Filed Pursuant to Rule 424(b)(3)
Registration No. 333-99741
PROSPECTUS
OWENS-ILLINOIS, INC.
8,000,000 SHARES OF COMMON STOCK
$0.01 PAR VALUE PER SHARE
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This prospectus relates to up to 8,000,000 shares of our common stock that
may be issued under our Amended and Restated 1997 Equity Participation Plan. The
plan authorizes the grant of non-qualified and incentive stock options,
restricted stock and phantom stock units to participants under our plan. In
addition, non-qualified stock options may be transferred to, and exercised by,
certain members of a participant's immediate family, charitable institutions,
trusts or limited liability companies or partnerships whose members or partners
consist entirely of certain family members or family trusts.
Each option shall have an exercise price of not less than 100% or, in the
case of an incentive stock option granted to an individual owning more than 10%
of the combined voting power of Owens-Illinois, Inc., 110% of the fair market
value (as defined in the plan) of such shares on the date the option is granted.
The purchase price for restricted stock or phantom stock units will be
determined by the Compensation Committee of our Board of Directors. Our common
stock is traded on The New York Stock Exchange under the symbol OI. On
October 15, 2002, the last reported sale price of our common stock on The New
York Stock Exchange was $11.80 per share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 3.
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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 October 18, 2002.
TABLE OF CONTENTS
PAGE
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The Company................................................. 2
Risk Factors................................................ 3
Forward-Looking Statements.................................. 7
Use of Proceeds............................................. 8
Determination of Offering Price............................. 8
Description of the Plan..................................... 8
Plan of Distribution........................................ 13
Legal Matters............................................... 13
Experts..................................................... 13
Where You Can Find More Information......................... 13
Information Incorporated by Reference....................... 14
You should rely only on the information contained in or incorporated by
reference in this prospectus and any prospectus supplement. We have not
authorized anyone to provide you with different or additional information. We
are not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the front of this
prospectus. In this prospectus, "Company", "we", "us" or "our" refers to
Owens-Illinois, Inc. and its subsidiaries, unless the context otherwise
requires.
The main features of the plan are summarized in this prospectus. However, if
there are any inconsistencies between this prospectus and the plan or the terms
of any option or other award, the plan and the terms of the option or other
award will always control.
THE COMPANY
Owens-Illinois, Inc. is one of the world's leading manufacturers of
packaging products. Approximately one of every two glass containers made
worldwide is made by us, our affiliates or our licensees. In addition to being
the largest manufacturer of glass containers in North America, South America,
Australia and New Zealand, and one of the largest in Europe, we are a leading
manufacturer in North America of plastics packaging products including consumer
products (blow molded containers, injection molded closures and dispensing
systems) and prescription containers. We also have plastics packaging operations
in South America, Europe, Australia and New Zealand.
Our principal executive office is located at One SeaGate, Toledo, Ohio
43666, and our telephone number is (419) 247-5000. We are incorporated under the
laws of Delaware.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS, AS WELL AS THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE INVESTING IN SHARES OF OUR
COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS COULD
BE HARMED. IN THAT CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE AND
YOU MIGHT LOSE ALL OR PART OF YOUR INVESTMENT. YOU SHOULD REFER TO THE OTHER
INFORMATION SET FORTH IN THIS PROSPECTUS AND OUR CONSOLIDATED FINANCIAL
STATEMENTS AND THE RELATED NOTES INCORPORATED HEREIN BY REFERENCE.
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 this year, the market values of
the assets in our U.S. pension plans (the "Plans") have declined during 2002.
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. We estimate that the market values of the Plans' assets at August
31, 2002, exceed what we currently estimate will be the ABO of the Plans as of
December 31, 2002. However, if the market values of the Plans' assets at
December 31, 2002 have declined by approximately 5% or more from their
August 31 levels or if the discount rate used to calculate the ABO of the Plans
at December 31, 2002 has declined by approximately one-half percentage point or
more from the rate currently used to estimate the ABO, we will be required to
write off most of our prepaid pension asset and record a liability equal to the
excess of ABO over the fair value of the assets at December 31, 2002. While we
cannot estimate this liability with any certainty at this time, we believe that
this noncash charge would result in a decrease in the Accumulated Other
Comprehensive Income component of share owners' equity that would significantly
reduce our net worth. Even if the Plans' assets are less than ABO at
December 31, 2002, we believe we will not be required to make cash contributions
to the Plans for at least several years.
GOODWILL--A SIGNIFICANT WRITE DOWN OF GOODWILL WOULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR REPORTED RESULTS OF OPERATIONS AND NET WORTH.
