Filed Pursuant to Rule 424(b)(3)
Registration No. 333-101098
PROSPECTUS
$50,000,000
[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and not properly withdrawn for an equal principal amount of exchange notes.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 May 21,
2003, 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 APRIL 18, 2003.
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 September 25, 2002, 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 2002, we manufactured and distributed approximately 6.8
billion containers worldwide for over 450 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 100 U.S. patents, many
of which are registered in foreign countries, for our state-of-the-art,
package-manufacturing processes. 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 2, 2002, our revenue was $812.2
million, our earnings were $8.6 million and our EBITDA was $96.5 million. For
the three months ended February 1, 2003 our revenue was $199.5 million, we
incurred a loss of $1.8 million and our EBITDA was $21.0 million.
We have increased our revenue between 1998 and 2002 at a compound annual
growth rate ("CAGR") of 9.5%, exceeding the industry average. Further, all of
our revenue growth has been organic. This continued 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.
Approximately 95% of our revenue for fiscal 2002 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 2002 was as follows:
- carbonated and non-carbonated beverage, 45%;
- consumer cleaning, 30%;
- food and processed juices, 14%;
- industrial, automotive and agricultural, 5%; and
- health, personal care and distilled spirits, 1%.
The remaining 5% of our fiscal 2002 revenue was generated by miscellaneous
sources, including recycling and transportation.
We operate 14 plants in the United States and Brazil. The total square
footage of our manufacturing and warehousing facilities is in excess of 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 $290 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 productivity center and our packaging development center have secured
over 100 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
2002 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.
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 CONTINUED 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
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glass and metal containers to plastic packaging, including packages containing
post-consumer recycled resin.
CONTINUE DEVELOPING VALUE-ADDED SERVICES AND PRODUCTS
Supported by our productivity 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 September 25, 2002, 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 $50.0
million total principal amount of exchange
notes for up to $50.0 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 May 21, 2003, 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.
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SUMMARY OF TERMS OF THE EXCHANGE NOTES
Issuer........................ Plastipak Holdings, Inc.
Notes Offered................. $50.0 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 September 1, 2003.
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
March 1, 2003, we had approximately $60.6
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.
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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."
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data for the three fiscal
years ended November 2, 2002 were derived from our audited consolidated
financial statements that are included elsewhere in this prospectus. The
following summary consolidated financial data for the year ended October 31,
1998 were derived from audited combined financial statements of the predecessor
companies. The summary financial data as of February 1, 2003 and for the three
months ended February 2, 2002 and February 1, 2003, respectively, were derived
from the unaudited consolidated financial statements included elsewhere in this
prospectus. 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>
THREE MONTHS ENDED
YEAR ENDED --------------------------
-------------------------------------------------------- FEBRUARY 2, FEBRUARY 1,
1998 1999 2000 2001 2002 2002 2003
-------- -------- -------- -------- -------- ----------- -----------
(dollar amounts in thousands)
STATEMENT OF OPERATIONS DATA:
Total revenues................. $565,639 $565,527 $701,872 $809,774 $812,190 $187,502 $199,545
Costs and expenses............. 501,644 491,009 625,691 709,013 697,001 161,386 174,730
Gross profit............. 63,995 74,518 76,181 100,762 115,189 26,116 24,815
Selling, general and
administrative expenses...... 48,352 50,253 50,958 64,477 68,506 16,285 17,686
Operating profit......... 15,643 24,265 25,223 36,285 46,683 9,831 7,129
Interest expense............... 21,253 26,021 27,028 28,956 35,099 9,133 10,288
Other expense (income)(a)...... (3,080) (2,510) (1,418) (3,102) (1,840) 1,496 (337)
Earnings (loss) before income
taxes and change in
accounting principle......... (2,530) 754 (387) 10,431 13,424 (798) (2,822)
INCOME TAXES:
Current...................... 1,344 (270) 223 2,111 20 646 --
Deferred..................... (2,585) 1,967 (2,403) 1,173 4,811 (951) (1,001)
-------- -------- -------- -------- -------- -------- --------
$ (1,241) $ 1,697 $ (2,180) $ 3,284 $ 4,831
Earnings (loss) before
cumulative effect of change
in accounting principle...... (1,289) (943) 1,793 7,147 8,593 (493) (1,821)
Cumulative effect of change in
accounting principle(b)...... -- -- 3,125 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss)...... $ (1,289) $ (943) $ 4,918 $ 7,147 $ 8,593 $ (493) $ (1,821)
======== ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(c)...................... $ 51,283 $ 66,166 $ 68,886 $ 84,099 $ 96,541 $ 19,852 $ 21,044
Ratio of earnings to fixed
charges(d),(e)............... -- 1.02x -- 1.25x 1.29x -- --
Ratio of net debt to
EBITDA(f).................... 4.42x 4.09x 3.73x 3.32x 3.30x -- --
Ratio of EBITDA to interest
expense...................... 2.41x 2.54x 2.55x 2.90x 2.75x 2.17x 2.05x
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital(g)............. $ 32,938 $ 41,872 $ 23,920 $ 31,480 $ 28,272 $ 33,969 $ 30,136
Total assets................... 357,786 398,997 421,108 505,055 569,598 505,729 576,874
Total debt..................... 231,450 278,917 260,200 333,062 387,315 330,647 389,011
Stockholders' equity........... 31,081 17,861 22,592 29,467 37,284 28,974 35,591
</Table>
- ---------------
(a) Included in other expense (income) for 1999 is $5,749,000 related to a
reclassification pursuant to SFAS No. 145, "Rescission of FASB Statements
No. 4, 144 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections". An extraordinary loss related to early extinguishment of debt
has been reclassified and the associated tax benefit of $1,955,000 has been
reclassified to current tax expense (benefit).
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(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 N 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 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 31, 1998 and October 28, 2000, earnings were
inadequate to cover fixed charges by $2,530 and $1,631, respectively. For
the three months ended February 2, 2002 and February 1, 2003, earnings were
inadequate to cover fixed charges by $1,251 and $3,252, 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.
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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 March 1, 2003, we had total indebtedness
of approximately $392.1 million (of which $325 million consisted of the notes
outstanding under the indenture under which the notes were issued 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 2003 will be approximately $41.2 million. For each one
percent increase in interest rates, this amount will increase by $541,000. Our
ability to make payments on and to refinance our indebtedness, including the
outstanding notes and the exchange notes, and to fund planned capital
11
expenditures and research and development efforts will depend on our
subsidiaries' ability 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 March 1, 2003, the amount outstanding under our Amended Credit
Facility was approximately $56.3 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 March 1, 2003, the aggregate amount of our secured indebtedness and
the secured indebtedness of our subsidiaries was approximately $60.6 million,
and approximately $93.7 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
12
subsidiaries generated approximately 8% and 10% of our consolidated revenue for
the year ended November 2, 2002 and the three months ended February 1, 2003,
respectively. The non-guarantor subsidiaries held approximately 16% of our
consolidated assets as of November 2, 2002 and February 1, 2003. See footnote P
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 in the principal amount of $325.0 million 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 purchaser of the outstanding
notes was Goldman, Sachs & Co. Although the initial purchaser of the outstanding
notes stated that it intends to make a market in the outstanding notes and the
exchange notes, it is 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.
13
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 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 Amcor, American
National Can, Inc., Ball Plastics, Consolidated Container Company, Constar
International, Crown Cork & Seal Company, Inc., Graham Packaging Company,
Liqui-Box Corporation, Owens-Illinois, Inc. 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 year ended November 2, 2002 and the three months ended February 1,
2003, our largest single customer accounted for approximately 25% and 28% of our
revenue, respectively, and our ten largest customers accounted for approximately
73% and 70% of our revenue, respectively. 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. Nine out of our top ten customers have
written contracts with us with remaining terms of between one and five years. In
general, these contracts are requirements contracts that do not obligate our
customers to purchase any specific minimum amount of product from us. These
contracts may be terminated by us or by our customer prior to their expiration
dates 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
customers have requested competitive price reductions from time to time in the
past under their contracts with us.
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 2, 2002 and the three months ended February 1, 2003, net
sales of our Brazilian subsidiaries totaled
14
approximately $65.9 million and $21.8 million, respectively, representing
approximately 8% and 10% of our worldwide revenue for such period. We
experienced net losses of approximately $12.8 million and $1.0 million on our
Brazilian sales for the year ended November 2, 2002 and the three months ended
February 1, 2003, respectively.
Our results to date in Brazil have been less than we expected, as currency
devaluations, high interest rates, inflation, import restrictions and a legal
system which makes it difficult to enforce contracts have reduced both revenue
and profits. Import duties on equipment needed to upgrade our production
capabilities in Brazil are significant. 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; 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 2001 and 2002, we
made capital expenditures of approximately $56 million and $85 million,
respectively. We estimate that capital expenditures in each of fiscal 2003 and
2004 will be approximately $103 million and $90 million, respectively. 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 2002 and for the
three months ended February 1, 2003. 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. 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
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 stringent federal, state,
local and foreign laws and regulations relating to pollution, 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.
Environmental laws generally impose liability for costs to investigate and
remediate contamination without regard to fault and, under certain
circumstances, liability may be joint and several resulting in one responsible
party being held responsible for the entire obligation. We have incurred, and
may continue to incur, such costs related to at least two of our properties.
Although we believe our operations and properties are substantially in
compliance, new laws and regulations, stricter enforcement or interpretation of
existing laws and regulations or the discovery of previously unknown
contamination or previously unknown off-site liability, 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.
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
17
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. See "Business -- Legal
Proceedings". Defendants prepared and filed a motion for summary disposition
that will be renewed and refiled due to a ruling by the court's special master
regarding claims construction, and the renewed and revised motion will be
presented as is appropriate under the court's schedule. If we do not prevail in
the litigation, our business and financial condition could be materially
adversely affected.
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 file annual, quarterly and special reports, as well other information
with the Securities and Exchange Commission. You may read and copy the
registration statement which we filed, and our periodic reports and other
information which we have filed and will file, with the Commission at the
Commission's Public Reference Room at 450 Fifth Street, N.W., Washington D.C.
20549. You may obtain further information about the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. Our Commission
filings are also available to the public over the Internet at the Commission's
web site at http://www.sec.gov, which contains reports, proxy statements and
other information regarding registrants like us that file electronically with
the Commission.
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
$50.0 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
September 25, 2002 with the initial purchaser 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
September 25, 2002, 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 September 25,
2002; 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, $50.0 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 May 21,
2003, 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 703
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 $165,000. 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
$51.8 million after deducting underwriting discounts and other fees and
expenses. We expect to use the net proceeds from the sale of the outstanding
notes for general corporate purposes, including working capital, capital
expenditures and technology development.
CAPITALIZATION
The following table sets forth cash and cash equivalents, our long-term
debt and our capitalization as of February 1, 2003. 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>
AS OF
FEBRUARY 1, 2003
------------------
(dollar amounts in
thousands)
Cash and cash equivalents................................... $ 52,002
========
Long-term debt, including current portion:
Credit agreement and other debt........................... $ 61,580
Senior unsecured notes(a)................................. 327,431
--------
Total long-term debt................................. 389,011
--------
Common Stock, no par value, 60,000 shares authorized 28,316
shares issued and outstanding............................. 28
Retained earnings........................................... 35,563
--------
Total stockholders' equity........................... 35,591
--------
Total capitalization................................. $424,602
========
</Table>
- ---------------
(a) Net of unamortized discount and premium.
32
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the three fiscal
years ended November 2, 2002 were derived from our audited consolidated
financial statements that are included elsewhere in this prospectus. The
following selected financial data for the year ended October 31, 1998 were
derived from audited combined financial statements of the predecessor companies.
The selected financial data as of February 1, 2003 and for the three months
ended February 2, 2002 and February 1, 2003, respectively, were derived from the
unaudited consolidated financial statements included elsewhere in this
prospectus. 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>
THREE MONTHS ENDED
YEAR ENDED --------------------------
-------------------------------------------------------- FEBRUARY 2, FEBRUARY 1,
1998 1999 2000 2001 2002 2002 2003
-------- -------- -------- -------- -------- ----------- -----------
(dollar amounts in thousands)
STATEMENT OF OPERATIONS DATA:
Total revenues................. $565,639 $565,527 $701,872 $809,774 $812,190 $187,502 $199,545
Costs and expenses............. 501,644 491,009 625,691 709,013 697,001 161,386 174,730
Gross profit................. 63,995 74,518 76,181 100,762 115,189 26,116 24,815
Selling, general and
administrative expenses...... 48,352 50,253 50,958 64,477 68,506 16,285 17,686
Operating profit............. 15,643 24,265 25,223 36,285 46,683 9,831 7,129
Interest expense............... 21,253 26,021 27,028 28,956 35,099 9,133 10,288
Other expense (income)(a)...... (3,080) (2,510) (1,418) (3,102) (1,840) 1,496 (337)
Earnings (loss) before income
taxes and change in
accounting principle......... (2,530) 754 (387) 10,431 13,424 (798) (2,822)
INCOME TAXES:
Current...................... 1,344 (270) 223 2,111 20 646 --
Deferred..................... (2,585) 1,967 (2,403) 1,173 4,811 (951) (1,001)
-------- -------- -------- -------- -------- -------- --------
$ (1,241) $ 1,697 $ (2,180) $ 3,284 $ 4,831
Earnings (loss) cumulative
effect of change in
accounting principle......... (1,289) (943) 1,793 7,147 8,593 (493) (1,821)
Cumulative effect of change in
accounting principle(b)...... -- -- 3,125 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss).......... $ (1,289) $ (943) $ 4,918 $ 7,147 $ 8,593 $ (493) $ (1,821)
======== ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(c)...................... $ 51,283 $ 66,166 $ 68,886 $ 84,099 $ 96,541 $ 19,852 $ 21,044
Ratio of earnings to fixed
charges(d),(e)............... -- 1.02x -- 1.25x 1.29x -- --
Ratio of net debt to
EBITDA(f).................... 4.42x 4.09x 3.73x 3.32x 3.30x -- --
Ratio of EBITDA to interest
expense...................... 2.41x 2.54x 2.55x 2.90x 2.75x 2.17x 2.05x
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital(g)............. $ 32,938 $ 41,872 $ 23,920 $ 31,480 $ 28,272 $ 33,969 $ 30,136
Total assets................... 357,786 398,997 421,108 505,055 569,598 505,729 576,874
Total debt..................... 231,450 278,917 260,200 333,062 387,815 330,647 389,011
Stockholders' equity........... 31,081 17,861 22,592 29,467 37,284 28,974 35,591
</Table>
- ---------------
(a) Included in other expense (income) for 1999 is $5,749,000 related to a
reclassification pursuant to SFAS No. 145, "Rescission of FASB Statements
No. 4, 144 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections." An extraordinary loss related to early extinguishment of debt
has been reclassified and the associated tax benefit of $1,955,000 has been
reclassified to current tax expense (benefit).
(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
33
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 N 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 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 31, 1998 and October 28, 2000, earnings were
inadequate to cover fixed charges by $2,530 and $1,631, respectively. For
the three months ended February 2, 2002 and February 1, 2003, earnings were
inadequate to cover fixed charges by $1,251 and $3,252, 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.
34
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, 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, 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.
35
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
years ended November 2, 2002 and October 28, 2000 were 52 weeks long. The fiscal
year ended November 3, 2001 was 53 weeks long. The three month periods ended
February 1, 2003 and February 2, 2002 were 13 weeks long.
Listed in the table below are our revenues and related percentages of
revenue for the year ended November 2, 2002, and the three months ended February
2, 2002 and February 1, 2003. Our historic revenue growth has been achieved
organically due to increased business with new and existing customers.
