SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Section 240.14a-12
PACTIV CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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PACTIV CORPORATION
1900 WEST FIELD COURT
LAKE FOREST, ILLINOIS 60045
(847) 482-2000
(PACTIV CORPORATION LOGO)
April 2, 2007
Fellow Shareholders:
The Annual Meeting of Shareholders of Pactiv Corporation will be held
Friday, May 18, 2007, at 8:00 a.m. at the Hilton Northbrook, 2855 N. Milwaukee
Ave., Northbrook, Illinois 60062. A notice of the meeting, a proxy card, a proxy
statement containing information about the matters to be acted upon at the
meeting, and a copy of the Company's Annual Report are enclosed.
Your vote is important. I urge all shareholders, even if they plan to
attend the Annual Meeting, to please assist us in preparing for the meeting by
either completing, executing, and returning your proxy card promptly or using
our telephonic or Internet voting procedures, which are described on the proxy
card.
Very truly yours,
RICHARD L. WAMBOLD
Chairman and Chief
Executive Officer
PACTIV CORPORATION
1900 WEST FIELD COURT
LAKE FOREST, ILLINOIS 60045
(847) 482-2000
(PACTIV CORPORATION LOGO)
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
MAY 18, 2007
The Annual Meeting of Shareholders of Pactiv Corporation will be held May
18, 2007, at 8:00 a.m. at the Hilton Northbrook, 2855 N. Milwaukee Ave.,
Northbrook, Illinois 60062, for the following purposes:
1. To elect eight directors for a term to expire at the 2008 Annual Meeting
of Shareholders;
2. To ratify the engagement of Ernst & Young LLP as the Company's
independent public accountants for the year 2007; and
3. To consider any other matters as may be properly brought before the
meeting or any adjournment or postponement thereof.
The Board of Directors knows of no other matters at this time that may be
brought before the meeting. Shareholders of record at the close of business on
March 19, 2007, are entitled to vote at the meeting. A list of these
shareholders will be available for inspection for 10 days preceding the meeting
at the corporate headquarters of the Company, 1900 West Field Court, Lake
Forest, Illinois, 60045, and at the Hilton Northbrook hotel, and will also be
available for inspection at the Annual Meeting of Shareholders.
If you plan to attend the Annual Meeting, please note that you will be
required to bring your admission ticket (attached to the proxy card) or a
brokerage statement showing your ownership in accordance with the admission
policy described on page 31 of the proxy statement.
By Order of the Board of Directors
JOSEPH E. DOYLE
Secretary
April 2, 2007
PACTIV CORPORATION
1900 WEST FIELD COURT
LAKE FOREST, ILLINOIS 60045
(847) 482-2000
(PACTIV CORPORATION LOGO)
PROXY STATEMENT
The Board of Directors of Pactiv Corporation, a Delaware corporation (the
"Company"), is soliciting your proxy for use at the Company's Annual Meeting of
Shareholders to begin at 8:00 a.m. on May 18, 2007, and at any adjournment or
postponement thereof (the "Annual Meeting"). This proxy statement, and the
accompanying Notice of Annual Meeting of Shareholders, proxy card and Annual
Report, are first being sent or given to the Company's shareholders entitled to
vote at the Annual Meeting on or about April 2, 2007.
TABLE OF CONTENTS
<Table>
Proposals Submitted for Vote................................ 2
Election of the Board of Directors of the Company (Proposal
1)........................................................ 2
Biographical Information.................................. 3
Stock Ownership of Directors and Executive Officers....... 5
Corporate Governance...................................... 5
Board of Directors........................................ 6
Board Committees.......................................... 7
Shareholder Nominations................................... 8
Other Governance Matters.................................. 9
Compensation of Directors................................. 10
Compensation Committee Interlocks and Insider
Participation.......................................... 11
Executive Compensation...................................... 11
Compensation Discussion and Analysis...................... 11
Compensation Committee Report............................. 18
Summary Compensation Table................................ 19
2006 Grants of Plan-Based Awards.......................... 20
Outstanding Equity Awards at Fiscal Year-End 2006......... 22
2006 Options Exercised and Stock Vested................... 23
2006 Pension Benefits..................................... 23
2006 Non-Qualified Deferred Compensation.................. 24
Potential Payments Upon Termination or Change in
Control................................................ 25
Audit Committee Disclosure.................................. 27
Audit Committee Report.................................... 27
Audit and Non-Audit Fees.................................. 28
Pre-Approval Policy....................................... 28
Ratification of Ernst & Young LLP as Independent Public
Accountants for 2007 (Proposal 2)......................... 29
Other Information........................................... 29
Certain Beneficial Owners................................. 29
Section 16(a) Beneficial Ownership Reporting Compliance... 29
Shareholder Nominations and Other Proposals for 2008
Annual Meeting of Shareholders......................... 30
Reports................................................... 30
Annual Report on Form 10-K................................ 30
Questions and Answers Regarding Annual Meeting and Voting... 31
</Table>
1
PROPOSALS SUBMITTED FOR VOTE
PROPOSAL 1: ELECTION OF DIRECTORS
NOMINEES. At the Annual Meeting, you will elect eight individuals to the
Board of Directors. Each director will hold office until the next annual meeting
and until his or her successor is elected and qualified or until his or her
earlier resignation or removal. Nominees for election this year are Larry D.
Brady, K. Dane Brooksher, Robert J. Darnall, Mary R. (Nina) Henderson, N. Thomas
Linebarger, Roger B. Porter, Richard L. Wambold and Norman H. Wesley. For
biographical information about each nominee, see "Election of the Board of
Directors of the Company -- Biographical Information."
FAILURE TO SERVE. In the event that any nominee for director withdraws or
for any reason is not able to serve as a director, your proxy will be voted at
the Annual Meeting for the remainder of those nominated for director (except as
otherwise indicated in your proxy) and for any replacement nominee designated by
the Board of Directors.
VOTE REQUIRED. You may vote for, vote against, or withhold your vote from,
any of the director nominees. Assuming a quorum is present, each director
nominee receiving more "for" votes than "against" votes at the Annual Meeting
will be elected as a director. If an incumbent director is not re-elected, the
director is required to promptly tender his or her resignation to the Board,
which will act on such resignation as discussed at page 6, below.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ALL OF THE
NOMINEES LISTED ABOVE.
PROPOSAL 2: RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
INDEPENDENT PUBLIC ACCOUNTANTS. The Audit Committee of the Board of
Directors has engaged Ernst & Young LLP as the Company's independent public
accountants for the year 2007. The Company is asking its shareholders to ratify
this engagement.
VOTE REQUIRED. You may vote for, vote against, or abstain from voting on
this proposal. Assuming a quorum is present, the vote of a majority of the
shares present at the Annual Meeting (in person or by proxy) and entitled to
vote will be required to ratify the engagement of Ernst & Young LLP as the
Company's independent public accountants for the year 2007.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
RATIFICATION OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE YEAR 2007.
Additional information regarding the Annual Meeting and voting is included
in the "Questions and Answers Regarding Annual Meeting and Voting" on page 31.
2
ELECTION OF THE BOARD OF DIRECTORS OF THE COMPANY
(PROPOSAL 1)
BIOGRAPHICAL INFORMATION
Below are the current members of the Company's Board of Directors, each of
whom is standing for re-election at the Annual Meeting.
<Table>
Larry D. Brady is Chairman and Chief Executive Officer of
(LARRY D. BRADY PHOTO) Intermec Inc., a business technologies company. Mr. Brady is
also a director of Intermec Inc. and Baker Hughes
Incorporated. Mr. Brady is 64 years old, has been a director
of the Company since November 1999, and is a member of the
Audit Committee and chairman of the Three-Year Independent
Director Evaluation Committee.
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K. Dane Brooksher is Chairman of ProLogis, an operator of a
(K. DANE BROOKSHER PHOTO) global network of industrial distribution facilities. From
March 1999 to December 31, 2004, Mr. Brooksher served as
Chairman and CEO of ProLogis. Prior to joining ProLogis, Mr.
Brooksher was Area Managing Partner and Chicago Office
Managing Partner of KPMG Peat Marwick (now KPMG LLP),
independent public accountants, where he served on the Board
of Directors and Management Committee and as International
Development Partner for Belgium and the Netherlands. Mr.
Brooksher is also a trustee of ProLogis and a director of
Qwest Communications International Inc. and Cass Information
Systems, Inc., and he serves as an Advisory Board Member of
the J.L. Kellogg Graduate School of Management of
Northwestern University. Mr. Brooksher is 68 years old, has
been a director of the Company since March 2003, and is
chairman of the Audit Committee.
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Robert J. Darnall retired as Chairman of Prime Advantage
(ROBERT J. DARNALL PHOTO) Corporation, a supplier of strategic sourcing services and
logistics management for industrial manufacturers, in
January 2002, having held such position since 2000. Prior to
that, Mr. Darnall held various executive positions at Inland
Steel Company and Ispat International. Mr. Darnall is also a
director of Cummins, Inc., HSBC North American Holdings,
Inc., Sunoco, Inc., and United States Steel Corporation. Mr.
Darnall is 69 years old, has been a director of the Company
since March 2000, and is chairman of the
Compensation/Nominating/Governance Committee and a member of
the Three-Year Independent Director Evaluation Committee.
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Mary R. (Nina) Henderson is a consultant to the consumer
(MARY R. HENDERSON PHOTO) goods industry. Previously, Ms. Henderson held various
executive positions, including Corporate Vice President,
Global Core Business Development, at Bestfoods, Inc. Ms.
Henderson is also a director of AXA Financial, Inc., Del
Monte Foods Company, Royal Dutch Shell, p.l.c., and a
trustee of Drexel University. Ms. Henderson is 56 years old,
has been a director of the Company since January 2000, and
is a member of the Audit Committee.
</Table>
3
<Table>
<Caption>
N. Thomas Linebarger is Executive Vice President of Cummins, Inc. and President of
Cummins Power Generation, a manufacturer of diesel and natural gas powered
generator sets and systems. From 2000-03, Mr. Linebarger had been Vice President
and Chief Financial Officer of Cummins, Inc. Linebarger is 44 years old, has been a
director since November 2005, and is a member of the Audit Committee.
(N. THOMAS LINEBARGER PHOTO)
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Roger B. Porter is the IBM Professor of Business and Government at Harvard
(ROGER PORTER PHOTO) University. Mr. Porter has served on the faculty at Harvard University since 1977.
Mr. Porter also held senior economic policy positions in the Ford, Reagan and
George H. W. Bush White Houses, including serving as assistant to the President for
economic and domestic policy from 1989 to 1993. Mr. Porter is also a director of
Extra Space Storage, Inc., Tenneco Inc., Packaging Corporation of America and Zions
Bancorporation. Mr. Porter is 60 years old, has been a director of the Company
since November 1999 and is a member of the Compensation/Nominating/Governance
Committee and the Three-Year Independent Director Evaluation Committee.
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Richard L. Wambold has been Chairman of the Company since March 2000, and has been
(RICHARD L. WAMBOLD PHOTO) Chief Executive Officer since its spin-off in November 1999. Mr. Wambold is also a
director of Cooper Tire and Rubber Company. Mr. Wambold is 55 years old and has
been a director of the Company since June 1999.
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Norman H. Wesley has been the Chairman and Chief Executive Officer of Fortune
(NORMAN H. WESLEY PHOTO) Brands, Inc., a consumer products company, since December 1999. Mr. Wesley is also
a director of Fortune Brands, Inc., ACCO Brands Corporation and R.R. Donnelly &
Sons Company. Mr. Wesley is 57 years old, has been a director of the Company since
December 2001, and is a member of the Audit Committee and the Compensation/
Nominating/Governance Committee.
</Table>
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ALL OF THE
NOMINEES LISTED ABOVE.
4
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the number of shares of common stock and
Common Stock Equivalents of the Company beneficially owned as of February 28,
2007 by: (i) each director or nominee for director; (ii) each of the executive
officers named in the Summary Compensation Table below; and (iii) all executive
officers, directors, and nominees for director as a group.
<Table>
<Caption>
SHARES OF
COMMON COMMON TOTAL SHARES,
STOCK STOCK OPTIONS AND PERCENT OF
DIRECTORS OWNED(1) OPTIONS(2) EQUIVALENTS(3) EQUIVALENTS CLASS(4)
- --------- --------- ---------- -------------- ------------- ----------
Larry D. Brady................. 4,157 8,266 27,329 39,752 *
K. Dane Brooksher.............. 3,000 18,000 9,774 30,774 *
Robert J. Darnall.............. 5,000 12,000 8,904 25,904 *
Mary R. (Nina) Henderson....... 0 24,000 11,499 35,499 *
N. Thomas Linebarger........... 0 0 9,926 9,926 *
Roger B. Porter................ 4,147 31,132 27,529 62,808 *
Richard L. Wambold............. 175,864 1,829,594 93,914 2,099,372 1.51%
Norman H. Wesley............... 4,000 24,000 8,922 36,922 *
EXECUTIVE OFFICERS
- ------------------
Andrew A. Campbell............. 161,540 853,000 128,829 1,143,369 *
Peter J. Lazaredes............. 57,186 284,920 429 342,535 *
John N. Schwab................. 38,112 244,991 53,401 336,504 *
James V. Faulkner, Jr.(5)...... 23,290 36,246 12,539 72,075 *
All executive officers and
directors or nominees as a
group (13 individuals)....... 494,596 3,366,149 397,792 4,258,537 2.95%
</Table>
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* less than one percent
(1) Includes shares held in the Pactiv Corporation 401(k) Savings and Investment
Plan (the "401(k) Plan"). Each person listed has sole voting and investment
power over the shares set forth in this column, except shares held in the
401(k) Plan are held of record by the trustee of such plan, are voted by the
trustee in accordance with instructions received from plan participants, and
may be transferred by the beneficiary only in accordance with the terms of
the plan.
