,151) -- (5,863,770)
Sundry income............. -- (489,009) (39,414) -- (528,423)
--------- ------------ ----------- --------- ------------
513,550 18,015,346 (380,664) (385,737) 17,762,495
Earnings (loss) before
income taxes and
extraordinary items....... (513,550) 5,991,229 639,214 385,737 6,502,630
Income taxes................ 429,375 3,259,000 (36,375) -- 3,652,000
Earnings (loss) before
extraordinary item........ (942,925) 2,732,229 675,589 385,737 2,850,630
Extraordinary item.......... -- 3,793,555 -- -- 3,793,555
--------- ------------ ----------- --------- ------------
Net earnings (loss)......... $(942,925) $ (1,061,326) $ 675,589 $ 385,737 $ (942,925)
========= ============ =========== ========= ============
</Table>
F-23
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 3, 2001, OCTOBER 28, 2000 AND OCTOBER 30, 1999
NOTE O -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED NOVEMBER 3, 2001
<Table>
<Caption>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------- ------------- ------------ ------------- -------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net cash provided by
(used in) operating
activities........... $ 3,692,342 $ 52,410,552 $ (7,710,392) $ (4,552,907) $ 43,839,595
CASH FLOWS USED IN
INVESTING ACTIVITIES
Acquisition of property
and equipment........ -- (38,775,401) (11,693,656) -- (50,469,057)
Investment in and
advances to
affiliates........... (278,691,342) (5,000,000) -- 283,691,342 --
Acquisition of
intangible assets.... -- (2,287,917) -- -- (2,287,917)
------------- ------------- ------------ ------------- -------------
Net cash used in
investing
activities...... (278,691,342) (46,063,318) (11,693,656) 283,691,342 (52,756,974)
CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES
Net borrowings under
revolving credit
facility............. -- (190,633,463) 16,085,608 -- (174,547,855)
Payments on long-term
obligations.......... -- (22,627,228) (7,478,276) 840,000 (29,265,504)
Proceeds from long-
term obligations..... 275,000,000 266,860,259 2,281,983 (270,999,825) 273,142,417
Capitalized loan
costs................ -- (10,275,260) -- -- (10,275,260)
Preferred Stock........ -- -- 8,978,610 (8,978,610) --
------------- ------------- ------------ ------------- -------------
Net cash (used in)
provided by
financing
activities...... 275,000,000 43,324,308 19,867,925 (279,138,435) 59,053,798
------------- ------------- ------------ ------------- -------------
Net (decrease) in cash... 1,000 49,671,542 463,877 -- 50,136,419
Cash and cash equivalents
at beginning of year... -- 1,805,335 1,541,635 -- 3,346,970
------------- ------------- ------------ ------------- -------------
Cash and cash equivalent
at end of year......... $ 1,000 $ 51,476,877 $ 2,005,512 $ -- $ 53,483,389
============= ============= ============ ============= =============
</Table>
F-24
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 3, 2001, OCTOBER 28, 2000 AND OCTOBER 30, 1999
NOTE O -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS -- (CONTINUED)
FOR THE YEAR ENDED OCTOBER 28, 2000
<Table>
<Caption>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
----------- ------------ ------------ ----------- ------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net cash provided by
(used in) operating
activities........... $ 3,579,800 $ 76,543,650 $(2,247,351) $(2,263,021) $ 75,613,079
CASH FLOWS USED IN
INVESTING ACTIVITIES
Acquisition of property
and equipment........ -- (48,509,404) (6,184,671) -- (54,694,075)
Investment in and
advances to
affiliates........... (3,666,121) (3,929,465) 5,006,245 2,589,341 --
Acquisition of
intangible assets.... -- (1,008,084) -- -- (1,008,084)
----------- ------------ ----------- ----------- ------------
Net cash used in
investing
activities...... (3,666,121) (53,446,953) (1,178,426) 2,589,341 (55,702,159)
CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES
Net borrowings under
revolving credit
facility............. -- (18,681,869) 11,903,312 (240,000) (7,018,557)
Payments on long-term
obligations.......... -- (6,572,913) (8,790,000) -- (15,362,913)
Capitalized loan
costs................ -- (2,629,549) -- -- (2,629,549)
Change in restricted
stock option plan.... 86,321 -- -- (86,321) --
----------- ------------ ----------- ----------- ------------
Net cash (used in)
provided by
financing
activities...... 86,321 (27,884,331) 3,113,312 (326,321) (25,011,019)
----------- ------------ ----------- ----------- ------------
Net (decrease) in cash.... -- (4,787,634) (312,465) -- (5,100,099)
Cash and cash equivalents
at beginning of year.... -- 6,592,969 1,854,100 -- 8,447,069
----------- ------------ ----------- ----------- ------------
Cash and cash equivalent
at end of year.......... $ -- $ 1,805,335 $ 1,541,635 $ -- $ 3,346,970
=========== ============ =========== =========== ============
</Table>
F-25
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 3, 2001, OCTOBER 28, 2000 AND OCTOBER 30, 1999
NOTE O -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS -- (CONTINUED)
FOR THE YEAR ENDED OCTOBER 30, 1999
<Table>
<Caption>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
----------- ------------ ------------ ----------- ------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net cash (used in) provided by
operating activities........ $(3,191,925) $ 28,378,069 $ 3,149,027 $(3,654,208) $ 24,680,963
CASH FLOWS USED IN INVESTING
ACTIVITIES
Acquisition of property and
equipment................... -- (34,855,174) (4,192,809) -- (39,047,983)
Proceeds from sale of
equipment................... -- 814,625 199,239 -- 1,013,864
Investment in and advances to
affiliates.................. 13,073,943 (20,113,009) (3,353,975) 10,393,041 --
Acquisition of intangible
assets...................... -- (50,000) -- -- (50,000)
----------- ------------ ------------ ----------- ------------
Net cash provided by (used
in) investing
