RISK FACTORS

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

Risks Relating to the Notes

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

        We and OI Group have a significant amount of debt. As of March 31, 2003, on a pro forma basis after giving effect to the issuance of the notes and the 7 ³ / 4 % Senior Secured Notes due 2011 and the application of the net proceeds therefrom, we and our consolidated subsidiaries would have had approximately $3.5 billion of total consolidated debt outstanding and OI Group would have had approximately $5.6 billion of total consolidated debt outstanding, which includes approximately $1.5 billion of secured indebtedness under the secured credit agreement and approximately $1.4 billion of outstanding public debt securities of OI Group's parent, OI Inc. OI Group's ratios of earnings to fixed charges were 2.1x and 1.5x for the year ended December 31, 2002 and the three months ended March 31, 2003, respectively.

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

•

make it difficult for us to satisfy our obligations with respect to the notes;



•

increase our vulnerability to general adverse economic and industry conditions;



•

increase our vulnerability to interest rate increases for the portion of the unhedged debt under the secured credit agreement;



•

require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, development efforts and other general corporate purposes;



•

limit our flexibility in planning for, or reacting to, changes in our business and the rigid packaging market;



•

place us at a competitive disadvantage relative to our competitors that have less debt; and



•

limit, along with the financial and other restrictive covenants in the documents governing our indebtedness, among other things, our ability to borrow additional funds.

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

        Our ability to make payments on and to refinance our indebtedness, including the notes, and to fund working capital, capital expenditures, acquisitions, development efforts and other general corporate purposes depends on our ability to generate cash in the future. Similarly, the ability of the guarantors of the notes to make payments on and refinance their indebtedness will depend on their ability to generate cash in the future. Neither we nor the guarantors can assure you that any of us will generate sufficient cash flow from operations, or that future borrowings will be available under the secured credit agreement, in an amount sufficient to enable any of us to pay our indebtedness, including the notes, or to fund other liquidity needs. If short term interest rates increase, our debt service cost will increase because some of our debt is subject to short term variable interest rates. OI Group's annual interest expense for 2002, on a pro forma basis assuming we had issued, at the beginning of 2002, the notes and the 7 ³ / 4 % Senior Secured Notes due 2011, and further assuming that

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all of such notes, the 8 ³ / 4 % Senior Secured Notes due 2012 and the 8 ⁷ / 8 % Senior Secured Notes due 2009 had been outstanding at the beginning of 2002, would have been $486.7 million. Based on the amount of variable rate debt outstanding during 2002, after giving pro forma effect to the issuance of the notes, the 7 ³ / 4 % Senior Secured Notes due 2011, the 8 ⁷ / 8 % Senior Secured Notes due 2009 and the 8 ³ / 4 % Senior Secured Notes due 2012, a 1% increase in variable interest rates for 2002 would have increased OI Group's annual pro forma interest expense by $14.4 million to $501.1 million. The notes are effectively subordinated to obligations under the secured credit agreement, under which there would have been outstanding, on a pro forma basis after giving effect to the issuance of the notes and the 7 ³ / 4 % Senior Secured Notes due 2011 and the application of the net proceeds therefrom, borrowings of $1.5 billion at March 31, 2003 and to obligations under our outstanding senior secured notes to the extent these obligations are secured.

        Since you will not have a claim as a creditor against the subsidiaries that are not guarantors of the notes, the indebtedness and other liabilities of those subsidiaries will be effectively senior to your claims. As of March 31, 2003, the total indebtedness on a consolidated basis (excluding any indebtedness under the original secured credit agreement) of the non-guarantor subsidiaries was approximately $0.2 billion, and their total liabilities on a consolidated basis were approximately $2.2 billion.

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

•

reduce or delay capital expenditures planned for replacements, improvements and expansions;



•

sell assets;



•

restructure debt; and/or



•

obtain additional debt or equity financing.