(2) Shares that are subject to options exercisable as of February 28, 2007, or
within 60 days of such date. Such shares cannot be voted or transferred
until acquired.
(3) Common Stock Equivalents are amounts invested in the Pactiv Stock Index Fund
under the Company's Deferred Compensation Plan (the "DCP") or Deferred
Retirement Savings Plan (the "DRSP"). These plans and the Pactiv Stock Index
Fund are discussed below at page 24. Common Stock Equivalents do not have
voting rights.
(4) Assuming, for each person listed, his or her exercise of the options set
forth above, but excluding Common Stock Equivalents.
(5) Mr. Faulkner retired from the Company effective December 31, 2006.
CORPORATE GOVERNANCE
The Company is committed to good business practices including
uncompromising integrity, transparency in financial reporting, full and timely
disclosure of reportable corporate events, and thoughtful and effective
corporate governance. To that end, the Board regularly reviews the Company's
corporate governance policies and practices in light of these principles and the
requirements of the Sarbanes-Oxley
5
Act of 2002, the rules of the Securities and Exchange Commission (SEC) and the
requirements of the New York Stock Exchange (NYSE). Based on this review, the
Board has formalized certain procedures and standards as part of its corporate
governance structure. This section outlines the key components of the Company's
corporate governance structure.
BOARD OF DIRECTORS
The Board of Directors currently consists of eight members, including seven
who are not officers or employees of the Company (the "Non-Management
Directors") and one (Mr. Wambold) who is the CEO of the Company. The Board has
determined that all Non-Management Directors are "independent" under the rules
of the SEC and NYSE and under the definition of independence in our Corporate
Governance Guidelines. In addition to meeting the "bright-line" tests of the SEC
and the NYSE for determining independence, the Board has affirmatively
determined that no Non-Management Director has any material relationship with
the Company (either directly or as a partner, shareholder, or officer of an
organization that has a relationship with the Company). In making this
determination the Board considered all relevant facts and circumstances that
constituted each director's relationship with the Company from the director's
standpoint as well as from that of the persons or organizations with which the
director has such an affiliation. The determination that each Non-Management
Director is independent and has no material relationship with the Company was
made following reviews of questionnaires completed by all directors, and an
internal "cross-checking" review by the Company to confirm whether the Company
had any relationships with companies with whom the Non-Management Directors are
affiliated.
Non-Management Directors meet in regularly scheduled executive sessions
without management. The role of presiding director at such executive sessions is
rotated among all Non-Management Directors.
Shareholders and other interested parties may communicate directly with the
Board of Directors (including with the Non-Management Directors only, or with
any specific director) in accordance with the following process. All
communications should be sent to the Company's Secretary at 1900 West Field
Court, Lake Forest, Illinois 60045, and should prominently indicate on the
outside of the envelope that it is intended for the full Board of Directors, for
Non-Management Directors only, or for any particular director. The Secretary
will review the communications and, pursuant to instructions from the
Non-Management Directors, remove any communications that are purely commercial
in nature. All other communications will be promptly forwarded to the specified
director or directors. The Board will be advised of any communication excluded
by the Secretary as being purely commercial in nature, and such communication
will be made available to any director who wishes to review it.
The Board of Directors held seven meetings in 2006. Each director attended
more than 75% of the meetings of the Board and of the Board committees on which
he or she served. It is a policy of the Board that directors are expected to
attend the Annual Meetings of Shareholders. Seven members of the Board attended
the Company's 2006 Annual Meeting of Shareholders.
The Company amended its By-Laws in 2006 to provide that in uncontested
elections the election of directors will be by a majority vote. If in an
uncontested election any incumbent director receives more "against" votes than
"for" votes with respect to such director's election, such director shall
promptly tender his or her resignation to the Board. The
Compensation/Nominating/Governance Committee will make a recommendation to the
Board whether to accept or reject such resignation, or whether other action
should be taken. The Board will accept such resignation unless there is a
compelling reason not to do so. The Board will publicly disclose its decision,
and the rationale behind its decision, within 90 days from the certification of
the election results. In contested elections -- where the number of nominees
exceeds the number of directors to be elected -- directors will continue to be
elected by a plurality vote so as to guard against the risk of a "failed
election" where no nominee receives a majority of the votes.
6
BOARD COMMITTEES
The Board has three standing committees, each comprised solely of
Non-Management Directors, all of whom are independent under the rules of the SEC
and the NYSE and as determined by the Board of Directors. The committees on
which each director serves are listed in the Biographical Information for the
directors, above. In addition, on an ad hoc basis, the Board may designate from
time to time a Non-Management Director as the "lead" director with respect to
special matters or discussions affecting the Company. The responsibilities and
authority of the standing committees are as follows:
COMPENSATION/NOMINATING/GOVERNANCE COMMITTEE. The
Compensation/Nominating/Governance Committee (the "C/N/G Committee") operates
under a written charter adopted by the Board of Directors, a copy of which is
posted on the Company's website (www.Pactiv.com) under the Investor
Relations/Governance link. In addition, the Company will provide a copy of the
C/N/G Committee's charter to any shareholder or other interested party who
requests it by writing to the Secretary of the Company. The C/N/G Committee
reviews and reassesses the adequacy of the Committee's charter annually. The
charter, which reflects the standards set forth in the SEC and NYSE rules and
regulations, identifies the C/N/G Committee's primary duties and
responsibilities as follows:
- Examine periodically the philosophy and structure of the Company's
compensation programs.
- Oversee and act on behalf of the Board of Directors with respect to the
benefit and compensation plans of the Company.
- Review and determine the desirable balance of experience, qualifications
and expertise among members of the Board of Directors.
- Review possible candidates for membership on the Board of Directors
(including nominations proposed by shareholders) and recommend a slate of
nominees for election as directors at the Company's Annual Meeting of
Shareholders.
- Review the function and composition of the other committees of the Board
of Directors and recommend membership on such committees.
- Review the qualifications and recommend candidates for election as
officers of the Company.
In performing its duties, the C/N/G Committee has the authority to take
such action as it deems appropriate to implement the purposes of the C/N/G
Committee. The Committee has retained Hewitt Associates LLC as a compensation
consultant to advise the Committee in connection with matters pertaining to
executive compensation, including advising as to market levels and practices,
plan design and implementation, and best practices and governance principles.
The Committee may retain legal, accounting or other consultants, and meet in
separate executive sessions with the Company's management, employees and such
other persons as the Committee sees fit. The C/N/G Committee generally meets
with its compensation consultant in executive session (without management) after
each of its meetings, and at other times as necessary.
All members of the C/N/G Committee are independent Non-Management
Directors. Mr. Darnall is Chairman of the C/N/G Committee. The C/N/G Committee
held six meetings in 2006.
AUDIT COMMITTEE. The Audit Committee operates under a written charter
adopted by the Board of Directors, a copy of which is also posted on the
Company's website (www.Pactiv.com) under the Investor Relations/Governance link.
In addition, the Company will provide a copy of the Audit Committee's charter to
any shareholder or other interested party who requests it by writing to the
Secretary of the Company. The Audit Committee reviews and reassesses the
adequacy of the Audit Committee charter annually. The charter, which reflects
the standards set forth in the SEC and NYSE rules and regulations, identifies
the Audit Committee's primary duties and responsibilities as follows:
- Appointment, compensation and oversight over the work of the Company's
public accountants.
- Monitor the integrity of the Company's financial statements.
7
- Monitor the Company's compliance with its corporate code of conduct and
legal and regulatory requirements.
- Monitor the Company's public accountants' qualifications and
independence.
- Monitor the performance of the Company's internal audit function and
public accountants.
- Provide an avenue of communication among the independent auditors,
management, internal auditors and the Board of Directors.
- Discuss with management the Company's major financial risk exposures and
steps taken to monitor and control them.
In performing its duties, the Audit Committee has the authority to take
such actions as it deems appropriate to implement the purposes of the Audit
Committee. The Committee may retain special legal, accounting, or other
consultants, and meet in separate executive sessions with the Company's public
accountants, its internal auditors, employees, management, and such other
persons as the Committee sees fit. The Audit Committee meets regularly in
executive session (without management) with the Company's independent public
accountants, its tax advisors, its internal auditors, and others as it deems
necessary.
All members of the Audit Committee are independent Non-Management Directors
and are financially literate. Mr. Brooksher, the Committee's Chairman, is the
Company's "Audit Committee Financial Expert" as defined by the SEC. The Audit
Committee held ten meetings in 2006.
THREE-YEAR INDEPENDENT DIRECTOR EVALUATION COMMITTEE. The Three-Year
Independent Director Evaluation Committee (the "TIDE Committee") has the
responsibility, among other things, to review the Company's Qualified Offer Plan
Rights Agreement (adopted in November 1999) at least every three years and, if
it deems it appropriate, recommend that the full Board modify or terminate such
Plan. The TIDE Committee did not meet in 2006.
SHAREHOLDER NOMINATIONS
The Board has adopted a policy with respect to nominations by shareholders
of candidates to the Board of Directors; the C/N/G Committee is responsible for
the implementation of this policy. Under this policy, to submit a candidate for
consideration by the C/N/G Committee a shareholder must notify the Company's
Secretary at least 90 but not more than 120 days prior to the first anniversary
of the date of the prior year's annual meeting (subject to change if the date of
the annual meeting is more than 30 days before or 70 days after the anniversary
date of the prior year's annual meeting). The notice must meet all of the
requirements contained in the Company's By-laws and must set forth (i) the name,
age, business address and residence address of the proposed nominee; (ii) the
principal occupation or employment of the proposed nominee; (iii) any other
information relating to the shareholder or proposed nominee that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder; (iv) any other information the
shareholder believes is relevant concerning the proposed nominee; (v) a written
consent of the proposed nominee(s) to being named in the proxy statement as a
nominee and to serve as a director if elected; (vi) the name and record address
of the shareholder submitting the notice; (vii) the number of shares of voting
stock of the Company which are owned of record or beneficially by the
shareholder submitting the notice; (viii) a representation of whether, if the
proposed nominee is not nominated by the Board of Directors, the shareholder
intends to appear in person or by proxy at the annual meeting to nominate the
proposed nominee named in the notice; (ix) a representation of whether the
shareholder intends or is part of a group which intends (a) to deliver a proxy
statement and/or form of proxy to the Company's shareholders, or (b) otherwise
to solicit proxies from shareholders in support of such nomination; and (x) a
description of all arrangements or understandings between the shareholder
submitting the notice and any other person (naming such person) pursuant to
which the nomination is being made by the shareholder submitting the notice.
8
The C/N/G Committee will consider all proposed nominees for the Board of
Directors, including those put forward by shareholders, in accordance with the
charter of the C/N/G Committee and the Company's Corporate Governance Guidelines
to determine whether they might make good candidates for consideration for
membership on the Board of Directors. This will include a review of the person's
judgment, experience, independence, understanding of the Company's business or
other related industries, and such other factors as the C/N/G Committee
determines are relevant in light of the needs of the Board of Directors and the
Company. There are no specific minimum qualifications that the C/N/G Committee
believes must be met by a nominee. The Board of Directors believes that its
nominees should reflect a diversity of experience at a policy-making level in
businesses and in areas relevant to the Company's activities. The Board shall
not discriminate among qualified candidates based on gender, race, ethnicity or
age. The C/N/G Committee will select qualified candidates and review its
recommendations with the Board of Directors, which will decide whether to invite
the candidate to be a nominee for election to the Board of Directors.
OTHER GOVERNANCE MATTERS
The Board has adopted other policies and procedures related to corporate
governance, some of which are summarized below. All of these policies are
written and posted on the Company's website (www.Pactiv.com) under the Investor
Relations/Governance link. In addition, the Company will provide a copy of the
policies to any shareholder or other interested party who requests them by
writing to the Secretary of the Company.
CODE OF BUSINESS CONDUCT AND ETHICS. The Company's Code of Business Conduct
and Ethics requires all employees, officers and directors of the Company to
respect and comply with all applicable laws, rules and regulations and, beyond
that, to act with honesty, integrity, and in the best interests of the Company.
The Code of Business Conduct and Ethics outlines the key principles of expected
behavior for Pactiv employees, officers and directors, including matters
relating to conflicts of interest, confidentiality, fair dealing, accounting
complaints, and procedures for reporting illegal or unethical behavior as well
as the expected ethical behavior in many other business areas.
CODE OF ETHICAL CONDUCT FOR FINANCIAL MANAGERS. The Company's Code of
Ethical Conduct for Financial Managers is applicable (in addition to the Code of
Business Conduct and Ethics) to the Company's Chief Executive Officer, Chief
Financial Officer, Controller, Treasurer, Tax Director, Audit Director,
Assistant Controller, Assistant Treasurer and managers reporting to each of
these positions who are responsible for accounting and financial reporting, and
any other persons performing similar functions, and the Controllers of business
units and all managers reporting to them. This Code covers a range of financial
and non-financial business practices and procedures, requiring Financial
Managers to act with honesty and integrity, including the ethical handling of
actual or apparent conflicts of interest between personal and professional
relationships, to fully and fairly disclose appropriate information in a timely
and understandable manner, and otherwise to act in good faith, responsibly, with
due care, competence and diligence, without misrepresenting material facts or
allowing their independent judgment to be subordinated. Any waiver of the Code
of Ethical Conduct for Financial Managers -- there have been none -- may be
made only by the Audit Committee and will be promptly disclosed as required by
law or the NYSE rules.
CORPORATE GOVERNANCE GUIDELINES. The Company's Corporate Governance
Guidelines set forth certain standards for the Company's Board of Directors and
management. These include director qualification standards, director
responsibilities, and other matters relating to the functions of the Board of
Directors, its interaction with management and with the Company's advisors, and
other matters.
