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
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(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:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(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):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] 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:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
PACTIV CORPORATION
1900 WEST FIELD COURT
LAKE FOREST, ILLINOIS 60045
(847) 482-2000 [PACTIV ADVANCED PACKAGING SOLUTIONS LOGO]
April 2, 2003
Fellow Shareholders:
The Annual Meeting of Shareholders of Pactiv Corporation will be held
Friday, May 16, 2003, at 10:30 a.m., local time, 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.
Shareholders are entitled to vote at the Annual Meeting on the basis of one
vote for each share held.
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,
/s/ Richard L. Wambold
RICHARD L. WAMBOLD
Chairman and Chief
Executive Officer
PACTIV CORPORATION
1900 WEST FIELD COURT
LAKE FOREST, ILLINOIS 60045
(847) 482-2000 [PACTIV ADVANCED PACKAGING SOLUTIONS LOGO]
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
MAY 16, 2003
The Annual Meeting of Shareholders of Pactiv Corporation will be held May
16, 2003, at 10:30 a.m., local time, 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 2004 Annual Meeting
of Shareholders;
2. To ratify the appointment of Ernst & Young LLP as independent public
accountants for the year 2003; and
3. To act upon such 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. Holders of common stock of record at the close of
business on March 19, 2003, 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.
All shareholders, even if they plan to attend the Annual Meeting, are urged
to either complete, date, and sign the enclosed proxy card and return it to the
Company in the enclosed envelope, which requires no postage if mailed in the
United States, or vote using our telephonic or Internet voting procedures, which
are described on the proxy card.
By Order of the Board of Directors
JAMES V. FAULKNER, JR.
Secretary
April 2, 2003
PACTIV CORPORATION
1900 WEST FIELD COURT
LAKE FOREST, ILLINOIS 60045
(847) 482-2000 [PACTIV ADVANCED PACKAGING SOLUTIONS 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 10:30 a.m., local time, on May 16, 2003, and at any
adjournment or postponement thereof (the "Annual Meeting"). This proxy
statement, the accompanying Notice of Annual Meeting of Shareholders, proxy card
and Annual Report, are first being sent or given to holders of the Company's
common stock on or about April 2, 2003.
TABLE OF CONTENTS
<Table>
Proposals Submitted for Vote................................ 2
Re-Election of the Board of Directors of the Company
(Proposal 1).............................................. 3
Biographical Information.................................. 3
Stock Ownership by Management............................. 5
Board Composition......................................... 5
Board Committees.......................................... 6
2002 Board and Committee Meetings......................... 7
Compensation of Directors................................. 7
Compensation Committee Interlocks and Insider
Participation.......................................... 8
Reports..................................................... 8
Audit Committee Report.................................... 8
Compensation/Nominating/Governance Committee Report on
Executive Compensation................................. 10
Performance Graph........................................... 13
Executive Compensation...................................... 14
Summary Compensation Table................................ 14
Options Granted in 2002................................... 15
Options at Year-End 2002 Values........................... 15
Pension Plan Table........................................ 16
Change of Control Agreements.............................. 16
Ratification of Ernst & Young LLP as Independent Public
Accountants for 2003 (Proposal 2)......................... 17
Other Information........................................... 18
Certain Beneficial Owners................................. 18
Section 16(a) Beneficial Ownership Reporting Compliance... 18
Shareholder Proposals for 2004 Annual Meeting of
Shareholders........................................... 18
Annual Report on Form 10-K................................ 19
Questions and Answers Regarding Voting...................... 20
Appendix A -- Audit Committee Charter....................... A-1
</Table>
1
PROPOSALS SUBMITTED FOR VOTE
PROPOSAL 1: RE-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 respective successor is elected and qualified or until his
or her earlier resignation or removal. Nominees for re-election this year are
Larry D. Brady, K. Dane Brooksher, Robert J. Darnall, Mary R. (Nina) Henderson,
Roger B. Porter, Paul T. Stecko, Richard L. Wambold and Norman H. Wesley. For
biographical information about each nominee, see "Re-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 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 or withhold your vote from any of the
director nominees. Assuming a quorum is present, the eight director nominees
receiving a plurality of the votes cast at the Annual Meeting (in person or by
proxy) and entitled to vote will be elected as directors.
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 selected Ernst & Young LLP as the Company's independent public
accountants for the year 2003. The Company is asking the shareholders to ratify
this selection.
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 selection of Ernst & Young LLP as the
Company's independent public accountants for the year 2003.
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 2003.
2
RE-ELECTION OF THE BOARD OF DIRECTORS OF THE COMPANY
(PROPOSAL 1)
BIOGRAPHICAL INFORMATION
Below are the members of the Company's Board of Directors, each of whom is
standing for re-election at the Annual Meeting.
<Table>
Larry D. Brady has been Chairman, Chief Executive Officer,
[LARRY BRADY PHOTO] President and Chief Operating Officer, and a director of
UNOVA, Inc., an industrial technologies company, since
August 2001, September 2000, August 1999, and September
1999, respectively. From 1993 to June 1999, Mr. Brady was
President of FMC Corporation, a producer of chemicals and
machinery for industry, agriculture, and government. Mr.
Brady is 60 years old, has been a director of the Company
since November 1999, and is Chairman of the
Compensation/Nominating/Governance Committee and a member of
the Three-year Independent Director Evaluation Committee.
- --------------------------------------------------------------------------------------------
K. Dane Brooksher has served as Chairman and Chief Executive
[K. DANE BROOKSHER PHOTO] Officer of ProLogis, an operator of a global network of
industrial distribution facilities, since March 1999. Mr.
Brooksher was Co-Chairman and Chief Operating Officer of
ProLogis from November 1993 to March 1999 (through September
1997 he was employed by ProLogis' former management
company). 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 a trustee of
ProLogis and a director of Butler Manufacturing Company, and
he serves as an Advisory Board Member of the J.L. Kellogg
Graduate School of Management of Northwestern University.
Mr. Brooksher is 64 years old and has been a director of the
Company since March 2003.
- --------------------------------------------------------------------------------------------
Robert J. Darnall retired as Chairman of Prime Advantage
[ROBERT DARNALL PHOTO] Corporation, a supplier of strategic sourcing services and
logistics management for industrial manufacturers, in
January 2002, having held such position since early 2000.
Prior to that, Mr. Darnall was President and Chief Executive
Officer of Ispat North America, Inc., from 1998, when Ispat
North America, Inc. acquired Inland Steel Company from
Inland Steel Industries, Inc., until early 2000. Prior to
such acquisition, Mr. Darnall held various positions at
Inland Steel Company over a 36-year career, including
serving as Chairman and Chief Executive Officer of Inland
Steel Industries, Inc., from 1992 to 1998, and as President
and a director of Inland Steel Company from 1986 until 1998.
Mr. Darnall is also a director of Cummins, Inc., Household
International, Inc., Sunoco, Inc., United States Steel
Corporation, and the Federal Reserve Bank of Chicago. Mr.
Darnall is 65 years old, has been a director of the Company
since March 2000, and is a member of the
Compensation/Nominating/Governance Committee.
- --------------------------------------------------------------------------------------------
Mary R. (Nina) Henderson is an advisor to Angelo, Gordon &
[MARY HENDERSON PHOTO] Company, L.P. Previously, Ms. Henderson was Corporate Vice
President, Global Core Business Development for Bestfoods,
Inc. from 1999 until December 2000, President of Bestfoods
Grocery from 1997 to 1999. During 2001, Ms. Henderson served
as a consultant to J.P. Morgan Partners, LLC. She is also a
director of AXA Financial, Inc., Del Monte Foods Company,
and The "Shell" Transport and Trading Company, p.l.c. Ms.
Henderson is 52 years old, has been a director of the
Company since January 2000, and is a member of the Audit
Committee.
- --------------------------------------------------------------------------------------------
</Table>
3
<Table>
Roger B. Porter is the IBM Professor of Business and
[ROGER PORTER PHOTO] Government at Harvard 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, serving as special
assistant to the President and executive secretary of the
Economic Policy Board from 1974 to 1977, as deputy assistant
to the President and director of the White House Office of
Policy Development from 1981 to 1985, and as assistant to
the President for economic and domestic policy from 1989 to
1993. Mr. Porter is also a director of National Life
Insurance Company, Tenneco Automotive Inc., and Zions
Bancorporation. Mr. Porter is 56 years old, has been a
director of the Company since November 1999, and is Chairman
of the Audit Committee and a member of the Three-year
Independent Director Evaluation Committee.