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

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

        Although our indirect parent, OI Inc., does not conduct any operations, it has substantial obligations to make payments on its outstanding public debt securities, to pay dividends on its outstanding preferred stock, to satisfy claims of persons for exposure to asbestos-containing products and related expenses and to pay other ordinary course obligations. OI Inc. relies primarily on distributions from its subsidiaries, including us, to meet these obligations. OI Inc. makes semi-annual interest payments of $54.5 million on its outstanding public debt securities. In addition, OI Inc. pays quarterly dividends of $5.4 million on 9,050,000 shares of its $2.375 convertible preferred stock. OI Inc.'s asbestos-related payments were $221.1 million and $55.1 million for the year ended December 31, 2002 and the three months ended March 31, 2003, respectively. In the first quarter of 2002, OI Inc. recorded an additional liability of $475 million (in addition to previously recorded charges of $1.775 billion) to cover its estimated indemnity payments and legal fees arising from outstanding asbestos personal injury lawsuits and claims and asbestos personal injury lawsuits and claims expected to be filed in the next several years.

        As a result of the magnitude of OI Inc.'s obligations for asbestos-related lawsuits and its dependence on the cash flows of its subsidiaries, we expect that a substantial portion of our cash flow will be used to make payments to OI Inc. to allow it to satisfy these obligations. These payments will

21

reduce the cash flow we could use to make payments on the notes. For additional information regarding OI Inc.'s asbestos-related lawsuits, claims and payments, see "Business—Legal Proceedings—OI Inc." and the footnote entitled "Contingencies" to the Consolidated Financial Statements of OI Group.

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

        The secured credit agreement, the indentures governing the notes, the 8 ⁷ / 8 % Senior Secured Notes due 2009, the 8 ³ / 4 % Senior Secured Notes due 2012, and the 7 ³ / 4 % Senior Secured Notes due 2011 and certain of the agreements governing other indebtedness contain affirmative and negative covenants that limit the ability of OI Group and its subsidiaries, including us, to take certain actions. For example, the indentures restrict, among other things, the ability of OI Group and its restricted subsidiaries to borrow money, pay dividends on, or redeem or repurchase, stock, make investments, create liens, enter into certain transactions with affiliates and sell certain assets or merge with or into other companies. These restrictions could adversely affect OI Group's and our ability to operate our businesses and may limit OI Group's and our ability to take advantage of potential business opportunities as they arise.

        Failure to comply with these or other covenants and restrictions contained in the secured credit agreement, our indentures or agreements governing other indebtedness could result in a default under those agreements, and the debt under those agreements, together with accrued interest, could then be declared immediately due and payable. If a default occurs under the secured credit agreement, the lenders could cause all of the outstanding debt obligations under the secured credit agreement to become due and payable, which would result in a default under the notes and could lead to an acceleration of obligations related to the notes. A default under the secured credit agreement, our indentures or agreements governing other indebtedness could also lead to an acceleration of debt under other debt instruments that contain cross acceleration or cross-default provisions.

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

        OI Group and its subsidiaries may be able to incur substantial additional debt in the future, including secured debt. In addition, if OI Group designates some of its restricted subsidiaries under the indenture as unrestricted subsidiaries, those unrestricted subsidiaries would be permitted to borrow beyond the limitations specified in the indenture and engage in other activities in which restricted subsidiaries may not engage. After giving effect to the issuance of the notes and the 7 ³ / 4 % Senior Secured Notes due 2011 and the application of the net proceeds therefrom, and the amendment and restatement of the secured credit agreement, at March 31, 2003, the revolving loan portion of the secured credit agreement would have had unused borrowing capacity of $326.4 million. Adding new debt to current debt levels could make it difficult for us to satisfy our obligations with respect to the notes.

Notes Effectively Subordinated to All of Our Outstanding Secured Obligations.

        Our obligations under the secured credit agreement, the 8 ⁷ / 8 % Senior Secured Notes due 2009, the 8 ³ / 4 % Senior Secured Notes due 2012 and the 7 ³ / 4 % Senior Secured Notes due 2011 are secured, on pari passu basis, by:

•

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



•

a pledge by OI Group of the stock of, and intercompany debt owing to OI Group by, all its direct subsidiaries (other than the stock of, and intercompany debt owing to OI Group by, OI General FTS Inc.); and

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•

a pledge by OI Packaging of the stock of, and intercompany debt owing to OI Packaging by, Owens-Brockway Glass Container, the issuer of the notes.

In addition, the obligations of the domestic borrowers and the domestic guarantors under the secured credit agreement are secured by certain additional collateral.