RELATED PARTY TRANSACTION POLICY. The Company's Related Party Transaction
Policy generally provides that the C/N/G Committee shall review and approve or
disapprove all transactions with related parties involving more than $120,000.
In determining whether to approve a transaction, the C/N/G Committee shall take
into account, among other factors it deems appropriate, whether the transaction
is on terms not less favorable than terms generally available to or from an
unaffiliated third party, and the
9
extent of the related party's interest in such transaction. Certain types of
transactions are pre-approved, so that specific approval is not required, where
the nature of the relationship or the size of the transaction was deemed not
likely to give rise to conflicts of interest. There were no transactions with
related parties in 2006 that required, or would have required, disclosure under
such policy, or under the rules of the SEC or NYSE.
COMPENSATION OF DIRECTORS
The Company's philosophy for compensation of its Non-Management Directors
(directors who are employed by the Company receive no compensation for serving
on the Board or any committees of the Board) is to provide compensation
comparable to that paid to directors at similarly-sized companies, and, through
its stock ownership requirements, to align director's interest with shareholder
returns. For 2006, Non-Management Directors received the following compensation:
<Table>
<Caption>
FEES EARNED
OR PAID IN STOCK
NAME(1) CASH(2) AWARDS(3) TOTAL
- ------- ----------- --------- --------
Larry D. Brady........................................... $66,000 $60,000 $126,000
K. Dane Brooksher........................................ $73,000 $60,000 $133,000
Robert J. Darnall........................................ $73,000 $60,000 $133,000
Mary R. Henderson........................................ $67,000 $60,000 $127,000
N. Thomas Linebarger..................................... $67,000 $60,000 $127,000
Roger B. Porter.......................................... $67,000 $60,000 $127,000
Norman H. Wesley......................................... $72,000 $60,000 $132,000
</Table>
- ---------------
(1) Richard L. Wambold, the Company's Chairman and CEO, is not included in this
table because, as an employee, he received no compensation as a director.
Mr. Wambold's compensation as an employee is shown on the Summary
Compensation Table below.
(2) Cash compensation includes (a) an Annual Retainer of $55,000; (b) an Annual
Retainer of $12,000 for Audit and C/N/G Committee Chairs; (c) an Annual
Retainer of $6,000 for other Audit and C/N/G Committee Members; (d)
Attendance Fees of $1,000 per Board meeting (excluding teleconference
meetings); and (e) TIDE Committee Meeting Attendance Fee of $1,000.
(3) Directors receive an annual grant of Stock Equivalent Units equal to
$60,000. Stock Equivalent Units are issued at the closing price of the
Company's common stock on the date of issuance. The number of Stock
Equivalent Units to be issued is computed annually, generally at the time of
the Board meeting held in conjunction with the Company's Annual Meeting of
Shareholders (usually held in May). For the year from the 2006 Annual
Meeting to the 2007 Annual Meeting, each director received 2,423 Stock
Equivalent Units, which were either credited to the director's DCP account
(discussed below) or paid in cash.
The portion of the Annual Retainer paid in Stock Equivalent Units is
automatically deferred into the Pactiv Common Stock Index Fund under the
Company's Deferred Compensation Plan (the "DCP") until the director meets the
stock ownership requirements (described below). Thereafter, the amounts may be
taken in Stock Equivalent Units under the DCP or cash (which may be deferred
under the DCP), as elected by the director. The cash portion of the Annual
Retainer, and all Committee Chair/Member fees and meeting fees, may be deferred
under the DCP, and may be invested in a variety of investment options, including
the Pactiv Common Stock Index Fund, available under the DCP. The director may
elect distributions under the DCP in a lump sum, or in up to five equal annual
installments.
Directors are required to own at least 10,000 shares of Pactiv common stock
or Common Stock Equivalents, to be achieved annually on a pro rata basis within
five years of joining the Board. If a director is not on track to achieve such
level within five years, a portion of such director's Annual Retainer
10
otherwise payable in cash may, at the discretion of the Board, be paid in Stock
Equivalent Units. All directors have achieved or are on track to achieve the
share ownership requirement.
Non-Management Directors also are reimbursed for their expenses for
attending Board and Committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Darnall, Porter and Wesley are the current members of the C/N/G
Committee, all of whom are independent. During 2006, none of the executive
officers of the Company served on the board of directors or compensation
committee of any entity whose officers served either on the Board of Directors
of the Company or on the C/N/G Committee of the Board.
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
The purpose of this Compensation Discussion and Analysis (the "CD&A") is to
provide shareholders with material information about the compensation objectives
and policies for the Company and, specifically, for the CEO, the Chief Financial
Officer, and the other three most highly compensated officers of the Company as
of December 31, 2006 (together, the "Named Executive Officers"). This CD&A
provides an overview of the purposes and mechanics of the elements of executive
compensation discussed elsewhere in this proxy statement.
COMPENSATION PHILOSOPHY AND OBJECTIVES
The C/N/G Committee of the Board (referred to in this CD&A as the
"Committee"), which oversees the Company's compensation program, is comprised
entirely of independent Board members. The Committee operates under a written
charter, as discussed above. The Committee's primary responsibilities with
respect to compensation are to:
- Establish the Company's total compensation philosophy, and ensure that
the Company's programs are reflective of the philosophy.
- Establish the compensation of the CEO.
- Review and approve the CEO's compensation recommendations with respect to
non-CEO compensation.
- Monitor and administer awards under the Company's equity compensation
plans.
- Approve special programs and program enhancements.
- Report routinely to the Board in executive sessions.
PROCESS
The Committee has the authority under its charter to engage the services of
outside advisors, experts and others to assist it. The Committee has engaged
Hewitt Associates LLC as an outside compensation consultant to advise it on
executive compensation matters, and has determined that Hewitt is independent.
In addition to the Committee members, Mr. Wambold regularly attends the
Committee meetings, except that portion of each meeting that is held in
executive session. Mr. Wambold has no vote on items presented at the meeting.
Either the Secretary or the General Counsel also attends the meetings in order
to draft the minutes, which are approved by the Committee at the next subsequent
meeting. The Company's Vice President and Chief Human Resources Officer
("VP-CHRO") and representatives from Hewitt are generally invited to attend all
or a portion of the Committee meetings, depending on the nature
11
of the agenda items. The Committee Chair, in consultation with the VP-CHRO,
determines the agenda for each meeting. The VP-CHRO prepares the meeting
materials, which are sent to the Committee in advance, and interacts with the
Committee Chair as required in between meetings.
OBJECTIVES OF THE COMPANY'S COMPENSATION PROGRAMS
The objectives of the Company's compensation programs are to:
- Reinforce a results-oriented management culture with executive pay that
varies according to overall Company and individual performance against
articulated business goals and core behavioral standards.
- Place more emphasis and leverage on variable performance-based "at risk"
(versus fixed) compensation as an executive's responsibilities increase.
- Require the Company's executives to acquire and retain a significant
equity interest in the Company.
DESIGN OF THE COMPENSATION PROGRAM
The compensation program for executives is designed to:
- Attract, retain, and motivate key executive talent.
- Encourage and reward performance.
- Provide for an appropriate mix between fixed and at-risk compensation
(approximately 74% of the compensation opportunities awarded to the Named
Executive Officers in 2006 was dependent on the achievement of
performance objectives).
- Balance short-term and long-term goals (approximately 55% of total
compensation for the Named Executive Officers in 2006 was delivered in
the form of long-term programs).
Specifically, in designing the compensation program and in determining
executive compensation, the Committee considers the following factors:
- The Company's operating and financial performance compared with its
annual and long-term financial goals, as measured by quantitative
standards including earnings per share, return on capital employed and
free cash flow, as well as analysis relative to the performance of the
Company's compensation survey peer group (discussed below).
- The Company's performance compared to its goals in other areas, such as
health and safety, environmental matters, product innovation and
development, working capital management, customer service and diversity.
- Competitive compensation levels for each of the executive positions, as
well as each executive's contributions to the Company's overall results.
- The Company's size and complexity compared with companies in the
compensation survey peer group.
- The cost to the Company in terms of accounting results, use of cash, and
stock dilution, as well as the tax treatment of awards, both to the
Company and the executives.
As part of this process, the Committee reviews "tally sheets" for each of
the Named Executive Officers, which contain a three-year total compensation
history and an estimate of wealth accumulated through the Company's compensation
and benefit and projected retirement benefits.
12
SETTING EXECUTIVE COMPENSATION LEVELS
To ensure that the Company's compensation and benefit programs are properly
benchmarked, the Committee compares the Company's compensation and benefit
practices and levels of pay to a compensation survey group, prepared by Hewitt
and approved by the Committee, and to general industry survey data, using
regression analysis to ensure data comparability. Companies are selected based
on the following criteria (although any given company does not need to meet all
of the criteria in order to be included): (a) are of a similar size; (b) have
executive positions that are similar in terms of scope of responsibility; and
(c) participate in similar businesses. For 2006, the compensation survey group
consisted of the following 17 companies: Alberto-Culver Company, Avery Dennison
Corporation, Ball Corporation, Bausch & Lomb Incorporated, Becton Dickinson and
Company, The Black & Decker Corporation, Brunswick Corporation, The Clorox
Company, Hasbro, Inc., McCormick & Company, Inc., MeadWestvaco Corporation, S.C.
Johnson Consumer Products, The Scotts Miracle-Gro Company, Sonoco Products
Company, Tupperware Corporation, USG Corporation, and W.W. Grainger, Inc.
The Committee attempts to design programs that deliver total compensation
for executives that approximates the 50th percentile (size adjusted) of the
compensation survey peer group for the achievement of "at target" performance.
Actual payouts may be substantially above or below the 50th percentile depending
on actual performance compared to the target. Based on the Committee's most
recent review of data for the compensation peer group, at target net total
compensation (defined as base salary, annual incentives, and long-term
incentives) for the Company's executive officer group was at approximately the
50th percentile of the compensation survey peer group. Actual payouts for 2006,
however, were above the 50th percentile, as the Company's performance exceeded
all of the pre-established goals in 2006.
ELEMENTS OF COMPENSATION
The Company's compensation program consists of base salary, annual
incentive awards, long-term incentives, benefits, and perquisites. Annual
incentive awards and long-term incentives are governed by the 2002 Incentive
Compensation Plan (the "ICP"). The Company also imposes stock ownership
requirements on its executives, has deferred compensation plans that allow
eligible employees to defer receipt of portions of their compensation, and has a
change-in-control plan in place for senior executives. None of the Company's
officers has an employment contract. A description of each of the compensation
program elements follows:
BASE SALARY
The Committee reviews base salaries for the CEO and other senior executive
officers annually, usually in February, and determines if an adjustment is
appropriate. The Committee considers a number of factors when reviewing base
salaries: the executive's individual performance, level of responsibility,
experience, and the salaries paid to the position within the compensation survey
peer group as well as in broader industry, and the relative position of base
salaries among peer executives. During 2006, the Committee approved the
following salary increases for the Named Executive Officers, all effective on
March 1, 2006:
<Table>
<Caption>
BASE SALARY
INCREASE BASE SALARY
EXECUTIVE OFFICER AMOUNT AFTER INCREASE
- ----------------- ----------- --------------
Richard L. Wambold.......................................... $50,000 $910,000
Andrew A. Campbell.......................................... $14,000 $394,365
Peter H. Lazaredes.......................................... $21,000 $435,000
John N. Schwab.............................................. $11,900 $351,900
James V. Faulkner, Jr. ..................................... $11,400 $337,400
</Table>
13
ANNUAL INCENTIVE AWARDS
Under the ICP, the Company may award annual incentive awards, which are
cash payments in amounts that are a percentage of the employee's base salary and
tied to the Company's achievement of certain pre-established performance goals.
The amount that may be earned is 0% to 200% of the target amount for a
participant. For the Named Executive Officers, the targets range from 55% to
100% of base salary. Performance measures selected by the Committee for 2006
were earnings per share, excluding Extraordinary Items (as defined in the ICP),
which is weighted 70%, and free cash flow, which is weighted 30%. The Committee
may adjust the amounts so determined by up to 30% to reflect other factors that
the Committee determines are important. Historically, and in 2006, the earnings
per share and free cash flow goals were based on the Company's Annual Operating
Plan for that year, which is reviewed and approved by the Board of Directors in
the first quarter of such year. Over the past three years, the annual incentive
awards have been paid out below target, approximately at target, and, in 2006,
above target. This variance in results supports the Committee's view that the
target levels are set appropriately and that the annual incentive awards are
truly performance-based.
The 2006 target levels were $1.11 ($0.93 excluding Extraordinary Items) for
earnings per share and $140 million for free cash flow. The Company exceeded its
earnings per share goal by approximately 50% and its free cash flow goal by
approximately 100%. Based on these results, and other factors considered by the
Committee, the Committee determined to pay out the 2006 annual incentive awards
at 200% of the target amounts.
For those Named Executive Officers whose compensation is subject to the
deductibility limitations of Section 162(m) of the Internal Revenue Code, annual
incentive awards are also contingent upon the achievement of performance that
creates a pool under the terms of the ICP equal to 2 1/2% of the Company's
consolidated operating earnings. The pool was allocated 40% to the CEO and 15%
to each of the other Named Executive Officers, and such amounts cap the amount
of the annual incentive award that may be paid to such Named Executive Officers.
For 2006, the pool exceeded the amount of annual incentive awards proposed to be
paid to the Named Executive Officers, and therefore the pool did not limit
payments under the program to such persons and the 2006 awards were determined
based on the performance factors set forth in the previous paragraph.