In 2002, the Company adopted Financial Accounting Standard No. 142,
"Goodwill and Other Intangible Assets" ("FAS 142"). We no longer amortize
goodwill, but we will review our goodwill balance for impairment at least once a
year using the business valuation methods required by FAS 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 our reporting units. Future changes
in the cost of capital, expected cash flows, or other factors may cause our
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 our
reported results of operations and net worth.
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR
FINANCIAL HEALTH.
We have a significant amount of debt. As of June 30, 2002, we had
approximately $5.5 billion of total consolidated debt outstanding. This amount
includes approximately $2.5 billion outstanding under a secured credit agreement
among certain of the Company's subsidiaries and a group of banks. The secured
credit agreement provides for borrowings up to $3.1 billion and expires on
March 31, 2004.
This substantial indebtedness could have important consequences to you. For
example, it could:
- increase our vulnerability to general adverse economic and industry
conditions;
- increase our vulnerability to interest rate increases on borrowings under
the secured credit agreement;
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- 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.
INTERNATIONAL OPERATIONS--WE ARE SUBJECT TO RISKS ASSOCIATED WITH OPERATING IN
FOREIGN COUNTRIES.
We operate manufacturing and other facilities throughout the world. Net
sales from international operations in 2001 totaled approximately $2.3 billion,
representing approximately 43% of our net sales. As a result of our
international operations, we are subject to risks associated with operating in
foreign countries, including:
- political, social and economic instability;
- war, civil disturbance or acts of terrorism;
- taking of property by nationalization or expropriation without fair
compensation;
- changes in government policies and regulations;
- devaluations and fluctuations in currency exchange rates;
- imposition of limitations on conversions of foreign currencies into
dollars or remittance of dividends and other payments by foreign
subsidiaries;
- imposition or increase of withholding and other taxes on remittances and
other payments by foreign subsidiaries;
- hyperinflation in certain foreign countries; and
- impositions or increase of investment and other restrictions or
requirements by foreign governments.
The unusually severe economic, market and/or currency exchange conditions in
South America, Europe and the Asia Pacific region adversely affected operating
results in 1999, 2000 and 2001. In addition, we have continued to be negatively
affected in 2002 by weakness in certain South American currencies, which has
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 on the basis of price, quality,
service and the marketing attributes of the container in competing with each of
our rigid packaging competitors. 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. 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., Vetropak in the Czech Republic and Amcor
Limited in Australia. In other locations in Europe, we
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compete indirectly with a variety of glass container firms including Compagnie
de Saint-Gobain, BSN Glasspack, Vetropak and Rexam plc.
In addition to competing with other large, well-established manufacturers in
the glass container segment, we compete with manufacturers of other forms of
rigid packaging, principally aluminum cans and plastic containers, on the basis
of quality, price and service. The principal competitors producing metal
containers are Crown Cork & Seal Company, Inc., Rexam plc, Ball Corporation and
Silgan Holdings Inc. The principal competitors producing plastic containers are
Consolidated Container Holdings, LLC, Graham Packaging Company, Plastipak
Packaging, Inc. and Silgan Holdings Inc. We also compete with manufacturers of
non-rigid packaging alternatives, including flexible pouches and aseptic
cartons, in serving the packaging needs of juice customers.
Pressures from competitors and producers of alternative forms of packaging
have resulted in excess capacity in certain countries in the past and have led
to significant pricing pressures in the rigid packaging market.
HIGH ENERGY COSTS--HIGHER ENERGY COSTS WORLDWIDE AND INTERRUPTED POWER SUPPLIES
MAY HAVE A MATERIAL ADVERSE EFFECT ON OPERATIONS.
Electrical power and natural gas are vital to our operations and we rely on
a continuous power supply to conduct our business. In 2001, higher energy costs
worldwide impacted our operations and earnings at a level that we did not
anticipate, resulting in an approximate $50 million increase in energy costs
over 2000. If energy costs substantially increase in the future, we could
experience a significant increase in operating costs, which may have a material
adverse effect on future operating income.
In addition, certain locations in which we have operations have experienced
power shortages that resulted in periodic "rolling" blackouts to maintain the
stability of the power grid. Certain of our facilities are susceptible to power
interruptions as long as any such energy crisis exists. Frequent power
interruptions may have a material adverse effect on operations.
INTEGRATION RISKS--WE MAY NOT BE ABLE TO EFFECTIVELY INTEGRATE BUSINESSES WE
ACQUIRE.