        In the event of a bankruptcy, liquidation, reorganization or other winding up of us or OI Group, the assets that secure our secured obligations will not be available to pay our obligations on the notes unless and until payment in full of our secured obligations. Likewise, if our secured lenders accelerate the obligations under our secured obligations, then those lenders would be entitled to exercise the remedies available to a secured lender under applicable law, and those lenders would have a claim on the assets that secure our secured obligations before any holder of the notes. You would participate with respect to those assets ratably with all holders of other unsecured indebtedness that is deemed to be of the same class as the notes, and potentially with other general creditors.

        Similarly, the guarantees of the notes are effectively subordinated to the guarantees of our secured obligations to the extent of the collateral.

        In the event of a foreclosure on the collateral that secures our secured obligations, there could be proceeds from the disposition of that collateral that would not have to be shared with holders of the notes. As a result, lenders under our secured obligations may recover a greater percentage of the amounts owed to them than holders of the notes.

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

        You will not have any claim as a creditor against the subsidiaries that are not guarantors of the notes, and the indebtedness and other liabilities, including trade payables, whether secured or unsecured, of those subsidiaries will be effectively senior to your claims. As of and for the three months ended March 31, 2003, the non-guarantor subsidiaries represented in the aggregate approximately 47% of OI Group's consolidated net sales, 51% of OI Group's consolidated EBITDA and 44% of OI Group's consolidated total assets. As of March 31, 2003, the liabilities of the non-guarantor subsidiaries on a consolidated basis were approximately $2.2 billion. The non-guarantor subsidiaries include the foreign borrowers and foreign guarantors under the offshore subfacilities under the secured credit agreement. The notes are effectively subordinated to claims against these foreign subsidiaries under the secured credit agreement. In the event of a bankruptcy, liquidation, reorganization or other winding up of any of the non-guarantor subsidiaries, holders of their indebtedness and their trade creditors will generally be entitled to payment of their claims from the assets of those subsidiaries before any assets are made available for distribution to us.

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

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

        Any guaranty of the notes may be released without action by, or consent of, any holder of the notes or the trustee under the indenture, at the discretion of the then obligor on the notes, if the guarantor is no longer a guarantor of obligations under the secured credit agreement, of obligations

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owing to lenders or their affiliates as lending facilities as permitted by the terms of the secured credit agreement and of obligations under interest rate and currency agreements with lenders or their affiliates as permitted by the terms of the secured credit agreement. The lenders under the secured credit agreement have the discretion to release the guarantees under the secured credit agreement in a variety of circumstances. In the case of the release of collateral consisting of the stock of a guarantor of the notes, that release would cause the guarantor's guaranty to be released if the release occurs in the context of an asset sale of such guarantor that is not prohibited by the secured credit agreement or the collateral documents. You will not have a claim as a creditor against any subsidiary that is no longer a guarantor of the notes, and the indebtedness and other liabilities, including trade payables, whether secured or unsecured, of those subsidiaries will effectively be senior to your claims.

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

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

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

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

        The issuance of the notes and the guarantees may be subject to review under federal or state fraudulent transfer laws. While the relevant laws may vary from state to state, under such laws, the payment of consideration or the issuance of a guarantee will be a fraudulent conveyance if (1) we paid the consideration, or any guarantor issued guarantees, with the intent of hindering, delaying or defrauding creditors, or (2) we or any of the guarantors received less than reasonably equivalent value or fair consideration in return for paying the consideration or issuing their respective guarantees, and, in the case of (2) above only, one of the following is also true:

•

we or any of the guarantors were insolvent, or became insolvent, when we or they paid the consideration;



•

paying the consideration or issuing the guarantees left us or the applicable guarantor with an unreasonably small amount of capital; or



•

we or the applicable guarantor, as the case may be, intended to, or believed that we or it would, be unable to pay debts as they matured.

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

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        Generally, an entity will be considered insolvent if:

•

the sum of its debts is greater than the fair value of its property;



•

the present fair value of its assets is less than the amount that it will be required to pay on its existing debts as they become due; or



•

it cannot pay its debts as they become due.