LONG-TERM INCENTIVES
The ICP permits the Company to grant awards that are equity-based (that is,
are based on the Company's common stock, such as stock options, performance
shares, restricted stock, stock appreciation rights, and other equity awards) as
well as performance-based, long-term incentive cash awards. Long-term incentives
assist the Company in focusing employee efforts and providing rewards based on
attaining performance goals over a number of years, a focus that the Committee
believes is integral to the Company's continued success.
Currently, the Committee uses performance shares as its sole vehicle for
long-term incentive awards. Performance shares are awarded annually, and are
earned over a three-year period, and may be earned at 0% to 200% of the "target"
number of shares based on the Company's performance over such three-year period
relative to objectives set forth by the Committee. Grant values for awards made
in 2006 (for the 2006-08 performance period) were generally at target levels to
provide total long-term incentives at approximately the 50th percentile of the
compensation survey peer group. For 2006, the performance goals for target
payout were earnings per share and return on capital employed. Additionally, the
C/N/G Committee may adjust the amounts so determined to reflect other factors
that the C/N/G Committee determines are important. Performance above or below
those targets would result in a payout above or below target levels.
The awards are for the entire three-year period, with each year referred to
as a "tranche." Each year, the Committee evaluates the Company's performance
against the performance goals for that year, and conditionally sets a value for
the shares in that tranche. Thus, in early 2007, based on 2006 performance, the
Committee conditionally valued the third tranche of the 2004-06 award, the
second tranche of the
14
2005-07 award, and the first tranche of the 2006-08 award. The amount paid at
the end of the award is the sum of the three conditionally valued tranches,
subject to adjustments by the Committee as it deems appropriate to reflect
performance over the entire three-year award period. In 2006, the Company
exceeded both its earnings per share and return on capital employed goals, and
the 2006 tranches were conditionally valued at 200%.
For the 2004-06 performance period, which was paid out in early 2007, the
C/N/G Committee considered the performance in each year against the EPS and
return on capital employed for each year, and considered other performance
factors over the entire three-year period. Based on such review, the C/N/G
Committee determined that performance share awards for the 2004-06 performance
period would be paid out at approximately 127% of the targeted amounts, a
three-year result reflecting performance below (2004), approximately at (2005),
and above (2006) target levels.
As is the case with the annual incentive awards, for the Named Executive
Officers, performance share awards are also contingent upon the achievement of
performance that creates a pool that caps the amount that may be paid to such
Named Executive Officers. For the 2004-06 performance period, the pool was the
greater of 2 1/2% of the Company's consolidated operating earnings or 5% of the
Company's free cash flow during the period. The pool was allocated 40% to the
CEO and 15% to each of the other Named Executive Officers. For the performance
shares for the 2004-06 performance period (paid out in early 2007), the pool
exceeded the payments to the Named Executive Officers, so the payment of such
performance shares under the program was not limited by such caps. As such,
awards were determined based on the methodology set forth in the previous
paragraph, i.e., the achievement of the previously established performance goals
over the three-year performance period.
Until 2005, the Company granted stock options as well as performance shares
as part of its long-term incentive compensation program. In November 2005, the
Committee decided to stop using stock options as a regular long-term incentive
vehicle and instead began using only performance shares as a regular part of its
long-term incentive compensation program. The primary purpose of this change was
to more closely align long-term incentive compensation with the Company's actual
performance (as measured by the performance goals under the performance share
program) and to more accurately reflect the expense of such compensation on the
Company's financial statements.
Performance share awards are made at regularly scheduled meetings of the
Committee, generally in the first quarter of each year. Previously, when the
Company issued stock options as a regular part of its long-term compensation
program, the Committee also approved stock option awards at regularly scheduled
meetings. By taking such actions at regularly scheduled meetings, the Committee
seeks to avoid even the possibility that there could be an appearance that the
grant timing was manipulated to affect the value of the awards. In 2006, the
Board directed the Company's internal auditors, PriceWaterhouseCoopers, to do a
comprehensive review of all stock options ever issued by the Company, and based
on that review the Board determined that there were no instances of option
"back-dating."
BENEFITS
Retirement Plans. The Company has two retirement plans: (a) the Pactiv
Retirement Plan (the "PRP"), a defined benefit retirement plan, and (b) the
Pactiv Corporation Supplemental Executive Retirement Plan (the "SERP"), a
non-qualified deferred compensation plan that is structured to provide
retirement benefits with respect to certain employees equal to retirement
benefits lost under the PRP as a result of the imposition of the limitations
contained in the Internal Revenue Code.
Participation in the PRP begins on the first day of the calendar month that
follows completion of one year of service with the Company. Benefits under the
PRP are determined by years of participation and the average annual compensation
received during the last full 60 months of salaried employment, as follows: 55%
of final average compensation times years of participation (up to 35) divided by
35. Normal retirement age is defined in the PRP as age 65. Early retirement is
calculated in the same way as the normal retirement benefit; however, if
payments begin before age 62, they will be reduced 3% for each year benefits
commence between age 60 and age 62, and 6% for each year benefits commence
between
15
age 55 and age 60. The standard formula may be reduced by other early
commencement factors if both age and service requirements are not met. Salaried
employees hired after January 1, 2003 (which does not include any of the Named
Executive Officers) will accrue benefits under a cash balance formula.
Participation in the SERP is available to a group of management or highly
compensated employees as determined by the C/N/G Committee. Benefits payable
under the SERP are generally equal to the amount, if any, of the benefit that
would be paid under the PRP if the provisions of the PRP were administered
without regard to the limitations imposed by the Code over the benefit that is
payable under the PRP. For determining the benefit under the SERP, the final
average compensation is calculated on the basis of compensation (base salary and
annual incentive awards) paid during the three calendar years (of the five
calendar year period ending no later than the calendar year immediately
preceding his or her termination or retirement) for which such compensation is
the highest. Benefits under the SERP are paid in a lump sum on the first day of
the month following six months after termination of employment. The SERP is an
unfunded plan; however, the Company has established a "rabbi trust" that holds
3,200,000 shares of Pactiv common stock to support the payment obligation with
respect to amounts payable under the SERP and the DCP (described below).
Participants vest in the PRP after completion of five years of service. If
a participant's employment terminates prior to vesting, no benefit is payable
from the Plan. If a participant's employment terminates after vesting but before
the participant is eligible to retire, the participant will be eligible for any
benefits earned as of the termination date. This deferred vested benefit payment
may begin as early as age 55 or as late as age 65. Payments that begin prior to
age 65 will be actuarially reduced to the age when payments begin.
If a participant dies while still actively employed but after the
participant is vested or eligible for an immediately payable normal or early
retirement benefit, the surviving spouse may be eligible to receive a lifetime
benefit that equals the greater of (a) 40% of the projected retirement benefit,
or (b) the survivor's portion of the 50% joint and survivor annuity calculated
as if the participant had retired and elected this form of benefit on the day
before the participant's death. If a participant dies while still actively
employed but before they are eligible for an immediately payable normal or early
retirement benefit, the benefit paid to the surviving spouse will be actuarially
reduced to the date of death. If a participant dies after termination of
employment, while they are disabled or on a leave of absence, and they are
vested or eligible for an immediately payable normal or early retirement
benefit, the surviving spouse will be eligible to receive a lifetime benefit
equal to the survivor's portion of the 50% joint and survivor annuity, and
calculated under the assumptions stated above for the 50% benefit.
The Company does not have a formal policy for granting additional years of
credited service to participants. However, the Company may grant additional
years of service to keep certain individuals whole when joining the Company in
mid-career or in other circumstances where the Committee believes circumstances
warrant such terms. Similarly, the Committee will consider alternative pension
arrangements with individuals if the Committee determines that such arrangements
would be in the best interests of the Company. In 2006, the Committee approved
an amendment to clarify the basis under which Mr. Wambold's pension is to be
calculated so that the lump sum factor used to convert his pension to a lump sum
was frozen as of age 55.
The Committee, as part of its regular review of the Company's compensation
structure, reviews the benefits payable to the Company's executive officers and
others under the PRP and the SERP to ensure that such amounts are reasonable,
and these amounts are considered when the Committee benchmarks the Company's
compensation levels. Additional information concerning deferred profit-sharing
and pension benefits is contained in the Summary Compensation Table on page 19.
401(k) Plan. The Company also maintains a 401(k) Plan, a tax-qualified
retirement savings plan under which all U.S. based employees, including the
Named Executive Officers, may contribute up to 25% of their annual salary
(subject to the limitations of the Internal Revenue Code). For salaried
employees contributing to the 401(k) Plan prior to January 1, 2003 (which
includes all of the Named Executive Officers), the Company will match from 4% to
8% of eligible pay, depending on years of participation. The
16
Company also pays certain employees, including the Named Executive Officers, a
cash amount equal to the amount by which the Company match to their 401(k)
accounts is limited by IRS regulations.
Health and Welfare Plans. The Company maintains a variety of welfare
benefit plans that are generally available to its employees, including the Named
Executive Officers. These plans include health, dental, disability and life
insurance, and other customary employee benefits. As part of its review of the
Company's compensation program, the Committee regularly reviews such plans to
ensure that they are appropriate and consistent with the Company's overall
compensation philosophy.
PERQUISITES
The Company provides certain of its officers, including the Named Executed
Officers, with perquisites that the Company and the Committee believe are
reasonable and consistent with its overall compensation program. These
perquisites are listed in footnotes to the Summary Compensation table, below.
The Committee regularly reviews the perquisites as part of its review of the
Company's compensation program. Other than these perquisites, executives have
the same benefits that are provided to employees generally.
DEFERRED COMPENSATION PLANS
DCP. The Company has a Deferred Compensation Plan (the "DCP") pursuant to
which eligible employees and directors can defer certain amounts of their
compensation. The DCP is a non-qualified unfunded plan, meaning the deferred
amounts are not placed in a separate fund but are general obligations of the
Company, and "investments" of the deferred amounts are not actual investments of
such amounts but adjustments to the balance which track the chosen investments.
Eligible employees may defer up to 100% of the annual incentive award
attributable to the current year and/or up to 100% of performance shares that
are due to vest on the last business day of the year. Directors may defer all or
any portion of their compensation to the DCP.
Participants make voluntary elections during the specified annual
enrollment period to contribute to the DCP. The value of the deferred amounts is
tied to the investment options selected by the participant. Investment options
and time and form of distribution are elected at the same time election is made
to contribute to the DCP. Currently, investment options are the Chase Prime Rate
Fund, Pactiv Stock Index Fund, Fidelity Growth Company Fund, PIMCO Total Return
Fund -- Administrative Class and Spartan U.S. Equity Index Fund. Deferral of
performance shares will be invested initially in the Pactiv Stock Index Fund,
which tracks the value of Pactiv common stock. Existing balances may be
transferred between the available investment options at any time, except that
transfers in and out of the Pactiv Stock Index Fund are limited to the same
extent a participant would be limited in buying or selling Pactiv common stock
under the Company's Insider Trading Policy.
Participants may elect to have their funds in the DCP distributed to them
(a) in a lump sum or in up to five annual installments at a specific date in the
future; (b) in a lump sum or in up to five annual installments six months and
one business day following separation from service; or (c) at death in a lump
sum. In the event of a disability, the account will be distributed as soon as
feasible, according to the form elected at the time of deferral. In the event of
a change in control (as defined by the Internal Revenue Service), a lump sum
distribution will be made as soon as feasible following the change in control
date.
DRSP. The Company also has a Deferred Retirement Savings Plan (the "DRSP"),
which is a non-qualified unfunded plan created to supplement the Company's
401(k) Plan to give investment and match opportunities to persons whose
participation in the Company's 401(k) Plan was limited due to IRS rules. The
maximum amount that may be contributed to the DRSP is a function of the
participant's salary and years of participation in the plan. The Company
provides a matching contribution, based on the level of participant contribution
and the years of participation in the 401(k) Plan; in 2006, the maximum match
was $6,200.
Investment options under the DRSP are similar to those available in the
Company's 401(k) Plan. Investment options may be changed, and balances may be
transferred between the available investment
17
options at any time, except that transfers in and out of the Pactiv common stock
are limited to the same extent a participant would be limited in buying or
selling Pactiv common stock under the Company's Insider Trading Policy.
Participants will receive a lump sum distribution of their accounts no earlier
than six months and one business day following separation from service, or an
automatic lump sum cash distribution of their accounts as soon as
administratively feasible upon death or disability or change in control (as
defined by the Internal Revenue Service).
STOCK OWNERSHIP REQUIREMENTS
In line with its philosophy that the interests of executives should be
aligned with those of the shareholders, the Company requires that executives
maintain certain specified levels of stock ownership which, for the Named
Executive Officers, range from 3 to 5 times the midpoint of their salary range.
To assist executives in achieving their stock ownership goals, executives may
choose to defer all or a portion of their annual incentive bonus into a Pactiv
stock index account. In addition, for the first five years they are eligible to
participate in the Company's Deferred Compensation Plan, employees who defer
such amounts into the Pactiv Stock Index Fund receive a 20% premium, provided
such funds are kept in such fund for a minimum of three years. The C/N/G
Committee regularly reviews the executives' ownership levels (which includes
shares held plus shares held in 401(k) plans, deferred compensation plans, and
conditionally earned performance shares) to ensure compliance with these
requirements. All of the Named Executive Officers have exceeded their stock
ownership requirements.
CHANGE IN CONTROL PLAN
The Company has a Change in Control Plan that is designed to enable the
Company to continue to attract and retain highly-qualified employees by reducing
the concern that their jobs or benefits might be terminated as a result of a
change in control of the Company. In the event of a change in control, employees
covered by the Change in Control Plan, which includes all of the Named Executive
Officers, will generally receive a severance benefit equal to one to two times
their annual compensation (base salary and incentive compensation) plus certain
other benefits. Effective December 31, 2006, the Company amended its Change in
Control Plan to, among other changes, reduce the amount of severance benefits
that would be paid to its executive officers, including all of the Named
Executive Officers, from three to two times annual compensation, and to the
other covered employees from two to one times annual compensation.