Consistent with past practice, we are considering strategic transactions,
including acquisitions that will complement, strengthen and enhance growth in
our worldwide glass and plastics packaging operations. While we are evaluating a
number of these transactions on a preliminary basis, it is not certain that any
of them will advance beyond the preliminary stages or be completed. Any recent
or future acquisitions are subject to various risks and uncertainties,
including:
- the inability to assimilate effectively the operations, products,
technologies and personnel of the acquired companies (some of which are
located in diverse geographic regions);
- the potential disruption of existing business and diversion of
management's attention from day-to-day operations;
- the inability to maintain uniform standards, controls, procedures and
policies;
- the need or obligation to divest portions of the acquired companies; and
- the potential impairment of relationships with customers.
In addition, we cannot assure you that the integration and consolidation of
newly acquired businesses will achieve anticipated cost savings and operating
synergies.
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CUSTOMER CONSOLIDATION--THE CONTINUING CONSOLIDATION OF OUR CUSTOMER BASE MAY
INTENSIFY PRICING PRESSURES AND HAVE A MATERIAL ADVERSE EFFECT ON OPERATIONS.
Over the last ten years, many of our largest customers have acquired
companies with similar or complementary product lines. This consolidation has
increased the concentration of our business with our largest customers. In many
cases, such consolidation has been accompanied by pressure from customers for
lower prices, reflecting the increase in the total volume of product purchased
or the elimination of a price differential between the acquiring customer and
the company acquired. Increased pricing pressures from our 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 our products have varied and are expected to vary by quarter. Shipments in
the U.S. and Europe are typically greater in the second and third quarters of
the year, while shipments in South America and Asia Pacific are typically
greater in the first and fourth quarters of the year. Unseasonably cool weather
during peak demand periods can reduce demand for certain beverages packaged in
our containers.
The raw materials that we use 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 we use, may have a material adverse effect on operations.
ENVIRONMENTAL RISKS--WE ARE 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.
Our 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. Our
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.
We have incurred, and expect to incur, costs for our 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
we presently or formerly owned or operated, as well as at other properties for
which we may be responsible, including those at which wastes attributable to us
were disposed. A significant order or judgment against us, 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
our products and/or increase our costs, which may have a material adverse effect
on operations.
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LABOR RELATIONS--WE ARE PARTY TO COLLECTIVE BARGAINING AGREEMENTS WITH LABOR
UNIONS. ORGANIZED STRIKES OR WORK STOPPAGES BY UNIONIZED EMPLOYEES MAY HAVE A
MATERIAL ADVERSE EFFECT ON OPERATIONS.
We are party to a number of collective bargaining agreements with labor
unions, several of which will expire in 2005, and at June 30, 2002, covered
approximately 87% of our union-affiliated employees in the U.S. Upon the
expiration of any collective bargaining agreement, our inability to negotiate
acceptable contracts with labor unions could result in strikes by the affected
workers and increased operating costs as a result of higher wages or benefits
paid to union members. If the unionized workers were to engage in a strike or
other work stoppage, we could experience a significant disruption of operations
and/or higher ongoing labor costs, which may have a material adverse effect on
operations.
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS, INCLUDING ANY DOCUMENTS THAT ARE INCORPORATED BY REFERENCE
AS SET FORTH IN "INFORMATION INCORPORATED BY REFERENCE," CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934 AND SECTION 27A OF THE SECURITIES ACT OF 1933. WE HAVE
BASED THESE FORWARD-LOOKING STATEMENTS ON OUR CURRENT EXPECTATIONS AND
PROJECTIONS ABOUT FUTURE EVENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS,
UNCERTAINTIES OR ASSUMPTIONS ABOUT US, INCLUDING AMONG OTHER THINGS, FACTORS
DISCUSSED UNDER THE HEADING "RISK FACTORS" AND THE FOLLOWING:
- foreign currency fluctuations relative to the U.S. dollar;
- change in capital availability or cost, including interest rate
fluctuations;
- general political, economic and competitive conditions in markets and
countries where we have operations or sell products, including competitive
pricing pressures, inflation or deflation, and changes in tax rates;
- consumer preferences for alternative forms of packaging;
- fluctuations in raw material and labor costs;
- availability of raw materials;
- costs and availability of energy;
- transportation costs;
- consolidation among competitors and customers;
- the ability to integrate operations of acquired businesses;
- unanticipated expenditures with respect to environmental, safety and
health laws;
- performance by customers of their obligations under supply agreements; and
- timing and occurrence of events, including events related to
asbestos-related claims.
