SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Section 240.14a-12
PACTIV CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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PACTIV CORPORATION
1900 WEST FIELD COURT
LAKE FOREST, ILLINOIS 60045
(847) 482-2000 [PACTIV ADVANCED PACKAGING SOLUTIONS LOGO]
April 1, 2004
Fellow Shareholders:
The Annual Meeting of Shareholders of Pactiv Corporation will be held
Friday, May 14, 2004, 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,
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 14, 2004
The Annual Meeting of Shareholders of Pactiv Corporation will be held May
14, 2004, 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 seven directors for a term to expire at the 2005 Annual Meeting
of Shareholders;
2. To ratify the engagement of Ernst & Young LLP as independent public
accountants for the year 2004; and
3. To consider any other matters as may be properly brought before the
meeting or any adjournment or postponement thereof.
The Board of Directors knows of no other matters at this time that may be
brought before the meeting. Holders of common stock of record at the close of
business on March 19, 2004, 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 1, 2004
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 14, 2004, 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 on or about April 1, 2004 to
the Company's shareholders entitled to vote at the Annual Meeting.
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 of Management............................. 5
Corporate Governance...................................... 6
Board of Directors........................................ 6
Board Committees.......................................... 6
Other Governance Matters.................................. 8
Compensation of Directors................................. 9
Compensation Committee Interlocks and Insider
Participation.......................................... 10
Reports..................................................... 10
Audit Committee Report.................................... 10
Compensation/Nominating/Governance Committee Report on
Executive Compensation................................. 11
Performance Graph........................................... 15
Executive Compensation...................................... 16
Summary Compensation Table................................ 16
Options Granted in 2003................................... 18
Options at Year-End 2003 Values........................... 18
Long-Term Incentive Plans-Awards in 2003.................. 18
Pension Plan Table........................................ 19
Change of Control Agreements.............................. 20
Ratification of Ernst & Young LLP as Independent Public
Accountants for 2004 (Proposal 2)......................... 20
Audit and Non-Audit Fees.................................. 20
Other Information........................................... 21
Certain Beneficial Owners................................. 21
Section 16(a) Beneficial Ownership Reporting Compliance... 21
Shareholder Nominations and Other Proposals for 2005
Annual Meeting of Shareholders......................... 22
Annual Report on Form 10-K................................ 22
Questions and Answers Regarding Voting...................... 23
</Table>
1
PROPOSALS SUBMITTED FOR VOTE
PROPOSAL 1: RE-ELECTION OF DIRECTORS
NOMINEES. At the Annual Meeting, you will elect seven individuals to the
Board of Directors. Each director will hold office until the next annual meeting
and until his or her successor is elected and qualified or until his or her
earlier resignation or removal. Nominees for re-election this year are Larry D.
Brady, K. Dane Brooksher, Robert J. Darnall, Mary R. (Nina) Henderson, Roger B.
Porter, 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 seven 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 engaged Ernst & Young LLP as the Company's independent public
accountants for the year 2004. The Company is asking the shareholders to ratify
this engagement.
VOTE REQUIRED. You may vote for, vote against, or abstain from voting on
this proposal. Assuming a quorum is present, the vote of a majority of the
shares present at the Annual Meeting (in person or by proxy) and entitled to
vote will be required to ratify the engagement of Ernst & Young LLP as the
Company's independent public accountants for the year 2004.
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 2004.
2
RE-ELECTION OF THE BOARD OF DIRECTORS OF THE COMPANY
(PROPOSAL 1)
BIOGRAPHICAL INFORMATION
Below are the current members of the Company's Board of Directors, each of
whom is standing for re-election at the Annual Meeting.
<Table>
Larry D. Brady 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 also a director of Baker Hughes Incorporated. Mr.
Brady is 61 years old, has been a director of the Company
since November 1999, and is a member of the Audit Committee
and the Three-Year Independent Director Evaluation
Committee.
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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
Qwest Communications International Inc., and he serves as an
Advisory Board Member of the J.L. Kellogg Graduate School of
Management of Northwestern University. Mr. Brooksher is 65
years old, has been a director of the Company since March
2003, and is Chairman of the Audit Committee.
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Robert J. Darnall retired as Chairman of Prime Advantage
[ROBERT 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. (a subsidiary of HSBC which acquired
Household International Inc. in March 2003), Sunoco, Inc.,
and United States Steel Corporation. Mr. Darnall is 66 years
old, has been a director of the Company since March 2000,
and is Chairman of the Compensation/Nominating/Governance
Committee.