- --------------------------------------------------------------------------------------------
Paul T. Stecko is the Chairman and Chief Executive Officer
[PAUL STECKO PHOTO] of Packaging Corporation of America, the corporation formed
to acquire the Company's containerboard business in April
1999. From November 1998 to April 1999, Mr. Stecko served as
President and Chief Operating Officer of Tenneco Inc. From
January 1997 to November 1998, Mr. Stecko served as Chief
Operating Officer of Tenneco Inc. From December 1993 through
January 1997, Mr. Stecko served as Chief Executive Officer
of the Company. He is also a director of State Farm Mutual
Insurance Company, Tenneco Automotive Inc., and Packaging
Corporation of America. Mr. Stecko is 58 years old, has been
a director of the Company since November 1999, and is a
member of the Audit Committee, the
Compensation/Nominating/Governance Committee and Chairman of
the Three-year Independent Director Evaluation Committee.
- --------------------------------------------------------------------------------------------
Richard L. Wambold has been Chairman of the Company since
[RICHARD WAMBOLD PHOTO] March 2000, and has been Chief Executive Officer and
President of the Company since its spin-off in November 1999
and since June 1999, respectively. From June 1997 to May
1999, Mr. Wambold was Executive Vice President and General
Manager of the Company's specialty packaging and consumer
products units. Mr. Wambold is 51 years old and has been a
director of the Company since June 1999.
- --------------------------------------------------------------------------------------------
Norman H. Wesley has been the Chairman and Chief Executive
[NORMAN WESLEY PHOTO] Officer of Fortune Brands, Inc., a consumer products
company, since December 1999. He was President and Chief
Operating Officer of Fortune Brands, Inc. during 1999, and
Chairman of the Board and Chief Executive Officer of Fortune
Brands Home & Office, Inc. (home and office products) from
1997 to 1999. Mr. Wesley is also a director of Fortune
Brands, Inc. and R.R. Donnelly & Sons Company. Mr. Wesley is
53 years old, and has been a director of the Company since
December 2001, and is a member of the Audit Committee.
</Table>
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ALL OF THE
NOMINEES LISTED ABOVE.
4
STOCK OWNERSHIP BY MANAGEMENT
The following table sets forth, as of February 28, 2003, the number of
shares of common stock and Common Stock Equivalents of the Company beneficially
owned (including shares which such persons have the right to acquire as of
February 28, 2003, or within 60 days thereafter) 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 TOTAL SHARES,
STOCK COMMON STOCK OPTIONS AND
DIRECTORS OWNED(1) OPTIONS(2) EQUIVALENTS(3) EQUIVALENTS(4)
--------- --------- ---------- -------------- --------------
Larry D. Brady........................... 4,157 20,266 12,795 37,218
K. Dane Brooksher*....................... 0 0 0 0
Robert J. Darnall........................ 5,000 18,000 8,934 31,934
Mary R. (Nina) Henderson................. 0 18,000 8,747 26,747
Roger B. Porter.......................... 4,147 19,132 12,795 36,074
Paul T. Stecko........................... 25,614 18,000 8,969 52,583
Richard L. Wambold....................... 171,529 1,113,335 93,396 1,378,260
Norman H. Wesley......................... 2,000 12,000 1,706 15,706
EXECUTIVE OFFICERS
------------------
Andrew A. Campbell....................... 154,311 403,335 101,211 658,857
Peter J. Lazaredes....................... 65,669 321,543 23,601 410,813
James D. Morris.......................... 33,517 355,623 79,333 468,473
John N. Schwab........................... 34,981 228,919 24,907 288,807
All executive officers and directors or
nominees as a group (14 individuals)... 530,824 3,059,742 475,390 4,065,956
</Table>
- ------------
* Mr. Brooksher became a director on March 19, 2003.
(1) Includes shares held in the Pactiv Corporation 401(k) Savings and Investment
Plan (the "Thrift Plan"). Each person listed has sole voting and investment
power over the shares set forth in this column, except shares held in the
Thrift 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 that are exercisable as of February 28,
2003, or within 60 days of such date. Such shares cannot be voted or
transferred until acquired.
(3) Common Stock Equivalents are rights to shares of common stock under the
Company's Deferred Compensation Plan that are distributed in shares of
common stock or cash payments, in either case, in an amount based on the
performance of the Company's common stock over the applicable period
(including the premium received, as described in note 4(c) to the Summary
Compensation Table). Under the Deferred Compensation Plan, the shares or
cash amounts are distributed after a director ceases to serve as a director
of the Company, upon the termination of an employee's employment with the
Company, or on the distribution date elected under the Deferred Compensation
Plan. Common Stock Equivalents do not have voting rights. Common Stock
Equivalents do not include performance share units described in the Summary
Compensation Table.
(4) Each individual listed in the table owns less than one percent of the
outstanding shares of the Company's common stock. All directors and
executive officers as a group beneficially own approximately 2.2% of the
outstanding common stock (not including Common Stock Equivalents).
BOARD COMPOSITION
The Board of Directors of the Company consists of eight members, including
seven who are not officers or employees of the Company (the "Non-Employee
Directors") and one who is an officer of the
5
Company. The Board of Directors believes that this ratio represents a commitment
to the independence of the Board. The three standing Committees of the Board of
Directors are each comprised solely of Non-Employee Directors. In addition, on
an ad hoc basis, the Board may designate from time to time a Non-Employee
Director as the "lead" director with respect to special matters or discussions
affecting the Company. The Non-Employee Directors hold an executive session,
without any members of management present, after each Board meeting.
BOARD COMMITTEES
The Board of Directors has three standing committees, which have the
following responsibilities and authority.
AUDIT COMMITTEE. The Audit Committee's primary duties and responsibilities
are as follows:
- Appointment, compensation and oversight over the work of the Company's
public accountants.
- Monitoring the integrity of the Company's financial statements.
- Monitoring the Company's compliance with its corporate code of conduct
and legal and regulatory requirements.
- Monitoring the Company's public accountants' qualifications and
independence.
- Monitoring the performance of the Company's internal audit function and
public accountants.
- Providing an avenue of communication among the independent auditors,
management, internal auditors and the Board of Directors.
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 with the Company's public accountants, its internal
auditors, employees, management, and such other persons, in separate executive
sessions as the committee sees fit. Some of the committee's regular activities
include:
- Reviewing and discussing with management and the Company's public
accountants the Company's financial statements, including related
disclosures required in the Company's filings with the Securities and
Exchange Commission.
- Reviewing and discussing with management and the Company's public
accountants the adequacy of the Company's internal control processes and
procedures.
- Reviewing and discussing with management and the Company's public
accountants major issues regarding accounting principles and financial
statement presentation, including reviewing the Company's critical
accounting policies.
- Discussing with management the Company's major financial risk exposures
and steps taken to monitor and control such exposures.
- Reviewing and discussing with management press releases and financial
information and earnings guidance provided to analysts and ratings
agencies.
- Establishing "whistle blower" procedures for the receipt, retention and
treatment of complaints regarding accounting, internal accounting
controls or audit matters, and to allow employees to confidentially and
anonymously submit concerns regarding questionable accounting or auditing
matters.
- Reporting regularly to the Board, including a review of its own
performance.
The Audit Committee operates under a written charter adopted by the Board
of Directors, a copy of which is attached hereto as Exhibit A. The Audit
Committee reviews and reassesses the adequacy of the Audit Committee charter
annually. The Audit Committee charter has been amended to incorporate the
6
requirements of the Sarbanes-Oxley Act of 2002 and the proposed, but not yet
adopted, rules of the New York Stock Exchange, Inc. (NYSE), and as amended,
meets the standards set forth in the Securities and Exchange Commission
regulations and the NYSE rules.
The Audit Committee held seven meetings in 2002. The Audit Committee is
comprised solely of Non-Employee Directors, each of whom meets the independence
standards established by the NYSE, as determined by the Board. Because Mr.