POLICY WITH RESPECT TO QUALIFYING COMPENSATION FOR DEDUCTIBILITY AND OTHER
MATTERS
The Company's ability to deduct compensation paid to individual covered
officers is generally limited by Section 162(m) of the Internal Revenue Code to
$1.0 million annually. However, this limitation does not apply to
performance-based compensation, provided certain conditions are satisfied. The
Annual and Long-Term Performance Incentives the Committee awarded to the Named
Executive Officers in 2006 are intended to qualify with the provisions of
Section 162(m) and therefore, are expected to be deductible to the Company when
paid. However, the Committee has the discretion to authorize payments that may
not be deductible, if it believes that they are in the best interests of both
the Company and its stockholders. During 2006, the Company did not make any
payments that were not deductible due to the limitations in Code Section 162(m).
COMPENSATION COMMITTEE REPORT
The C/N/G Committee has reviewed and discussed the Compensation Discussion
and Analysis with the Company's management, and based on the review and
discussions, the C/N/G Committee recommended to the Board that the Compensation
Discussion and Analysis be included in this Proxy Statement.
The Compensation/Nominating/Governance Committee
Robert J. Darnall, Chairman
Roger B. Porter
Norman H. Wesley
18
SUMMARY COMPENSATION TABLE
The following table sets forth the remuneration paid by the Company to (i)
the Chief Executive Officer; (ii) the Chief Financial Officer, and (iii) each of
the other three most highly compensated executive officers of the Company as of
December 31, 2006.
<Table>
<Caption>
CHANGE IN
PENSION VALUE
& NONQUALIFIED
NON-EQUITY DEFERRED
NAME AND STOCK INCENTIVE PLAN COMPENSATION ALL OTHER
PRINCIPAL POSITION YEAR SALARY AWARDS(1) COMPENSATION(2) EARNINGS(3) COMPENSATION(4) TOTAL
- ------------------ ---- ------ --------- --------------- -------------- --------------- ----------
Richard L. Wambold......... 2006 $901,667 $4,358,991 $1,820,000 $700,024 $129,866 $7,910,548
Chairman and Chief
Executive Officer
Andrew A. Campbell......... 2006 $392,032 $1,826,135 $ 480,000 $111,077 $ 60,246 $2,869,491
Senior Vice President and
Chief Financial Officer
Peter J. Lazaredes......... 2006 $431,500 $1,883,759 $ 591,600 $263,571 $ 66,685 $3,237,115
Executive Vice President
and General Manager --
Foodservice/Food
Packaging
John N. Schwab............. 2006 $349,947 $1,619,698 $ 387,090 $ 93,397 $ 60,398 $2,510,530
Senior Vice President and
General Manager --
Hefty Consumer Products
James V. Faulkner,
Jr.(5).................... 2006 $335,500 $1,674,726 $ 371,140 $ 77,652 $111,810 $2,570,828
Vice President and General
Counsel
</Table>
- ---------------
(1) The amounts shown reflect the amounts that the Company recorded on its
financial statements in 2006 in accordance with SFAS 123(R) with respect to
the performance share awards to the Named Executive Officers. These amounts
were calculated assuming an all cash payout of the 2004-06 award, and 50%
cash/50% stock payout for future awards. These represent the conditional
values of the third tranche of the 2004-06 grant, the second tranche of the
2005-07 grant, and the first tranche of the 2006-08 grant. The performance
measures for 2006 were earnings per share and return on capital employed. In
2006, the Company exceeded its target levels for both earnings per share and
return on capital employed, so these amounts represent the expense recorded
at 200% of target levels. The portion related to the 2004-06 award was paid
out in early 2007; the portion relating to the 2005-07 and 2006-08 awards
will be paid out in early 2008 and early 2009, respectively, and the actual
amount to be paid out in these awards will be based on the Company's
performance against the performance goals selected by the C/N/G Committee
over the entire three-year performance period and the price of the Company's
common stock on the applicable vesting date. For Mr. Faulkner, this figure
also includes one-third of his 2005-07 award, and two-thirds of his 2006-08
award, at target, which amounts will be paid to him in connection with his
retirement from the Company on December 31, 2006.
(2) These amounts are the 2006 annual incentive awards, paid out in early 2007.
These annual incentive awards, including the performance criteria, are
discussed above in the CD&A.
(3) These amounts reflect the actuarial increase in the present value of the
change in the pension value under the PRP and the SERP (each discussed
below) for the named individuals from September 30, 2005, to September 30,
2006. The Company uses a September 30 measurement date for calculations done
under SFAS 123(R). This column does not reflect changes in the value of the
deferred compensation account for any of the named individuals. Such amounts
are shown below on the 2006 Non-Qualified Deferred Compensation table. There
were no above-market or preferential earnings in the deferred compensation
accounts.
19
(4) These amounts are detailed in the table below.
<Table>
<Caption>
REGISTRANT
PERQUISITES AND CONTRIBUTIONS TO
OTHER PERSONAL DEFINED CONTRIBUTION
NAME BENEFITS(A) PLANS(B) OTHER(C) TOTAL
- ---- --------------- ---------------------- --------- --------
Richard L. Wambold............. $60,299 $14,967 $54,600 $129,866
Andrew A. Campbell............. $37,200 $12,740 $10,306 $ 60,246
Peter J. Lazaredes............. $32,165 $14,780 $19,740 $ 66,685
John N. Schwab................. $32,405 $13,745 $14,248 $ 60,398
James V. Faulkner, Jr. ........ $84,970 $14,931 $11,909 $111,810
</Table>
- ---------------
(a) Includes (i) cash perquisite allowance in the amount of $40,000 for Mr.
Wambold and $30,000 for Messrs. Campbell, Lazaredes, Schwab and
Faulkner; (ii) reimbursement for financial planning expenses; (iii) the
cost of Company provided physical examinations; and (iv) $26,248 in
Company provided transportation for Mr. Faulkner's wife due to an
emergency medical situation and $17,101 for taxes related to such
services.
(b) Represents Company contributions to the 401(k) Plan and the DRSP for
the named individuals.
(c) Represents payments made in lieu of Company match in the 401(k) Plan
after the participant reached the maximum IRS limit.
(5) Mr. Faulkner retired from the Company effective December 31, 2006.
2006 GRANTS OF PLAN-BASED AWARDS
<Table>
<Caption>
ESTIMATED POSSIBLE PAYOUTS
UNDER NON-EQUITY ESTIMATED FUTURE PAYOUTS GRANT DATE
INCENTIVE PLAN AWARDS UNDER EQUITY INCENTIVE PLAN AWARDS FAIR VALUE OF
--------------------------------- ------------------------------------ STOCK AND
GRANT THRESHOLD TARGET MAXIMUM THRESHOLD TARGET MAXIMUM OPTION AWARDS
NAME DATE ($) ($) ($) (#) (#) (#) ($)
- ---- ---------- --------- -------- ---------- ---------- ------------ -------- -------------
Richard L. Wambold... 02/03/2006 0 $910,000 $1,820,000 0 120,000 240,000 $2,648,400
Andrew A. Campbell... 02/03/2006 0 $240,000 $ 480,000 0 50,000 100,000 $1,103,500
Peter J. Lazaredes... 02/03/2006 0 $295,800 $ 591,600 0 55,000 110,000 $1,213,850
John N. Schwab....... 02/03/2006 0 $193,545 $ 387,090 0 45,000 90,000 $ 993,150
James V. Faulkner,
Jr. ............... 02/03/2006 0 $185,570 $ 371,140 0 20,000 40,000 $ 441,400
</Table>
As discussed above, in 2006 the Company used two forms of plan-based
awards: the annual incentive awards and the performance share grants.
- The amounts reflected in this table under the "Estimated Possible Payouts
Under Non-Equity Incentive Plan Awards" column are the amounts granted in
2006 as annual incentive awards that were earned in 2006 and paid out in
early 2007. As discussed above in the CD&A, the Company exceeded its
earnings per share goal by approximately 50% and its free cash flow goal
by approximately 100%, and based on these results and other factors
considered by the Committee, the Committee determined to pay out the 2006
annual incentive awards at 200% of the target amounts.
- The amounts reflected in this table under the "Estimated Future Payouts
Under Equity Incentive Plan Awards" column are the performance share
awards granted in 2006, for the 2006-08 performance period. Under the
ICP, participants can receive performance share awards, which are granted
at "target" levels for each three-year period, and the participants can
earn between 0% and 200% of the target amount based upon the Company's
performance against performance measures selected by the C/N/G Committee
each year (subject to adjustment by the C/N/G Committee based on other
qualitative and quantitative factors related to the Company's performance
over the three-year period). The awards vest three years from the date of
the grant, and may
20
be paid in stock or cash or a combination thereof as determined by the
C/N/G Committee. The Company has not paid a dividend; however, if the
Company declared a dividend on its common stock, upon a payout of the
performance shares the participant would be entitled to receive an amount
equal to the per share dividend amount times the number of performance
shares earned. For purposes of this table, the performance shares are
valued at 100% of the target amount, with value based on the closing
stock price on the day of grant (February 3, 2006). The actual amount to
be paid may be more or less than is shown on this table, depending on
whether, based on performance over the three-year performance period, the
award is paid out at, above or below target, and the value of the
Company's common stock on the date such shares vest (December 31, 2008).
21
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2006
<Table>
<Caption>
OPTION AWARDS STOCK AWARDS
-------------------------------------- --------------------------------------
EQUITY INCENTIVE
PLAN AWARDS:
NUMBER OF EQUITY INCENTIVE MARKET OR PAYOUT
SECURITIES PLAN AWARDS: VALUE OF UNEARNED
UNDERLYING NUMBER OF UNEARNED SHARES, UNITS, OR
UNEXERCISED OPTION SHARES, UNITS, OR OTHER RIGHTS THAT
OPTIONS EXERCISE OPTION OTHER RIGHTS THAT HAVE NOT
EXERCISABLE(1) PRICE EXPIRATION HAVE NOT VESTED(2) VESTED(3)
NAME (#) ($) DATE (#) ($)
- ---- -------------- -------- ---------- ------------------ -----------------
Richard L. Wambold...... 230,000 $23.98 09/14/14 240,000 $8,565,600
250,000 20.25 09/17/13
250,000 17.60 09/18/12
137,500 17.74 12/06/11
137,500 15.08 09/19/11
700,000 13.44 11/05/09
50,969 32.34 07/21/08
24,577 35.37 05/01/17
49,048 40.00 12/12/16
Andrew A. Campbell...... 118,000 $23.98 09/14/14 100,000 $3,569,000
120,000 20.25 09/17/13
105,000 17.60 09/18/12
55,000 17.74 12/06/11
55,000 15.08 09/19/11
100,000 11.72 10/11/10
300,000 13.44 11/05/09
Peter J. Lazaredes...... 140,000 $23.98 09/14/14 110,000 $3,925,900
120,000 20.25 09/17/13
11,327 32.34 07/21/08
11,327 32.94 01/13/18
2,266 40.00 12/12/16
John N. Schwab.......... 108,000 $23.98 09/14/14 90,000 $3,212,100
120,000 20.25 09/17/13
105,000 17.60 09/18/12
55,000 17.74 12/06/11
55,000 15.08 09/19/11
75,0000 11.72 10/11/10
120,000 13.44 11/05/09
5,663 35.37 05/01/17
11,328 40.00 12/12/16
James V. Faulkner,
Jr. .................. 11,327 32.34 07/21/08 40,000 $1,427,600
8,268 35.37 05/01/17
16,651 40.00 12/12/16
</Table>
- ---------------
(1) As indicated in the CD&A, the Company stopped issuing stock options as a
regular part of its long-term incentive compensation program in November
2005. In connection with that change, all unvested options were vested, and
therefore all outstanding options held by the Named Executive Officers are
currently vested and exercisable.
22
(2) Represents performance shares granted in 2005 for the 2005-07 performance
period, and in 2006 for the 2006-08 performance period. The amounts shown
represent the target amounts.
(3) Closing price of the Company's common stock on December 29, 2006, was $35.69
per share.
2006 OPTIONS EXERCISED AND STOCK VESTED
<Table>
<Caption>
OPTION AWARDS STOCK AWARDS(1)
---------------------------- -------------------------
NUMBER OF NUMBER OF
SHARES SHARES VALUE
ACQUIRED ON VALUE REALIZED ACQUIRED ON REALIZED ON
EXERCISE ON EXERCISE VESTING VESTING
NAME (#) ($) (#) ($)
- ---- ----------- -------------- ----------- -----------
Richard L. Wambold....................... 250,000 $5,688,887 65,868 $2,373,224
Andrew A. Campbell....................... 0 0 27,867 $1,004,048
Peter J. Lazaredes....................... 500,000 $7,733,235 25,334 $ 912,784
John N. Schwab........................... 0 0 24,067 $ 867,134
James V. Faulkner, Jr. .................. 331,000 $5,668,753 13,047 $ 470,083
</Table>
- ---------------
(1) Represents payout of 2004-06 performance share grant that vested on December
31, 2006, which were paid in early 2007. Fair market value of the shares (as
defined in the ICP, equal to the average of the high and low stock price) on
the vesting date was $36.03 per share.
2006 PENSION BENEFITS
The Company has two retirement plans: the Pactiv Retirement Plan (the
"PRP") and the Pactiv Corporation Supplemental Executive Retirement Plan (the
"SERP). The structure of the PRP and the SERP, including the material terms and
conditions and benefits available under the plans, are discussed in the CD&A,
above.