<Table>
<Caption>
CONSOLIDATED REVENUE BY
PRODUCT CATEGORY
---------------------------------------------------------------
YEAR ENDED THREE MONTHS ENDED
NOVEMBER 2, ----------------------------------------
2002 FEBRUARY 2, 2002 FEBRUARY 1, 2003
----------------- ----------------- -----------------
(dollar amounts in thousands)
Carbonated and non-carbonated beverage
revenue.................................. $362,678 44.7% $ 85,392 45.6% $ 86,826 43.5%
Consumer cleaning revenue.................. 242,106 29.8 57,197 30.5 64,125 32.1
Food and processed juice revenue........... 110,146 13.6 24,715 13.2 26,255 13.2
Industrial, agricultural and automotive
revenue.................................. 41,752 5.1 9,985 5.3 12,037 6.0
Health, personal care and distilled spirits
revenue.................................. 10,999 1.4 2,676 1.4 1,593 0.8
Other revenue(a)........................... 44,509 5.4 7,537 4.0 8,709 4.4
-------- ----- -------- ----- -------- -----
TOTAL REVENUE.............................. $812,190 100.0% $187,502 100.0% $199,545 100.0%
======== ===== ======== ===== ======== =====
</Table>
- ---------------
(a) Other revenue includes Clean Tech (recycling), Whiteline (transportation and
logistics) and other miscellaneous sources of revenue.
THREE MONTHS ENDED FEBRUARY 1, 2003 COMPARED TO THREE MONTHS ENDED FEBRUARY 2,
2002
REVENUE
Revenue increased 6.4% to $199.5 million for the three months ended
February 1, 2003 while unit sales increased for the period by 7.2%. These
results were driven by consistent performance in our core business combined with
the start up of several new initiatives. Resin prices (which represent a
significant cost of the product) have increased in the three-month period ended
February 1, 2003 as compared to the three-month period ended February 2, 2002.
We estimate that higher resin prices resulted in approximately a $2.2 million
increase in revenues for the three months ended February 1, 2003.
Revenue and unit sales increases and decreases by product category are
discussed more specifically below:
- Carbonated and non-carbonated beverage revenue increased 1.7% to $86.8
million while unit sales during the three-month period ended February 1,
2003 increased by 8.4% over the same period in 2002. Revenue generated by
the U.S. market remained flat while revenue generated by Brazil increased
7.3%. Unit sales growth was attributable to the Brazilian market where
unit sales increased 25% over the prior period. The growth in revenue was
the result of strong preform sales in Brazil combined with increased
demand for water containers in the U.S. market. The increase in preform
sales, and their lower selling prices compared to blown bottles, is the
reason unit volume grew at a higher level than dollar volume.
36
- Consumer cleaning revenue increased 12.1% to $64.1 million. Unit sales
during the three-month period ended February 1, 2003 remained flat over
the three-month period ended February 2, 2002. The growth in revenue
during the quarter was primarily attributable to two factors. First,
higher HDPE material prices were passed through in the form of higher
selling prices. Second, the mix shifted towards larger and heavier
containers sold primarily through discount retailers. Several new
projects began shipping during the first quarter of 2003, including
containers in the automatic dish wash and hard surface cleaner area.
- Our food and processed juice category posted increases in both revenue
and unit volume for the first quarter of 2003. Food and processed juices
revenue increased 6.2% to $26.3 million. Unit sales during the
three-month period ended February 1, 2003 increased 12.0% over the
three-month period ended February 2, 2002. This performance was the
result of broad based activity across all customers combined with the
start up of several key initiatives including a new multi-layer barrier
edible oil package that began shipping during the first quarter of 2003.
- Industrial, agricultural and automotive revenue increased 20.5% to $12.0
million. Unit sales for the three-month period ended February 1, 2003
decreased 0.3% from the three-month period ended February 2, 2002. The
increase in revenue was driven primarily from increased large bottle
sales used in the multi-quart oil market and anti-freeze market along
with higher HDPE material prices that resulted in higher selling prices.
Extreme winter weather in the Midwest and Northeast are also helping
drive sales in this sector.
- The health, personal care and distilled spirits category, a business that
currently accounts for less than 1% of our revenue, saw a decline in both
revenue and sales units during the quarter. Health, personal care and
distilled spirits revenue decreased 40.5% to $1.6 million. Unit sales for
the three-month period ended February 1, 2003 decreased 62.4% over the
three-month period ended February 2, 2002. This decrease was the result
of our exit from a piece of business in this sector that was performing
below expectations. Due to the continued reduction in sales volume in
this product category, we will not report on this category separately in
the future.
- Other revenue increased 15.5% to $8.7 million. This increase is
attributable mainly to increases in other materials sales, freight,
recycling and other miscellaneous revenue.
GROSS PROFIT
Gross profit decreased 5.0% to $24.8 million for the three-month period
ended February 1, 2003. Gross profit as a percent of revenue decreased to 12.4%
as compared to 13.9% in the prior period. The decrease in gross profit is
primarily attributable to increased operating costs associated with the start-up
of several new product lines and the addition of two new facilities and the
expansion of two existing facilities. Increases in labor costs and parts
maintenance costs contributed to the decrease in gross profit as well. In
addition, the erosion of gross profit as a percentage of revenue was also due to
higher resin costs that increased revenue without increasing associated gross
profit.
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. In general, industry
practice and contractual arrangements with our customers permit price changes to
be passed through to customers. As a result, we have in the past experienced
revenue changes without corresponding changes in gross profit.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended
February 1, 2003 increased 8.6% to $17.7 million. As a percentage of revenue,
selling, general and administrative expenses increased to 8.9% for the three
months ended February 1, 2003 from 8.7% in the three
37
months ended February 2, 2002. Increases in insurance, depreciation and IT
expenses contributed approximately $1.0 million to the increase. Compensation
expense recorded for restricted stock options of approximately $280,000
contributed to the increase as well.
INTEREST EXPENSE
Interest expense increased by 12.6% to $10.3 million for the three-month
period ended February 1, 2003. The increase was due to the sale, on September
25, 2002, of $50.0 million of the 10.75% Senior Notes, which contributed to the
approximately $58.4 million increase in our debt level over the prior period
ending February 2, 2002.
OTHER (INCOME) AND EXPENSE
Other income increased by $1.8 million to $(0.3) million for the three
month period ended February 1, 2003. The increase was primarily attributable to
a decrease in foreign currency exchange rate losses over the prior period.
Foreign currency exchange rate losses decreased to $0.1 million for the period
ended February 1, 2003 as compared to $2.0 million for the period ended February
2, 2002.
NET (LOSS)
Net loss increased by $1.3 million from a net loss of $0.5 million for the
three-month period ended February 2, 2002 to a net loss of $1.8 million for the
three-month period ended February 1, 2003. As previously discussed, the decrease
in gross profit along with an increase in interest expense, partially offset by
a reduction in loss on foreign currency, were factors which resulted in a higher
loss for the period.
YEAR ENDED NOVEMBER 2, 2002 COMPARED TO YEAR ENDED NOVEMBER 3, 2001
REVENUE
Revenue increased 0.3% to $812.2 million for the year ended November 2,
2002 while unit sales increased 5.1% for the period to 6.8 billion units
compared to the year ended November 3, 2001. The relatively flat revenue growth
is due to several factors. First, the year ended November 2, 2002 contained only
52 weeks, while the year ended November 3, 2001 contained 53 weeks. If 2002
revenue were restated for 53 weeks, 2002 revenue would have increased over the
prior period by approximately 2.4%. Second, resin prices (which represent a
significant cost of the product) have decreased in the year ended November 2,
2002 as compared to the year ended November 3, 2001. Lower resin prices were
passed on to our customers in the form of lower sales prices for the products we
sell. We estimate that lower resin prices resulted in approximately a $28.0
million reduction in revenue for fiscal year 2002. Finally, we exited a piece of
business through an asset sale in fiscal year 2001 which resulted in lower sales
revenue for fiscal year 2002.
Revenue and unit sales increases and decreases by category are discussed
more specifically below:
- Carbonated and non-carbonated beverage revenue decreased 2.8% to $362.7
million while unit sales during the year ended November 2, 2002 increased
by 7.6% over the year ended November 3, 2001. Unit sales growth was
attributable to the U.S. market where unit sales increased 7.6% from the
period 2001. Increased business in Brazil resulted in an increase of 7.4%
of unit sales over the period in 2001. Increased activity in the water
market continues to drive increased unit volume. While unit sales
increased, revenue declined in this category due to lower average raw
material prices, a product mix shift to more single service packages that
have lower selling prices, and currency devaluations in Brazil.
38
- Consumer cleaning revenue increased 3.8% to $242.1 million. Unit sales
increased 3.0% over the prior year. Sales growth was driven by several
new packaging initiatives in this category.
- Food and processed juices revenue increased 0.2% to $110.1 million. Unit
sales during the year ended November 2, 2002 decreased 4.0% over the year
ended November 3, 2001. The decrease in sales units was primarily the
result of the sale of production assets in this category during the
second quarter of fiscal year 2001.
- Industrial, agricultural and automotive revenue decreased 7.8% to $41.8
million, while unit sales for the year ended November 2, 2002 increased
2.6% over the same period in 2001. New product awards in this category
primarily drove unit sales growth. In addition, the market successes of
large multi-use containers provided incremental volume growth in a
category that is otherwise flat. Dollar sales were impacted by the change
in resin pricing with revenue down for fiscal year 2002 compared to the
same period in 2001.
- Health, personal care and distilled spirits revenue decreased 0.8% to
$11.0 million. Unit sales for the year ended November 2, 2002 were down
7.4% over the year ended November 3, 2001. During 2002, our exit from a
piece of business in this sector resulted in the drop in sales units and
revenue.
- Other revenue increased 19.6% to $44.5 million. This increase is
attributable mainly to an increase in freight, recycling, and other
miscellaneous revenue.
GROSS PROFIT
Gross profit increased 14.3% to $115.2 million for the year ended November
2, 2002. Gross profit as a percent of revenue improved to 14.2% from 12.4% in
the prior period. The improvement in gross profit as a percent of revenue was
partially due to lower resin costs that decreased revenue without decreasing
associated gross profit. Gross profit increases were the result of improved
manufacturing reliability and throughput in fiscal 2002. In addition, current
process redesign initiatives helped generate increased gross profit.
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. In general, industry
practice and contractual arrangements with our customers permit price changes to
be passed through to customers. As a result, we have in the past experienced
revenue changes without corresponding changes in gross profit.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 6.2% to $68.5
million for year ended November 2, 2002. As a percentage of revenue, selling,
general and administrative expenses increased slightly to 8.4% in the year ended
November 2, 2002 from 8.0% in the year ended November 3, 2001. The increase was
related to the reclassification of $1.3 million of site management wages from
manufacturing expenses and a $1.2 million increase related to the implementation
of SAP. Increases in corporate labor contributed approximately $2.2 million to
the increase. The increase in corporate labor is mainly due to compensation
expense recorded for restricted stock options in the amount of approximately
$2.4 million.
The increase in sales, general and administrative expenses was offset by a
decrease in bad debt expense. Bad debt expense decreased approximately 53% to
$1.8 million for the year ended November 2, 2002 from $3.7 million in the prior
period. The decrease in bad debt is mainly attributable to the economic crisis
in Brazil and Argentina during fiscal year 2001. As a result of the economic
crisis, we incurred bad debt expenses of approximately $3.2 million for the year
ended November 3, 2001. Improved economic conditions in both Brazil and
Argentina and tighter credit controls led to a decrease in bad debt expense for
the year ended November 2, 2002. The
39
decrease in bad debt expense represents 65% of the increase in earnings before
income taxes between fiscal year 2002 and 2001.
INTEREST EXPENSE
Interest expense increased by 21.2% to $35.1 million. The increase was due
to the sale of $275.0 million and $50 million of the 10.75% Senior Notes in
August 2001 and September 2002, respectively. In addition, our debt level was
approximately $54.8 million higher as compared to the prior year ending November
3, 2001.
OTHER (INCOME) AND EXPENSE
Other income decreased by $1.3 million to $(1.8) million principally due to
$0.8 decrease in sundry income and a $0.6 million decrease in foreign currency
exchange rate losses that were principally related to the devaluation of the
Peso in Argentina.
NET EARNINGS
Net earnings increased by $1.5 million from net earnings of $7.1 million
for the year ended November 1, 2001 to net earnings of $8.6 million for the year
ended November 2, 2002. The increase in net earnings was primarily due to
improvements in operating profit.
YEAR ENDED NOVEMBER 3, 2001 COMPARED TO YEAR ENDED OCTOBER 28, 2000
REVENUE
Revenue increased 15.4% to $809.8 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. 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 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 $83 million of consumer cleaning revenue
in 2001 was attributable to this new arrangement with Procter & Gamble.
Additional growth was attributable to broad-based volume increases across
all customers within the category.
- 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.
40
- 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 9.6% to $37.2 million. This decrease is
attributable to less project revenue with existing customers.
GROSS PROFIT
Gross profit increased 32.3% to $100.8 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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 26.5% to $64.5
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 7.1% to $29.0 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.
41
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.
- 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 24.1%
increase in revenue for this period, primarily because of sales of lower-margin
corrugated boxes and labels as discussed above.
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
42
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 44% 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, and the
extraordinary loss of $5.5 million on early extinguishment of debt in 1999.
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 $1.7 million that
represents an effective rate of 225% 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 change in accounting principle of $3.1
million.
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
43
operating leases. Future capital expenditures will be used in the same manner as
past expenditures.
During the year ended November 2, 2002 and the three months ended February
1, 2003, we spent approximately $85 million and $21.8 million, respectively, to
cover the capital requirements of our operations. We expect to incur capital
expenditures of approximately $103 million in fiscal 2003.
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.
For the three months ended February 1, 2003, we had positive cash flow from
operating activities of $4.3 million, which in part funded our capital
expenditures of approximately $21.8 million. The remaining balance of capital
expenditures was covered by cash and cash equivalents and 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
the year ended November 2, 2002 and the three months ended February 1, 2003, 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 and Argentinian customers in
the Brazilian Real and Argentine Peso, respectively. 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 and
Argentine Peso can have a favorable effect on our profitability. Conversely, an
increase in the value of the dollar relative to the Brazilian Real and Argentine
Peso can have a negative effect on our profitability. Exchange rate fluctuations
resulted in losses of $0.6 million and $0.2 million, respectively, for the
fiscal year ended November 2, 2002 and the three months ended February 1, 2003.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE CONTRACTS
At February 1, 2003, we had no material foreign exchange contracts. We do
not enter into foreign exchange contracts for trading or speculative purposes.
44
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.
On July 16, 2002, we entered into an interest rate swap agreement. In
connection with our 10.75% Senior Notes due 2011, we exchanged fixed rate
interest of 10.75% on a notional amount of $100,000,000 for variable rate
interest. The variable rate was equal to six month LIBOR plus 5.165%. On
September 11, 2002, pursuant to an agreement with the bank to terminate the
interest rate swap agreement, we received approximately $3.0 million cash. The
proceeds were used to finance capital expenditures.
On March 11, 2003, we entered into two interest rate swap agreements for an
8-year period ending September 1, 2011. In connection with the Senior Notes, we
exchanged fixed rate interest of 10.75% for variable rate interest. The interest
rate swap agreements have notional amounts of $50.0 million each. The variable
rates are equal to six month LIBOR plus 6.46% and 6.66%, respectively; except
for the initial period from March 11, 2003 to September 1, 2003, which will be
determined via linear interpolation.
INFORMATION SYSTEMS INITIATIVE
We completed an evaluation and assessment of our business systems and
processes in the calendar year 2000. 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. As of November 2, 2002, we
have completed Phase I and II of the SAP implementation. We have incurred costs
of approximately $9.5 million to purchase, test and install SAP hardware and
software. Any additional enhancements implemented in Phase III will be completed
with internal resources; therefore, the costs associated with Phase III are
estimated at $1-2 million.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operating activities increased 32.3% to $4.3 million
for the three months ended February 1, 2003 as compared to the three months
ended February 2, 2002. The increase in cash was primarily the result of a $2.3
million increase in non-cash expenses that include items such as depreciation
and amortization, bad debt expense, deferred income tax expense, and foreign
currency translation. The increase in non-cash expenses was offset by a decrease
in operating performance of $1.3 million.