Stecko is an executive officer of Packaging Corporation of America ("PCA"), the
Company's former containerboard business, which is a supplier of certain
products to the Company, the Board considered and affirmatively determined that
such relationship will not interfere with Mr. Stecko's exercise of independent
judgment and that his participation in the Audit Committee is in the best
interests of the Company and its shareholders. In making this determination, the
Board considered, among other matters, Mr. Stecko's knowledge of the Company's
industry and business, his overall financial acumen, and the nature and relative
size of the business relationship between the Company and PCA.
COMPENSATION/NOMINATING/GOVERNANCE COMMITTEE. The Compensation/Nominating/
Governance Committee has significant corporate governance and compensation
responsibilities, among other things, to: (i) establish the salary rate of
officers and employees of the Company and its subsidiaries; (ii) examine
periodically the compensation structure of the Company; (iii) supervise the
welfare and pension plans and compensation plans of the Company; (iv) review and
determine the desirable balance of experience, qualifications and expertise
among members of the Board of Directors; (v) review possible candidates for
membership on the Board of Directors and recommend a slate of nominees for
election as directors at the Company's Annual Meeting of Shareholders; (vi)
review the function and composition of the other committees of the Board of
Directors and recommend membership on such committees; and (vii) review the
qualifications and recommend candidates for election as officers of the Company.
The Compensation/Nominating/Governance Committee held five meetings in 2002. The
Committee will consider qualified director nominees recommended by shareholders.
If you want to recommend a person whom you consider qualified to serve on the
Board of Directors of the Company, you may give notice to the Secretary of the
Company in accordance with the requirements described in "Shareholder Proposals
for 2004 Annual Meeting of Shareholders -- Nominations for Directors."
THREE-YEAR INDEPENDENT DIRECTOR EVALUATION COMMITTEE. The Three-year
Independent Director Evaluation 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 Three-year
Independent Director Evaluation Committee held one meeting in 2002 to review the
Plan, after which the Committee recommended its continued adoption.
2002 BOARD AND COMMITTEE MEETINGS
The Board of Directors held seven meetings in 2002. Each director attended
more than 75% of the meetings of the Board and of the Board committees on which
he or she served.
COMPENSATION OF DIRECTORS
RETAINERS AND MEETING FEES. The Company pays each Non-Employee Director an
annual retainer of $35,000, of which a minimum of 60% ($21,000) is paid in the
form of stock-settled Common Stock Equivalents, as described below, and a
maximum of 40% ($14,000) is paid in cash or, at the election of the director,
credited to a deferred compensation account as described below. The Company also
pays Non-Employee Directors $1,000 for each meeting of the Board of Directors
attended. The Chairman of the Audit Committee and the Chairman of the
Compensation/Nominating/Governance Committee are each paid an annual fee of
$9,000, and Non-Employee Directors who serve on such committees are paid an
annual fee of $6,000 per committee membership. Members of the Three-year
Independent Director Evaluation Committee receive $1,000 for each meeting of
that committee attended. Non-Employee
7
Directors also receive reimbursement of their expenses for attending meetings of
the Board of Directors and Committee meetings.
COMMON STOCK EQUIVALENTS/OPTIONS. In payment of 60% of the retainer for
2002, Non-Employee Directors received in total 7,103 Common Stock Equivalents.
Common Stock Equivalents are payable in shares of the Company's Common Stock
after a Non-Employee Director ceases to serve as a director of the Company.
Final distribution of such shares may be made either in a lump sum or in
installments over a period of years. Each Common Stock Equivalent is issued at
100% of the fair market value of a share of Common Stock on the date of grant.
Each Non-Employee Director also receives an annual grant of options to
purchase 6,000 shares of Common Stock. These options are granted at 100% of fair
market value on the day the option is granted with a term of ten years and fully
vest six months from the grant date. Once vested, these options are exercisable
at any time during the option term.
DEFERRED COMPENSATION PLAN. Pursuant to the Company's Deferred Compensation
Plan, a Non-Employee Director may elect to have up to 40% ($14,000) of his or
her retainer fee and all or a portion of his or her meeting fees credited to a
deferred compensation account. Payment of such amounts, together with interest
and/or earnings, may be deferred until the earlier of: (i) the year next
following the date upon which he or she ceases to be a director of the Company;
or (ii) the year selected by the director for commencement of payment of the
deferred amount. The plan provides Non-Employee Directors with various
investment options, which include Common Stock Equivalents that may be paid out
in either cash or shares of the Company's common stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Brady, Darnall, and Stecko are the members of the
Compensation/Nominating/ Governance Committee of the Board of Directors, none of
whom is an officer or employee of the Company. Mr. Stecko was formerly an
executive officer of the Company, and its former parent, Tenneco Inc., until
April 1999. In 2002, the Company purchased approximately $93 million of
corrugated containers from PCA. Mr. Stecko is Chairman and Chief Executive
Officer of PCA, which purchased the Company's former containerboard business in
April 1999. The Company's purchases were made pursuant to a long-term supply
agreement entered into by the Company and PCA at the time the Company sold that
business to PCA. The supply agreement with PCA runs through April 2004. The
Company expects its level of purchases from PCA in 2003 to be comparable to the
level of purchases in 2002.
During 2002, 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
Compensation/Nominating/Governance Committee of the Board.
REPORTS
The following Audit Committee Report and Compensation/Nominating/Governance
Committee Report on Executive Compensation shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement or any portion hereof into any filing under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended, and shall
not otherwise be deemed filed under such acts.
AUDIT COMMITTEE REPORT
In performing its duties, the Audit Committee reviewed and discussed the
audited financial statements contained in the 2002 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 2002, 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
(Codification of Statements on Auditing Standards, AU sec. 380), as amended. In
addition, the Audit Committee discussed with Ernst &
8
Young LLP its independence from the Company and its management, and has received
the written disclosures and the letter from Ernst & Young LLP required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees).
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, 2002, for filing with the Securities and Exchange Commission.
Respectfully submitted by the members of the Audit Committee:
Roger B. Porter, Chairman
Paul T. Stecko
Mary R. (Nina) Henderson
Norman H. Wesley
9
COMPENSATION/NOMINATING/GOVERNANCE COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
The executive compensation philosophy, policies, plans, and programs of the
Company are under the supervision of the Compensation/Nominating/Governance
Committee (the "Compensation Committee"), which is composed of the directors
named below, none of whom is an officer or employee of the Company. The
Compensation Committee has furnished the following report on executive
compensation.
COMPENSATION PHILOSOPHY
The basic philosophy underlying the Company's executive compensation
policies, plans, and programs is that executive and shareholder financial
interests should be aligned as closely as possible, and the compensation package
should be based on delivering pay commensurate with performance.
Accordingly, the executive compensation program for the Company's Chief
Executive Officer ("CEO") and the other executives named in this proxy statement
("Named Executives"), as well as the other executives of the Company, has been
structured to:
- Align the interests of the Company's executives and shareholders by
implementing and maintaining compensation programs that provide for the
acquisition and retention of Company shares by senior executives.
- Reinforce a results-oriented management culture with executive pay that
varies according to overall Company and individual performance against
aggressive business goals and core behavioral standards.
- Provide an executive compensation package that attracts, retains, and
motivates key executives.
- Place greater emphasis and leverage on variable performance-based "at
risk" (versus fixed) compensation as executives assume increased
responsibility.
Based on these objectives, the executive compensation program has been
designed to provide the Company's executives with base salaries, annual cash
incentive awards, long-term incentive awards, stock ownership opportunities, and
other benefits that are comparable to the compensation opportunities typically
offered to executives at major corporations that are similar in scope or that
directly compete with the Company in the marketplace. The Company's policy is to
provide total compensation to its executives based on performance that is
competitive and at market levels, for comparable companies, when financial and
qualitative targets are met.
In determining competitive compensation for each of the components of
executive compensation described below and in evaluating the total compensation
package for each Named Executive, the Compensation Committee analyzes data from
several independent compensation surveys and solicits information and advice
from independent compensation consultants. The competitive market data used by
the Compensation Committee includes the data of several of the companies
comprising the Industry Peer Group on the Performance Graph that follows this
report. However, the inclusion of their data is a function of their
participation in the various nationally recognized compensation surveys in which
the Company participates, rather than an alignment of companies in similar
industry groups. Salary levels are structured within a range of reputable survey
data for comparable positions and companies without regard to the performance of
the companies surveyed. Eligibility for both the annual cash compensation
program and long-term incentive awards is determined by salary grade and
compensation survey data. Once eligible, participation in the Plan (described
below) requires Compensation Committee approval. The Company's compensation
plans provide that as an executive's level of responsibility increases, (i) a
greater portion of his or her potential total compensation is based on
performance (both corporate and individual), and a lesser portion is comprised
of salary, causing potentially greater variability in the individual's total
compensation from year-to-year, and (ii) the mix of compensation for that
executive shifts to a greater portion being stock-based compensation.