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</Table>
3
<Table>
Mary R. (Nina) Henderson serves as an independent consultant
[MARY HENDERSON PHOTO] on the consumer and packaged goods industries. 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. 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 53 years old, has been a
director of the Company since January 2000, and is a member
of the Audit Committee.
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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 57 years old, has been a
director of the Company since November 1999, and is a member
of the Compensation/Nominating/Governance Committee and the
Three-Year Independent Director Evaluation Committee.
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Richard L. Wambold has been Chairman of the Company since
[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 also a director of Cooper
Tire and Rubber Company. Mr. Wambold is 52 years old and has
been a director of the Company since June 1999.
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Norman H. Wesley has been the Chairman and Chief Executive
[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
54 years old, has been a director of the Company since
December 2001, and is a member of the Audit Committee and
the Compensation/Nominating/Governance Committee.
</Table>
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ALL OF THE
NOMINEES LISTED ABOVE.
4
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth, as of February 29, 2004, 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 29, 2004, 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 COMMON TOTAL SHARES,
STOCK STOCK OPTIONS AND
DIRECTORS OWNED(1) OPTIONS(2) EQUIVALENTS(3) EQUIVALENTS(4)
--------- --------- ---------- -------------- --------------
Larry D. Brady........................... 4,157 26,266 15,289 45,712
K. Dane Brooksher........................ 1,000 12,000 2,445 15,445
Robert J. Darnall........................ 5,000 24,000 10,770 39,770
Mary R. (Nina) Henderson................. 0 24,000 10,583 34,583
Roger B. Porter.......................... 4,147 25,132 15,446 44,725
Richard L. Wambold....................... 173,105 1,364,669 93,396 1,631,170
Norman H. Wesley......................... 4,000 18,000 2,808 24,808
EXECUTIVE OFFICERS
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Andrew A. Campbell....................... 156,338 508,334 115,596 780,268
Peter J. Lazaredes....................... 67,340 421,542 23,601 512,483
James D. Morris.......................... 35,185 455,622 79,333 570,140
John N. Schwab........................... 34,024 325,585 46,251 405,860
All executive officers and directors or
nominees as a group (13 individuals)... 516,553 3,844,810 521,983 4,883,346
</Table>
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(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 29,
2004, 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 5(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 2.7% of the
outstanding common stock (not including Common Stock Equivalents).
5
CORPORATE GOVERNANCE
The Company is committed to good business practices including
uncompromising integrity, transparency in financial reporting, and thoughtful
and effective corporate governance. To that end, over the last several months
the Board has reviewed the Company's corporate governance policies and practices
in light of these principles and the requirements of the Sarbanes-Oxley Act of
2002 (and related rules of the Securities and Exchange Commission) and the
requirements of the New York Stock Exchange. Based on this review, the Board has
formalized certain procedures and standards as part of its corporate governance
structure. This section outlines the key components of the Company's corporate
governance structure.
BOARD OF DIRECTORS
The Board of Directors of the Company currently consists of seven members,
including six who are not officers or employees of the Company (the "Outside
Directors") and one who is the CEO of the Company. All Outside Directors are
"independent" under the rules of the NYSE and the SEC. The Board has
affirmatively determined that no Outside Director has any material relationship
with the Company (either directly or as a partner, shareholder, or officer of an
organization that has a relationship with the Company). This determination was
made following reviews of questionnaires completed by all directors, and an
internal "cross-checking" review by the Company to confirm whether the Company
had any relationships with companies with whom the Outside Directors are
affiliated.
Outside Directors meet in regularly scheduled executive sessions without
management. The role of presiding director is rotated among all the Outside
Directors. Annually, the Outside Directors choose a presiding director for each
of their executive sessions to be held after each board meeting.
Shareholders may communicate directly with the Board of Directors
(including with the Outside Directors only or with any specific director) in
accordance with the following process. All communications should be directed to
the Company's Secretary at 1900 West Field Court, Lake Forest, Illinois 60045
and should prominently indicate on the outside of the envelope that it is
intended for the full Board of Directors, for Outsider Directors only, or for
any particular member of the Board. The Secretary will review the communications
and, pursuant to instructions from the Outside Directors, remove any
communications that are purely commercial in nature. All other communications
will be promptly forwarded to the specified director or directors. The Outside
Directors will be advised of any communication so excluded and it will be made
available to any Outside Director who wishes to review it.
The Company pays an annual retainer to a third party search firm to assist
the Company in identifying and evaluating potential nominees to the Board. This
firm provides certain background information to the Board with respect to
potential nominees to be directors.