Net cash provided from operating activities increased 26.3% to $55.4
million for the fiscal year ended November 2, 2002 as compared to the fiscal
year ended November 3, 2001. The increase in cash was primarily the result of a
$6.4 million increase in non-cash expenses that include items such as
depreciation and amortization, bad debt expense, deferred income tax expense,
and foreign currency translation. Bad debt expense decreased approximately 53%
to $1.8 million for the year ended November 2, 2002 from $3.7 million in the
prior period. The decrease in bad debt is mainly attributable to the economic
crisis in Brazil and Argentina during fiscal year 2001. As a result of the
economic crisis, we incurred bad debt expenses of approximately $3.2 million for
the year ended November 3, 2001. Improved economic conditions
45
in both Brazil and Argentina and tighter credit controls led to a decrease in
bad debt expense for the year ended November 2, 2002. The decrease in bad debt
expense represents 65% of the increase in earnings before income taxes between
fiscal year 2002 and 2001. Net working capital and other asset and liability
changes increased net cash by $3.6 million. Improved operating performance of
$1.5 million also contributed to the increase in cash. For the fiscal years
ended 2001, 2000 and 1999 net cash generated from operations was $43.8, $75.6
and $24.7 million, respectively. The decrease in 2001 was 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. 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 $21.8 million and $11.0 million
for the three-month periods ending February 1, 2003 and February 2, 2002,
respectively. Investing activities were primarily attributable to the
acquisition of property and equipment. For the three months ended February 1,
2003 and February 2, 2002, property and equipment acquisitions were $21.8
million and $9.5 million, respectively.
Net cash used in investing activities was $89.6 million and $52.8 million
for fiscal 2002 and 2001, respectively. Investing activities were primarily
attributed to the acquisition of property and equipment. For the years ended
November 2, 2002 and November 3, 2001, property and equipment acquisitions were
$84.6 million and $56.0 million, respectively. For the fiscal years 2001, 2000,
and 1999 net cash used in investing activities was $52.8, $55.7, and $38.1
million, respectively. Investing activities were primarily attributed to the
acquisition of property and equipment. In 2001, 2000, and 1999 property and
equipment acquisitions were $56.0, $58.0, and $61.0 million, respectively.
Net cash used in financing activities was $0.2 million and $3.2 million for
the three-month periods ended February 1, 2003 and February 2, 2002,
respectively. In the three months ended February 1, 2003, net cash of $2.1
million was used to make principal payments on long-term obligations. The use of
cash was partially offset by net proceeds from long-term obligations of $1.8
million. In the three months ended February 2, 2002, cash was provided from
long-term obligations of $1.3 million. The cash provided was partially used to
make $4.3 million of principal payments on long-term obligations.
Net cash (used in) provided from financing activities was $50.4 million and
$59.1 million for the years ended November 2, 2002 and November 3, 2001,
respectively. In the year ended November 2, 2002, net cash of $9.1 million was
used to make principal payments on long-term obligations. The use of cash was
primarily offset by net proceeds from long-term obligations of $58.7 million. In
the year ended November 2, 2002, net cash provided from borrowings was partially
used to finance property and equipment acquisitions. The remaining net cash
provided from borrowings will be used for general corporate purposes, including
working capital and capital expenditures in fiscal year 2003. For the fiscal
years 2001, 2000, and 1999 net cash (used in) provided from financing activities
was $59.1, $(25.0), and $16.9 million, respectively. In 2001, cash provided from
borrowings was partially used to finance property and equipment acquisitions. 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, net cash provided from borrowings was used to finance property
and equipment acquisitions.
On August 20, 2001 and September 25, 2002, we sold an aggregate total
principal amount of $275 million and $50 million, respectively, of 10.75% Senior
Notes to qualified institutional buyers. The notes have a maturity date of
September 2011, and we have the option to redeem all or a
46
portion of the notes at any time on or after September 1, 2006. Interest under
the notes 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.
The proceeds from the Senior Notes sold on August 20, 2001 were used to pay
off existing debt. We intend to use the net proceeds from the September 25, 2002
sale of Senior Notes for general corporate purposes, including working capital,
capital expenditures and technology development.
On August 20, 2001, in conjunction with the Senior 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 February 1, 2003, $56.4
million in letters of credit were outstanding under the Amended Credit Agreement
and we had $93.6 million available for borrowing.
Looking forward, we have the following short-term and medium-term capital
needs. Our overall capital expenditure budget in fiscal 2003 is approximately
$103 million and $90 million in 2004, a majority of which is expected to be
discretionary capital expenditures. Our new site in Florida began production in
December 2002. Additionally, we expect to have a new site in Alabama start up in
the second quarter of 2003. We expect to finance all of our capital expenditures
with operating cash flows and the net proceeds of the offering of $50.0 million
principal amount of 10.75% Senior Notes due 2011 that closed in September 2002,
and to cover any shortfalls with borrowings under the Amended Credit Agreement.
In conjunction with negotiations with a major customer for a substantial
expansion of new business and extension of our current business, we have agreed
in principle to significant price reductions over a five-year period that will
begin in May 2003. We believe we will be able to partially or fully offset the
negative effect on our margins of these price reductions with the expansion of
our business with this customer and making the manufacturing process associated
with our business more efficient. If we are unable to offset the effects of
these price reductions through the expansion of our business with this customer
and through manufacturing products more efficiently, or otherwise offset the
effects of such price reductions, our margins will likely be materially
adversely affected.
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 February 1, 2003, we had approximately $52.0 million in cash and
cash equivalents. 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 or the 10.75% Senior Notes due 2011, on commercially
reasonable terms or at all.
47
CRITICAL ACCOUNTING POLICIES
Discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles accepted in the United States. The
preparation of these financial statements requires that we make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. The significant accounting policies are discussed in Note A of our
annual financial statements. These critical accounting policies are subject to
judgments and uncertainties, which affect the application of these policies. We
base our estimates on historical experience and on various other assumptions
believed to be reasonable under the circumstances. On an on-going basis, we
evaluate estimates. In the event estimates or assumptions prove to be different
from actual results, adjustments are made in subsequent periods to reflect more
current information. The material accounting policies that we believe are most
critical to the understanding of our financial position and results of
operations that require significant management estimates and judgments are
discussed below.
Losses on accounts receivable are based upon their current status,
historical experience and management's evaluation of existing economic
conditions. Significant changes in customer profitability or general economic
conditions may have a significant effect on our allowance for doubtful accounts.
Property, plant and equipment are recorded at cost. Depreciation is
computed principally using 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 terms
of the various leases. These estimates require assumptions that are believed to
be reasonable. Long-lived assets are tested for impairment annually and when an
event occurs that indicates impairment may exist.
IMPACT OF NEW ACCOUNTING POLICIES
On November 3, 2002, we adopted Statement of Financial Accounting Standards
No. 142 ("SFAS 142"), Accounting for Goodwill and Other Intangibles,which
requires that goodwill and certain other intangible assets no longer be
amortized to earnings but instead be reviewed periodically for potential
impairment; Statement 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
long-lived assets; Statement of Financial Accounting Standards No. 148 ("SFAS
148"),Accounting for Stock Based Compensation-Transition and Disclosure, which
addresses financial accounting and reporting for stock-based employee
compensation plans.
The adoption of these standards did not have a material impact on our
financial position or results from operations.
48
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 majority 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 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 2002, we
manufactured and distributed approximately 6.8 billion containers worldwide for
over 450 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 100 U.S. patents, many of which are registered in foreign countries, for
our state-of-the-art, package-manufacturing processes. 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 2, 2002, our
revenue was $812.2 million, our earnings were $8.6 million and our EBITDA was
$96.5 million. For the three months ended February 1, 2003, our revenue was
$199.5 million, we incurred a loss of $1.8 million and our EBITDA was $21.0
million.
We have increased our revenue between 1998 and 2002 at a CAGR of
approximately 9.5%, exceeding the industry average. Further, all of our revenue
growth has been organic. This continued 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 14 plants in the United States
and Brazil. The total square footage of our manufacturing and warehousing
facilities is in excess of 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 market. We plan to use our relationships
with key customers to create new opportunities in North and South America.
49
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 1998 and 2002 at a
CAGR of approximately 9.5%. To support our revenue growth, we have invested more
than $290.0 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 2002, our gross profit improved by
$14.4 million over fiscal 2001. 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 2, 2002 and for the three months ended February
1, 2003, 73% and 70% of our revenue, respectively, was generated by our top ten
customers, nine 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, juice drinks 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 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. In addition, we were recently awarded
a long-term contract from
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Buffalo Rock, the largest Pepsi franchise, to supply CSD and bottled water
containers. This business will be serviced out of our new facility in McCalla,
Alabama.
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 plasma coating systems
(a barrier technology), in both the U.S. and Brazil, and are currently supplying
barrier containers utilizing this coating system in the U.S. 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 provide additional opportunities going forward. In total,
carbonated and non-carbonated beverage container sales accounted for 44.7% and
43.5% of our revenue for the year ended November 2, 2002 and the three months
ended February 1, 2003, respectively.
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 Febreze and Reckitt's
Lysol, Resolve 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 29.8% and 32.1% of our
revenue for the year ended November 2, 2002 and the three months ended February
1, 2003, respectively.
FOOD AND PROCESSED JUICES
We produce both HDPE, PET and polypropylene ("PP") 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. squeeze mayonnaise and Miracle Whip, barbecue sauces
51
and grated cheeses. We also produce plastic containers for such popular
processed foods as coffee creamers, relishes and vegetable oils.
From 1998 through 2002, we grew our food and processed juices revenue at a
CAGR of 10.8%. 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 heavier weights. Recently, we were awarded a long-term
contract from Pepsi to supply Gatorade bottles beginning in 2004. This business
will be serviced out of our facility in Garland, Texas. Food and processed
juices container sales accounted for 13.6% and 13.2% of our revenue in the year
ended November 2, 2002 and the three months ended February 1, 2003,
respectively.
INDUSTRIAL, AUTOMOTIVE AND AGRICULTURAL
Castrol, Equilon, Chevron/Texaco, Old World Industries (Peak), Shell 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 5.1% and 6.0% of our revenue in the year ended
November 2, 2002 and the three months ended February 1, 2003, respectively.
HEALTH, PERSONAL CARE AND DISTILLED SPIRITS
Our primary customers in this product category include Dial and Seagram's.
We manufacture a wide range of plastic containers for branded products,
including Seagram's 7 Crown and Seagram's Gin. 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 2, 2002 and the three months ended February 1, 2003, respectively, we
generated 1.4% and 0.8% of our revenue from this category. Due to the continued
reduction in sales volume in this product category, we will not report on this
category separately in the future.
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
52
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.
STRATEGICALLY LOCATED, STATE-OF-THE-ART OPERATING FACILITIES
We serve our U.S. customers through a nationwide network of 12
strategically located, technologically advanced manufacturing facilities,
through our Productivity 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 Technology, which was
developed and patented by our manufacturing and engineering teams, 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 $290.0 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 275 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 productivity centers have secured over 100 U.S.
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. 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.
Our Packaging Development Center creates innovative product designs for our
customers, and our Productivity 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. Our increased operating profit in fiscal 2002
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. In fiscal 2002,
we
53
successfully completed the implementation of Phase I and Phase II of our SAP
enterprise software project. This enterprise software integrates and automates
many of our sales, purchasing and administrative functions, and assists 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.
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 1998 to 2002, we
increased our revenues by 43.6% to $812.2 million, our EBITDA by 88.3% to $96.5
million and our production volume by 31.8% to 6.8 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 containers and various juice bottles.
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
54
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.
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. Last year, a major soft drink manufacturer introduced a
500 ml package utilizing barrier containers Plastipak supplied.
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
and PET containers with recycled content for various customers. 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 productivity 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 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 injection molding. 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
55
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 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.
56
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 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.
57
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. Nine of our top ten customers are under contracts with
remaining terms of between one and five years. These contracts, however, may be
terminated by us or our customer prior to their expiration dates 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 customers have
requested competitive price reductions from time to time in the past under their
contracts with us.
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 2000, 2001 and 2002 and the
three months ended February 1, 2003, Procter & Gamble accounted for
approximately 20%, 23%, 25% and 28% of our revenue, respectively. Our largest
customers include:
<Table>
<Caption>
CUSTOMER
CUSTOMER PRODUCT CATEGORY SINCE(A)
- -------------------------------- ----------------------------------------------------- ----------------
Procter & Gamble Consumer Cleaning Mid 1970s
Reckitt Benckiser Consumer Cleaning Mid 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
Dr Pepper Bottling Group 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
</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
58
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.
Trade restrictions and currency 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. We have 14 manufacturing facilities which 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
significantly increases 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 have
completed the implementation of Phase I and Phase II of our SAP enterprise
software project, which has integrated, automated and streamlined 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 275 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 Productivity 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 approximately 70 employees at our Productivity 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
59
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 $6.3 million, $7.1 million and
$8.6 million for fiscal 2000, 2001 and 2002, respectively.
SALES AND MARKETING
We reach our large and diversified base of over 450 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. We have also opened
a sales office in Buenos Aires, Argentina. Our Brazilian net revenue has grown
from $8.0 million in 1996 to $65.9 million for the year ended November 2, 2002.
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. We are exploring
opportunities to open a small facility in Eastern Europe.
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 41
facilities, 15 of which we own and 26 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 Productivity Owned
Center
Jackson Center, OH 952,000 Manufacturing Owned
Champaign, IL 692,000 Manufacturing Owned
East Longmeadow, MA 263,000 Manufacturing Owned
Medina, OH 222,000 Manufacturing Owned
Westland, MI 185,000 Manufacturing Owned
Paulinia, Brazil 161,000 Manufacturing Owned
Garland, TX 113,000 Manufacturing Owned
McCalla, AL 100,000 Manufacturing Owned
Dundee, MI 85,800 Manufacturing Owned
Highland, TX 82,500 Manufacturing Owned
</Table>
60
<Table>
<Caption>
LOCATION SQUARE FOOTAGE PRINCIPAL USE OWNED/LEASED
- ------------------------------------ -------------- ------------------ ------------
Plant City, FL 78,500 Manufacturing Owned
Manaus, Brazil 70,000 Manufacturing Owned
Lima, OH 127,000 Warehouse Owned
Alsip, IL 165,000 Manufacturing, Leased
Warehouse
Atlanta, GA 30,000 Manufacturing Leased
Garland, TX 200,000 Warehouse Leased
Champaign, IL 187,000 Warehouse Leased
Medina, OH 178,000 Warehouse Leased
Romulus, MI 150,000 Warehouse Leased
Houston, TX 140,000 Warehouse Leased
Dallas, TX 108,943 Warehouse Leased
Lima, OH 100,000 Warehouse Leased
Alsip, IL 100,000 Warehouse Leased
Ayer, MA 77,000 Warehouse Leased
West Springfield, MA 68,000 Warehouse Leased
Lodi, OH 68,000 Warehouse Leased
Atlanta, GA 64,800 Warehouse Leased
Atlanta, GA 64,800 Warehouse Leased
Plymouth, MI 59,000 Warehouse Leased
Champaign, IL 59,800 Warehouse Leased
Champaign, IL 43,000 Warehouse Leased
Houston, TX 40,000 Warehouse Leased
Canton, MI 35,000 Warehouse Leased
Westland, MI 12,000 Warehouse Leased
Medina, OH 6,000 Warehouse Leased
Plymouth, MI 32,000 Truck Garage Leased
Plymouth, MI 9,000 Office Leased
Plymouth, MI 31,000 Headquarters Leased
</Table>
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 Amcor, American National Can, Inc., Ball Plastics,
Consolidated Container Company, Constar International, Inc., Crown Cork & Seal
Company, Inc., Graham Packaging Company, Liqui-Box Corporation, Owens-Illinois,
Inc. 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 100 U.S. patents, and have over 30 patent applications
currently pending at the United States Patent and Trademark Office. In addition,
approximately 300 foreign patents have been issued and approximately 175 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.