10
In designing and administering the components of the executive compensation
program, the Compensation Committee strives to balance short- and long-term
incentive objectives and to employ prudent judgment when establishing
performance criteria, evaluating performance, and determining actual incentive
payments.
Total executive compensation has two major components: annual cash
compensation comprised primarily of base salary and bonus, and long-term
incentives comprised of stock options and performance shares. The framework for
the components of the long-term incentives are set forth in the Pactiv
Corporation 2002 Incentive Compensation Plan (the "Plan"), which was approved by
the Company's shareholders at the 2002 shareholders meeting. The following is a
description of each of the components of the executive compensation program
along with a discussion of the decisions and actions taken by the Compensation
Committee with regard to 2002 compensation. Also included is a specific
discussion regarding the CEO's compensation.
ANNUAL CASH COMPENSATION PROGRAM
An executive's annual cash compensation consists primarily of a base salary
and bonus. Each year the Compensation Committee evaluates executive officers'
base salaries by reviewing competitive market practices and assessing Company
and individual performance.
The annual bonus plan is designed to provide an added incentive to
participants to align their efforts to the Company's business objectives. A
target award is assigned to each executive salary grade, and participants may
earn awards ranging from 0 to 200 percent of target based upon the Company's
performance against plan and individual performance against established
objectives.
Annual performance goals are established at the beginning of each year for
the purpose of determining incentive awards for that year. At the conclusion of
each year, the Compensation Committee approves incentive award payments to
executives based on the degree of achievement of the goals established and their
judgment of the Company and individual performance. Using earnings per share,
cash flow objectives, and other performance factors including return on capital
employed, working capital, innovation, customer satisfaction, quality, health
and safety, and leadership, the Compensation Committee establishes a target
incentive compensation fund. The Compensation Committee also approves individual
awards after reviewing management's evaluation of the individual's contribution
to the overall performance of the business. In 2002, the goals established by
the Compensation Committee were exceeded, and bonuses were paid accordingly.
LONG-TERM INCENTIVES -- STOCK AWARDS
The long-term incentive vehicles available for grant under the Plan are
intended to align a significant portion of an executive's compensation package
with shareholder interests. The Plan permits the granting of a variety of
long-term incentive awards, and the Compensation Committee approves which
vehicles will be used under the Plan based on its compensation philosophy and
the alignment of that philosophy to the Company's business strategy. As an
individual's level of responsibility increases, a greater portion of variable
performance-related compensation is in the form of stock-based compensation.
In 2002, the Compensation Committee granted stock options and performance
shares:
- Stock option grants were approved based upon the Compensation Committee's
evaluation of the Company's overall performance, its performance in
relation to its peer group and the market in general, and the competitive
pay practices of comparable companies. The grants have an exercise price
equal to the fair market value of the Company common stock as of the
grant date. Thus, executives only benefit from the grant of stock options
if the stock price increases and shareholders also benefit. The Company
has never repriced underwater options and under the Plan may not do so
without the approval of the Company's shareholders.
- The Compensation Committee granted performance shares to the executive
officers for the three-year plan beginning in 2002. These grants were
based upon the Committee's analysis of competitive levels of stock awards
and an assessment of individual performance. The
11
performance cycle is three years, beginning January 1, 2002. The amounts
earned are based on improvement in core earnings per share and return on
capital employed and can range from zero to 200 percent of the target
amount. The final value of the award is determined at the end of the
three-year performance period and is based on the Company's stock price
at that time. Thus, performance share awards serve to retain key
executives and focus them on internal financial goals and the Company's
stock price.
- In accordance with the Plan, the Compensation Committee approved the 2002
percentage earnout of the eligible performance share equivalent awards
based on the Company exceeding its earnings per share and return on
capital employed performance goals. The 2000 performance grant was paid
out 50 percent in cash and 50 percent in stock.
STOCK OWNERSHIP REQUIREMENTS
In line with the philosophy that the interests of the executives should be
aligned with those of the shareholders, the Company requires that the executives
attain and retain certain specified levels of stock ownership. To assist
executives in achieving their stock ownership goals, executives may choose to
defer all or a portion of annual cash incentives in a Pactiv stock index
account. In addition, employees who defer such amounts into Common Stock
Equivalents receive a 20% discount provided such Common Stock Equivalents are
retained for a minimum of three years. Each year the Compensation Committee
reviews the executives' ownership levels to insure compliance with these
requirements. All of the Named Executives have exceeded their stock ownership
requirements which range from three to five times the midpoint of their salary
range.
CEO COMPENSATION
The Compensation Committee approved an increase in Mr. Wambold's base
salary for 2002 to $795,000. Factors considered in making an increase in his
salary were the Company's performance since the spin-off of the Company from
Tenneco Inc. and the leadership Mr. Wambold has provided to the Company. In
accordance with the established performance criteria, the Compensation Committee
approved a 2002 annual incentive award of $1,120,000 for Mr. Wambold. In
addition to exceeding the quantitative financial goals, the Compensation
Committee also considered the performance of the Company relative to its
competitors and cumulative total shareholder return. In 2002, the Compensation
Committee granted 250,000 stock options to Mr. Wambold. The Compensation
Committee considered competitive market practice, the Company's performance, and
Mr. Wambold's leadership in determining the size of his option grant. The
Compensation Committee also approved a performance share grant of 45,000 units
to Mr. Wambold for the year 2002, which will be earned based on performance over
the three-year period beginning January 1, 2002. Mr. Wambold's performance share
award earnout for 2002 was at the same percentage of the target amounts as the
other participants.
$1 MILLION TAX LIMITATION
The Internal Revenue Code imposes a $1 million limit on the amount that a
publicly-traded corporation may deduct for compensation paid to the CEO or a
Named Executive who is employed on the last day of the year. "Performance-based
compensation" is excluded from this $1 million limitation. Awards granted under
the Plan are intended to qualify as performance-based compensation, allowing the
Company to deduct such amounts for tax purposes. However, when appropriate, the
Committee may utilize components of certain executive compensation programs
which may not be tax deductible to the Company.
Respectfully submitted by the members of the
Compensation/Nominating/Governance Committee:
Larry D. Brady, Chairman
Robert J. Darnall
Paul T. Stecko
12
PERFORMANCE GRAPH
The following performance graph compares the cumulative total return on the
Company's common stock from October 27, 1999 (the first day on which the
Company's common stock began trading on a "when issued" basis on the New York
Stock Exchange), through December 31, 2002, with the cumulative total return of:
(i) the Standard & Poor's 500 Stock Index; and (ii) a Custom Composite Index
comprised of an industry peer group selected by the Company that includes
representative companies with which the Company competes.
Based upon an initial investment of $100 on October 27, 1999, with
dividends, if any, reinvested.
[PERFORMANCE GRAPH]
<Table>
<Caption>
- ------------------------------------------------------------------------------------
27-OCT-99 31-DEC-99 31-DEC-00 31-DEC-01 31-DEC-02
- ------------------------------------------------------------------------------------
Pactiv Corp. $100 $87 $102 $146 $179
- ------------------------------------------------------------------------------------
S&P 500 $100 $114 $103 $91 $71
- ------------------------------------------------------------------------------------
Custom Composite Index
(6 Stocks) $100 $97 $70 $87 $90
- ------------------------------------------------------------------------------------
</Table>
- ------------
1. The stock performance shown in this graph is not necessarily indicative of
future performance of the Company's common stock.
2. The Custom Composite Index is comprised of the following companies: Aptar
Group Inc., Bemis Co., Crown Cork & Seal Co. Inc., Ivex Packaging Corporation
(through the second quarter of 2002, until its acquisition by Alcoa Inc.),
Sealed Air Corp., and Sonoco Products Co. The Company selected this group of
companies in good faith based on similarities in the nature of such
companies' businesses to the Company's business.
3. In prior years the Company had also included the S&P Containers & Packaging
(Paper) index, published by Standard & Poor's Corporation, in its performance
graph. Standard & Poor's Corporation discontinued publishing such index as of
December 31, 2001.