We caution you that although we believe that the assumptions on which the
forward-looking statements contained herein are based are reasonable, any of
those assumptions could prove to be inaccurate and, as a result, the
forward-looking statements also could be materially incorrect. In light of these
and other uncertainties, you should not regard the inclusion of a
forward-looking statement in this prospectus as a representation by us that our
plans and objectives will be achieved, and you should not place undue reliance
on these forward-looking statements. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. In light of these risks, uncertainties
and assumptions, the forward-looking events discussed in this prospectus might
not occur.
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USE OF PROCEEDS
We intend to use the proceeds from the sale of the shares for general
corporate purposes.
DETERMINATION OF OFFERING PRICE
Pursuant to the plan, the exercise price of each option cannot be less than
100% or, in the case of an incentive stock option granted to an individual
owning more than 10% of the combined voting power of the Company, 110% of the
fair market value (as defined in the plan) of such shares on the date the option
is granted. The purchase price for restricted stock or phantom stock units will
be determined by the Compensation Committee of our Board of Directors.
DESCRIPTION OF THE PLAN
We will issue options, restricted stock and phantom stock units under the
Company's Amended and Restated 1997 Equity Participation Plan. The following is
a summary of the material provisions of the plan. We urge you to read the plan
in its entirety because it, and not this description, define the terms of the
options, awards of restricted stock and phantom stock units and your rights
under the plan. Copies of the plan are available to you on request. You may
obtain a copy of the plan at our address shown under the caption "Information
Incorporated by Reference."
GENERAL. The principal purpose of the plan is to provide incentives for key
employees of the Company or of any parent or subsidiary through granting of
options, restricted stock and phantom stock units, thereby stimulating their
personal and active interest in the Company's development and financial success,
and inducing them to remain in the Company's employ.
The plan provides for the granting of incentive stock options ("ISOs"),
non-qualified stock options ("NQSOs"), restricted stock and phantom stock units.
There are 16,000,000 shares of common stock (or their equivalent in other equity
securities) authorized for issuance upon the exercise of options or upon vesting
of restricted stock awards or phantom stock awards. As of August 31, 2002, under
the plan, a total of 7,291,713 shares were subject to outstanding stock options
held by approximately 730 key employees and a total of 881,401 shares were
subject to grants of restricted stock and phantom stock units that remain
subject to forfeiture held by approximately 400 key employees, and 6,011,768
shares remain available for grant. If any option expires or is cancelled without
having been fully exercised, or if restricted stock is repurchased by the
Company or is forfeited, the shares covered thereby may be subject to future
grants under the plan. In addition, the plan provides that the number of shares
of the Company's Common Stock that may be issued under the plan will be
increased by the number of shares of the Company's Common Stock that are
tendered or relinquished in payment of the exercise price of a stock option or
in payment of federal, state and local tax withholding liabilities due upon
exercise of an option or award or vesting of restricted stock or phantom stock
units.
ADMINISTRATION. The plan is administered by the Compensation Committee of
our Board of Directors, which is responsible for determining the persons to whom
options, restricted stock and phantom stock units shall be granted, the number
of shares to be subject thereto (subject to an award limit of 500,000 shares
subject to options, restricted stock and phantom stock units that may be granted
in any given year to a single participant) and the other terms and conditions
thereof, including the terms on which options shall become exercisable, subject
to certain limitations set forth in the plan.
ELIGIBILITY. Any key employee of the Company or of any parent or subsidiary
is eligible to be granted options, restricted stock or phantom stock units under
the plan. As of the date hereof, approximately 730 employees are eligible to
participate in the plan.
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EXERCISE PRICE. Each option shall have an exercise price of not less than
100% or, in the case of an ISO granted to an individual owning more than 10% of
the combined voting power of the Company, 110% of the Fair Market Value (as
defined in the plan) of such shares on the date the option is granted. As long
as the Common Stock is listed on the New York Stock Exchange, the Fair Market
Value of the Common Stock generally will be the closing price on such exchange
of the Common Stock at the end of the business day preceding the date of grant.
TERMS OF OPTIONS. Each option granted pursuant to the plan will expire no
later than ten years, or in the case of NQSOs, ten years and one day, or, in the
case of an ISO granted to an individual owning more than 10% of the combined
voting power of the Company, five years from the date the option was granted.
The Compensation Committee may grant options that are (a) not transferable
except by will or pursuant to the applicable laws of descent and distribution
upon death of the optionee or (b) transferable only by gift to (i) such
optionee's spouse, children or certain other relatives of the optionee, (ii) a
trust for the benefit of such persons, (iii) a limited liability company or
partnership, all of whose members or partners consist of the optionee or the
above-listed relatives or trust, or (iv) a non-profit organization or charitable
trust, to which contributions are tax-deductible. The terms of the options
granted under the plan will be provided in separate stock option agreements.