<Table>
<Caption>
NUMBER OF PRESENT VALUE PAYMENTS
YEARS CREDITED OF ACCUMULATED DURING LAST
SERVICE(1) BENEFIT(2) FISCAL YEAR
NAME PLAN NAME (#) ($) ($)
- ---- --------- -------------- -------------- -----------
Richard L. Wambold(3)................... PRP 28.33 $ 663,021 0
SERP 28.33 $12,297,420 0
Andrew A. Campbell...................... PRP 6.00 $ 158,014 0
SERP 6.00 $ 414,298 0
Peter J. Lazaredes...................... PRP 25.50 $ 360,226 0
SERP 25.50 $ 1,745,430 0
John N. Schwab.......................... PRP 9.83 $ 258,206 0
SERP 9.83 $ 508,856 0
James V. Faulkner, Jr.(4)............... PRP 12.33 $ 435,047 0
SERP 16.33 $ 1,235,834 0
</Table>
- ---------------
(1) Represents years of participation service in the applicable plan as of
September 30, 2006.
(2) In computing the present value of the calculated benefit, this table uses an
immediate lump sum factor at each person's calculation age (which is the age
in each plan at which the person could receive an unreduced benefit under
that plan), discounted with interest only to September 30, 2006. The present
value under the SERP is calculated using a 4.68% rate and the 1994 Group
Annuity Reserving Table (94GAR) as modified for use in Rev. Rul. 2001-62.
The present value under the PRP is calculated using a 5.93% rate and the
2000 Retired Pensioners Mortality Table (RP-2000).
23
(3) Mr. Wambold's benefits, at a minimum, shall be determined by multiplying his
average total base compensation plus bonus (annual incentive awards),
determined over the three-year period immediately preceding his separation
from service, by 50%. If Mr. Wambold dies before retirement, his beneficiary
will receive a death benefit that is equal to the benefit he would have
received had he retired on that date.
(4) Mr. Faulkner has a separate agreement that provides that his benefit under
the SERP shall be determined by counting an additional three years of
service and age beyond actual service and age at the time of separation from
service, and with participation in the SERP beginning on his employment
date. The present value of this agreement as of September 30, 2006, is
$427,005. Under the SERP, if Mr. Faulkner dies before commencing his
benefit, his beneficiary will receive a death benefit which is the present
value of the benefit he has accrued as of the date of his death.
(5) Under the PRP and the SERP, if a participant dies while still actively
employed, the surviving spouse will be eligible to receive a lifetime
benefit that equals the greater of (a) 40% of the projected retirement
benefit, or (b) the survivor's portion of the 50% joint and survivor annuity
calculated as if the participant had retired and elected this form of
benefit on the day before the participant's death.
2006 NON-QUALIFIED DEFERRED COMPENSATION
<Table>
<Caption>
EXECUTIVE REGISTRANT AGGREGATE AGGREGATE AGGREGATE
CONTRIBUTIONS CONTRIBUTIONS EARNINGS IN WITHDRAWALS/ BALANCE AT
NAME IN LAST FY IN LAST FY(1) LAST FY(2) DISTRIBUTIONS LAST FYE
- ---- ------------- -------------- -------------- ------------- ----------
Richard L. Wambold........ $ 6,600 $6,200 $1,286,500 $0 $3,366,903
Andrew A. Campbell........ $55,000 $4,079 $1,752,023 $0 $4,578,968
Peter J. Lazaredes........ $ 6,600 $6,200 $ 316,306 $0 $ 860,477
John N. Schwab............ $11,000 $6,200 $ 733,512 $0 $1,929,300
James V. Faulkner, Jr. ... $ 6,600 $6,200 $ 353,656 $0 $1,884,191
</Table>
- ---------------
(1) The amounts shown in this column are reported as 2006 compensation under the
Summary Compensation Table as part of "All Other Compensation."
(2) The earnings on deferred compensation accounts are not reported as 2006
compensation under the Summary Compensation Table because there were no
above-market or preferential earnings in the deferred compensation.
The Company has two plans under which eligible employees may defer portions
of their compensation: the Deferred Compensation Plan (the "DCP") and the
Deferred Retirement Savings Plan (the "DRSP"). These plans, including the type
and amount of compensation that may be deferred and the terms with respect to
payouts, withdrawals, and other distributions, are described above in the CD&A.
No Named Executive Officers deferred any amounts under the DCP in 2006. The
amounts shown in the "Executive Contributions in Last FY" column in the above
table represent contributions to the DRSP. The Company matches employee
contributions under the DRSP, based on a formula under such plan up to a maximum
which, in 2006, was $6,200.
24
The DCP and the DRSP are unfunded plans, so that the "investment" options
are not actual investments but are indexes by which the value of the deferred
amounts will be determined. Participants may select from a variety of investment
options, including the Pactiv Stock Index Fund, and the value of their DCP and
DRSP accounts will track the performance of such investments. In 2006, the Named
Executive Officers had approximately 82% of their deferred compensation account
balances in the Pactiv Stock Index Fund. The table below shows the investment
options under the DCP and the DRSP during 2006, and their rate of return for the
year ended December 31, 2006.
<Table>
<Caption>
FUND 2006 RETURN
- ---- -----------
Chase Prime Rate Fund....................................... 7.96%
Pactiv Stock Index Fund..................................... 62.23%
Fidelity Growth Company Fund................................ 9.56%
PIMCO Total Return Fund -- Administrative Class............. 3.74%
Spartan U.S. Equity Index Fund.............................. 15.72%
</Table>
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The following discussion describes the potential payments upon termination
or a change in control of the Company for each of the Named Executive Officers.
Except (i) for the Change in Control Plan (the "CIC Plan"), described below,
under which covered employees (including all of the Named Executive Officers)
would receive certain benefits, and (ii) as described above under Pension
Benefits, or as described in this section, there are no agreements, arrangements
or plans that entitle executive officers to severance, perquisites, or other
enhanced benefits upon termination of their employment.
Certain amounts that would be payable upon a termination of employment may
be different depending on the circumstances of the termination. Because the
amounts that are payable under the CIC Plan are, in general, different than
would be payable upon a retirement, voluntary termination, involuntary
termination (with or without cause), or death/total disability, we have included
a table outlining the potential payments under the CIC Plan following
termination of employment after a change in control.
PAYMENTS COMMON IN ALL CIRCUMSTANCES. Upon termination of employment, in
all cases an employee, including the Named Executive Officers, would be entitled
to (i) his or her salary through the last day of employment, (ii) accrued unused
vacation pay through the last day of employment, (iii) payment of their account
balances under the DCP and the DRSP, and (iv) the payments under the PRP and the
SERP earned as of the last day of employment. Employees retain their 401(k)
accounts, and are entitled to welfare benefits (e.g., medical and dental
insurance) through the end of the month in which their employment terminates,
and continuation rights for medical benefits as provided by law (e.g., COBRA).
The balances under the DCP and the DRSP as of December 31, 2006, and their
accrued benefits under the PRP and the SERP for the Named Executive Officers as
of September 30, 2006, are shown on page 24.
PAYMENTS THAT VARY DEPENDING ON CIRCUMSTANCES OF TERMINATION. The following
benefits may be different depending on the circumstances of the employee's
termination of employment.
Annual Incentive Awards. Annual Incentive Awards are generally payable only
to employees who are employed as of the end of the year; although, in the event
of a mid-year termination of employment, the Committee may award an employee a
pro rata or other portion of an Annual Incentive Award. Under the CIC Plan, if a
covered employee (which includes all of the Named Executive Officers) is
terminated following a Change in Control, he or she would be entitled to receive
a pro rata portion, at 100% of "target," of their Annual Incentive Awards.
Performance Shares. Performance share awards are granted for three-year
performance periods, at a "target" level and can be earned at 0-200% of target
based on performance against Committee-approved performance goals set annually
over the performance period. The awards vest upon completion of the three-year
performance period. In the event of voluntary termination or termination for
cause, all
25
unvested performance shares will be cancelled. In the event of termination of
employment by retirement, death or disability or involuntary termination not for
cause, the Committee will determine whether to vest any unvested performance
shares on a case-by-case basis. Under the CIC Plan, following a Change in
Control a covered employee (which includes all of the Named Executive Officers)
would be entitled to his or her unvested performance shares, as discussed below.
Options. In connection with the Committee's decision in 2005 to stop
issuing options as a regular part of its compensation program, all then unvested
options were vested. Accordingly, termination of employment, regardless of the
circumstances, will not have any impact on vesting of outstanding options.
Subject to the discretion of the Committee to provide otherwise, (i) upon a
voluntary termination or involuntary termination for cause all unexercised
options will be cancelled, and (ii) upon retirement, death or disability, or
involuntary termination not for cause, unexercised options will remain
exercisable for various periods ranging from 90 days to three years from the
date of termination (or, if less, the remaining life of the option). In the
event of termination following a Change in Control under the CIC Plan,
unexercised options will remain exercisable for three years from the date of
termination (or, if less, the remaining life of the option).
Severance. Other than under the CIC Plan, the Company provides severance
and other post-termination benefits only on a case-by-case basis. Among the
Named Executive Officers, the Company has entered into a separate severance
agreement with Mr. Campbell, which provides that if his employment is terminated
for any reason other than cause he will be granted severance equal to two years'
base salary and targeted annual incentive. Severance and other post-termination
benefits under the CIC Plan for the Named Executive Officers are described
below.
CHANGE IN CONTROL PLAN
The CIC Plan is a "double-trigger" program, meaning that, generally,
payments are made only if the employee has a covered "termination" following a
"Change in Control." A "Change in Control" under the CIC Plan is (a) any person
and any of their affiliates becoming the beneficial owner of 20% or more of the
Company's common stock; (b) members of the Incumbent Board (as defined in the
CIC Plan) ceasing to constitute a majority of the Company's Board; (c) the
consummation of any plan of merger between the Company and any person, or the
sale of substantially all of the Company's assets without members of the
Incumbent Board constituting a majority of the Board of Directors of the
successor or purchasing corporation; (d) if a majority of the members of the
Incumbent Board are replaced during a two-year period; or (e) shareholders
approve a plan of complete liquidation or dissolution of the Company. A covered
termination includes an actual termination of employment (other than for cause)
as well as a "constructive termination," meaning a material reduction in
position or compensation or a required relocation or similar changes. As a
condition to receiving benefits under the CIC Plan, covered employees must
execute and deliver to the Company a release and a restrictive covenant
(including non-competition, non-solicitation and confidentiality) agreement.
The following table sets forth the benefits that would be payable under the
plan if the Named Executive Officers had suffered a covered termination
following a Change in Control under the CIC Plan as of December 31, 2006. This
table does not include the matters discussed above under "Payments Common in all
Circumstances," which the Named Executive Officer would also receive.
<Table>
<Caption>
INCENTIVE PENSION PERFORMANCE EXCISE TAX & WELFARE OUTPLACEMENT
SEVERANCE(1) AWARD(2) ENHANCEMENT(3) SHARES(4) GROSS-UP(5) BENEFITS(6) SERVICES(7)
------------ --------- -------------- ----------- ------------ ----------- ------------
Richard L. Wambold.... $3,966,667 $910,000 0 $11,563,560 $6,288,261 $28,350 $50,000
Andrew A. Campbell.... $1,364,730 $240,000 $195,933 $ 4,818,150 $2,809,465 $15,020 $50,000
Peter J. Lazaredes.... $1,614,400 $295,800 $657,695 $ 5,299,965 $3,257,564 $19,934 $50,000
John N. Schwab........ $1,151,860 $193,545 $357,626 $ 4,336,335 $2,584,997 $21,728 $50,000
James V. Faulkner,
Jr. ................ $1,128,893 $185,570 $206,134 $ 1,927,260 $1,189,196 $18,264 $50,000
</Table>
26
- ---------------
(1) The severance amount for the Named Executive Officers is two times the sum
of (i) his annual base salary in effect immediately prior to the Change in
Control, plus (ii) the greater of: (1) the average of his annual awards
under the Annual Incentive Awards for the last three years (or such shorter
period as such person has been employed by the Company), or (2) his or her
target Annual Incentive Award in effect at the time of the Change in
Control.
(2) Annual Incentive Awards are prorated as of the date of the Change in
Control, at target levels. As this table is as of December 31, 2006, this
assumes payment of 2006 Annual Incentive Award at 100% of target levels;
actual payment amounts for such awards, in early 2007, were at 200% of
target levels, as shown in the Summary Compensation Table, above.
(3) Pension enhancement represents an additional pension benefit calculated as
if employment had continued for an additional two years.
(4) All unvested performance shares vest and are payable upon a Change in
Control without regard to whether the covered employee is terminated.
Performance share awards are granted for three-year performance periods, at
a "target" level and can be earned at 0-200% of target based on performance
against Committee-approved performance goals set annually over the
performance period. Each year, based upon the performance during that year,
the Committee determines the "conditional" percentage for 1/3 of each award
(referred to as a "tranche"), and the total payout at the end of three years
is generally the sum of the conditional values for all three tranches, as
such amount may be adjusted by the Committee to take into account other
performance factors over the three-year performance period. In the event of
a Change in Control, unvested performance shares would vest and be paid out
as follows: for tranches associated with completed years, the performance
shares would vest at the conditional levels, and for tranches associated
with the current and future years, the performance shares would vest at the
target levels.
(5) Represents payment for excise and related taxes on excess parachute payments
as defined in Section 280G of the Internal Revenue Code which results in the
Named Executive Officer being in the same after-tax position he would have
been had no such taxes been imposed.
(6) The covered employee and his or her eligible dependents shall continue to be
covered by the health, life, and disability plans applicable to comparably
situated active employees as in effect from time to time for two years. For
purposes of this table, these amounts have been calculated using the same
assumptions used in preparation of the Company's financial statements.