13
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the remuneration paid by the Company: (i) to
the Chief Executive Officer; and (ii) to each of the four most highly
compensated executive officers of the Company, other than the Chief Executive
Officer.
<Table>
<Caption>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------- -------------------------
RESTRICTED ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) STOCK AWARDS(3) OPTIONS COMPENSATION(4)
- --------------------------- ---- --------- -------- --------------- ------- ---------------
Richard L. Wambold........ 2002 $847,600 $1,557,000 $1,238,174 250,000 $ 13,762
Chairman and Chief 2001 $767,100 $ 800,000 $ 786,911 275,000 $ 92,341
Executive Officer 2000 $637,500 $ 725,000 $ 247,600 250,000 $116,625
Andrew A. Campbell........ 2002 $364,625 $ 558,500 $ 553,526 105,000 $ 75,038
Senior Vice President and 2001 $346,808 $ 315,000 $ 370,975 110,000 $ 69,902
Chief Financial Officer 2000 $325,008 $ 295,000 $ 123,800 100,000 $ 61,260
Peter J. Lazaredes........ 2002 $347,760 $ 485,696 $ 349,600 105,000 $ 14,058
Senior Vice President and 2001 $335,117 $ 300,000 $ 247,311 110,000 $ 53,450
General Manager -- 2000 $309,901 $ 235,000 $ 82,537 85,000 $ 32,806
Food/Foodservice
James D. Morris........... 2002 $342,817 $ 395,696 $ 305,900 105,000 $ 64,744
Senior Vice President and 2001 $355,117 $ 190,000 $ 247,311 110,000 $ 14,148
General Manager -- 2000 $309,901 $ 205,000 $ 82,537 85,000 $ 54,719
Protective and Flexible
Packaging
John N. Schwab............ 2002 $320,147 $ 351,996 $ 320,474 105,000 $ 12,914
Senior Vice President and 2001 $302,998 $ 220,000 $ 191,097 110,000 $ 32,895
General Manager -- Hefty 2000 $279,479 $ 200,000 $ 57,777 135,000 $ 28,167
Consumer Products
</Table>
- ------------
(1) Includes base salary plus amounts paid in lieu of matching contributions to
the Thrift Plan.
(2) For 2002, the amount shown includes the dollar value of performance share
units for which the performance criteria were satisfied in such year and
which were not subject to further vesting but were immediately payable upon
the determination of such criteria being satisfied. Bonus payments are
reported for the fiscal year in which the related services were rendered,
although the actual payments may have been made in the succeeding year.
(3) Represents the dollar value of the performance share units for which the
performance criteria were satisfied in such year but which were subject to
further vesting based on the individual's continued employment with the
Company (performance share units that are not subject to further vesting are
reported as "Bonus" in this table. See note 2 above.) Performance share
units are granted under the Company's 2002 Incentive Compensation Plan, are
earned in amounts between 0% and 200% of the target amount for each year
based upon the Company's performance against a value model that requires
improvement in both earnings per share and the return on capital employed
for that year, vest three years from the date of the award, and can be paid
in stock or cash. The dollar values shown are calculated by multiplying the
closing market price of the Company's common stock on December 31, 2000,
2001 and 2002, respectively, by the number of performance share units earned
during such year (not including, for 2002, performance share units that were
not subject to further vesting, which are reflected in the "Bonus" column of
this Table). Performance share units would be entitled to receive dividends
or dividend equivalents, respectively, if declared and paid on the Company's
common stock. The total number of performance share units held by the above
individuals and the value as of December 31, 2002 (excluding performance
share units that were settled on January 29, 2003), based on the closing
market price of the Company's common stock
14
on December 31, 2002 of such holdings is as follows: Mr. Wambold: 82,000
units ($1,791,700); Mr. Campbell: 36,733 units ($802,616); Mr. Lazaredes:
23,600 units ($515,660); Mr. Morris: 21,600 units ($471,960); and Mr.
Schwab: 21,000 units ($458,850).
(4) Includes amounts attributable during 2002 to benefit plans of the Company as
follows:
(a) The Company contributed $11,000, $4,583, $11,000, $11,000, and $8,417
to the accounts of each of Messrs. Wambold, Campbell, Lazaredes,
Morris, and Schwab, respectively, pursuant to the Thrift Plan.
(b) The dollar values paid by the Company for insurance premiums under the
Company's group life insurance plan for Messrs. Wambold, Campbell,
Lazaredes, Morris and Schwab, were $2,762, $2,455, $3,058, $3,744, and
$4,497, respectively.
(c) Under the Pactiv Corporation Deferred Compensation Plan, participants
who elect to invest all or a portion of their bonus in the Pactiv
Common Stock Index Account receive a premium of one additional Common
Stock Equivalent for each five Common Stock Equivalents purchased,
provided such Common Stock Equivalents are retained for three years.
The value of such additional Common Stock Equivalents in 2002 for named
individuals is as follows: Mr. Campbell: $68,000; and Mr. Morris:
$50,000.
OPTIONS GRANTED IN 2002
The following table shows the number of options to purchase common stock
that were granted by the Company during 2002 to the persons named in the Summary
Compensation Table above.
<Table>
<Caption>
PERCENT OF
SHARES OF TOTAL OPTIONS
COMMON STOCK GRANTED TO GRANT DATE
UNDERLYING OPTIONS EMPLOYEES EXERCISE EXPIRATION PRESENT
GRANTED(#) IN 2002(%) PRICE($)(1) DATE VALUE(2)
------------------ ------------- ----------- ---------- ----------
Richard L. Wambold.......... 250,000 11.2 $17.60 9/18/12 $1,685,000
Andrew A. Campbell.......... 105,000 4.7 $17.60 9/18/12 $ 707,700
James D. Morris............. 105,000 4.7 $17.60 9/18/12 $ 707,700
Peter J. Lazaredes.......... 105,000 4.7 $17.60 9/18/12 $ 707,700
John N. Schwab.............. 105,000 4.7 $17.60 9/18/12 $ 707,700
</Table>
- ------------
(1) All options were granted with exercise prices equal to 100% of the fair
market value (the average of the high and the low trading price) of a share
of Company common stock on the date of grant.
(2) Reflects Black-Scholes valuation that was performed using the following
assumptions: 38.70% volatility, 2.90% risk-free interest rate, 0% expected
dividend rate and 5-year option life.
OPTIONS AT YEAR-END 2002 VALUES
The following table sets forth the number of stock options held at December
31, 2002 by the persons named in the Summary Compensation Table. No options to
acquire shares of the Company's common stock were exercised by such persons
during 2002.
<Table>
<Caption>
TOTAL NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 2002 DECEMBER 31, 2002
------------------------------ ------------------------------
EXERCISABLE NON-EXERCISABLE EXERCISABLE NON-EXERCISABLE
----------- --------------- ----------- ---------------
Richard L. Wambold.................... 1,113,335 516,665 $8,074,011 $2,903,989
Andrew A. Campbell.................... 403,335 211,665 $3,397,811 $1,182,839
Peter J. Lazaredes.................... 321,543 206,665 $2,455,511 $1,132,189
James D. Morris....................... 355,623 206,665 $2,455,511 $1,132,189
John N. Schwab........................ 228,919 203,332 $1,715,174 $1,098,426
</Table>
15
PENSION PLAN TABLE
The following table sets forth the aggregate estimated annual benefits
payable upon normal retirement pursuant to the Company's Retirement Plan and
Supplemental Executive Retirement Plan to persons in specified remuneration and
years-of-credited-participation classifications.