TERMS OF RESTRICTED STOCK. Restricted stock may be awarded on such terms
and conditions (including the purchase price, if any) and subject to such
restrictions as the Compensation Committee may determine. The term of such
restrictions generally shall not be less than three years. However, the
Compensation Committee may grant restricted stock with a restriction period of
less than three years, but not less than one year, if the grant of the
restricted stock is performance based, or if the total number of shares of
non-performance based restricted stock granted under the plan with a restriction
period of less than three years does not exceed five percent of the aggregate
number of shares which may be issued under the plan. Restricted stock,
typically, may be repurchased by the Company if the participant has terminated
employment prior to the lapse of the restrictions, although a restricted stock
agreement may provide for no repurchase right in certain circumstances. The
repurchase price may be equal to or less than the original purchase price,
depending on the circumstances of the termination of employment. In general,
restricted stock may not be sold, or otherwise transferred or hypothecated,
until restrictions are removed or expire. Holders of restricted stock, unlike
recipients of options or phantom stock units, generally will have voting rights
and will receive dividends prior to the time when the restrictions lapse.
TERMS OF PHANTOM STOCK UNITS. Phantom stock units are compensation units
which are paid in Common Stock. Upon exercise of a phantom stock unit, a share
of Common Stock is delivered to the holder of the phantom stock unit. Phantom
stock units may be awarded on such terms and conditions (including the purchase
price, if any) and subject to such vesting period as the Compensation Committee
may determine. The term of such vesting period generally shall not be less than
three years. However, the Compensation Committee may grant phantom stock units
with a restriction period of less than three years, but not less than one year,
if the grant of the phantom stock unit is performance based, or if the total
number of shares represented by phantom stock units combined with the total
number of non-performance based restricted stock granted under the plan with a
restriction period of less than three years does not exceed five percent of the
aggregate number of shares which may be issued under the plan. Unvested phantom
stock units, typically, may be terminated by the Company upon termination of the
participant's employment, although a phantom stock agreement may provide for no
repurchase right in certain circumstances. In general, phantom stock units may
not be sold, or otherwise transferred or hypothecated, until fully vested.
PAYMENT FOR SHARES. The exercise or purchase price of all options,
restricted stock and phantom stock units must be paid in full in cash or, in
certain circumstances, with shares of Common Stock owned by the optionee or
issuable to the optionee upon exercise of the option, or a promissory note of
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the optionee, or a combination of such forms of consideration as provided in the
plan. Each share received by the Company in payment of the purchase price will
be valued at its Fair Market Value on the date of exercise. When the per share
value of the Common Stock received is higher than the per share exercise price
of an option, it is possible that a participant may exercise the full amount of
his option without any cash payment of the exercise price.
ADDITIONAL OPTIONS. The Company may also grant additional options
("Additional Options") to eligible employees. The purpose of the Additional
Options is to encourage ownership and retention of the Company's Common Stock by
key employees by providing for the grant of a new option with respect to shares
tendered or relinquished in payment of the exercise price of an outstanding
option. Also, Additional Options may be granted with respect to shares tendered
or relinquished in payment of the amount to be withheld under federal, state and
local income tax laws in connection with the exercise of an option to which such
Additional Option relates.
CHANGE IN COMMON STOCK. In the event that the outstanding shares of Common
Stock are changed into or exchanged for a different number or kind of shares of
capital stock or other securities of the Company by reason of a reorganization,
merger, consolidation, recapitalization, reclassification, stock split, stock
dividend, combination of shares, or otherwise, the number and kind of shares
covered by the plan and by each outstanding option or award of restricted stock
or phantom stock, and the exercise price per share, shall be adjusted (such
adjustments with respect to outstanding shares shall be made proportionately).
TRANSFERABILITY OF OPTIONS. The plan authorizes the grant of transferable
NQSOs, which are transferable upon written notice to the Company, by gift,
without any receipt of consideration, (i) to the optionee's spouse; (ii) to any
child or more remote lineal descendent of the optionee or the spouse of any such
child or more remote lineal descendent; (iii) to any trust, custodianship, or
other similar fiduciary relationship maintained for the benefit of the optionee
and/or any one or more such persons listed in (i) or (ii); (iv) to any limited
liability company or partnership, all of whose members or partners consist of
the optionee and/or any one or more of such persons listed in (i), (ii) or
(iii); or (v) to any non-profit organization or charitable trust, contributions
to which qualify for an income tax deduction under Section 170(c) of the
Internal Revenue Code of 1986, as amended. Transferable NQSOs are otherwise
nontransferable under the plan except by will or the applicable laws of descent
and distribution.