61
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, 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
62
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 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 accruing approximately $75,000 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 prepared and filed a motion for summary
disposition that will be renewed and refiled due to a ruling by the court's
special master regarding claims construction, and the renewed and revised motion
will be presented as is appropriate under the court's schedule. 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 $3.6 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 3,700 non-union employees in the U.S. and 170
employees in Brazil. 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.
63
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 62 Chairman and Director, President & Chief Executive
Officer, Manager
William A. Slat 55 Vice President -- Operations and Manufacturing
Michael J. Plotzke 45 Chief Financial Officer, Vice President -- Finance and
Treasurer and Assistant Secretary
Gene W. Mueller 45 Vice President -- Sales and Marketing
Thomas Busard 51 President -- Clean Tech
Pradeep Modi 47 Vice President -- Controller and Strategic Operation
Planning
Frank Pollock 47 Vice President -- International Sales/Marketing
Richard Darr 53 Vice President -- Packaging Development
J. Ronald Overbeck 54 Vice President -- Product Supply
Leann M. Underhill 57 Corporate Legal Counsel and Secretary
David Daugherty 47 Chief Information Officer
John Michel 53 Vice President -- Transportation
Thomas L. Schellenberg 56 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
31 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 18 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 International, Inc. 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 26 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
64
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 18 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, Inc. for 18 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 23-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 26 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 eight 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.
65
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............................. 2002 $601,248 $210,897
Chairman and Director, 2001 $601,248 $594,532
President and Chief Executive Officer 2000 $601,248 $992,000
William A. Slat.............................. 2002 $209,560 $173,445
Vice President -- Operations 2001 $204,560 $178,550
and Manufacturing 2000 $204,560 $ 85,000
Michael J. Plotzke........................... 2002 $213,667 $182,248
Chief Financial Officer, 2001 $202,667 $188,000
Vice President -- Finance, and Treasurer 2000 $200,000 $115,000
Gene W. Mueller.............................. 2002 $183,537 $153,123
Vice President -- Sales and Marketing 2001 $168,720 $147,420
2000 $164,935 $ 83,640
Thomas Busard................................ 2002 $189,547 $144,415
President -- Clean Tech 2001 $178,313 $154,700
2000 $174,811 $123,133
</Table>
- ---------------
(a) Salary includes amounts deferred, if any, under our 401(k) plan.
(b) Other Annual Compensation for fiscal 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 2002
The following table sets forth information concerning options granted to
Gene W. Mueller, the only Named Executive who was granted options in fiscal
2002. These options were granted under the 2002 Restricted Stock Bonus Plan.
<Table>
<Caption>
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES IN EXERCISE OR GRANT DATE
NAME OPTION GRANTED FISCAL YEAR BASE PRICE EXPIRATION DATE VALUE
- ---- -------------- ------------ ----------- ----------------- ----------
Gene W. Mueller........ 500 32.36% $1.00 December 15, 2006 $743,500
</Table>
66
AGGREGATE OPTION EXERCISES IN FISCAL 2002 AND 2002 FISCAL YEAR-END OPTION VALUES
During fiscal 2002, Michael Plotzke, Gene Mueller and Thomas Busard
exercised 45, 200 and 118 options. The following table sets forth, for each of
the Named Executives holding unexercised options, certain information regarding
the value of options held at November 2, 2002:
<Table>
<Caption>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR END FISCAL YEAR END
NAME EXERCISE REALIZED (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
- ---- ----------- -------- --------------------------- ---------------------------
Michael J. Plotzke... 45 $ 65,860 500/0 $961,500/0(a)
Gene W. Mueller...... 200 $118,760 300/0 $459,600/0(b)
Thomas Busard........ 118 $177,944 100/327 $192,300/$628,821(a)
</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 the Restricted Stock Bonus Plan under which these options were
granted) at November 2, 2002, less the exercise price.
(b) 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 the 2002 Restricted Stock Bonus Plan under which the options were
granted) at November 2, 2002, less the exercise price.
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, as a
successor plan to the Plastipak Packaging, Inc. Restricted Stock Bonus Plan
adopted in 1985. The Restricted Stock Bonus Plan was amended and restated
effective July 31, 2002 and subsequently amended effective August 15, 2002. 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 5,450 shares of
Plastipak's common stock for distribution under the Restricted Stock Bonus Plan.
As of November 2, 2002, 3,450 of the 5,450 reserved shares had been allocated to
our employees and 2,000 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:
- The period of time specified by the board, in its sole discretion, not to
exceed 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 period;
- 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
67
otherwise. The redemption price is based upon our per share book value, subject
to certain adjustments.
The amendment and restatement of the Restricted Stock Bonus Plan in 2002
effected the following material changes in the Plan:
- A "change in control" provision was added, which provides that all bonus
shares vest immediately upon change in control, subject to the golden
parachute payment limitations of Code Section 280G.
- "Bring along" and "come along" provisions were added so that holders of
the restricted stock are (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 were added as a
condition to participation in the Restricted Stock Bonus Plan.
- A provision was 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
The board of directors of Plastipak adopted the 2002 Restricted Stock Bonus
Plan (the "2002 Plan") on October 16, 2002. All of our employees (including
employees who are directors, as well as non-employees who serve as directors or
who otherwise provide services to us) are eligible to participate in the 2002
Plan. The Plan is administered by the board (or any committee established by the
board for that purpose). The board has reserved 5,450 shares of Plastipak's
common stock for grant under the 2002 Plan. As of the date of this prospectus,
1,000 of the 5,450 reserved shares had been granted to our employees, and 4,450
shares remain available for grant. Participants in the 2002 Plan are required to
pay us a per share purchase price, as set by the board from time to time, for
each restricted share.
The vested percentage of a participant's restricted stock award will be no
more restrictive than as follows:
<Table>
<Caption>
VESTED
YEARS OF PARTICIPATION IN PLAN PERCENTAGE
------------------------------ ----------
Less than 6 years........................................... 0%
6 years but less than 7 years............................... 20%
7 years but less than 8 years............................... 40%
8 years but less than 9 years............................... 60%
9 years but less than 10 years.............................. 80%
10 years or more............................................ 100%
</Table>
The restrictions on outstanding restricted stock awards immediately lapse
(except as may be provided in the participant's restricted stock agreement with
us) in the event of a change of control, subject to the golden parachute payment
limitations of Code Section 280G. In addition, a participant's restricted stock
award becomes 100% vested in the event of his or her retirement at or after age
65, death or disability. During the restriction period, participants holding
shares of restricted stock granted under the 2002 Plan are entitled to exercise
full voting rights with respect to such shares, and to receive all dividends and
other distributions paid with respect to such shares.
68
Prior to the issuance of any common stock certificates under the 2002 Plan,
participants are required to enter into a shareholder agreement with us with
"bring along" and "come along" provisions which (1) entitle the participant to
participate in any voluntary sale of our capital stock, and (2) require the
participant to participate in certain voluntary sales of our capital stock. In
addition, we may require a participant to enter into a confidentiality agreement
and/or a non-competition agreement as a condition precedent to any award of
restricted stock under the 2002 Plan.
A participant's restricted stock award is subject to forfeiture if the
participant is "terminated for cause" as defined in the 2002 Plan. Participants
who have received certificates for restricted shares issued under the 2002 Plan
are required to sell those shares back to us upon the occurrence of certain
"trigger events." These trigger events include: termination of employment;
death; disability; institution of certain litigation against us; and the breach
or threatened breach of the participant's non-competition or confidentiality
agreement. The redemption price is based on our per share book value, subject to
certain adjustments; provided, however, that if the participant is "terminated
for cause" or if the participant institutes certain litigation against us, the
redemption price will be reduced to $1.00 per share. A participant's obligation
to sell his/her restricted stock to us, and our obligation to purchase such
restricted stock, terminates upon an initial public offering of our common
stock.
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
69
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 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 $245 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 2, 2002, 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."
70
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) 75.63%
Multi-Investments Limited Partnership(b).................... 3,936 13.90%
William A. Slat............................................. 725 2.56%
Michael J. Plotzke.......................................... 545(c) 1.89%
Thomas Busard............................................... 218(d) 0.77%
Gene W. Mueller............................................. 500(e) 1.78%
Thomas L. Schellenberg...................................... 0 0.00%
Directors and executive officers as a group (6 persons)..... 27,338(f) 93.57%
</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) Includes options to acquire 500 shares which are presently exercisable.
(d) Includes options to acquire 100 shares which are presently exercisable.
(e) Includes options to acquire 300 shares which are presently exercisable.
(f) Includes the shares and presently exercisable options described in footnotes
(a), (b), (c), (d) and (e) above.
71
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, the TABB Note was paid 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 was payable in monthly
installments of $7,670. Although the maturity date for the Marketing Note
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was October 2009, the Marketing Note was paid 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 April 1 and December 31, 2003 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 2000, 2001 and
2002 and the three months ended February 1, 2003 Packaging made lease payments
to WCY Realty, LLC of $120,000, $144,000, $144,000 and $36,000, 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, Whiteline has assumed the warehouse lease. Absopure is a corporation
owned by William C. Young, members of his immediate family and trusts they
control. William C. Young serves as President and a director of Absopure.
Members of his immediate family also serve as officers and directors of
Absopure.
WPY Co. is owned by the William C. Young family. 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,
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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. WPY Co. invoiced Packaging $6,673,081, $2,385,435, $5,530,880 and
$3,080,588 for engineering and machine services in fiscal 2000, 2001, 2002 and
the three months ended February 1, 2003, respectively. WPY Co. invoiced Clean
Tech $53,332 for equipment and services in fiscal 2000.
TRANSPORTATION SERVICES
Whiteline, a fully licensed ICC common carrier, operates a fleet of
approximately 275 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 supplies trucking
and other transportation-related personnel to Packaging on an as-requested
basis.
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 $583,351, $516,499, $609,316 and $122,343 for services in fiscal 2000,
2001 and 2002 and the three months ended February 1, 2003, respectively.
Whiteline invoiced Absopure $3,258,211, $3,331,100, $4,406,686 and $1,054,352
for services in fiscal 2000, 2001 and 2002 and the three months ended February
1, 2003, respectively.
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 at prices no less favorable to
Packaging than those with unaffiliated third parties. Packaging invoiced
Absopure for containers in the amounts of $9,016,227, $8,302,489, $8,497,662 and
$1,851,022 in fiscal 2000, 2001 and 2002 and the three months ended February 1,
2003, respectively. There is currently an outstanding balance of $3,976,426 due
from Absopure to Packaging, out of which $1,988,685 was over 90 days old at
February 1, 2003.
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 $2,372,164, $2,173,748, $2,091,965 and $472,403 in fiscal 2000,
2001 and 2002 and the three months ended February 1, 2003, respectively. Buffalo
Don's currently owes Packaging $854,615, out of which $381,329 was over 90 days
old at February 1, 2003.
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
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family, or by trusts controlled by William C. Young. Packaging invoiced Waters
for plastic containers in the amounts of $791,151, $3,019,466, $2,227,885 and
$431,011 in fiscal 2000, 2001 and 2002 and the three months ended February 1,
2003, respectively. There is currently an outstanding balance of $589,385 due
from Waters to Packaging, out of which $96,240 was over 90 days old at February
1, 2003.
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
Plastipak and Packaging provided and continue to provide administrative
services (i.e., marketing, accounting, legal services) to several affiliated
companies. Packaging invoiced Absopure $60,000 for administrative services in
each of fiscal 2000, 2001 and 2002 and $10,000 in the three months ended
February 1, 2003 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 $5,000 due to us from
Absopure. Packaging invoiced Buffalo Don's $30,000 for administrative services
in each of fiscal 2000, 2001 and 2002 and $7,500 in the three months ended
February 1, 2003 pursuant to a service agreement dated September 12, 1994. The
service agreement continues until written notice of cancellation by either
party. There is currently an outstanding balance of $2,500 due to us from
Buffalo Don's.
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 $1,093,301, $1,229,591, $1,183,978 and
$428,273 in fiscal 2000, 2001 and 2002 and the three months ended February 1,
2003, respectively. Absopure currently owes us $133,677 for insurance premiums.
Plastipak and/or Packaging invoiced Buffalo Don's for insurance premiums in the
amounts of $164,750, $182,523, $172,471 and $55,773 in fiscal 2000, 2001 and
2002 and the three months ended February 1, 2003, respectively. Buffalo Don's
currently owes us $20,142 for insurance premiums. Plastipak and/or Packaging
invoiced WPY Co. for insurance premiums in the amounts of $51,936, $61,707,
$61,097 and $27,889 for fiscal 2000, 2001 and 2002 and the three months ended
February 1, 2003, respectively.
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 our 2001
offering of 10.75% Senior Notes due 2011, 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 accrued interest at a
rate of 6.55% per annum and was payable in monthly installments of
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$84,436. Although the maturity date of the Packaging Note was March 31, 2009,
the Packaging Note was paid in full in 2001. 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 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 2004. Currently,
Madras is in arrears in the amount of approximately $150,000 on the Madras Note
and approximately $164,500 on other obligations. We are in the process of
discussing a restructuring of their obligations to us.
OTHER
Packaging invoiced Absopure $231,000, $277,000 and $112,000 for pallets in
fiscal 2000, 2001 and 2002, respectively.
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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 March 1, 2003, the amount outstanding under our Amended
Credit Agreement was $56.3 million, and approximately $93.7 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 4.50 to 1 from November 2, 2002 through
October 31, 2003, not more than 4.25 to 1 from November 1, 2003 to
October 29, 2004, not more than 4.0 to 1 from October 30, 2004 through
October 28, 2005 and not more than 3.75 to 1 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 March 1, 2003, 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 $60.6 million, and approximately
$93.7 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 8% and 10%
of our consolidated revenue in the fiscal year ended November 2, 2002 and the
three months ended February 1, 2003, respectively, and held approximately 16% of
our consolidated assets as of November 2, 2002 and the three months ended
February 1, 2003. For more details about the division of our consolidated
revenues and assets between our guarantor and non-guarantor subsidiaries, see
footnote P 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 $50 million
principal amount of outstanding notes on September 25, 2002 which are the
subject of this exchange offer, and $275 million principal amount of outstanding
notes on August 20, 2001. As a result, Plastipak may issue a total principal
amount of $175 million of additional notes from time to time. 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 September 1, 2003. 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
79
interest payments by check mailed to the Holders at their address set forth in
the register of Holders.
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,
80
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
(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
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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 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;
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(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 -- We may not have the ability to raise the funds necessary to finance the
change of control offer required by the indenture."
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;
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(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
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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 First 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
89
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 the offering of $275.0 million principal
amount of 10.75% Senior Notes due 2011 on August 20, 2001, as described
under "Use of Proceeds" in the First Offering Circular; 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
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trustee within ten Business Days of the date on which it was acquired or created
or became a 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
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(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.
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
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(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 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;
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(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;
(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
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(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.
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;
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(5) to add a Guarantor;
(6) to comply with the provisions described under "-- Subsidiary
Guarantees" requiring execution of a supplemental indenture; or
(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
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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.
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.
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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 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 purchaser 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
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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.
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;
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(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;
(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
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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 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
dated 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
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(2) the issuance of Equity Interests in any of Plastipak's Restricted
Subsidiaries or the sale of Equity Interests in any of its Subsidiaries.
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
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(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.
"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
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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
(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;
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(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 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
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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 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.
"FIRST OFFERING CIRCULAR" means the offering circular dated August 15, 2001
relating to the offering by Plastipak of $275 million of its 10.75% Senior Notes
due 2011.