<Table>
<Caption>
YEARS OF CREDITED PARTICIPATION
ANNUAL ---------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30
- ------------ -------- -- -- -- -- --
$ 600,000 $ 47,142 $ 94,285 $141,428 $188,571 $235,714 $282,857
$ 700,000 $ 55,000 $110,000 $165,000 $220,000 $275,000 $330,000
$ 800,000 $ 62,857 $125,714 $188,571 $251,428 $314,285 $377,142
$ 900,000 $ 70,714 $141,428 $212,142 $282,857 $353,571 $424,285
$1,000,000 $ 78,571 $157,142 $235,714 $314,285 $392,857 $471,428
$1,100,000 $ 86,428 $172,857 $259,285 $345,714 $432,142 $518,571
$1,200,000 $ 94,285 $188,571 $282,857 $377,142 $471,428 $565,714
$1,300,000 $102,142 $204,285 $306,428 $408,571 $510,714 $612,857
$1,400,000 $110,000 $220,000 $330,000 $440,000 $550,000 $660,000
$1,500,000 $117,857 $235,714 $353,571 $471,428 $589,285 $707,142
$1,600,000 $125,714 $251,428 $377,142 $502,857 $628,571 $754,285
$1,700,000 $133,571 $267,142 $400,714 $534,285 $667,857 $801,428
$1,800,000 $141,428 $282,857 $424,285 $565,714 $707,142 $848,571
$1,900,000 $149,285 $298,571 $447,857 $597,142 $746,428 $895,714
$2,000,000 $157,143 $314,286 $471,429 $628,571 $785,714 $942,857
</Table>
- ------------
Notes:
1. The benefits shown above are computed as a straight-life annuity and are
based on years of credited participation and the employee's average
compensation (salary and bonus), determined over a three-year period. The
benefits are not subject to any deduction for Social Security or other offset
amounts. The estimated credited years of service for Messrs. Wambold,
Campbell, Lazaredes, Morris and Schwab are 24, 3, 21, 27 and 6, respectively.
See the Summary Compensation Table above for salary and bonus information for
these individuals.
2. Commencing at age 55 or at his separation from the Company, whichever is
later, Mr. Wambold's benefits, at a minimum, shall be determined by
multiplying his average total base compensation plus bonus, determined over
the three-year period immediately preceding his separation from service, by
25% plus 2.5% for each year service in the period commencing January 1, 1997
up to a maximum of 50%. Until he is age 55, Mr. Lazaredes' eligibility and
benefits (including years of credit participation) shall be computed as
though he were age 55.
CHANGE OF CONTROL AGREEMENTS
The Company maintains a key executive change-in-control severance benefit
plan designed to enable the Company to continue to attract, retain and motivate
highly qualified employees by eliminating, to the maximum practicable extent,
any concern on the part of those employees that their job or benefit
entitlements will be terminated as a result of a "change-in-control" of the
Company, as that term is defined in the plan. The plan provides for severance
payments that are equal to three times the sum of the executive's annual base
salary in effect at the date of termination of employment and the greater of the
average amount of incentive compensation received by the executive over the
preceding three years or the targeted annual awards under such plans. Under the
plan, Messrs. Wambold, Campbell, Lazaredes, Morris, and Schwab would have been
entitled to receive payments in the amount of $5,030,001, $2,015,025,
$1,883,001, $1,638,672, and $1,600,026, respectively, if their positions had
been terminated on December 31, 2002, following a "change-in-control." In
addition, restricted shares held in the name of those individuals would
automatically become unrestricted, all of their performance share units would
become fully vested and payable, and all of their stock options would become
fully vested.
16
RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR 2003
(PROPOSAL 2)
Financial statements of the Company and its consolidated subsidiaries as of
and for the year ended December 31, 2002, 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 2003. 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 2003, the Audit Committee would reconsider the
appointment.
The Company's independent public accountants for 2001 were Arthur Andersen
LLP. Arthur Andersen LLP did not resign or decline to stand for re-election as
the Company's independent public accountants in 2002. Rather, the determination
to appoint new independent public accountants for 2002 was made by the Board of
Directors, based on the recommendation of the Audit Committee. Neither Ernst &
Young LLP's report on the Company's financial statements for the year ended
December 31, 2002, nor Arthur Andersen LLP's report on the Company's financial
statements for the year ended December 31, 2001, contained an adverse opinion or
a disclaimer of opinion, nor were such reports qualified or modified as to
uncertainty, audit scope or accounting principles. There have not been, during
the Company's two most recent fiscal years or any subsequent interim period, any
disagreements with Arthur Andersen LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Arthur Andersen LLP, would
have caused Arthur Andersen LLP to make reference to the subject matter of the
disagreement in connection with their report on the Company's consolidated
financial statements for such years.
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 2002, and fees for other services rendered by Ernst & Young LLP
for fiscal 2002.
AUDIT FEES. The aggregate fees for professional services rendered by Ernst
& Young LLP 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 for the 2002 fiscal
year were approximately $1,225,650.
AUDIT-RELATED FEES. The aggregate fees for preferred services rendered by
Ernst & Young for audit-related services including benefit plan audits and due
diligence related to mergers and acquisitions were $201,987.
TAX AND OTHER FEES. There were no professional services rendered by Ernst &
Young LLP in the 2002 fiscal year relating to tax and other services.
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.
The following presents fees for professional audit services rendered in
2001 by Arthur Andersen LLP, the Company's former independent public accountants
for the audit of the Company's annual consolidated financial statements for 2001
and fees for other services rendered by Arthur Andersen LLP in 2001. Certain of
these services were provided in 2001 under then existing regulations but are no
longer allowed to be provided by the Company's independent public accountants.
17
AUDIT FEES. The aggregate fees for professional services rendered by Arthur
Andersen LLP 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 for the 2001 fiscal
year were approximately $1,559,000.
AUDIT-RELATED FEES. The aggregate fees for professional services rendered
by Arthur Andersen LLP for audit-related services including benefit plan audits
and oversight of trusts established as a result of the Company's spin-off from
its former parent were approximately $470,000.
TAX FEES. The aggregate fees for services rendered by Arthur Andersen LLP
for tax services including tax planning, preparation of tax returns, transfer
price studies and acquisition and divestiture tax planning were approximately
$2,250,000.
OTHER FEES. The aggregate fees for other services rendered by Arthur
Andersen LLP including internal audit outsourcing services, supply chain
planning and customer integration consulting and a sales incentive compensation
study were $2,257,000.
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 2003.
OTHER INFORMATION
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information of each person that, as
of December 31, 2002, 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>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------- -------------------- ----------------
Barclays Global Investors, NA............................ 11,484,846(1) 7.25%
45 Fremont Street
San Francisco, CA 94105
</Table>
- ------------
(1) The shares shown are held by Barclays Global Investors, NA, and certain
other banks affiliated with Barclays Global Investors, NA. Of such amount,
10,004,326 shares were reported as held of record by Barclays Global
Investors, NA. Such shares are held in trust accounts for the economic
benefit of the beneficiaries of those accounts.
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 Section 16(a) of the
Exchange Act during 2002. The Company does not know of any persons who hold more
than 10% of the common stock of the Company.
SHAREHOLDER PROPOSALS FOR 2004 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
18
Company's principal executive offices, at the times set forth in the following
paragraph regarding notices for shareholder proposals.
SHAREHOLDER PROPOSALS -- INCLUSION IN COMPANY 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 2004 Annual Meeting
of Shareholders, the proposal must be received by the Company at its principal
executive offices by December 3, 2003.
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 16, 2004, or later than February 15, 2004.
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.
ANNUAL REPORT ON FORM 10-K
THE ANNUAL REPORT, WHICH INCLUDES PORTIONS OF 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, WITHOUT CHARGE TO ANY
SHAREHOLDER, A COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2002, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. A COPY
OF THIS REPORT MAY BE OBTAINED UPON ORAL OR WRITTEN REQUEST TO JAMES V.
FAULKNER, JR., 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).
19
QUESTIONS AND ANSWERS REGARDING VOTING
WHO MAY VOTE AT THE ANNUAL MEETING? If you are a holder of common stock on
the Record Date (as defined below), 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.
WHAT IS THE RECORD DATE? Your Board of Directors has selected the close of
business on March 19, 2003, as the record date (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, 2003, may vote their shares at the Annual Meeting. On the Record Date,
the Company had issued and outstanding 162,433,349 shares of its common stock
(of which 159,233,349 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 Supplemental Executive Retirement Plan and Deferred Compensation
Plan).
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, Roger B. Porter, and James V. Faulkner,
Jr. 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.
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.
20
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 Thrift Plan, that are received by
May 13, 2003) will be voted in accordance with the 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 2003; 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 New York Stock Exchange, 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 re-election of directors), the
individuals receiving a plurality of the votes cast at the Annual Meeting (in
person or by proxy) will be elected as directors. As a result, 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.
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 $25,000 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.
WHO MAY ATTEND THE ANNUAL MEETING? All holders of shares of common stock on
the Record Date may attend the Annual Meeting.