AMENDMENT AND TERMINATION. The plan may be wholly or partially amended or
otherwise modified, suspended or terminated at any time or from time to time by
the Compensation Committee. However, certain provisions of the plan may not be
amended or modified without share owner approval. These provisions include the
provisions respecting the maximum number of shares which may be issued on the
exercise of options or the vesting of phantom stock units or awarded as
restricted stock, the award limit, eligibility requirements for receipt of
grants, minimum option price requirements and extending the period during which
the plan is in effect.
CERTAIN FEDERAL INCOME TAX, GIFT TAX AND ESTATE TAX CONSEQUENCES
The following discussion is a general summary of the material federal income
tax consequences to the Company and to participants in the plan of the grant and
exercise of awards and of the participant's acquisition and ownership of common
stock under the plan, and includes a general summary of the material federal
gift tax and estate tax consequences to the participant upon his or her transfer
of a non-qualified stock option. The following discussion is intended for
general information only. Some kinds of taxes, such as state and local taxes,
are not discussed. We recommend that participants under the plan consult their
personal tax advisers with respect to the tax aspects of option grants and other
awards, option exercises, the disposition of shares acquired upon the exercise
of options and the transfer and exercise of transferable non-qualified stock
options.
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The plan is not a qualified pension, profit-sharing or stock bonus plan
under Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), or an "employee benefit plan" subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended. This discussion is based on
the Code, regulations thereunder, rulings and decisions now in effect, all of
which are subject to change.
NON-QUALIFIED STOCK OPTIONS. Participants who are granted a NQSO (including
an Additional Option which is a NQSO) do not recognize income as a result of the
grant of a NQSO but normally recognize compensation taxable at ordinary income
rates upon the NQSO's exercise to the extent that the Fair Market Value of the
shares on the date of the exercise of the NQSO exceeds the option exercise price
paid. Subject to Section 162(m) of the Code, the Company will be entitled to a
deduction in an amount equal to the amount that the participant is required to
include in ordinary income at the time of such inclusion. The Company generally
will also be required to withhold taxes on ordinary income realized by the
participant at the time of such inclusion.
Participants who transfer transferable NQSOs in a non-arm's length
transaction generally will not recognize income at the time of the transfer.
Instead, such a transferor generally will, at the time the transferee exercises
the transferable NQSO, recognize ordinary income to the extent that the Fair
Market Value of the shares on the date the transferee exercises the NQSO exceeds
the option exercise price paid, in the same manner as if the transferor had
retained and exercised the option. If the transfer is made in an arm's length
transaction, the transferor will generally recognize ordinary income at the time
of the transfer to the extent of any money or other property received in
connection with the transfer.
If a transfer constitutes a completed gift for gift tax purposes, then the
transfer will be subject to federal gift tax except, generally, to the extent
protected by the transferor's annual exclusion, by his or her lifetime unified
credit, by the marital deduction or by the charitable deduction. The amount of
the gift is the value of the option at the time of the gift. In the case of
transfers of unvested options, the Internal Revenue Service considers the gift
to be completed only upon the vesting of the option, and, in the case of a
transferred unvested option that vests in stages, considers that on the vesting
of each portion of the option there is a completed gift with respect to such
portion. Transferred unvested options are valued for gift tax purposes at the
time of vesting.
If the transfer constitutes a completed gift and the transferor retains no
interest in or power over the option after the transfer, the option generally
will not be included in his or her gross estate for federal estate tax purposes.
If the transfer is incomplete (e.g., if the transferred option or a portion
thereof remains unvested) at the time of the transferor's death, then the option
(or portion thereof) will generally be treated for federal estate tax purposes
as if it had not been transferred during the transferor's lifetime so as to be
excluded from the transferor's gross estate for estate tax purposes.
Participants should consult with their personal tax advisers as to the
appropriate treatment of options transferred in a manner permitted under the
plan.
INCENTIVE STOCK OPTIONS. Participants who are granted an ISO (including an
Additional Option which is an ISO) will not be considered to have received
taxable income upon the grant of an ISO or its exercise; however, generally the
amount by which the Fair Market Value of the shares at the time of exercise
exceeds the option price will be included in the participant's alternative
minimum taxable income upon exercise unless the stock acquired is not
transferable or is subject to a substantial risk of forfeiture, in which case no
amount is included in alternative minimum taxable income until the stock is
transferable or there is no longer a substantial risk of forfeiture. If an ISO
is disposed of in the same year it is exercised, and the amount realized is less
than the stock's Fair Market Value at the time of exercise, the amount
includible in alternative minimum taxable income does not exceed the amount
realized on the sale or exchange of the stock, less the taxpayer's basis in such
stock.