"FIRST REGISTRATION RIGHTS AGREEMENT" means the registration rights
agreement, dated as of August 20, 2001 among Plastipak, the Guarantors, Goldman,
Sachs & Co., ABN AMRO Incorporated, Banc One Capital Markets, Inc., Fleet
Securities, Inc. and NatCity Investments, Inc., relating to Plastipak's 10.75%
Senior Notes due 2011.
"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
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(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.
"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
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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.
"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
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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 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
110
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 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
111
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;
(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);
112
(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
(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.
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"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.
"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
114
(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 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
115
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.
"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.
116
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.
117
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.
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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 2, 2002, and for each of the three years in the
period ended November 2, 2002, 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.
119
INDEX TO FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
Report of Independent Certified Public Accountants.......... F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of November 2, 2002 and
November 3, 2001 and February 1, 2003 (unaudited)...... F-3
Consolidated Statements of Earnings for the years ended
November 2, 2002, November 3, 2001 and October 28, 2000
and the three months ended February 1, 2003 (unaudited)
and February 2, 2002 (unaudited)....................... F-5
Consolidated Statements of Stockholders' Equity for the
years ended November 2, 2002, November 3, 2001 and
October 28, 2000 and the three months ended February 1,
2003 (unaudited)....................................... F-6
Consolidated Statements of Cash Flows for the years ended
November 2, 2002, November 3, 2001 and October 28, 2000
and the three months ended February 1, 2003 (unaudited)
and February 2, 2002 (unaudited)....................... 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 2, 2002 and November 3, 2001 and
the related consolidated statements of earnings, stockholders' equity and cash
flows for the three years in the period ended November 2, 2002. 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 2, 2002 and November 3, 2001 and
the results of their operations and their cash flows for each of the three years
in the period ended November 2, 2002, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note L, the accompanying consolidated balance sheet as of
November 3, 2001 and the consolidated statements of stockholders' equity as of
October 30, 1999 and for the year ended November 3, 2001 and October 28, 2000
have been restated to reflect an obligation for awards issued under a stock
bonus plan. As discussed in Note N 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 2, 2002, November 3, 2001 and October
28, 2000. In our opinion these schedules present fairly, in all material
respects, the information required to be set forth therein.
/s/ GRANT THORNTON LLP
- ------------------------------
Grant Thornton LLP
Southfield, Michigan
January 8, 2003
F-2
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
NOVEMBER 3,
2001
NOVEMBER 2, (RESTATED- FEBRUARY 1,
2002 NOTE L) 2003
ASSETS ------------ ------------ ------------
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents.................... $ 69,696,262 $ 53,483,389 $ 52,002,313
Accounts receivable
Trade (net of allowance of $2,166,430,
$6,111,236 and $2,482,414 at November 2,
2002, November 3, 2001 and February 1,
2003)................................... 46,086,007 48,906,619 48,546,005
Related parties........................... 6,228,360 6,695,143 6,699,743
------------ ------------ ------------
52,314,367 55,601,762 55,245,748
Prepaid expenses............................. 8,523,505 10,154,635 10,485,557
Inventories.................................. 78,730,293 77,930,887 83,244,238
Prepaid federal income taxes................. 3,808,730 1,100,000 4,117,733
Deferred income taxes........................ 2,732,000 6,437,000 3,394,000
Other current assets......................... 4,427,893 5,202,346 3,809,267
------------ ------------ ------------
Total Current Assets.................... 220,233,050 209,910,019 212,298,856
PROPERTY, PLANT AND EQUIPMENT -- NET........... 310,913,565 270,382,231 322,178,756
OTHER ASSETS
Cash surrender value of life insurance....... 1,788,374 1,650,845 1,788,374
Deposits..................................... 15,711,204 6,066,405 20,876,554
Capitalized loan costs (net of accumulated
amortization of $1,729,634, $267,508 and
$2,159,607 at November 2, 2002, November
3, 2001 and February 1, 2003)............. 11,261,613 10,679,904 10,831,641
Intangible assets, (net of accumulated
amortization of $9,376,000, $7,447,400 and
$10,418,940 at November 2, 2002, November
3, 2001 and February 1, 2003)............. 8,768,184 3,282,302 7,725,362
Prepaid expenses............................. 910,466 553,235 951,987
Note receivable.............................. 11,894 2,529,736 222,232
------------ ------------ ------------
Total Other Assets...................... 38,451,735 24,762,427 42,396,150
------------ ------------ ------------
$569,598,350 $505,054,677 $576,873,762
============ ============ ============
</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,
2001
NOVEMBER 2, (RESTATED- FEBRUARY 1,
2002 NOTE L) 2003
LIABILITIES AND STOCKHOLDERS' EQUITY ------------ ------------ ------------
(UNAUDITED)
CURRENT LIABILITIES
Accounts payable
Trade..................................... $ 89,505,818 $ 95,498,517 $ 89,835,157
Related parties........................... 717,517 150,664 582,088
------------ ------------ ------------
90,223,335 95,649,181 90,417,245
Current portion of long-term obligations..... 5,180,231 6,615,597 4,718,860
Accrued liabilities
Taxes other than income................... 4,943,876 4,454,849 6,674,756
Other accrued expenses.................... 25,709,607 23,761,086 31,686,955
Income taxes.............................. 1,388,244 1,081,560 1,381,419
------------ ------------ ------------
Total Current Liabilities............... 127,445,293 131,562,273 134,879,235
SENIOR NOTES (NET OF UNAMORTIZED
DISCOUNT/PREMIUM) OF ($2,501,893), $4,056,688
AND ($2,431,086) AT NOVEMBER 2, 2002,
NOVEMBER 3, 2001 AND FEBRUARY 1, 2003,
RESPECTIVELY................................. 327,501,893 270,943,312 327,431,086
LONG-TERM OBLIGATIONS.......................... 55,132,393 55,503,756 56,861,278
DEFERRED INCOME TAXES.......................... 12,344,000 11,238,000 12,005,000
OTHER NON-CURRENT LIABILITIES.................. 3,785,884 3,399,352 3,849,188
OBLIGATIONS UNDER STOCK BONUS PLAN............. 6,104,850 2,941,320 6,257,133
STOCKHOLDERS' EQUITY
Common stock, no par value, 60,000 shares
authorized; 28,316 and 27,753 shares
issued and outstanding, respectively...... 28,316 27,753 28,316
Retained earnings............................ 37,255,721 29,438,911 35,562,526
------------ ------------ ------------
Total Stockholders' Equity.............. 37,284,037 29,466,664 35,590,842
------------ ------------ ------------
$569,598,350 $505,054,677 $576,873,762
============ ============ ============
</Table>
The accompanying notes are an integral part of these financial statements.
F-4
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<Table>
<Caption>
YEARS ENDED THREE MONTHS ENDED
------------------------------------------ ---------------------------
NOVEMBER 2, NOVEMBER 3, OCTOBER 28, FEBRUARY 1, FEBRUARY 2,
2002 2001 2000 2003 2002
(52 WEEKS) (53 WEEKS) (52 WEEKS) (13 WEEKS) (13 WEEKS)
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
Revenues................. $812,190,068 $809,774,598 $701,872,292 $199,544,801 $187,502,416
Costs and expenses....... 697,000,995 709,012,933 625,691,371 174,730,300 161,385,509
------------ ------------ ------------ ------------ ------------
Gross profit......... 115,189,073 100,761,665 76,180,921 24,814,501 26,116,907
Selling, general and
administrative
expenses............... 68,505,788 64,476,989 50,958,192 17,685,958 16,285,209
------------ ------------ ------------ ------------ ------------
Operating profit..... 46,683,285 36,284,676 25,222,729 7,128,543 9,831,698
Other expense (income)
Equity in affiliate
earnings............. -- (38,437) (200,078) -- --
Interest expense....... 35,099,265 28,955,895 27,027,534 10,287,831 9,132,757
Interest income........ (1,221,145) (915,237) (526,105) (297,539) (405,686)
Royalty income......... (760,857) (883,599) (1,008,694) (212,505) (51,573)
(Gain) loss on foreign
currency
translation.......... 128,510 (468,105) 1,297,853 189,312 2,023,374
Sundry................. 13,702 (797,217) (981,075) (16,671) (69,674)
------------ ------------ ------------ ------------ ------------
33,259,475 25,853,300 25,609,435 9,950,428 10,629,198
------------ ------------ ------------ ------------ ------------
Earnings (loss) before
income taxes and
cumulative effect of
change in accounting
principle.............. 13,423,810 10,431,376 (386,706) (2,821,885) (797,500)
Income tax expense
(benefit)
Current................ 20,000 2,111,000 223,000 -- 646,000
Deferred............... 4,811,000 1,173,000 (2,403,000) (1,001,000) (951,000)
------------ ------------ ------------ ------------ ------------
4,831,000 3,284,000 (2,180,000) (1,001,000) (305,000)
------------ ------------ ------------ ------------ ------------
Earnings (loss) before
effect cumulative
change in accounting
principle.............. 8,592,810 7,147,376 1,793,294 (1,820,885) (492,500)
Cumulative effect of
change in accounting
principle (net of
income taxes of
$1,610,000)............ -- -- 3,124,946 -- --
------------ ------------ ------------ ------------ ------------
Net earnings
(loss)............. $ 8,592,810 $ 7,147,376 $ 4,918,240 $(1,820,885) $ (492,500)
============ ============ ============ ============ ============
</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 30, 1999, as previously reported
(Note L)............................................ $27,753 $20,228,295 $20,256,048
Restated to reflect obligations under stock bonus
plan................................................ -- (2,395,000) (2,395,000)
------- ----------- -----------
Balance, October 30, 1999, as restated (Note L)....... 27,753 17,833,295 17,861,048
Net earnings.......................................... -- 4,918,240 4,918,240
Increase in stock redemption value (Note L)........... -- (187,000) (187,000)
------- ----------- -----------
Balance, October 28, 2000, as restated (Note L)....... 27,753 22,564,535 22,592,288
Net earnings.......................................... -- 7,147,376 7,147,376
Increase in stock redemption value (Note L)........... -- (273,000) (273,000)
------- ----------- -----------
Balance, November 3, 2001, as restated (Note L)....... 27,753 29,438,911 29,466,664
Net earnings.......................................... -- 8,592,810 8,592,810
Issuance of 563 shares of common stock................ 563 -- 563
Increase in stock redemption value.................... -- (776,000) (776,000)
------- ----------- -----------
Balance, November 2, 2002............................. 28,316 37,255,721 37,284,037
Net loss (unaudited).................................. -- (1,820,885) (1,820,885)
Decrease in stock redemption value (Note L)
(unaudited)......................................... -- 127,690 127,690
------- ----------- -----------
Balance at February 1, 2003........................... $28,316 $35,562,526 $35,590,842
======= =========== ===========
</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 THREE MONTHS ENDED
----------------------------------------- -------------------------
NOVEMBER 2, NOVEMBER 3, OCTOBER 28, FEBRUARY 1, FEBRUARY 2,
2002 2001 2000 2003 2002
(52 WEEKS) (53 WEEKS) (52 WEEKS) (13 WEEKS) (13 WEEKS)
----------- ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)................. $8,592,810 $ 7,147,376 $ 4,918,240 $(1,820,885) $ (492,500)
Adjustments to reconcile net
earnings (loss) to net cash
provided by operating activities
Depreciation and amortization..... 48,017,593 44,711,621 42,166,057 13,577,992 11,516,787
Interest expense (income) on
senior notes.................... 296,582 82,062 -- (70,807) 103,136
Stock Bonus Plan.................. 2,387,530 -- 79,076 279,973 --
Bad debt (recovery) expense....... 1,762,463 3,714,141 405,855 259,118 166,312
Deferred salaries................. 403,832 1,264,000 625,000 96,900 126,250
Deferred income tax expense
(benefit)....................... 4,811,000 1,173,000 (793,000) (1,001,000) (951,000)
(Gain) loss on sale of
equipment....................... (39,253) 10,862 130,853 28,875 13,088
Loss on investment in affiliate... -- 722,413 -- -- --
Equity in earnings affiliates'.... -- (38,437) (200,078) -- --
Change in accounting principle.... -- -- (4,734,946) -- --
Foreign currency translation
(gain) loss..................... (2,660,787) (3,096,129) 520,592 116,795 (805)
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable.................... 3,692,593 11,243,219 (16,474,321) (3,249,087) 762,622
Increase in inventories......... (799,406) (12,047,595) (3,776,880) (4,513,945) (2,576,460)
Decrease (increase) in prepaid
expenses and other current
assets........................ 1,594,282 (4,385,648) 225,211 (1,528,947) (1,996,391)
(Increase) decrease in cash
surrender value............... (137,529) (83,765) 52,440 -- --
(Increase) decrease in prepaid
federal income taxes.......... (2,708,730) (829,366) 5,885,565 (309,003) (13,909)
(Increase) decrease in
deposits...................... (9,644,799) (2,060,410) 10,374,903 (5,165,350) (6,416,781)
Increase in other liabilities... 2,392,731 6,307,863 9,202,787 7,671,014 12,582,215
(Decrease) increase in accounts
payable....................... (5,425,846) (8,807,414) 26,621,838 193,910 (9,942,943)
Decrease (increase) in sundry... 2,517,842 (2,108,758) 222,887 (210,338) 85,197
Increase (decrease) in income
taxes......................... 306,684 920,560 161,000 (6,825) 322,000
----------- ------------ ------------ ----------- -----------
Net cash provided by operating
activities.................. 55,359,592 43,839,595 75,613,079 4,348,390 3,286,818
</Table>
The accompanying notes are an integral part of these financial statements.
F-7
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<Table>
<Caption>
YEARS ENDED THREE MONTHS ENDED
------------------------------------------ ---------------------------
NOVEMBER 2, NOVEMBER 3, OCTOBER 28, FEBRUARY 1, FEBRUARY 2,
2002 2001 2000 2003 2002
(52 WEEKS) (53 WEEKS) (52 WEEKS) (13 WEEKS) (13 WEEKS)
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS USED IN INVESTING
ACTIVITIES
Acquisition of property and
equipment........................ $(82,148,295) $(50,469,057) $(54,694,075) $(21,798,947) $ (9,480,413)
Acquisition of intangible assets... (7,414,600) (2,287,917) (1,008,084) -- (1,500,000)
------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities..................... (89,562,895) (52,756,974) (55,702,159) (21,798,947) (10,980,413)
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES
Net borrowings (repayments) under
revolving credit facility........ 5,381,858 (174,547,855) (7,018,557) 1,842,377 --
Payments on long-term
obligations...................... (9,103,298) (29,265,504) (15,362,913) (2,085,769) (4,282,031)
Proceeds from long-term
obligations...................... 53,271,503 273,142,417 -- -- 1,292,380
Settlement of interest rate swap... 3,012,000 -- -- -- --
Issuance of common stock........... 563 -- -- -- --
Capitalized loan costs............. (2,146,450) (10,275,260) (2,629,549) -- (209,509)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities........... 50,416,176 59,053,798 (25,011,019) (243,392) (3,199,160)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash...... 16,212,873 50,136,419 (5,100,099) (17,693,949) (10,892,755)
Cash and cash equivalents at
beginning of period................ 53,483,389 3,346,970 8,447,069 69,696,262 53,483,389
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of
period............................. $ 69,696,262 $ 53,483,389 $ 3,346,970 $ 52,002,313 $ 42,590,634
============ ============ ============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes......... $ 2,475,000 $ 2,120,000 $ 240,000 $ -- $ --
============ ============ ============ ============ ============
Cash paid for interest............. $ 37,600,000 $ 26,500,000 $ 25,000,000 $ 1,394,000 $ 1,322,000
============ ============ ============ ============ ============
SUPPLEMENTAL NONCASH INVESTING AND
FINANCING ACTIVITIES:
Acquisition of equipment through
the assumption of long-term
obligations...................... $ 2,413,850 $ 5,491,086 $ 3,099,382 $ 1,456,000 $ --
============ ============ ============ ============ ============
Increase (decrease) in Obligation
Under Stock Bonus Plan........... $ 776,000 $ 273,000 $ 187,000 $ (127,690) $ --
============ ============ ============ ============ ============
</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 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
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, Clean Tech and Whiteline. Plastipak
Brazil produces injection-molded plastic performs, blow molds rigid plastic
packaging in Paulinia and 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.