21
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.
22
APPENDIX A
PACTIV CORPORATION
AUDIT COMMITTEE CHARTER
A. NAME
There shall be a committee of the Board of Directors (Board) which shall be
called the Audit Committee.
B. PURPOSE
The Audit Committee shall be directly responsible for the appointment,
compensation and oversight over the work of the Company's independent public
accountants.
The Audit Committee shall monitor (1) the integrity of the financial
statements of the Company, (2) the Company's compliance with the corporate code
of conduct and legal and regulatory requirements, (3) the independent public
accountants' qualifications and independence and (4) the performance of the
Company's internal audit function and independent public accountants.
The Audit Committee shall prepare the report required by the rules of the
Securities and Exchange Commission (the "SEC") to be included in the Company's
annual proxy statement.
C. COMMITTEE MEMBERSHIP
The Audit Committee shall consist of three or more directors as determined
by the Board. Each member of the Audit Committee shall satisfy the independence,
experience and financial expertise requirements of the New York Stock Exchange
("NYSE") and Section 10A of the Securities Exchange Act of 1934, as amended by
the Sarbanes-Oxley Act of 2002, and the rules promulgated thereunder.(4) All
members of the Audit Committee shall have a basic understanding of finance and
accounting and be able to read and understand fundamental financial statements.
At least one member of the Audit Committee shall be an "audit committee
financial expert" as defined under the rules of the SEC. Fees for work as a
director are the only compensation that an Audit Committee member may receive
from the Company.
The Board shall appoint the members of the Audit Committee (including the
chair) annually, considering the recommendation of the
Compensation/Nominating/Governance Committee, and further considering the views
of the Chairman of the Board and the Chief Executive Officer, as appropriate.
The members of the Audit Committee shall serve until their successors are
appointed and qualify. If the Committee Chair is not designated or present, the
Committee members may designate a Chair by majority vote of the Committee
membership. The Board shall have the power at any time to change the membership
of the Audit Committee and to fill vacancies in it subject to such new member(s)
satisfying the independence, experience, and financial expertise requirements
referred to above. Except as expressly provided in this Charter or the by-laws
of the Company or Corporate Governance Guidelines of the Company, or as
otherwise provided by law or the rules of the NYSE, the Audit Committee shall
fix its own rules of procedure.
At least annually, obtain and review a report by the independent auditor
describing (i) the audit firm's internal quality control procedures; (ii) any
material issues raised by the most recent internal quality control review, or
peer review or any governmental or professional investigation of independent
audits by the firm; and (iii) all relationships between the independent auditor
and Pactiv.
The Audit Committee shall hold meetings as often as it deems appropriate,
but at least four times per year.
A-1
D. COMMITTEE AUTHORITY AND RESPONSIBILITIES
The Audit Committee shall have the sole authority to appoint or replace the
independent public accountants (subject, if applicable, to shareholder
ratification), and shall approve all audit engagement fees and terms and all
non-audit engagements with the independent public accountants as well as the
audit plan, including its scope, approach, staffing and locations to be visited.
The Audit Committee shall consult with management but shall not delegate these
responsibilities, except that pre-approvals of non-audit services may be
delegated to a single member of the Audit Committee. In its capacity as a
committee of the Board, the Audit Committee shall be directly responsible for
the oversight of the work of the independent public accounting firm for the
purpose of preparing or issuing an audit report or related work, and the
independent public accounting firm shall report directly to the Audit Committee.
The Audit Committee shall have the authority, to the extent it deems
necessary or appropriate, to retain at the expense of the Company special legal,
accounting or other consultants to advise the committee and carry out its duties
and to conduct or authorize investigations into any matters within its scope of
responsibilities. The Audit Committee shall meet periodically with management,
the internal auditors and the independent public accountants in separate
executive sessions in furtherance of its purposes.
The Audit Committee may request any officer or employee of the Company or
the Company's outside counsel or independent public accountants to attend a
meeting of the Audit Committee or to meet with any members of, or consultants
to, the Audit Committee.
The Audit Committee shall make regular reports to the Board. The Audit
Committee shall review and reassess the adequacy of this Charter annually and
recommend any proposed changes to the Board for approval. The Audit Committee
shall annually review the Audit Committee's own performance.
In performing its functions the Audit Committee shall undertake those tasks
and responsibilities that, in its judgment, would most effectively contribute
and implement the purposes of the Audit Committee. The following functions are
some of the common recurring activities of the Audit Committee in carrying out
its oversight responsibility:
- Review and discuss with management and the independent public accountants
the Company's annual audited financial statements, including disclosures
made in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" or similar disclosures, and the matters required
to be discussed pursuant to Statement on Auditing Standards No. 61, as
amended, and recommend to the Board whether the audited financial
statements should be included in the Company's Form 10-K.
- Review and discuss with management and the independent public accountants
the Company's quarterly financial statements, including disclosures made
under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" or similar disclosures, and the matters required
to be discussed pursuant to Statement on Auditing Standards No. 61, as
amended, prior to the filing of its Form 10-Q, including the results of
the independent public accountants' reviews of the quarterly financial
statements to the extent applicable.
- Review and discuss with management, the internal auditors and the
independent public accountants, as applicable, (a) major issues regarding
accounting principles and financial statement presentations, including
any significant changes in the Company's selection or application of
accounting principles, and major issues as to the adequacy of the
Company's internal and disclosure controls and any special audit steps
adopted in light of material control deficiencies; (b) analyses prepared
by management or the independent public accountants setting forth
significant financial reporting issues and judgments made in connection
with the preparation of the financial statements, including analyses of
the effects of alternative GAAP methods on the financial statements; (c)
any management letter provided by the independent public accountants and
the Company's response to that letter; (d) any problems, difficulties or
differences encountered in the course of the audit work, including any
disagreements with management or
A-2
restrictions on the scope of the independent public accountants' activities or
on access to requested information and management's response thereto; (e) the
effect of regulatory and accounting initiatives, as well as off-balance sheet
structures, on the financial statements of the Company; and (f) earnings
press releases.
- Discuss with management the Company's major financial risk exposures and
the steps management has taken to monitor and control such exposures,
including the Company's risk assessment and risk management policies.
- Evaluate the qualifications, performance and independence of the public
accountants, including a review and evaluation of the lead partner of the
independent public accountant taking into account the opinions of
management and the Company's internal auditors.
- Ensure that the lead audit partner of the independent public accountants
and the audit partner responsible for reviewing the audit are rotated at
least every five years as required by the Sarbanes-Oxley Act of 2002.
- Approve the hiring of employees or former employees of the independent
public accountants who were engaged on the Company's account.
- Discuss with management and the independent public accountants any
accounting adjustments that were noted or proposed by the independent
public accountants but were passed (as immaterial or otherwise).
- Ensure that the Company maintains an internal audit function.
- Review the annual internal audit plan, any changes to such plan, the
organizational structure and qualification of the internal audit staff.
- Discuss with the independent public accountants the internal audit
department, its audit plan, responsibilities, budget and staffing.
- Review significant reports prepared by the internal audit staff together
with management's response.
- Review and concur in the appointment or dismissal of the internal audit
staff and any third party internal audit firm.
- At least twice annually, review with the Company's General Counsel the
Company's compliance with laws and regulations, material inquiries, if
any, from regulatory or government agencies, and any other legal matters
that could have a significant impact on the Company's financial
statements.
- Establish procedures for (a) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters and (b) the confidential,
anonymous submission by employees of the Company of concerns regarding
questionable accounting or auditing matters.
- Review disclosures made by the Company's principal executive officer or
officers and principal financial officer or officers regarding compliance
with their certification obligations as required under the Sarbanes-Oxley
Act of 2002 and the rules promulgated thereunder, including the Company's
disclosure controls and procedures and internal controls for financial
reporting and evaluations thereof.
- Review any reports of the registered independent public accountants
mandated by Section 10A of the Securities Exchange Act of 1934, as
amended, and obtain from the registered independent public accountants
any information with respect to illegal acts in accordance with Section
10A.
E. LIMITATIONS OF AUDIT COMMITTEE'S ROLES
While the Audit Committee has the responsibilities and powers set forth in
its Charter, it is not the duty of the Audit Committee to prepare financial
statements, plan or conduct audits or to determine that the Company's financial
statements and disclosures are complete and accurate and are in accordance with
generally accepted accounting principles and applicable rules and regulations.