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Upon the sale or other taxable disposition of shares of Common Stock
acquired upon the exercise of an ISO, long-term capital gain will normally be
recognized in the full amount of the difference between the amount realized and
the option exercise price if no disposition of shares has taken place within
either (a) two years from the date of grant of the ISO or (b) one year from the
date of transfer of such shares of Common Stock to the participant upon
exercise. If shares of Common Stock acquired upon the exercise of an ISO are
sold or otherwise disposed of before the end of the one-year or two-year periods
referenced above, the difference between the ISO exercise price and the Fair
Market Value of the shares of Common Stock on the date of the ISO's exercise
will be taxed as ordinary income; the balance of the gain, if any, will be taxed
as capital gain. If shares of Common Stock acquired upon the exercise of an ISO
are disposed of before the expiration of the one-year or two-year periods
referenced above and the amount realized is less than the Fair Market Value of
the shares at the date of exercise, the participant's ordinary income is limited
to the excess (if any) of the amount realized over the option exercise price
paid. Subject to Section 162(m) of the Code, the Company will be entitled to a
tax deduction in regards to an ISO only to the extent that the participant has
ordinary income upon sale or other disposition of the shares.
RESTRICTED STOCK. An employee to whom restricted stock is issued will not
have taxable income upon issuance and the Company will not then be entitled to a
deduction, unless an election is made under Section 83(b) of the Code. However,
when restrictions on shares of restricted stock lapse, such that the shares are
no longer subject to repurchase by the Company, the employee will realize
ordinary income and the Company will be entitled to a deduction in an amount
equal to the Fair Market Value of the shares at the date such restrictions
lapse, less the purchase price paid for the shares. If an election is made under
Section 83(b) with respect to restricted stock, the employee will realize
ordinary income at the date of issuance equal to the Fair Market Value of the
shares at that date less the purchase price paid for the shares, and the Company
will be entitled to a deduction in the same amount.
PHANTOM STOCK UNITS. An employee who is granted a phantom stock unit will
not have taxable income and the Company will not be entitled to a deduction as a
result of the grant of a phantom stock unit. Upon the employee's receipt of
shares transferred by the Company in connection with the phantom stock unit, the
employee will realize ordinary income and, subject to Section 162(m) of the
Code, the Company will be entitled to a deduction in an amount equal to the Fair
Market Value of the shares on the date of such transfer, less the purchase price
paid for the phantom stock unit.
EFFECT OF SECTION 162(M) OF THE CODE. Under Section 162(m) of the Code,
income tax deductions of publicly-traded companies may be limited to the extent
total compensation (including base salary, annual bonus, stock option exercises
and non-qualified benefits paid) for certain executive officers exceeds
$1 million (less the amount of any "excess parachute payments" as defined in
Section 280G of the Code) in any one year. However, under Section 162(m), the
deduction limit does not apply to certain "performance-based" compensation
established by a committee which consists solely of 2 or more "outside
directors" and is adequately disclosed to, and approved by, share owners. In
particular, stock options will satisfy the performance-based exception if the
awards are made by a qualifying compensation committee, the plan sets the
maximum number of shares that can be granted to any particular employee within a
specified period and the compensation is based solely on an increase in the
stock price after the grant date (i.e. the option exercise price is equal to or
greater than the Fair Market Value of the stock subject to the award on the
grant date). Other types of awards may only qualify as "performance-based
compensation" if such awards are only granted or payable to the recipients based
upon the attainment of objectively determinable and pre-established performance
targets which are established by a qualifying compensation committee and which
relate to performance goals which are approved by the Company's share owners.
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The plan has been designed in order to permit a committee consisting solely
of 2 or more "outside directors" to grant stock options which will qualify as
"performance-based compensation" under Section 162(m). Restricted stock and
phantom stock units granted under the plan will not qualify as
"performance-based compensation."