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 periods ended November 2, 2002 and October 28, 2000 contained 52
weeks. The period ended November 3, 2001 contained 53 weeks. The periods ending
February 1, 2003 and February 2, 2002 contained 13 weeks.
CASH EQUIVALENTS
For purposes of the statement of cash flows, all investments purchased with
an original maturity of three months or less are considered to be cash
equivalents.
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. Cost is determined
on the first-in, first-out (FIFO) method.
F-9
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE A -- BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING
POLICIES (CONTINUED)
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
$1,418,000, $1,550,000 and $1,362,000 were capitalized during the years ending
November 2, 2002, November 3, 2001 and October 28, 2000 and approximately
$430,000 and $453,000 for the three months ending February 1, 2003 and February
2, 2002, 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. Other
intangibles relate to Brazil short falls on previous contracts which are being
amortized over the life of the new 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 the
enactment date.
SELF-INSURANCE
Plastipak is self-insured for health costs and workers' compensation up to
a certain stop loss level. The estimated liability is based upon a review by
Plastipak and an independent broker of claims filed and claims incurred but not
reported.
RECLASSIFICATIONS
Certain reclassifications have been made in order for them to conform to
the classifications at February 1, 2003.
F-10
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE A -- BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING
POLICIES (CONTINUED)
EMPLOYEE COMPENSATION PLANS
The Company has two stock-based employee compensation plans. The Company
accounts for these plans under the recognition and measurement principles of APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. The plans are considered to be variable plans and therefore,
stock-based employee compensation cost is reflected in net income as a component
of general and administrative expenses, as all options granted under those plans
had an exercise price less than the market value of the underlying common stock
on the date of grant.
Amounts expensed approximate that which would have been expensed had the
value of the options granted been computed under provisions of FAS 123.
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 $8,600,000, $7,100,000 and $6,300,000,
respectively for the years ended November 2, 2002, November 3, 2001 and October
28, 2000 and approximately $1,906,000 and $1,362,000 for the three months ended
February 1, 2003 and February 2, 2002, 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 P.
F-11
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE A -- BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING
POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made to the 2001 and 2000 consolidated
financial statements in order for them to conform to the 2002 presentation.
NEW ACCOUNTING PRONOUNCEMENTS
On November 3, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), Accounting for Goodwill and Other
Intangibles,which requires that goodwill and certain other intangible assets no
longer be amortized to earnings but instead be reviewed periodically for
potential impairment; Statement 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
long-lived assets; Statement of Financial Accounting Standards No. 148 ("SFAS
148"), Accounting for Stock Based Compensation-Transaction and Disclosure, which
addresses financial accounting and reporting for stock-based employee
compensation plans.
Variable Interest Entities. In January 2003, the FASB issued FASB
Interpretation 46 (FIN 46), Consolidation of Variable Interest Entities. FIN 46
clarifies the applications of Accounting Research Bulletin 51, Consolidated
Financial Statements, for certain entities that do not have sufficient equity at
risk for the entity to finance its activities without additional subordinated
financial support from other parties or in which equity investors do not have
the characteristics of a controlling financial interest ("variable interest
entities"). Variable interest entities within the scope of FIN 46 will be
required to be consolidated by their primary beneficiary. The primary
beneficiary of a variable interest entity is determined to be the party that
absorbs a majority of the entity's expected losses, receives a majority of its
expected returns, or both. FIN 46 applies immediately to variable interest
entities created after January 31, 2003, and to variable interest entities in
which an enterprise holds a variable interest that it acquired before February
1, 2003. The Company is in the process of determining what impact, if any, the
adoption of the provisions of FIN 46 will have upon its financial condition or
results of operations.
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 will be effective for the fiscal year beginning November
3, 2002.
The Company expects that the adoption of this standard will not have a
material impact on its financial position or results from operations.
F-12
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE B -- INVENTORIES
Inventories consisted of the following at:
<Table>
<Caption>
NOVEMBER 2, NOVEMBER 3, FEBRUARY 1,
2002 2001 2003
----------- ----------- -----------
(UNAUDITED)
Raw materials.................................... $29,585,642 $28,166,931 $31,246,578
Finished goods................................... 37,753,695 38,922,590 39,508,361
Parts and supplies............................... 11,390,956 10,841,366 12,489,299
----------- ----------- -----------
$78,730,293 $77,930,887 $83,244,238
=========== =========== ===========
</Table>
NOTE C -- PROPERTY, PLANT AND EQUIPMENT
The principal categories of property, plant and equipment are as follows:
<Table>
<Caption>
NOVEMBER 2, NOVEMBER 3, FEBRUARY 1,
2002 2001 2003
------------ ------------ ------------
(UNAUDITED)
Land............................................ $ 6,974,961 $ 4,547,843 $ 6,974,961
Buildings....................................... 73,969,116 64,031,367 71,541,608
Machinery and equipment......................... 358,790,352 306,268,181 365,042,814
Tooling......................................... 80,733,626 72,898,842 81,802,191
Automobiles, trucks and trailers................ 3,702,463 3,120,292 3,774,493
Furniture and fixtures.......................... 2,805,098 2,706,263 2,842,474
Lease acquisition costs......................... 299,293 299,293 289,956
Computers....................................... 19,153,629 14,552,961 19,440,467
Leasehold improvements.......................... 26,621,058 26,127,775 26,620,865
Construction in process......................... 30,137,512 28,970,148 47,391,622
------------ ------------ ------------
603,187,108 523,522,965 625,721,451
Less accumulated depreciation and
amortization.................................. 292,273,543 253,140,734 303,542,695
------------ ------------ ------------
$310,913,565 $270,382,231 $322,178,756
============ ============ ============
</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 $44,000,000, $41,000,000 and $40,000,000 for the years ended
November 2, 2002, November 3, 2001 and October 28, 2000 and approximately
$11,961,000 and $10,528,000 for the three months ending February 1, 2003 and
February 2, 2002, respectively
F-13
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE D -- LONG-TERM OBLIGATIONS
<Table>
<Caption>
NOVEMBER 2, NOVEMBER 3, FEBRUARY 1,
2002 2001 2003
----------- ----------- -----------
(UNAUDITED)
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 4.75% to 5.50% at November 2, 2002.
Principal is due on August 20, 2006. The
Company is required to pay facility and agency
fees during the year. The facility is secured
by all assets of Plastipak..................... $ -- $ -- $ --
Notes payable to banks with interest rates
varying from 3.5% to 12%, and are due at
various times through August 2006. Borrowings
are collateralized by letters of credit........ 50,956,307 45,972,834 52,840,987
Notes payable with interest rates varying from
2.4% to 7.5% due in various installments at
various dates through 2005, collateralized by
certain equipment and, in part, by letters of
credit......................................... 2,573,822 8,369,865 1,591,479
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 2003........ 107,400 1,040,300 80,550
Other............................................ 6,675,095 6,736,354 7,067,122
----------- ----------- -----------
60,312,624 62,119,353 61,580,138
Less current portion........................... 5,180,231 6,615,597 4,718,860
----------- ----------- -----------
$55,132,393 $55,503,756 $56,861,278
=========== =========== ===========
</Table>
Minimum principal payments on long-term obligations to maturity as of
November 2, 2002 are as follows:
<Table>
2003........................................................ $ 5,180,231
2004........................................................ 2,575,968
2005........................................................ 1,208,043
2006........................................................ 51,348,382
-----------
$60,312,624
===========
</Table>
The revolving credit facility contains various covenants pertaining to
maintenance of net worth and debt to equity ratios and various other
restrictions.
At November 2, 2002 and November 3, 2001, Plastipak has outstanding letters
aggregating $54,100,000 and $53,100,000 and $56,365,000 for the three months
ending February 1, 2003.
F-14
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE E -- SENIOR NOTES
In August 2001 and September 2002, the Company issued $275,000,000 and
$50,000,000, respectively of 10.75% senior notes due in 2011. Interest is
payable semi-annually. The indentures 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 and $51,800,000 for the years
ending November 3, 2001 and November 2, 2002, respectively.
The carrying amount of the senior notes were approximately $327,500,000 and
$271,000,000 as of November 2, 2002 and November 1, 2001 and $327,500,000 at
February 1, 2003, respectively. Based upon current market rates primarily
provided by outside investment bankers, the fair value of the senior notes at
November 2, 2002 and November 1, 2001 was estimated at $334,000,000 and
$288,578,000 and $327,400,000 at February 1, 2003, respectively.
NOTE F -- DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Financial Accounting Standards Board Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by Financial
Accounting Standards Board Statement No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," requires companies to recognize all
of their derivative instruments as either assets or liabilities at fair value in
the statement of financial position. The accounting for changes in the fair
value (i.e., gains or losses) of a derivative instrument depends on whether it
has been designated and qualifies as part of a hedging relationship and further,
on the type of hedging relationship. For those derivative instruments that are
designated and qualify as hedging instruments, a company must designate the
hedging instrument, based upon the exposure being hedged, as either a fair value
hedge or a cash flow hedge.
For derivative instruments that are designated and qualify as a fair value
hedge (i.e., hedging the exposure to changes in the fair value of an asset or a
liability or an identified portion thereof that is attributable to a particular
risk), the gain or loss on the derivative instrument as well as the offsetting
loss or gain on the hedged item attributable to the hedged risk are recognized
in current earnings during the period of the change in fair values. For
derivative instruments that are designated and qualify as a cash flow hedge
(i.e., hedging the exposure to variability in expected future cash flows that is
attributable to a particular risk), the effective portion of the gain or loss on
the derivative instrument is reported as a component of other comprehensive
income and reclassified into earnings in the same period or periods during which
the hedged transaction affects earnings. For derivative instruments not
designated as hedging instruments, the gain or loss is recognized in current
earnings during the period of change. The Company currently uses only fair value
hedge accounting.
F-15
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE F -- DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED)
On July 16, 2002, the Company entered into an interest rate swap with a
bank pursuant to which it exchanged fixed rate interest in connection with The
Senior Notes discussed in Note E on a notional amount of $100,000,000 for a
variable rate equal to six months LIBOR plus 5.165% for a 9 year period ending
September 1, 2011.
On September 11, 2002 pursuant to an agreement between the Company and the
bank to terminate the interest rate swap agreement, the bank paid the Company
$3,012,000 which has been recorded as an increase in the senior notes and will
be amortized over the term of the notes.
On March 11, 2003, the Company entered into two interest rate swap
agreements. In connection with the Senior Notes, the Company exchanged fixed
rate interest of 10.75% for variable rate interest. The interest rate swap
agreements have notional amounts of $50.0 million each. The variable rates are
equal to six months LIBOR plus 6.46% and 6.66%, respectively.
NOTE G -- INCOME TAXES
The components of earnings (loss) before income taxes and cumulative effect
are as follows:
<Table>
<Caption>
YEARS ENDED THREE MONTHS ENDED
------------------------------------------- --------------------------
NOVEMBER 2, NOVEMBER 3, OCTOBER 28, FEBRUARY 1, FEBRUARY 2,
2002 2001 2000 2003 2002
------------ ------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
United States........ $ 26,225,605 $ 23,957,855 $ 5,572,834 $(1,822,437) $ 4,112,429
Foreign.............. (12,801,795) (13,526,479) (5,959,540) (999,448) (4,909,929)
------------ ------------ ----------- ----------- -----------
$ 13,423,810 $ 10,431,376 $ (386,706) $(2,821,885) $ (797,500)
============ ============ =========== =========== ===========
</Table>
F-16
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE G -- INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities consist of the following:
<Table>
<Caption>
NOVEMBER 2, NOVEMBER 3, FEBRUARY 1,
2002 2001 2003
------------ ------------ ------------
(UNAUDITED)
Deferred tax assets:
Net operating loss carryforwards.............. $ 2,852,000 $ 2,254,000 $ 3,764,000
Allowance for doubtful accounts............... 1,020,000 2,077,000 1,089,000
Vacation...................................... 117,000 229,000 128,000
Inventory..................................... 509,000 589,000 617,000
Restricted stock options...................... 367,000 368,000 368,000
Accrued expenses.............................. 1,381,000 1,697,000 1,558,000
Foreign tax credit............................ 1,007,000 901,000 1,007,000
Contributions................................. 78,000 -- 78,000
Deferred salary............................... 912,000 775,000 945,000
U.S. tax credits.............................. 5,924,000 5,797,000 5,986,000
Deposits received............................. -- 1,278,000 --
Loss in affiliates............................ 139,000 -- 139,000
Interest swap................................. 995,000 -- 945,000
------------ ------------ ------------
15,301,000 15,965,000 16,624,000
Deferred tax liabilities:
Earnings in affiliates........................ -- (513,000) --
Depreciation.................................. (21,546,000) (15,266,000) (22,180,000)
Repairs and maintenance....................... (461,000) -- (461,000)
Foreign exchange gain......................... (1,543,000) (1,543,000) (1,543,000)
Capitalized interest.......................... (183,000) (183,000) (183,000)
Parts and supplies inventory.................. (212,000) (2,861,000) (278,000)
Prepaids...................................... (402,000) -- (370,000)
VEBA.......................................... (346,000) -- --
Other......................................... (220,000) (400,000) (220,000)
------------ ------------ ------------
(24,913,000) (20,766,000) (25,235,000)
------------ ------------ ------------
Net deferred tax liability...................... $ (9,612,000) $ (4,801,000) $ (8,611,000)
============ ============ ============
</Table>
Net operating loss carryforwards expire in years ending through 2022.
F-17
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE G -- INCOME TAXES (CONTINUED)
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 cumulative effect is as follows:
<Table>
<Caption>
YEARS ENDED THREE MONTHS ENDED
----------------------------------------- --------------------------
NOVEMBER 2, NOVEMBER 3, OCTOBER 28, FEBRUARY 1, FEBRUARY 2,
2002 2001 2000 2003 2002
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
Expected federal
income tax
(benefit).......... $4,565,000 $3,547,000 $ (115,000) $ (959,000) $(271,000)
Effect of non-
deductible items... 643,000 46,000 69,000 21,000 16,000
Research and
experimentation
credits............ (300,000) (320,000) (2,200,000) (63,000) (50,000)
Foreign tax credit... (167,000) -- (100,000) -- --
Other................ 90,000 11,000 166,000 -- --
---------- ---------- ----------- ----------- ---------
$4,831,000 $3,284,000 $(2,180,000) $(1,001,000) $(305,000)
========== ========== =========== =========== =========
</Table>
NOTE H -- 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
- -----------
2003........................................................ $25,585,217
2004........................................................ 16,106,886
2005........................................................ 11,996,419
2006........................................................ 6,221,783
2007........................................................ 2,484,444
Thereafter.................................................. 1,524,331
</Table>
The total rent expense for the years ended November 2, 2002, November 3,
2001 and October 28, 2000 was approximately $31,132,000, $36,154,000 and
$42,411,000 and $7,595,000 and $7,909,000 for the three months ending February
1, 2003 and February 2, 2002, respectively.
NOTE I -- RELATED PARTY TRANSACTIONS
Included in revenues for the periods ended November 2, 2002, November 3,
2001 and October 28, 2000 are approximately $17,834,000, $20,363,000 and
$16,083,000 and $3,932,000 and $3,658,000 for the three months ending February
1, 2003 and February 2, 2002, respectively, of sales to companies affiliated
through common ownership. Included in accounts receivable at November 2, 2002
and November 3, 2001 are approximately $6,228,000 and $6,695,000 and $6,700,000
at February 1, 2003, respectively, of receivables from these companies.