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

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

        If we, OI Inc. or OI Group experiences specific kinds of changes of control, we will be required to offer to repurchase all outstanding notes, all outstanding 7 ³ / 4 % Senior Secured Notes due 2011, all outstanding 8 ³ / 4 % Senior Secured Notes due 2012 and all outstanding 8 ⁷ / 8 % Senior Secured Notes due 2009. However, the secured credit agreement provides that certain change of control events constitute an event of default under the secured credit agreement. An event of default would entitle the lenders thereunder to, among other things, cause all outstanding debt obligations under the secured credit agreement to become due and payable and to proceed against their collateral. We cannot assure you that we would have sufficient assets or be able to obtain sufficient third party financing on favorable terms to satisfy all of our obligations under the secured credit agreement, the notes, the 7 ³ / 4 % Senior Secured Notes due 2011, the 8 ³ / 4 % Senior Secured Notes due 2012, the 8 ⁷ / 8 % Senior Secured Notes due 2009 or other indebtedness.

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

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

No Prior Market for the Exchange Notes—We cannot assure you that an active trading market will develop for the exchange notes.

        The exchange notes are a new issue of securities for which there is currently no trading market. We do not intend to apply for listing of the exchange notes on any U.S. exchange. We have been informed by the initial purchasers of the private notes that they intend to make a market in the notes. However, the initial purchasers may cease their market-making at any time. In addition, the liquidity of the trading market in the exchange notes, and the market price quoted for these notes, may be adversely affected by changes in the overall market for high yield securities and by changes in our

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financial performance or in the prospects for companies in our industry generally. As a result, we cannot assure you that an active trading market will develop for the exchange notes.

Risks Relating to the Business of OI Group

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

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

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

        On January 1, 2002, OI Group adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("FAS No. 142"). OI Group no longer amortizes goodwill, but reviews its goodwill balance for impairment at least once a year using the business valuation methods required by FAS No. 142. These methods include the use of a weighted average cost of capital to calculate the present value of the expected future cash flows of OI Group's reporting units. Future changes in the cost of capital, expected cash flows, or other factors may cause OI Group's goodwill to be impaired, resulting in a noncash charge against results of operations to write down goodwill for the amount of impairment. If a significant write down is required, the charge would have a material adverse effect on OI Group's reported results of operations and net worth.

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

        OI Group operates manufacturing and other facilities throughout the world. Net sales from international operations totaled approximately $2.6 billion and $0.6 billion, representing approximately 46% and 46% of OI Group's net sales for the year ended December 31, 2002 and the three months ended March 31, 2003, respectively. As a result of its international operations, OI Group is subject to risks associated with operating in foreign countries, including:

•

political, social and economic instability;



•

war, civil disturbance or acts of terrorism;



•

taking of property by nationalization or expropriation without fair compensation;



•

changes in government policies and regulations;



•

devaluations and fluctuations in currency exchange rates;

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•

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



•

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



•

hyperinflation in certain foreign countries; and



•

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

        The unusually severe economic, market and/or currency exchange conditions in South America, Europe and the Asia Pacific region adversely affected operating results in 1999, 2000 and 2001. A national strike in Venezuela in December 2002 adversely affected operations and forced OI Group to idle two factories in that country. In addition, OI Group was negatively affected in 2002 by weakness in certain South American currencies, which reduced U.S. dollar sales and earnings of foreign affiliates in that region. The risks associated with operating in foreign countries may have a material adverse effect on operations.

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

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

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

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

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

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

        Electrical power and natural gas are vital to OI Group's operations and it relies on a continuous power supply to conduct its business. In the first quarter of 2003, higher energy costs worldwide impacted OI Group's operations and earnings at a level that it did not anticipate, resulting in an increase of approximately $24 million in energy costs compared to the first quarter of 2002. If energy

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costs substantially increase in the future, OI Group could experience a significant increase in operating costs, which may have a material adverse effect on future operating income.

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

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

•

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



•

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



•

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



•

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



•

the potential impairment of relationships with customers.

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

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

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

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

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

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

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

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

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

        A number of governmental authorities both in the U.S. and abroad have enacted, or are considering, legal requirements that would mandate certain rates of recycling, the use of recycled materials, and/or limitations on certain kinds of packaging materials such as plastics. In addition, some companies with packaging needs have responded to such developments, and/or to perceived environmental concerns of consumers, by using containers made in whole or in part of recycled materials. Such developments may reduce the demand for some of OI Group's products, and/or increase OI Group's costs, which may have a material adverse effect on operations.