activities................ 13,073,943 (54,203,558) (7,347,545) 10,393,041 (38,084,119)
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES
Net borrowings under revolving
credit facility............. -- 76,524,282 -- -- 76,524,282
Payments on long-term
obligations................. -- (49,063,926) (17,850,201) -- (66,914,127)
Proceeds from long-term
obligations................. -- 3,487,375 12,684,697 -- 16,172,072
Stockholder distributions..... (1,045,000) -- -- -- (1,045,000)
Capitalized loan costs........ -- (750,000) -- -- (750,000)
Purchase of common stock...... -- -- 9,603,600 (9,603,600) --
Retirement of common stock.... (3,045,172) (51,749) -- 3,096,921 --
Stock redemption.............. (6,024,000) -- -- -- (6,024,000)
Change in restricted stock
option plan................. 232,154 -- -- (232,154) --
Repurchase of capital stock
warrants.................... -- (1,070,000) -- -- (1,070,000)
----------- ------------ ------------ ----------- ------------
Net cash (used in) provided
by financing activities... (9,882,018) 29,075,982 4,438,096 (6,738,833) 16,893,227
----------- ------------ ------------ ----------- ------------
Net increase in cash............ -- 3,250,493 239,578 -- 3,490,071
Cash and cash equivalents at
beginning of year............. -- 3,342,476 1,614,522 -- 4,956,998
----------- ------------ ------------ ----------- ------------
Cash and cash equivalent at end
of year....................... $ -- $ 6,592,969 $ 1,854,100 $ -- $ 8,447,069
=========== ============ ============ =========== ============
</Table>
F-26
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 3, 2001, OCTOBER 28, 2000 AND OCTOBER 30, 1999
NOTE O -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
<Table>
<Caption>
GUARANTOR NONGUARANTOR
SUBSIDIARIES SUBSIDIARIES TOTAL
------------ ------------ -----------
Depreciation and amortization expense
Period Ended
November 3, 2001................................ $37,247,405 $7,546,278 $44,793,683
=========== ========== ===========
October 28, 2000................................ $35,599,128 $6,646,005 $42,245,133
=========== ========== ===========
October 30, 1999................................ $33,233,070 $6,158,024 $39,391,094
=========== ========== ===========
</Table>
NOTE P -- QUARTERLY FINANCIAL DATA (UNAUDITED)
<Table>
<Caption>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
Fiscal Year Ended November 3,
2001
Revenues....................... $197,794,121 $207,255,264 $205,539,141 $199,108,609
Gross profit................... $ 19,967,821 $ 31,784,512 $ 21,801,242 $ 27,406,875
Net (loss) earnings............ $ (808,695) $ 6,996,284 $ 582,804 $ 376,983
Fiscal Year Ended October 28,
2000
Revenues....................... $147,803,101 $166,671,110 $184,978,017 $202,420,064
Gross profit................... $ 13,798,243 $ 19,723,171 $ 18,120,954 $ 24,542,073
(Loss) earnings before
cumulative effect of change
in accounting principle..... $ (3,949,704) $ 164,797 $ (1,243,818) $ 6,822,019
</Table>
F-27
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<Table>
<Caption>
ADDITIONS
------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER DEDUCTIONS- BALANCE AT
BEGINNING OF COST AND ACCOUNTS- DESCRIBE AND END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE WRITE-OFFS PERIOD
- ----------- ------------ ---------- ---------- ------------ ----------
Allowance for doubtful accounts:
Year ended:
November 3, 2001............... $3,529,283 $2,695,156 $-- $ 113,203 $6,111,236
October 28, 2000............... $3,190,347 $ 405,855 $-- $ 66,919 $3,529,283
October 30, 1999............... $4,981,997 $ 776,453 $-- $2,568,103 $3,190,347
</Table>
<Table>
<Caption>
ADDITIONS
------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING OF COST AND ACCOUNTS- DEDUCTIONS- END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ----------- ------------ ---------- ---------- ----------- ----------
Accumulated amortization for intangible assets:
Year ended:
November 3, 2001............... $5,385,852 $2,061,548 $-- $-- $7,447,400
October 28, 2000............... $3,859,189 $1,526,663 $-- $-- $5,385,852
October 30, 1999............... $2,198,195 $1,660,994 $-- $-- $3,859,189
</Table>
F-28
------------------------------------------------------
------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the notes offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
----------------------
TABLE OF CONTENTS
Prospectus
<Table>
<Caption>
Page
----
Prospectus Summary................... 1
Summary Consolidated Financial
Data............................... 9
Risk Factors......................... 11
Where You Can Find More
Information........................ 19
The Exchange Offer................... 20
Use of Proceeds...................... 32
Capitalization....................... 33
Selected Consolidated Financial
Data............................... 34
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 36
Business............................. 46
Management........................... 62
Executive Compensation............... 64
Security Ownership of Certain
Beneficial Owners and Management... 68
Certain Relationships and Related
Transactions....................... 69
Description of Other Indebtedness.... 75
Description of Notes................. 76
U.S. Federal Income Tax Consequences
of the Exchange Offer.............. 113
Plan of Distribution................. 115
Legal Matters........................ 116
Independent Certified Public
Accountants........................ 116
Index to Consolidated Financial
Statements......................... F-1
</Table>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
$275,000,000
PLASTIPAK HOLDINGS, INC.
10.75% Senior Notes
due 2011
----------------------
[PLASTIPAK LOGO]
----------------------
February 25, 2002
------------------------------------------------------
------------------------------------------------------