F-18
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE I -- RELATED PARTY TRANSACTIONS (CONTINUED)
A company affiliated through common ownership provides engineering services
and customizes machinery. During the years ending November 2, 2002, November 3,
2001 and October 28, 2000, Packaging was invoiced $5,500,000, $2,385,000 and
$6,673,000 and $3,081,000 and $1,940,000 for the three months ending February 1,
2003 and February 2, 2002, respectively.
NOTE J -- 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 2, 2002, November 3, 2001 and October 28, 2000 was approximately
$2,505,000, $2,365,000 and $1,930,000 and $682,000 and $615,000 for the three
months ending February 1, 2003 and February 2, 2002, respectively.
NOTE K -- MAJOR CUSTOMERS
During the years ended November 2, 2002 and November 3, 2001 and the three
months ending February 1, 2003 one customer in each period generated revenues
representing approximately 25%, 23% and 28% of total revenues, respectively.
Accounts receivable for this customer at November 2, 2002 and November 3, 2001,
amounted to approximately $5,979,000 and $2,483,000, respectively, and
$6,500,000 at February 1, 2003.
NOTE L -- STOCK COMPENSATION PLANS AND RESTATEMENT
Plastipak sponsors two Restricted Stock Bonus Plans. Pursuant to the terms
of the Amended and Restated Stock Bonus Plan (as amended in 2002), the Company
has reserved 5,450 common shares for issuance. Vesting under the plan ranges
from 0-10 years at the discretion of the Board of Directors. Pursuant to the
terms of awards granted in 1985, 1,379 shares (as adjusted for the
reorganization discussed in Note A) had been acquired in 1990 pursuant to the
terms of this plan. At November 3, 2001 and October 28, 2000 there were options
outstanding to acquire 1,199 shares at a nominal per share price. During the
year ended November 2, 2002 the Company granted options to acquire an additional
872 shares, and options for 263 shares were exercised. At November 2, 2002 and
February 1, 2003, options to acquire 1,808 shares were outstanding.
The Company adopted the 2002 Restricted Stock Bonus Plan on October 16,
2002. Pursuant to the terms of this plan, the Company has reserved 5,450 shares
for issuance of which options to acquire 1,000 shares were granted at a nominal
per share price. The options vest over a period from 0-10 years at the
discretion of the Board of Directors. During the year ending November 2, 2002
certain employees exercised options to acquire 300 shares of common stock.
Each of the above referenced plans require the Company, subject to certain
limitations, to repurchase the shares issued under the plans at a price based
upon a book value computation plus certain formula adjustments.
In connection with reviewing the required accounting for the Amended and
Restated Stock Bonus Plan and the options issued under the 2002 Restricted Stock
Bonus Plan, management determined the provisions of EITF 87-23 Book Value Stock
Purchase Plans and Rule 5-02.28 of
F-19
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE L -- STOCK COMPENSATION PLANS AND RESTATEMENT (CONTINUED)
Regulation S-X-Redeemable Preferred Stocks, applied. As a result, the
restatement adjustments described below were made to reflect the mandatory
redemption features underlying the awards and reflect the related obligation as
a liability. The $2,395,000 adjustment to retained earnings as of October 31,
1999 represents the stipulated value of the shares underlying the awards at that
date. Increases in the per share redemption value in 2000, 2001 and 2002, of
$187,000, $273,000 and $776,000, respectively, associated with the 1,379 shares
referred to above are treated as a reduction of retained earnings and an
increase to obligations under stock bonus plans. Included in general and
administrative expenses for the year ended November 3, 2002 and the three months
ended February 1, 2003 is $2,387,530 and $279,973, respectively, representing
the excess of the redemption value over the exercise price for options granted
during the year and the increase in redemption value associated with unexercised
options.
Amounts expensed approximate that which would have been expensed had the
value of the options granted been computed under the provisions of FAS 123.
NOTE M -- 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 for the periods ended November 2, 2002 and November 3,
2001 was approximately $3,088,000 and $2,680,000, respectively.
NOTE N -- CHANGE IN ACCOUNTING PRINCIPLE
Through October 30, 1999, Plastipak expensed parts and supplies utilized in
its manufacturing facilities. Effective during the year ended 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 cumulative effect of change in accounting principle by
approximately $1,836,000.
NOTE O -- 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.
F-20
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE P -- 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.
The following condensed consolidating financial information presents:
(1) Condensed consolidating financial statements as of November 2, 2002,
November 3, 2001 and February 1, 2003 and the three years in the
period ending November 3, 2002 and for the three months ending
February 1, 2003 and February 2, 2002 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.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF NOVEMBER 2, 2002
<Table>
<Caption>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------ ------------- ------------ ------------ ------------
CURRENT ASSETS
Cash and cash
equivalents........... $ 44,619,480 $ 22,888,938 $ 2,187,844 $ -- $ 69,696,262
Accounts receivable..... 5,086,992 44,941,401 8,757,490 (6,471,516) 52,314,367
Prepaid expenses........ -- 6,273,988 2,249,517 -- 8,523,505
Inventories............. -- 62,985,057 15,745,236 -- 78,730,293
Prepaid federal income
taxes................. 796,000 3,012,730 -- -- 3,808,730
Deferred income taxes... (2,019,000) 2,226,000 2,525,000 -- 2,732,000
Other current assets.... -- 4,057,036 370,857 -- 4,427,893
------------ ------------- ----------- ------------ ------------
Total current
assets.............. 48,483,472 146,385,150 31,835,944 (6,471,516) 220,233,050
PROPERTY, PLANT AND
EQUIPMENT -- NET........ -- 255,598,323 55,715,242 (400,000) 310,913,565
OTHER ASSETS
Cash surrender value of
life insurance........ -- 1,788,374 -- -- 1,788,374
Deposits................ -- 15,711,204 -- -- 15,711,204
Investments in and
advances to
affiliates............ 316,666,208 (254,504,681) -- (62,161,527) --
Capitalized loan
costs................. 1,155,757 10,105,856 -- -- 11,261,613
Intangible assets....... -- 4,504,210 4,263,974 -- 8,768,184
Deferred tax asset...... (86,000) 86,000 -- -- --
Prepaids................ -- 910,466 -- -- 910,466
Note receivable......... -- 5,011,894 -- (5,000,000) 11,894
------------ ------------- ----------- ------------ ------------
Total other assets.... 317,735,965 (216,386,677) 4,263,974 (67,161,527) 38,451,735
------------ ------------- ----------- ------------ ------------
Total assets.......... $366,219,437 $ 185,596,796 $91,815,160 $(74,033,043) $569,598,350
============ ============= =========== ============ ============
</Table>
F-21
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE P -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET -- (CONTINUED)
AS OF NOVEMBER 2, 2002
<Table>
<Caption>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------ ------------ ------------ ------------ ------------
CURRENT LIABILITIES
Accounts payable........ $ -- $65,472,597 $31,222,254 $ (6,471,516) $ 90,223,335
Current portion of long-
term liabilities...... -- 3,459,728 1,720,503 -- 5,180,231
Taxes other than
income................ -- 4,392,901 550,975 -- 4,943,876
Deferred income tax
liability............. (118,000) 118,000 -- -- --
Income taxes............ (168,440) 1,556,684 -- -- 1,388,244
Other accrued expenses.. 5,481,483 16,638,057 3,590,067 -- 25,709,607
------------ ------------ ----------- ------------ ------------
Total current
liabilities......... 5,195,043 91,637,967 37,083,799 (6,471,516) 127,445,293
SENIOR NOTES.............. 331,146,037 (3,644,144) -- -- 327,501,893
LONG-TERM OBLIGATIONS..... -- 2,981,314 57,151,079 (5,000,000) 55,132,393
DEFERRED INCOME TAXES..... (11,798,000) 22,705,000 1,437,000 -- 12,344,000
OTHER LONG-TERM
LIABILITIES............. -- 3,147,418 638,466 -- 3,785,884
OBLIGATIONS UNDER STOCK
BONUS PLANS............. 4,392,320 1,712,530 -- -- 6,104,850
STOCKHOLDERS' EQUITY
(DEFICIT)............... 37,284,037 67,056,711 (4,495,184) (62,561,527) 37,284,037
------------ ------------ ----------- ------------ ------------
Total liabilities and
stockholders' equity
(deficit)........... $366,219,437 $185,596,796 $91,815,160 $(74,033,043) $569,598,350
============ ============ =========== ============ ============
</Table>
F-22
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE P -- 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.... 6,186,005 43,977,603 12,430,070 (6,991,916) 55,601,762
Prepaid expenses....... -- 5,089,370 5,065,265 -- 10,154,635
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............. 6,186,005 166,831,529 43,884,401 (6,991,916) 209,910,019
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 -- -- --
Prepaid expenses....... -- 553,235 -- -- 553,235
Sundry................. -- 7,529,736 -- (5,000,000) 2,529,736
------------ ------------- ------------ ------------ ------------
Total other assets... 299,550,511 (222,284,811) 312,636 (52,815,909) 24,762,427
------------ ------------- ------------ ------------ ------------
Total assets......... $305,736,516 $ 157,811,446 $101,314,540 $(59,807,825) $505,054,677
============ ============= ============ ============ ============
</Table>
F-23
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE P -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET -- CONTINUED
AS OF NOVEMBER 3, 2001
<Table>
<Caption>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------ ------------- ------------- ------------ ------------
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
OBLIGATIONS UNDER STOCK
VALUE PLANS............ 2,941,320 -- -- -- 2,941,320
STOCKHOLDERS' EQUITY
(DEFICIT).............. 29,466,664 51,398,248 (3,582,339) (47,815,909) 29,466,664
------------ ------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity
(deficit)............ $305,736,516 $157,811,446 $101,314,540 $(59,807,825) $505,054,677
============ ============ ============ ============ ============
</Table>
F-24
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE P -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
ASSETS
AS OF FEBRUARY 1, 2003
<Table>
<Caption>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------ ------------- ------------ ------------ ------------
CURRENT ASSETS
Cash..................... $ 40,689,555 $ 9,267,830 $ 2,044,928 $ -- $ 52,002,313
Accounts receivable...... 12,535,021 39,534,137 9,950,513 (6,773,923) 55,245,748
Inventories.............. -- 69,198,563 14,045,675 -- 83,244,238
Prepaid expenses......... -- 7,765,526 2,720,031 -- 10,485,557
Prepaid federal income
taxes.................. 796,000 3,321,733 -- -- 4,117,733
Deferred income taxes.... (1,357,000) 2,226,000 2,525,000 -- 3,394,000
Other current assets..... -- 3,636,359 172,908 -- 3,809,267
------------ ------------- ----------- ------------ ------------
Total current assets... 52,663,576 134,950,148 31,459,055 (6,773,923) 212,298,856
PROPERTY, PLANT AND
EQUIPMENT -- NET......... -- 268,420,339 54,158,417 (400,000) 322,178,756
OTHER ASSETS
Cash surrender value of
life insurance......... -- 1,788,374 -- -- 1,788,374
Deposits................. -- 20,876,554 -- -- 20,876,554
Investments in and
advances to
affiliates............. 319,170,264 (256,804,571) -- (62,365,693) --
Capitalized loan costs... 1,123,047 9,708,594 -- -- 10,831,641
Intangible assets........ -- 3,813,038 3,912,324 -- 7,725,362
Deferred tax asset --
long term.............. (86,000) 86,000 -- -- --
Sundry................... -- 5,961,332 212,887 (5,000,000) 1,174,219
------------ ------------- ----------- ------------ ------------
Total other assets..... 320,207,311 (214,570,679) 4,125,211 (67,365,693) 42,396,150
------------ ------------- ----------- ------------ ------------
$372,870,887 $ 188,799,808 $89,742,683 $(74,539,616) $576,873,762
============ ============= =========== ============ ============
</Table>
F-25
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE P -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
AS OF FEBRUARY 1, 2003
<Table>
<Caption>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------ ------------ ------------ ------------ ------------
CURRENT LIABILITIES
Accounts payable.......... $ -- $ 67,197,820 $29,993,346 $ (6,773,921) $ 90,417,245
Current portion of long-
term liabilities........ -- 3,600,398 1,118,462 -- 4,718,860
Taxes other than income... -- 5,966,363 708,393 -- 6,674,756
Income taxes.............. (168,440) 1,549,859 -- -- 1,381,419
Other accrued expenses.... 14,221,072 16,701,440 764,443 -- 31,686,955
------------ ------------ ----------- ------------ ------------
Total current
liabilities........... 14,052,632 95,015,880 32,584,644 (6,773,921) 134,879,235
SENIOR NOTES................ 330,972,093 (3,541,007) -- -- 327,431,086
LONG-TERM OBLIGATIONS....... -- 3,263,996 58,597,282 (5,000,000) 56,861,278
DEFERRED INCOME TAXES....... (12,137,000) 22,705,000 1,437,000 -- 12,005,000
OTHER LONG-TERM
LIABILITIES............... -- 3,230,799 618,389 -- 3,849,188
------------ ------------ ----------- ------------ ------------
Total liabilities....... 332,887,725 120,674,668 93,237,315 (11,773,921) 535,025,787
OBLIGATIONS UNDER STOCK
BONUS PLAN................ 4,392,320 1,864,813 -- -- 6,257,133
STOCKHOLDERS' EQUITY
(DEFICIT)................. 35,590,842 66,260,327 (3,494,632) (62,765,695) 35,590,842
------------ ------------ ----------- ------------ ------------
$372,870,887 $188,799,808 $89,742,683 $(74,539,616) $576,873,762
============ ============ =========== ============ ============
</Table>
F-26
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE P -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 2, 2002
<Table>
<Caption>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------ ------------ ------------ ----------- ------------
Revenues............. $ -- $748,587,324 $ 65,946,063 $(2,343,319) $812,190,068
Cost and expenses.... -- 630,435,701 68,638,613 (2,073,319) 697,000,995
------------ ------------ ------------ ----------- ------------
Gross profit
(loss)........ -- 118,151,623 (2,692,550) (270,000) 115,189,073
Selling, general and
administrative
expenses........... 63,487 61,909,025 6,803,276 (270,000) 68,505,788
------------ ------------ ------------ ----------- ------------
Operating (loss)
profit........ (63,487) 56,242,598 (9,495,826) -- 46,683,285
Other expense
(income)
Equity in loss
(earnings) of
affiliates...... (5,017,029) 2,560,359 -- 2,456,670 --
Interest expense... 29,491,925 1,590,376 4,219,069 (202,105) 35,099,265
Interest income.... (28,781,238) 27,860,531 (502,543) 202,105 (1,221,145)
Royalty income..... -- (760,857) -- -- (760,857)
Sundry (income)
loss............ (671,955) 824,724 (539,067) 400,000 13,702
Gain on foreign
currency
translation..... -- -- 128,510 -- 128,510
------------ ------------ ------------ ----------- ------------
(4,978,297) 32,075,133 3,305,969 2,856,670 33,259,475
------------ ------------ ------------ ----------- ------------
Earnings (loss)
before income
taxes.............. 4,914,810 24,167,465 (12,801,795) (2,856,670) 13,423,810
Income taxes
(benefit) expense.. (3,678,000) 8,509,000 -- -- 4,831,000
------------ ------------ ------------ ----------- ------------
Net earnings
(loss)............. $ 8,592,810 $ 15,658,465 $(12,801,795) $(2,856,670) $ 8,592,810
============ ============ ============ =========== ============
</Table>
F-27
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE P -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED NOVEMBER 3, 2001
<Table>
<Caption>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
----------- ------------ ------------ ----------- ------------
Revenues.............. $ -- $738,056,186 $ 74,218,412 $(2,500,000) $809,774,598
Cost and expenses..... -- 638,015,102 73,414,294 (2,416,463) 709,012,933
----------- ------------ ------------ ----------- ------------
Gross profit
(loss)......... -- 100,041,084 804,118 (83,537) 100,761,665
Selling, general and
administrative
expenses............ -- 54,787,063 9,053,926 636,000 64,476,989
----------- ------------ ------------ ----------- ------------
Operating profit
(loss)......... -- 45,254,021 (8,249,808) (719,537) 36,284,676
Other expense (income)
Equity in loss
(earnings) of
affiliates....... (3,692,343) 2,617,859 -- 1,036,047 (38,437)
Interest expense.... 6,240,972 16,827,424 6,248,803 (361,304) 28,955,895