PLAN OF DISTRIBUTION
This prospectus relates to up to 8,000,000 shares of our common stock that
may be issued under our Amended and Restated 1997 Equity Participation Plan. The
plan authorizes the grant of non-qualified and incentive stock options,
restricted stock and phantom stock units to participants under our plan. In
addition, non-qualified stock options may be transferred to, and exercised by,
certain members of a participant's immediate family, charitable institutions,
trusts, or limited liability companies or partnerships whose members or partners
consist entirely of certain family members or family trusts. We will bear all
expenses in connection with the Registration Statement and the sales of the
shares covered by this prospectus. We estimate that expenses in connection with
this offering will be approximately $80,000.00. The shares may be sold from time
to time in one or more transactions at prices determined in accordance with the
terms of the options, the restricted stock awards or the phantom stock unit
awards. Some of the shares may be sold to our affiliates. Affiliates may not
resell these shares except pursuant to an effective registration statement
covering their resale or pursuant to an exemption from such registration,
including, among other things, the exemption provided by Rule 144 under the
Securities Act of 1933, as amended.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for us by
Latham & Watkins, San Francisco, California. Certain partners of Latham &
Watkins, members of their families and related persons have an indirect
interest, through limited partnerships, in less than 1% of the common stock of
the Company. Such persons do not have the power to vote or dispose of such
shares of common stock.
EXPERTS
The consolidated financial statements of Owens-Illinois, Inc. appearing in
our Annual Report (Form 10-K) for the year ended December 31, 2001 have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement (of which this prospectus is a part and which term shall encompass any
amendments thereto) on Form S-3 pursuant to the Securities Act of 1933, as
amended, with respect to the shares offered hereby. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules thereto, certain portions of which have been omitted as
permitted by the rules and regulations of the SEC. This prospectus summarizes
material provisions of the plan and other documents to which we refer you. Since
this prospectus may not contain all of the information that you may find
important, you should review the full text of these documents, which we have
filed as exhibits to our registration statement. For further information about
us and the shares offered hereby, reference is made to the registration
statement and to exhibits filed as part thereof.
We are subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended, and in accordance therewith, file annual and quarterly
reports, proxy statements and other information with the SEC. The registration
statement, including the exhibits and schedules thereto, as well as such
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reports and other information we file with the SEC, can be read and copied at
the SEC's Public Reference Room, 450 Fifth Street, N.W., Room 1024, Washington
D.C., 20549. You may obtain copies of those materials from the SEC at prescribed
rates. You should direct requests to the SEC to the SEC's Public Reference Room
at 450 Fifth Street, N.W., Washington D.C., 20549. Please call the SEC at
1-800-SEC-0330 for further information on the Public Reference Room. The SEC
also maintains a website at HTTP://WWW.SEC.GOV that contains reports, proxy and
other information regarding registrants that file electronically with the SEC
and certain of our publicly available filings are available at such web site.
You can inspect reports an other information we file at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10055.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" much of the information we
file with it, which means that we can disclose important information to you by
referring you directly to those publicly available documents. The information
incorporated by reference is considered to be an important part of this
prospectus. In addition, information we file with the SEC in the future will
automatically update and supersede information contained in this prospectus. The
following documents filed with the SEC pursuant to the Exchange Act are
incorporated by reference in this prospectus:
(1) our annual report on Form 10-K for the fiscal year ended December 31,
2001, including information specifically incorporated by reference into
our Form 10-K from our proxy statement, dated April 1, 2002 with respect
to the annual meeting of share owners held on May 8, 2002.
(2) our quarterly report on Form 10-Q for the fiscal quarter ended
March 31, 2002;
(3) our quarterly report on Form 10-Q for the fiscal quarter ended June 30,
2002;
(4) our current report on Form 8-K filed on September 3, 2002.
(5) description of our common stock contained in our registration statement
on Form 8-A filed on December 3, 1991, as amended;
(6) all other documents subsequently filed by us pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus
and before the termination of the offering, which shall be deemed to be a
part hereof from the date of filing of such documents.
We will provide without charge to each person, including any beneficial
owner, to whom this prospectus is delivered, upon request, a copy of any
documents incorporated into this prospectus by reference (other than exhibits
incorporated by reference into such document). Requests for documents should be
submitted to the Corporate Secretary, Owens-Illinois, Inc., One SeaGate, Toledo,
Ohio 43666 (telephone (419) 247-5000). The information relating to us contained
in this prospectus does not purport to be comprehensive and should be read
together with the information contained in the documents incorporated or deemed
to be incorporated by reference herein.
Any statement contained in a document that is incorporated by reference will
be modified or superseded for all purposes to the extent that a statement
contained in this prospectus, or in any document that we subsequently file with
the SEC and incorporate by reference, modifies or is contrary to that previous
statement. Any statement so modified or superseded will not be deemed a part of
this prospectus, except as so modified or superseded.
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