(7) The Company will provide each covered employee with the lump-sum cash value
of reasonable outplacement services not to exceed $50,000, consistent with
past practices of the Company with respect to officers at such level prior
to the Change in Control.
Under the CIC Plan, upon a Change in Control all unvested options would
vest and remain exercisable for three years from the date of termination (or, if
less, the remaining life of the option). There are currently no outstanding
unvested options.
AUDIT COMMITTEE DISCLOSURE
AUDIT COMMITTEE REPORT
In performing its duties, the Audit Committee reviewed and discussed the
audited financial statements (including reviewing the Company's specific
disclosure under "Management's Discussion and Analysis of Financial Conditions
and Results of Operations") contained in the 2006 Annual Report on Form 10-K
with the Company's management. The Audit Committee also met privately with the
Company's independent auditor for the year 2006, Ernst & Young LLP, and
discussed issues deemed significant by Ernst & Young LLP, including those
matters required to be discussed by Statements on Auditing Standard No. 61, as
amended (AICPA, Professional Standards, Vol. 1, AU sec.380), as adopted by the
Public Company Accounting Oversight Board in Rule 3200T. In addition, the Audit
Committee has received the written disclosures and the letter from Ernst & Young
LLP required by Independence
27
Standards Board Standard No. 1 (Independence Discussions with Audit Committees)
adopted by the Public Company Accounting Oversight Board in Rule 3200T, and has
discussed with Ernst & Young LLP its independence.
Taking all of these reviews and discussions into account, the Audit
Committee has recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2006, for filing with the Securities and Exchange Commission.
Respectfully submitted by the members of the Audit Committee:
K. Dane Brooksher, Chairman
Larry D. Brady
Mary R. (Nina) Henderson
N. Thomas Linebarger
Norman H. Wesley
AUDIT AND NON-AUDIT FEES
The following presents fees for professional audit services rendered by
Ernst & Young LLP for the audit of the Company's annual consolidated financial
statements for 2006 and 2005, and fees for other services rendered by Ernst &
Young LLP for 2006 and 2005.
<Table>
<Caption>
TYPE OF FEE 2006 2005
- ----------- ---------- ----------
Audit Fees(1)............................................... $2,247,567 $2,089,500
Audit-Related Fees(2)....................................... $ 134,200 $3,992,765
Tax Fees(3)................................................. 0 $ 28,600
All Other Fees.............................................. 0 0
</Table>
- ---------------
(1) Including professional services in connection with their audit of the
Company's annual consolidated financial statements and reviews of the
consolidated financial statements included in the Company's quarterly
reports on Forms 10-Q, and assessment of the Company's internal controls and
management's report on such controls.
(2) Including benefit plan audits ($132,700 in 2006 and $129,500 in 2005) and
audits and due diligence related to the disposition of the Company's Global
Protective and Flexible packaging businesses ($3,850,000 in 2005).
(3) Tax consulting advice to Mexican subsidiary.
All audit and non-audit services rendered by Ernst & Young LLP were
approved by the Audit Committee, which considered whether the provision of
non-audit services was compatible with maintaining Ernst & Young LLP's
independence.
PRE-APPROVAL POLICY
The Audit Committee has adopted a policy with respect to pre-approval of
certain types of audit and non-audit related services specifically described by
the Audit Committee on an annual basis. In general, the Audit Committee has
pre-approved the provision of certain audit services and audit-related services,
in each case up to an annual amount which varies by the type of services.
Individual engagements anticipated to exceed such pre-established thresholds
must be separately approved. This policy also sets forth certain services which
the Company's independent public accountant is prohibited from providing to the
Company. The policy authorizes the Audit Committee to delegate to one or more of
its members pre-approval authority with respect to permitted services. In 2006,
approximately 1.1% of the non-audit services that were approved by the Audit
Committee were approved pursuant to its pre-approval policies and procedures.
28
RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR
2007 (PROPOSAL 2)
Financial statements of the Company and its consolidated subsidiaries as of
and for the year ended December 31, 2006, are included in the Company's Annual
Report furnished to all shareholders. These financial statements were audited by
Ernst & Young LLP. Representatives of Ernst & Young LLP are expected to be
present at the Annual Meeting, will have the opportunity to make a statement if
they desire to do so, and are expected to be available to respond to appropriate
questions.
The Audit Committee has selected Ernst & Young LLP as the Company's
independent public accountants for the year 2007. The Board is seeking
shareholder ratification of this selection. If the shareholders should not
ratify the appointment of Ernst & Young LLP as the Company's independent public
accountants for the year 2007, the Audit Committee would reconsider the
appointment.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
RATIFICATION OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE YEAR 2007.
OTHER INFORMATION
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information of each person that, as
of December 31, 2006, reported beneficial ownership of more than 5% of the
Company's common stock. This information is based solely on such person's
filings on Schedule 13G under the Securities Exchange Act of 1934.
<Table>
<Caption>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------------------ -------------------- ----------------
Barclays Global Investors N.A............................ 20,792,812(1) 15.58%
45 Fremont Street
San Francisco, CA 94105
State Street Bank and Trust Company...................... 8,340,668(2) 6.30%
225 Franklin Street
Boston, MA 02110
Lord, Abbett & Co. LLC................................... 6,683,210 5.02%
90 Hudson Street
Jersey City, NJ 07302
</Table>
- ---------------
(1) Includes 18,541,211 shares over which Barclays Global Investors N.A. (or its
affiliates) have sole voting power. The shares shown are held by Barclays
Global Investors, N.A., and certain other banks and other entities
affiliated with Barclays Global Investors, N.A. Of such amount, 16,762,376
shares (14,573,775 shares over which it has sole voting power) were reported
as held of record by Barclays Global Investors, N.A. Such shares are held in
trust accounts for the economic benefit of the beneficiaries of those
accounts.
(2) State Street Bank holds such shares as trustee, and has sole power to vote
or to direct the vote and shared power to dispose or to direct the
disposition of such shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who are beneficial owners of more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission and the New York Stock Exchange, and to furnish the Company
with copies of these forms. To the Company's knowledge, based solely on its
review of the copies of Forms 3, 4 and 5 filed on behalf of the directors and
executive officers, the Company believes that all officers and directors of the
Company complied with all filing requirements imposed by
29
Section 16(a) of the Exchange Act during 2006, except that one Form 4 for Henry
Wells III, Vice President and Chief Human Resources Officer, was filed two days
late.
Other than as set forth above, the Company does not know of any persons who
hold more than 10% of the common stock of the Company.
SHAREHOLDER NOMINATIONS AND OTHER PROPOSALS FOR 2008 ANNUAL MEETING OF
SHAREHOLDERS
NOMINATIONS FOR DIRECTORS. A shareholder of the Company may nominate
persons for election to the Company's Board of Directors by submitting such
nomination, together with certain related information required by the Company's
By-Laws, in writing to the Secretary of the Company at the Company's principal
executive offices, at the times set forth in the following paragraph regarding
notices for shareholder proposals. The Company's policy with respect to
nominations by shareholders of candidates to the Board of Directors is described
above in "Corporate Governance -- Board
Committees -- Compensation/Nominating/Governance Committee."
SHAREHOLDER PROPOSALS -- INCLUSION IN THE COMPANY'S PROXY STATEMENT. For a
shareholder proposal to be considered by the Company for inclusion in the
Company's proxy statement and form of proxy relating to the 2008 Annual Meeting
of Shareholders, the proposal must be received by the Company at its principal
executive offices by December 4, 2007.
OTHER SHAREHOLDER PROPOSALS. The Company's By-Laws state that to be timely,
notice and certain related information must be received at the principal
executive offices not less than 90 and no more than 120 days prior to the first
anniversary of the preceding year's Annual Meeting of Shareholders; provided,
however, that if the date of the annual meeting is more than 30 days before or
70 days after such anniversary date, notice of the matter must be received not
earlier than the close of business on the 120th day prior to the annual meeting
and not later than the close of business on the 90th day prior to such meeting
or the 10th day following the date of public disclosure of the meeting date,
whichever occurs first. Therefore, to be timely under the Company's By-Laws, a
proposal not included by or at the direction of the Board of Directors must be
received not earlier than January 18, 2008, or later than February 17, 2008.
This notice requirement and deadline are independent of the notice requirement
and deadline described above for a shareholder proposal to be considered for
inclusion in the Company's proxy statement and form of proxy.
REPORTS
The Audit Committee Report and the Compensation Committee Report shall not
be deemed incorporated by reference by any general statement incorporating by
reference this Proxy Statement or any portion thereof into any filing under the
Securities Act or the Securities Exchange Act, and shall not otherwise be deemed
filed under such Acts.
ANNUAL REPORT ON FORM 10-K
THE ANNUAL REPORT, WHICH INCLUDES THE COMPANY'S FORM 10-K, ACCOMPANIES THIS
PROXY STATEMENT BUT IS NOT DEEMED A PART OF THE PROXY SOLICITATION MATERIAL. THE
COMPANY WILL FURNISH TO ANY SHAREHOLDER, WITHOUT CHARGE, A COPY OF ITS ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2006, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. A COPY OF THIS REPORT MAY BE OBTAINED UPON
ORAL OR WRITTEN REQUEST TO JOSEPH E. DOYLE, SECRETARY, PACTIV CORPORATION, 1900
WEST FIELD COURT, LAKE FOREST, ILLINOIS 60045. THE COMPANY'S FORM 10-K AND OTHER
PUBLIC FILINGS ARE ALSO AVAILABLE THROUGH THE SECURITIES AND EXCHANGE
COMMISSION'S INTERNET WEB SITE (WWW.SEC.GOV) AND ON THE COMPANY'S WEBSITE
(WWW.PACTIV.COM).
30
QUESTIONS AND ANSWERS REGARDING ANNUAL MEETING AND VOTING
WHO MAY VOTE AT THE ANNUAL MEETING? If you are a holder of common stock on
March 19, 2007, the record date, you will have one vote for each share of common
stock that you hold on each matter that is presented for action at the Annual
Meeting. If you have shares that are registered in the name of a broker, your
broker will forward your proxy materials to you and will vote your shares as you
indicate. You may receive more than one proxy card if your shares are registered
in different names or are held in more than one account.
WHO MAY ATTEND THE ANNUAL MEETING? Attendance at the Annual Meeting is
limited to shareholders as of the record date or their proxies.
- If your shares are registered in your name, an admission ticket is
attached to the proxy card sent with this proxy statement. Persons must
present admission tickets issued in their names and valid
government-issued photo identification, such as a driver's license or
passport. Shareholders who plan to attend the Annual Meeting should vote
by one of the methods described in this proxy statement but keep the
admission tickets and bring them to the Annual Meeting.
- If you hold stock in "street name" (a bank or broker holds your shares)
and you would like to attend the Annual Meeting, you may bring to the
meeting a copy of a brokerage statement showing ownership as of the
record date, March 19, 2007, and valid government-issued photo
identification, such as a driver's license or passport.
- Cameras, recording devices or other electronic devices, as well as large
bags, briefcases or packages, will not be allowed in the meeting.
- If you are an authorized proxy, you must present the executed proxy and
the photo identification as described above.
WHAT IS THE RECORD DATE? Your Board of Directors has selected the close of
business on March 19, 2007, as the record date for determining the shareholders
of record who are entitled to vote at the Annual Meeting. This means that all
shareholders of record at the close of business on March 19, 2007, may vote
their shares at the Annual Meeting. On the record date, the Company had issued
an outstanding 133,483,888 shares of its common stock (of which 130,283,888 are
shares outstanding for financial reporting purposes and 3,200,000 are shares not
considered outstanding for financial reporting purposes because they are held in
a grantor trust to ensure payments under the Company's SERP and DCP).
WHAT CONSTITUTES A QUORUM? The presence at the Annual Meeting, in person or
by proxy, of holders of a majority of the shares authorized to vote constitutes
a quorum for the transaction of business. If you submit a properly completed
proxy, vote by our telephone or Internet voting procedures, or if you attend the
Annual Meeting to vote in person, your shares will be considered present.
Directions to withhold authority to vote for any director, abstentions and
broker non-votes will be counted as present to determine if a quorum for the
transaction of business is present. Once a quorum is present, voting on specific
proposals may proceed. In the absence of a quorum, the Annual Meeting may be
adjourned.
ON WHAT WILL I BE VOTING? You are being asked to vote on the two matters
identified under the heading "Proposals Submitted for Vote." By executing the
proxy card, or submitting your proxy via the telephone or Internet, you will
also be granting to Richard L. Wambold, Robert J. Darnall, and Joseph E. Doyle
discretionary authority to vote your shares on any other proposals that may
properly come before the Annual Meeting.
HOW DO I VOTE? You can vote four ways: (1) by signing and dating each
proxy card you receive and returning it in the included prepaid envelope; (2) by
following the instructions for telephonic voting on the proxy card; (3) by
following the instructions for Internet voting on the proxy card; or (4) by
attending the Annual Meeting and voting in person. Even if you are planning on
attending the Annual Meeting, we request that you vote by one of the other three
procedures -- should you wish to change your vote at the Annual Meeting, you may
do so, but voting by the other procedures will help ensure our obtaining a
quorum for the Annual Meeting.
If you vote by using the proxy card, you must sign, date and return the
proxy card in the envelope provided. You may specify your choices by marking the
appropriate boxes on the card.
31
In lieu of returning signed proxy cards, you can vote your shares over the
Internet or by calling a specially designated telephone number that appears on
the proxy cards. Internet and telephonic voting procedures are designed to
authenticate shareholders' identities, allow shareholders to provide their
voting instructions and confirm the proper recording of such instructions. If
you give your proxy instructions through the Internet or by telephone, please do
not return your proxy cards.