Interest income..... (6,186,005) 5,365,248 (455,784) 361,304 (915,237)
Royalty income...... -- (883,599) -- -- (883,599)
Sundry income....... -- (748,974) (48,243) -- (797,217)
Gain on foreign
currency
translation...... -- -- (468,105) -- (468,105)
----------- ------------ ------------ ----------- ------------
(3,637,376) 23,177,958 5,276,671 1,036,047 25,853,300
----------- ------------ ------------ ----------- ------------
Earnings (loss) before
income taxes........ 3,637,376 22,076,063 (13,526,479) (1,755,584) 10,431,376
Income taxes (benefit)
expense............. (3,510,000) 7,039,000 (245,000) -- 3,284,000
----------- ------------ ------------ ----------- ------------
Net earnings (loss)... $ 7,147,376 $ 15,037,063 $(13,281,479) $(1,755,584) $ 7,147,376
=========== ============ ============ =========== ============
</Table>
F-28
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE P -- 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..... -- 569,615,545 57,363,802 (1,287,976) 625,691,371
----------- ------------ ----------- ----------- ------------
Gross profit..... -- 69,960,545 6,220,376 -- 76,180,921
Selling, general and
administrative
expenses............ -- 45,164,192 5,794,000 -- 50,958,192
----------- ------------ ----------- ----------- ------------
Operating
profit......... -- 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)
Sundry income....... -- (940,381) (39,819) (875) (981,075)
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
change in accounting
principle........... 3,578,364 4,381,422 (5,959,540) (2,386,952) (386,706)
Income taxes (benefit)
expense............. (1,339,876) (884,000) 43,000 876 (2,180,000)
----------- ------------ ----------- ----------- ------------
Earnings (loss) before
change in accounting
principle........... 4,918,240 5,265,422 (6,002,540) (2,387,828) 1,793,294
Change in accounting
principle (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-29
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE P -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE THREE MONTHS ENDED FEBRUARY 1, 2003
<Table>
<Caption>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
----------- ------------ ------------ ----------- ------------
Revenues................. $ -- $180,044,685 $21,843,435 $(2,343,319) $199,544,801
Cost and expenses........ -- 156,603,760 20,199,859 (2,073,319) 174,730,300
----------- ------------ ----------- ----------- ------------
Gross profit
(loss)............ -- 23,440,925 1,643,576 (270,000) 24,814,501
Selling, general and
administrative
expenses............... 94,911 16,409,230 1,451,817 (270,000) 17,685,958
----------- ------------ ----------- ----------- ------------
Operating (loss)
profit............ (94,911) 7,031,695 191,759 -- 7,128,543
Other expense (income)
Equity in loss
(earnings) of
affiliates.......... 1,723,634 199,889 -- (1,923,523) --
Interest expense....... 8,657,478 746,671 1,085,787 (202,105) 10,287,831
Interest income........ (7,519,138) 7,099,334 (79,840) 202,105 (297,539)
Royalty income......... -- (212,505) -- -- (212,505)
Loss on foreign
currency
translation......... -- -- 189,312 -- 189,312
Sundry (income) loss... (135,000) 122,381 (4,052) -- (16,671)
----------- ------------ ----------- ----------- ------------
2,726,974 7,955,770 1,191,207 (1,923,523) 9,950,428
----------- ------------ ----------- ----------- ------------
(Loss) earnings before
income taxes........... (2,821,885) (924,075) (999,448) 1,923,523 (2,821,885)
Income taxes
Deferred............... (1,001,000) -- -- -- (1,001,000)
----------- ------------ ----------- ----------- ------------
Net (loss) earnings...... $(1,820,885) $ (924,075) $ (999,448) $ 1,923,523 $ (1,820,885)
=========== ============ =========== =========== ============
</Table>
F-30
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE P -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE THREE MONTHS ENDED FEBRUARY 1, 2002
<Table>
<Caption>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
----------- ------------ ------------ ----------- ------------
Revenues................. $ -- $167,601,302 $19,901,114 $ -- $187,502,416
Cost and expenses........ -- 141,320,519 20,064,990 -- 161,385,509
----------- ------------ ----------- ----------- ------------
Gross profit
(loss)............ -- 26,280,783 (163,876) -- 26,116,907
Selling, general and
administrative
expenses............... -- 14,571,575 1,713,634 -- 16,285,209
----------- ------------ ----------- ----------- ------------
Operating profit
(loss)............ -- 11,709,208 (1,877,510) -- 9,831,698
Other expense (income)
Equity in loss
(earnings) of
affiliates.......... 823,778 981,986 -- (1,805,764) --
Interest expense....... 7,472,743 519,254 1,195,261 (54,501) 9,132,757
Interest income........ (7,364,021) 7,082,126 (178,292) 54,501 (405,686)
Gain on foreign
currency
translation......... -- -- 2,023,374 -- 2,023,374
Sundry income.......... (135,000) 21,677 (7,924) -- (121,247)
----------- ------------ ----------- ----------- ------------
797,500 8,605,043 3,032,419 (1,805,764) 10,629,198
----------- ------------ ----------- ----------- ------------
(Loss) earnings before
income taxes........... (797,500) 3,104,165 (4,909,929) 1,805,764 (797,500)
Income taxes (benefit)
expense................ (305,000) -- -- -- (305,000)
----------- ------------ ----------- ----------- ------------
Net (loss) earnings...... $ (492,500) $ 3,104,165 $(4,909,929) $ 1,805,764 $ (492,500)
=========== ============ =========== =========== ============
</Table>
F-31
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE P -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS -- (CONTINUED)
FOR THE YEAR ENDED NOVEMBER 2, 2002
<Table>
<Caption>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net cash provided by
(used in) operating
activities............ $ 2,529,702 $ 54,253,541 $ (483,602) $ (940,049) $ 55,359,592
CASH FLOWS USED IN
INVESTING ACTIVITIES
Acquisition of property
and equipment......... (76,509,171) (8,016,798) 2,377,674 (82,148,295)
Investment in and
advances to
affiliates............ (12,997,198) (3,088,950) -- 16,086,148 --
Proceeds from sale of
equipment............. -- 1,977,673 (1,977,673) --
Acquisition of
intangible assets..... -- (3,000,000) (4,414,600) -- (7,414,600)
------------ ------------ ------------ ------------ ------------
Net cash (used in)
provided by
investing
activities....... (12,997,198) (82,598,121) (10,453,725) 16,486,149 (89,562,895)
CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES
Net borrowings under
revolving credit
facility.............. -- -- 5,354,340 27,518 5,381,858
Principal payments on
long-term
obligations........... -- (9,358,164) (6,145,134) 6,400,000 (9,103,298)
Proceeds from long-term
obligations........... 53,250,000 10,084,668 21,503 (10,084,668) 53,271,503
Capital increases....... 563 -- 11,888,950 (11,888,950) 563
FV of interest rate
swap.................. 3,012,000 -- -- -- 3,012,000
Capitalized loan
costs................. (1,176,587) (969,863) -- -- (2,146,450)
------------ ------------ ------------ ------------ ------------
Net cash provided
by (used in)
financing
activities....... 55,085,976 (243,359) 11,119,659 (15,546,100) 50,416,176
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in
cash.................... 44,618,480 (28,587,939) 182,332 -- 16,212,873
Cash and cash equivalents
at beginning of year.... 1,000 51,476,877 2,005,512 -- 53,483,389
------------ ------------ ------------ ------------ ------------
Cash and cash equivalent
at end of year.......... $ 44,619,480 $ 22,888,938 $ 2,187,844 -- 69,696,262
============ ============ ============ ============ ============
</Table>
F-32
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE P -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS -- (CONTINUED)
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)
provided by
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 provided by
(used in)
financing
activities........ 275,000,000 43,324,308 19,867,925 (279,138,435) 59,053,798
------------- ------------- ------------ ------------- -------------
Net increase 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-33
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE P -- 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............ $ 3,666,121 $ 76,543,650 $(2,247,351) $(2,349,341) $ 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)
provided by
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)
----------- ------------ ----------- ----------- ------------
Net cash provided by
(used in) financing
activities.......... -- (27,884,331) 3,113,312 (240,000) (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-34
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE P -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS -- (CONTINUED)
FOR THE THREE MONTHS ENDED FEBRUARY 1, 2003
<Table>
<Caption>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
----------- ------------ ------------ ----------- ------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net cash provided by
(used in) operating
activities............ $ 170,075 $ 6,613,233 $(2,434,918) $ -- $ 4,348,390
CASH FLOWS USED IN
INVESTING ACTIVITIES
Acquisition of property
and equipment......... -- (21,301,376) (497,571) -- (21,798,947)
Investment in and
advances to
affiliates............ (4,100,000) (400,000) -- 4,500,000 --
----------- ------------ ----------- ----------- ------------
Net cash (used in)
provided by
investing
activities.......... (4,100,000) (21,701,376) (497,571) 4,500,000 (21,798,947)
CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES
Net borrowings under line
of credit............. -- -- 1,842,377 -- 1,842,377
Principal payments on
long-term
obligations........... -- (1,032,965) (1,052,804) -- (2,085,769)
Proceeds from long-term
obligations........... -- 2,500,000 -- (2,500,000) --
Preferred stock.......... -- -- 2,000,000 (2,000,000) --
----------- ------------ ----------- ----------- ------------
Net cash provided by
(used in) financing
activities.......... -- 1,467,035 2,789,573 (4,500,000) (243,392)
----------- ------------ ----------- ----------- ------------
Net decrease in cash....... (3,929,925) (13,621,108) (142,916) -- (17,693,949)
Cash and cash equivalents
at beginning of year..... 44,619,480 22,888,938 2,187,844 -- 69,696,262
----------- ------------ ----------- ----------- ------------
Cash and cash equivalent at
end of year.............. $40,689,555 $ 9,267,830 $ 2,044,928 $ -- $ 52,002,313
=========== ============ =========== =========== ============
</Table>
F-35
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE P -- GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS AND REPORTABLE
SEGMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS -- (CONTINUED)
FOR THE THREE MONTHS ENDED FEBRUARY 2, 2002
<Table>
<Caption>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------ ------------ ------------ ----------- ------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net cash provided by (used in)
operating activities......... $ -- $ (697,926) $ 3,984,744 $-- $ 3,286,818
CASH FLOWS USED IN INVESTING
ACTIVITIES
Acquisition of property and
equipment.................... -- (7,800,615) (1,679,798) -- (9,480,413)
Investment in and advances to
affiliates................... -- -- -- -- --
Acquisition of intangible
assets....................... -- (1,500,000) -- -- (1,500,000)
------ ------------ ----------- --- ------------
Net cash (used in) provided
by investing activities... -- (9,300,615) (1,679,798) -- (10,980,413)
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES
Payments on long-term
obligations.................. -- (1,317,213) (2,964,818) -- (4,282,031)
Proceeds from long-term
obligations.................. -- -- 1,292,380 -- 1,292,380
Capitalized loan costs......... -- (209,509) -- -- (209,509)
------ ------------ ----------- --- ------------
Net cash provided by (used
in) financing
activities................ -- (1,526,722) (1,672,438) -- (3,199,160)
------ ------------ ----------- --- ------------
Net (decrease) increase in
cash........................... -- (11,525,263) 632,508 -- (10,892,755)
Cash and cash equivalents at
beginning of year.............. 1,000 51,476,877 2,005,512 -- 53,483,389
------ ------------ ----------- --- ------------
Cash and cash equivalent at end
of year........................ $1,000 $ 39,951,614 $ 2,638,020 $-- $ 42,590,634
====== ============ =========== === ============
</Table>
<Table>
<Caption>
GUARANTOR NONGUARANTOR
SUBSIDIARIES SUBSIDIARIES TOTAL
------------ ------------ -----------
DEPRECIATION AND AMORTIZATION EXPENSE
PERIOD ENDED
February 1, 2003..................................... $11,791,946 $2,406,046 $13,577,992
=========== ========== ===========
February 2, 2002..................................... $ 9,504,136 $2,012,651 $11,516,787
=========== ========== ===========
November 2, 2002..................................... $39,644,062 $8,373,531 $48,017,593
=========== ========== ===========
November 3, 2001..................................... $37,165,343 $7,546,278 $44,711,621
=========== ========== ===========
October 28, 2000..................................... $35,520,052 $6,646,005 $42,166,057
=========== ========== ===========
</Table>
F-36
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 2, 2002, NOVEMBER 3, 2001 AND OCTOBER 28, 2000 AND THE
THREE MONTHS ENDED FEBRUARY 1, 2003 (UNAUDITED) AND FEBRUARY 2, 2002 (UNAUDITED)
NOTE Q -- QUARTERLY FINANCIAL DATA (UNAUDITED)
<Table>
<Caption>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
FISCAL YEAR ENDED NOVEMBER 2,
2002
Revenues....................... $187,502,416 $203,394,217 $208,359,282 $212,934,153
Gross profit................... 26,116,907 34,670,554 27,554,918 26,846,694
Net (loss) earnings............ (492,500) 6,678,975 3,052,898 (646,563)
FISCAL YEAR ENDED NOVEMBER 3,
2001
Revenues....................... 197,794,121 207,255,264 205,539,141 199,186,072
Gross profit................... 19,724,317 31,602,123 21,566,573 27,868,652
Net (loss) earnings............ (473,693) 6,661,282 582,804 376,983
FISCAL YEAR ENDED FEBRUARY 1,
2003
Revenues....................... 199,544,801 -- -- --
Gross profit................... 24,814,501 -- -- --
Net(loss)...................... (1,820,885) -- -- --
</Table>
F-37
PLASTIPAK HOLDINGS, INC. AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
<Table>
<Caption>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COST AND OTHER DEDUCTIONS- AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WRITE-OFFS OF PERIOD
- ----------- ---------- ---------- ---------- ----------- ----------
Allowance for doubtful accounts:
Year ended:
November 2, 2002.......... $6,111,236 $1,762,463 $-- $5,707,269(1) $2,166,430
November 3, 2001.......... $3,529,283 $3,714,141 $-- $1,132,188(2) $6,111,236
October 28, 2000.......... $3,190,347 $ 405,855 $-- $ 66,919 $3,529,283
</Table>
- ---------------
(1) Includes $2,168,000 decrease attributable to remeasurement of allowance for
doubtful accounts in South America.
(2) Includes $1,019,000 decrease attributable to remeasurement of allowance for
doubtful accounts in South America.
<Table>
<Caption>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COST AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ----------- ---------- ---------- ---------- ---------- ----------
Accumulated amortization for intangible assets:
Year ended:
November 2, 2002............ $7,447,400 $1,928,718 $-- $-- $9,376,118
November 3, 2001............ $5,385,852 $2,061,548 $-- $-- $7,447,400
October 28, 2000............ $3,859,189 $1,526,663 $-- $-- $5,385,852
</Table>
F-38
------------------------------------------------------
------------------------------------------------------
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....................... 32
Selected Consolidated Financial
Data............................... 33
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 35
Critical Accounting Policies......... 48
Impact of New Accounting Policies.... 48
Business............................. 49
Management........................... 64
Executive Compensation............... 66
Security Ownership of Certain
Beneficial Owners and Management... 71
Certain Relationships and Related
Transactions....................... 72
Description of Other Indebtedness.... 77
Description of Notes................. 78
U.S. Federal Income Tax Consequences
of the Exchange Offer.............. 115
Plan of Distribution................. 118
Legal Matters........................ 119
Independent Certified Public
Accountants........................ 119
Index to Financial Statements........ F-1
</Table>
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$50,000,000
PLASTIPAK HOLDINGS, INC.
10.75% Senior Notes
due 2011
April 18, 2003
----------------------
[PLASTIPAK LOGO]
----------------------
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