A-3
PACTIV CORPORATION
1900 WEST FIELD COURT
LAKE FOREST, ILLINOIS 60045
(847) 482-2000 [PACTIV ADVANCED PACKAGING SOLUTIONS LOGO]
April 2, 2003
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 10:30 a.m. local time on Friday, May 16, 2003. 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 2003, and as recommended by
management on all other matters to be considered 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 no later than May 13, 2003, 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
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.
YOUR VOTE IS IMPORTANT
If you do not vote by telephone or Internet, please sign and date this proxy
card and return it promptly in the enclosed postage-paid envelope so your
shares may be represented at the Meeting.
Proxy must be signed and dated on the reverse side.
o Please fold and detach card at perforation before mailing. o
- --------------------------------------------------------------------------------
PACTIV CORPORATION PROXY
- --------------------------------------------------------------------------------
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:
<Table>
<Caption>
(01) Larry D. Brady (02) K. Dane Brooksher (03) Robert J. Darnall (04) Mary R. (Nina) Henderson
(05) Roger B. Porter (06) Paul T. Stecko (07) Richard L. Wambold (08) Norman H. Wesley
[ ] FOR all nominees listed above. [ ] WITHHOLD AUTHORITY
(except as listed to the contrary below) to vote for all nominees listed above.
</Table>
To withhold authority to vote for any individual nominee, write that
nominee's name or number below:
---------------------------------------------------------------------------
2. RATIFY THE SELECTION OF ERNST & YOUNG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
[ ] Please check this box if you consent to access future Annual Reports and
Proxy Statements via the Internet.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
<Table>
PACTIV CORPORATION VOTE BY TELEPHONE
c/o National City Bank
Corporate Trust Operations Have your proxy card available when you
Locator 5352 call the Toll-Free number 1-800-542-1160
P.O. Box 94990 using a Touch-Tone phone. You will be
Cleveland, OH 44101-4900 prompted to enter your control number and
then can follow the simple prompts that will
be presented to you to record your vote.
VOTE BY INTERNET
Have your proxy card available when you
access the website http://www.votefast.com.
You will be prompted to enter your control
number and then you can follow the simple
prompts that will be presented to you 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: Stock Transfer Dept.
(PC), National City Bank, P.O. Box 94990,
Cleveland, OH 44101-4900.
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
1-800-542-1160 http:\\www.votefast.com envelope provided
Vote 24 hours a day, 7 days a week!
Your telephone or Internet vote must be received by 11:59 p.m. eastern time
on Thursday, May 15, 2003 to be counted in the final tabulation.
If you vote by telephone or Internet, please do not send your proxy by mail.
YOUR CONTROL NUMBER IS:
Proxy must be signed and dated below.
o Please fold and detach card at perforation before mailing. o
PACTIV CORPORATION PROXY
THIS PROXY IS SOLICITED ON BEHALF ON THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF SHAREHOLDERS ON MAY 16,
2003.
The undersigned does hereby appoint Richard L. Wambold, Roger B. Porter and James V. Faulkner, Jr., 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, 2003, and entitled to vote
at the Annual Meeting of Shareholders of Pactiv Corporation to be held at 10:30 a.m., May 16, 2003, at the
Hilton Northbrook, 2855 N. Milwaukee Ave., Northbrook, Illinois 60062, or at any adjournment thereof, and to
vote, in their discretion, upon such other matters as may properly come before the Annual Meeting.
UNLESS OTHERWISE INDICATED, THE PROXIES ARE INSTRUCTED TO VOTE FOR (1) THE ELECTION OF THE NOMINEES LISTED ON
THE OPPOSITE SIDE OF THIS CARD AS DIRECTORS AND (2) THE RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT
PUBLIC ACCOUNTANTS FOR 2003. THE SIGNER HEREBY REVOKES ALL PROXIES HERETOFORE GIVEN BY THE SIGNER TO VOTE AT
SAID MEETING OR ANY ADJOURNMENTS THEREOF.
--------------------------------------------------------
Signature
--------------------------------------------------------
Signature
Date: , 2003
--------------------------------------------
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.
</Table>
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.
YOUR VOTE IS IMPORTANT!
If you do not vote by telephone or Internet, please sign and date this voting
instruction card and return it promptly in the enclosed postage-paid envelope so
your shares may be represented at the Meeting.
Voting instruction must be signed and dated on the reverse side.
o Please fold and detach card at perforation before mailing. o
- --------------------------------------------------------------------------------
PACTIV CORPORATION CONFIDENTIAL VOTING INSTRUCTIONS
- --------------------------------------------------------------------------------
The Trustee is directed to vote as specified below. If no direction is made,
your shares will be voted FOR the election of the nominees for Directors and FOR
Proposal 2. If the Trustee does not receive your voting instructions by May 13,
2003, either by telephone, Internet, or receipt of a signed voting instruction
card, the shares credited to your account will not be represented at the Annual
Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ALL PROPOSALS.
1. ELECTION OF DIRECTORS
Nominees:
(01) Larry D. Brady (02) K. Dane Brooksher (03) Robert J. Darnall
(04) Mary R. (Nina) Henderson (05) Roger B. Porter (06) Paul T. Stecko
(07) Richard L. Wambold (08) Norman H. Wesley
[ ] FOR all nominees listed above. [ ] WITHHOLD AUTHORITY
(except as listed to the contrary to vote for all nominees listed
below) above.
To withhold authority to vote for any individual nominee, write that
nominees's name or number below:
----------------------------------------------------------------------------
2. RATIFY THE SELECTION OF ERNST & YOUNG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
[ ] Please check this box if you consent to access future Annual Reports and
Proxy Statements via the Internet.
(Continued and to be signed on the reverse side)
<Table>
PACTIV CORPORATION VOTE BY TELEPHONE
c/o National City Bank
Corporate Trust Operations Have this available when you call the
Locator 5352 Toll-Free number 1-800-542-1160
P.O. Box 94990 using a Touch-Tone phone. You will be
Cleveland, OH 44101-4900 prompted to enter your control number and
then you can follow the simple prompts that
will be presented to you to record your vote.
VOTE BY INTERNET
Have this form available when you access the
website http://www.votefast.com. You will be
prompted to enter your control number and
then you can follow the simple prompts that
will be presented to you to record your
vote.
VOTE BY MAIL
Please mark, sign and date your voting
instruction card and return it in the
postage-paid envelope provided or return it
to: Stock Transfer Dept. (PC), National City
Bank, P.O. Box 94990, Cleveland, OH
44101-4900.
VOTE BY TELEPHONE VOTE BY INTERNET VOTE BY MAIL
Call Toll-Free using a Access the Website and Return your voting instruction card
Touch-Tone phone: cast your vote: in the Postage-paid
1-800-542-1160 http:\\www.votefast.com envelope provided.
Vote 24 hours a day, 7 days a week!
Your telephone or Internet vote must be received by 11:59 p.m. eastern time
on Tuesday, May 13, 2003 to be counted in the final tabulation.
If you vote by telephone or Internet, please do not send your voting instruction by mail.
YOUR CONTROL NUMBER IS:
o Please fold and detach card at perforation before mailing. o
PACTIV CORPORATION PROXY
THIS VOTING INSTRUCTION CARD IS SENT TO YOU IN CONNECTION WITH THE SOLICITATION OF PROXIES BY THE BOARD OF
DIRECTORS OF PAVTIV CORPORATION. Please complete this form on the reverse side, sign your name exactly as it
appears below, and return it in the enclosed envelope.
As a participant in the Pactiv Corporation 401(k) Savings & Investment Salaried Plan (the "Plan") or the
Pactiv Corporation 401(k) Savings and Investment Hourly Plan (the "Plan"), I hereby direct Fidelity Management
Trust Company, as Trustee for the Plan, to vote all shares of Common Stock of Pactiv Corporation represented
by my Proportionate interest in the Trust at the Annual Meeting of Shareholders of the Company to be held on
May 16, 2003, 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 Trustee can vote your shares. Your shares cannot be voted in person at the Annual Meeting. How you
vote these shares is confidential. The trustee will not disclose how you have instructed the Trustee to vote.
--------------------------------------------------------
Sign here as name appears to the left.
Date: , 2003
--------------------------------------------
</Table>