CAN I REVOKE MY PROXY? You have the right to revoke your proxy at any time
before it is voted at the Annual Meeting. To revoke your proxy, you may give
written notice of such revocation to the Secretary of the Company, deliver a
subsequent duly executed proxy to the Company in the same manner in which you
voted in the first instance, or vote in person at the Annual Meeting. Notice of
revocation or a subsequent proxy must be received by the Secretary of the
Company before the vote at the Annual Meeting. Attending the meeting does not
revoke your proxy.
HOW WILL MY SHARES BE VOTED? All properly completed and unrevoked proxies
that are received prior to the close of voting at the Annual Meeting (or, in the
case of shares held in the Pactiv Corporation 401(k) Plans, that are received by
May 16, 2007) will be voted in accordance with your instructions. If a properly
executed, unrevoked written proxy card does not specifically direct the voting
of shares covered, the proxy will be voted:
(1) FOR the election of all nominees for election as directors described in
this proxy statement;
(2) FOR the ratification of Ernst & Young LLP as the Company's independent
public accountants for the year 2007; and
(3) in accordance with the judgment of the persons named in the proxy as to
such other matters as may properly come before the Annual Meeting.
If you hold shares through a broker and do not give specific voting
instructions to the broker on how you wish to vote on Proposals 1 and 2
described in this proxy statement, then the broker may vote your shares at the
broker's discretion.
If there are any shareholder proposals at the Annual Meeting that are not
included in the Company's proxy statement and form of proxy, the persons named
in the proxy may utilize discretionary authority conferred by proxy in voting on
any such proposals.
WHAT IS A BROKER NON-VOTE? Broker non-votes occur when nominees, such as
banks and brokers holding shares on behalf of beneficial owners, do not receive
voting instructions from the beneficial holders in accordance with the nominee's
instructions. If that happens, nominees may generally vote those shares only on
matters considered "routine" by the NYSE, such as the election of directors
addressed by Proposal 1 and the ratification of the Company's independent public
accountants addressed in Proposal 2 in this proxy statement. On non-routine
matters, nominees do not have discretion to vote the shares. If a nominee fails
to exercise its discretion, or does not have discretion, to vote the shares, a
"broker non-vote" occurs.
HOW WILL WITHHOLDING AUTHORITY, ABSTENTIONS AND "BROKER NON-VOTES" AFFECT
VOTING RESULTS? With respect to Proposal 1 (the election of directors), the
individuals receiving more "for" votes than "against" votes will be elected as
directors. If you withhold your authority to vote, or if there is a broker
non-vote, for any director, your vote and any broker non-vote will not count for
or against such director. Approval of Proposal 2 (the ratification of the
independent public accountants) requires the vote of the majority of shares
present (whether in person or by proxy) and entitled to vote. Therefore,
abstentions will have the effect of votes against, and broker non-votes, because
they are not "entitled to vote," will have no affect on, Proposal 2.
WHAT IF I AM A BENEFICIAL HOLDER RATHER THAN A HOLDER OF RECORD? If you
hold your shares through a broker, bank or other nominee you will receive
instructions from the nominee describing how to vote your shares.
32
WHO IS SOLICITING MY PROXY? The Board of Directors of the Company is
soliciting your proxy. Directors, officers and other employees of the Company
may solicit proxies by mail, telephone, or in person. In addition, Georgeson &
Co., Inc., New York, New York, has been retained to assist the Company in the
solicitation of proxies.
DOES THE COMPANY PAY ANYONE TO SOLICIT PROXIES? The Company will pay
Georgeson & Co., Inc. an amount not to exceed $20,000 for soliciting proxies for
the Annual Meeting and will reimburse brokerage firms, dealers, banks, voting
trustees, their nominees and other record holders for their out-of-pocket
expenses in forwarding proxy materials to the beneficial owners of the common
stock. Directors, officers and other employees who participate in soliciting
proxies will not receive any compensation from the Company for doing so, other
than their usual compensation.
CAN I RECEIVE FUTURE SHAREHOLDER COMMUNICATIONS OVER THE INTERNET? Yes. You
may consent to access future shareholder communications (e.g., annual reports,
proxy statements, and interim communications) from or on behalf of the Company
over the Internet instead of receiving those documents in the mail. Providing
such communications over the Internet will reduce the Company's printing and
postage costs and the number of paper documents you would otherwise receive. If
you give your consent, in the future, when, and if, material is available over
the Internet, you will receive notification which will contain the Internet
location of the material. There is no cost to you for this service other than
charges you may incur from your Internet provider, telephone and/or cable
company. Once you have given your consent, it will remain in effect until you
inform the Company otherwise. To give your consent, if your shares are
registered in your name, check the appropriate box on the proxy card or, if you
are voting over the Internet or by telephone, follow the prompts you will
receive when you vote. If your shares are registered in the name of a nominee,
follow the directions provided by such nominee if this option is available.
33
PACTIV CORPORATION
1900 WEST FIELD COURT
LAKE FOREST, ILLINOIS 60045
(847) 482-2000
(PACTIV CORPORATION LOGO)
April 2, 2007
Dear Benefit Plan Participant:
The Annual Meeting of Shareholders of Pactiv Corporation is scheduled to be
held at the Hilton Northbrook, 2855 N. Milwaukee Ave., Northbrook, Illinois
60062, at 8:00 a.m. on Friday, May 18, 2007. A copy of the notice and proxy
statement, which is being sent to all registered shareholders in connection with
the Annual Meeting, is enclosed for your information.
Also enclosed with this letter is a form of proxy card, which designates
the number of shares held in your benefit plan account. By executing this proxy
card you instruct the benefit plan trustee (the "Trustee"), as holder of record
of the shares in your account, how to vote the shares of Pactiv Corporation
stock held in your account. In accordance with the plan, the Trustee will vote
all shares eligible to be voted by benefit plan participants in accordance with
their respective instructions.
If you return your form of proxy executed but without furnishing voting
instructions, the eligible shares in your account will be voted by the Trustee
FOR the election of the nominees for directors named in the Proxy Statement, FOR
the ratification of the appointment of Ernst & Young LLP as the Company's
independent public accountants for the year 2007, and as recommended by
management on any other matters to be voted on by shareholders at the Annual
Meeting.
You can also vote using our telephonic or Internet voting procedures, as
described on the enclosed proxy card.
If you do not return your executed form of proxy to the Trustee or vote
using our telephonic or Internet voting procedures, then your shares cannot be
used to establish a quorum for the Annual Meeting or be voted by the Trustee.
Your vote is important. Please vote using our telephonic or Internet voting
procedures or send your executed form of proxy card with your voting
instructions at your earliest opportunity, but in any case so that it can be
received no later than May 16, 2007, so that it will reach the Transfer Agent in
time to be counted and voted. For your convenience a return envelope is
enclosed.
YOUR BENEFITS COMMITTEE
(PACTIV ADVANCED PACKAGING SOLUTIONS LOGO) c/o National City Bank
Shareholder Services Operations -----------------------------------------------
Locator 5352 VOTE BY TELEPHONE
P. O. Box 94509 -----------------------------------------------
Cleveland, OH 44101-4509 Have your proxy card available when you call
the TOLL-FREE NUMBER 1-888-693-8683 using a
Touch-Tone phone and follow the simple
instructions to record your vote.
-----------------------------------------------
VOTE BY INTERNET
-----------------------------------------------
Have your proxy card available when you access
the website HTTP://WWW.CESVOTE.COM and follow
the simple instructions to record your vote.
-----------------------------------------------
VOTE BY MAIL
-----------------------------------------------
Please mark, sign and date your proxy card and
return it in the POSTAGE-PAID ENVELOPE provided
or return it to: National City Bank, P.O. Box
565800, Pittsburgh, PA 15253.
- ------------------------------------------ ------------------------------- -----------------------------------------------
VOTE BY TELEPHONE VOTE BY INTERNET VOTE BY MAIL
Call TOLL-FREE using a Access the WEBSITE and Return your proxy
Touch-Tone phone: cast your vote: in the POSTAGE-PAID
1-888-693-8683 HTTP://WWW.CESVOTE.COM envelope provided
- ------------------------------------------ ------------------------------- -----------------------------------------------
VOTE 24 HOURS A DAY, 7 DAYS A WEEK!
YOUR TELEPHONE OR INTERNET VOTE MUST BE RECEIVED BY 6:00 A.M. EASTERN TIME
ON FRIDAY, MAY 18, 2007 TO BE COUNTED IN THE FINAL TABULATION.
IF YOU VOTE BY TELEPHONE OR INTERNET, PLEASE DO NOT SEND YOUR PROXY BY MAIL.
-------------------------------
(ARROW)
-------------------------------
(ARROW) IF VOTING BY MAIL, PLEASE SIGN AND DATE THE CARD BELOW AND FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING. (ARROW)
- ------------------------------------------------------------------------------------------------------------------------------
PACTIV CORPORATION PROXY / CONFIDENTIAL VOTING INSTRUCTIONS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF SHAREHOLDERS ON MAY 18, 2007.
The undersigned does hereby appoint Richard L. Wambold, Robert J. Darnall and Joseph E. Doyle, and any of them, with full
power of substitution, as Proxies to vote, as directed on the reverse side of this card, or, if not so directed, in
accordance with the Board of Directors' recommendations, all shares of Pactiv Corporation held of record by the undersigned
at the close of business on March 19, 2007, and entitled to vote at the Annual Meeting of Shareholders of Pactiv Corporation
to be held at 8:00 a.m., May 18, 2007, or at any adjournment thereof, and to vote, in their discretion, upon such other
matters as may properly come before the Annual Meeting.
BENEFIT PLAN PARTICIPANTS:
This card also serves as voting instructions to the Trustees of the various Plans. By signing below, you are instructing the
Trustees of the plans to vote all shares of Common Stock of Pactiv Corporation represented by your proportionate interest in
the Trusts at the Annual Meeting of Shareholders to be held on May 18, 2007, and at all adjournments thereof, upon the
matters set forth on the reverse side hereof and upon such other matters as may properly come before the Annual Meeting.
Only the Trustees can vote your shares. Your shares cannot be voted in person at the Annual Meeting. How you vote these shares
is confidential. The Trustees will not disclose how you have instructed the Trustees to vote. If the Trustees do not
receive your voting instructions by May 16, 2007, either by telephone, Internet or receipt of this signed voting instruction
card, the shares credited to your account will not be voted at the Annual Meeting.
-----------------------------------------------
Signature
-----------------------------------------------
Signature
Date:
-----------------------------------------
INSTRUCTIONS: Please sign exactly as shown
hereon. Joint owners should each sign. When
signing as a fiduciary, attorney, executor,
administrator, trustee or guardian, or on
behalf of a corporation, bank, trust company,
or other similar entity, your title or capacity
should be shown.
- ------------------------------------------------------------------------------------------------------------------------------
NON TRANSFERABLE ADMISSION TICKET NON TRANSFERABLE
Please bring this ticket if you attend the Annual Meeting.
It will expedite your admittance when presented upon arrival.
PACTIV CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
Friday, May 18, 2007
8:00 a.m.
Hilton Northbrook
2855 N. Milwaukee Avenue
Northbrook, Illinois 60062
PLEASE NOTE: ATTENDANCE AT THE ANNUAL MEETING WILL BE LIMITED TO SHAREHOLDERS OF PACTIV
AS OF THE RECORD DATE OR THEIR PROXY HOLDER. GUESTS ARE NOT PERMITTED AT THE MEETING.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
(ARROW) PLEASE FOLD AND DETACH CARD AT PERFORATION. (ARROW)
ELECTRONIC ACCESS TO FUTURE DOCUMENTS NOW AVAILABLE
You have the option to access our future shareholder communications (e.g., annual reports, proxy statements, related proxy
materials) over the Internet instead of receiving those documents in print. Participation is completely voluntary. If you give
your consent, in the future, when our material is available over the Internet, you will receive notification which will
contain the Internet location where the material is available. Our material will be presented in PDF format. There is no cost
to you for this service other than any charges you may incur from your Internet provider, telephone and/or cable company. Once
you give your consent, it will remain in effect until you inform us otherwise. You may revoke your consent at any time after
you give it by notifying the Company's transfer agent, National City Bank, Post Office Box 92301 Cleveland, Ohio 44193-0900,
or the Company in writing.
To give your consent, follow the prompts when you vote by telephone or over the Internet or check the appropriate box located
at the bottom of the attached proxy card when you vote by mail.
(ARROW) IF VOTING BY MAIL, PLEASE SIGN AND DATE THE CARD BELOW AND FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING. (ARROW)
- ------------------------------------------------------------------------------------------------------------------------------
PACTIV CORPORATION PROXY / CONFIDENTIAL VOTING INSTRUCTIONS
Please indicate how you wish your shares to be voted. UNLESS OTHERWISE INDICATED, THE PROXIES WILL VOTE "FOR" ALL PROPOSALS.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ALL PROPOSALS.
1. ELECTION OF DIRECTORS
Nominees: (1) Larry D. Brady 1 [ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) K. Dane Brooksher 2. [ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) Robert J. Darnall 3. [ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) Mary R. (Nina) Henderson 4. [ ] FOR [ ] AGAINST [ ] ABSTAIN
(5) N. Thomas Linebarger 5. [ ] FOR [ ] AGAINST [ ] ABSTAIN
(6) Roger B. Porter 6. [ ] FOR [ ] AGAINST [ ] ABSTAIN
(7) Richard L. Wambold 7 [ ] FOR [ ] AGAINST [ ] ABSTAIN
(8) Norman H. Wesley 8. [ ] FOR [ ] AGAINST [ ] ABSTAIN
2. RATIFY THE SELECTION OF ERNST & YOUNG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)