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

        OI Group is party to a number of collective bargaining agreements with labor unions, several of which will expire in 2005, and which at December 31, 2002, covered approximately 96% of OI Group's union-affiliated employees in the U.S. Upon the expiration of any collective bargaining agreement, if OI Group is unable to negotiate acceptable contracts with labor unions, it could result in strikes by the affected workers and increased operating costs as a result of higher wages or benefits paid to union members. If the unionized workers were to engage in a strike or other work stoppage, OI Group could experience a significant disruption of operations and/or higher ongoing labor costs, which may have a material adverse effect on operations.

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REFINANCINGS

        The issuance of the private notes was one of several elements of a refinancing plan that concluded in the second quarter of 2003, the other principal elements of which are described below. The refinancings extended the maturities of our outstanding long-term debt and improved financial flexibility.

The Concurrent Senior Secured Notes Issuance

        Concurrently with the issuance of the private notes, we issued $450 million aggregate principal amount of 7 ³ / 4 % Senior Secured Notes due 2011, the terms of which are substantially similar to the notes except that the 7 ³ / 4 % Senior Secured Notes due 2011 are secured. We received net proceeds of $440 million from the issuance of the notes and $440 million from the issuance of the 7 ³ / 4 % Senior Secured Notes due 2011, all of which was used to purchase in a tender offer $263.5 million of OI Inc.'s $300 million of 7.85% Senior Notes due 2004 and permanently reduce the revolving loan portion of the original secured credit agreement.

Amended and Restated Secured Credit Agreement

        On June 13, 2003, we and certain of the other borrowers under the original secured credit agreement entered into an amended and restated secured credit agreement. This secured credit agreement provides a $1.9 billion credit facility to us and the other borrowers thereunder (which borrowers include certain of OI Group's domestic and foreign subsidiaries). The credit facility includes:

(i)

a $600.0 million revolving loan facility available to us and the other borrowers (including subfacilities available to the Canadian, UK, Australian and Italian borrowers), which matures on April 1, 2007;



(ii)

a $460.0 million tranche A term loan made to one of the Australian borrowers, which matures on April 1, 2007; and



(iii)

an $840.0 million tranche B term loan made to us, which matures on April 1, 2008.

        The obligations of the borrowers under the secured credit agreement are guaranteed and secured in a manner substantially similar to the obligations of the borrowers under the original secured credit agreement, provided that the UK borrower under the secured credit agreement and certain of its direct or indirect English subsidiaries cross-guarantee the obligations of the Australian borrowers under the tranche A term loan and the Australian subfacility and the obligations of the other non-domestic borrowers under their respective subfacilities, and the Australian borrower that is not the borrower under the tranche A term loan has guaranteed the obligations of the other Australian borrower under the tranche A term loan.

        Additionally, the secured credit agreement contains terms and conditions similar to those in the original secured credit agreement, including mandatory prepayment requirements and restrictions on our ability to incur indebtedness, create liens on assets, pay dividends, sell assets, make investments, make distributions or other payments, and requires that OI Group and its subsidiaries maintain compliance with certain specified ratios and tests based upon the financial statements of OI Inc. and its subsidiaries on a consolidated basis. Compliance with these restrictions and covenants could limit our ability to effect future financings or otherwise restrict our corporate activities. For more information, see the section entitled "Description of Certain Indebtedness—The Secured Credit Agreement."

OI Inc. Senior Notes Tender Offer

        On May 27, 2003 we purchased in a tender offer $263.5 million of OI Inc.'s $300.0 million of 7.85% Senior Notes due 2004. The terms of the secured credit agreement permit us to borrow funds thereunder at any time to repurchase or repay the remaining outstanding 7.85% Senior Notes due 2004.

        In conjunction with the tender offer, we obtained consents of a majority of the holders of OI Inc.'s 7.85% Senior Notes due 2004 to certain amendments to the indenture dated as of May 15, 1997 by and among OI Inc., OI Group and Owens-Brockway Packaging, Inc., as guarantors, and The Bank of New York, as trustee, pursuant to which OI Inc.'s 7.85% Senior Notes due 2004 were issued.

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