The Board of Directors held seven meetings in 2003. Each director attended
more than 75% of the meetings of the Board and of the Board committees on which
he or she served. The Board has adopted a policy that each Director is expected
to attend all Annual Meetings of Shareholders. All members of the Board attended
the Company's 2003 Annual Meeting of Shareholders.
BOARD COMMITTEES
The Board has three standing Committees, each comprised solely of Outside
Directors, all of whom are independent. In addition, on an ad hoc basis, the
Board may designate from time to time an Outside Director as the "lead" director
with respect to special matters or discussions affecting the Company. The
responsibilities and authority of the standing committees are as follows:
COMPENSATION/NOMINATING/GOVERNANCE COMMITTEE. The
Compensation/Nominating/Governance Committee (the "C/N/G Committee") operates
under a written charter adopted by the Board of Directors, a copy of which is
attached hereto as Exhibit A and which is posted on the Company's website
(www.Pactiv.com) under the Investor Relations link. In addition, the Company
will provide a copy of the C/N/G Committee's charter to any shareholder who
requests it by writing to the Secretary of the
6
Company. The C/N/G Committee reviews and reassesses the adequacy of the
Committee's charter annually. The charter, which reflects the standards set
forth in the SEC and NYSE rules and regulations, identifies the C/N/G
Committee's primary duties and responsibilities as follows:
- Examine periodically the philosophy and structure of the Company's
compensation programs.
- Oversee and act on behalf of the board with respect to the benefit and
compensation plans of the Company.
- Review and determine the desirable balance of experience, qualifications
and expertise among members of the Board of Directors.
- Review possible candidates for membership on the Board of Directors
(including nominations proposed by shareholders) and recommend to the
Board a slate of nominees for election as directors at the Company's
annual meeting of shareholders.
- Review the function and composition of the other committees of the Board
of Directors and recommend membership on such committees.
- Review the qualifications and recommend candidates for election as
officers of the Company.
In performing its duties, the C/N/G Committee has the authority to take
such actions as it deems appropriate to implement the purposes of the C/N/G
Committee. The Committee may retain special legal, accounting or other
consultants, and meet with the Company's management, employees, and such other
persons, in separate executive sessions as the Committee sees fit.
All members of the C/N/G Committee are independent Outside Directors. Mr.
Darnall is Chairman of the Committee. The C/N/G Committee held six meetings in
2003.
SHAREHOLDER NOMINATIONS. The Board has adopted a policy with respect to
nominations by shareholders of candidates to the Board of Directors. The C/N/G
Committee is responsible for the implementation of this policy. Under this
policy, to submit a candidate for consideration by the C/N/G Committee a
shareholder must notify the Company's Secretary at least 90 but not more than
120 days prior to the first anniversary of the date of the prior year's annual
meeting (subject to change if the date of the annual meeting is more than 30
days before or 70 days after the anniversary date of the prior year's annual
meeting). The notice must meet all of the requirements contained in the
Company's Bylaws and must set forth (i) the name, age, business address and
residence address of the proposed nominee; (ii) the principal occupation or
employment of the proposed nominee; (iii) any other information relating to the
shareholder or proposed nominee that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder; (iv) any other information the shareholder believes is
relevant concerning the proposed nominee; (v) a written consent of the proposed
nominee(s) to being named in the proxy statement as a nominee and to serve as a
director if elected; (vi) the name and record address of the shareholder who is
submitting the notice; (vii) the number of shares of voting stock of the Company
which are owned of record or beneficially by the shareholder who is submitting
the notice; (viii) a representation of whether, if the proposed nominee is not
nominated by the Board of Directors, the shareholder intends to appear in person
or by proxy at the annual meeting to nominate the proposed nominee named in the
notice; (ix) a representation of whether the shareholder intends or is part of a
group which intends (a) to deliver a proxy statement and/or form of proxy to the
Company's shareholders, or (b) otherwise to solicit proxies from shareholders in
support of such nomination; and (x) a description of all arrangements or
understanding between the shareholder who is submitting the notice and any other
person (naming such person) pursuant to which the nomination is being made by
the shareholder who is submitting the notice.
The C/N/G Committee will consider all proposed nominees for the Board of
Directors, including those put forward by shareholders, in accordance with the
charter of the C/N/G Committee and the Company's Corporate Governance Guidelines
to determine whether they might make good candidates
7
for consideration for membership on the Board of Directors. This will include a
review of the person's judgment, experience, independence, understanding of the
Company's business or other related industries, and such other factors as the
C/N/G Committee determines are relevant in light of the needs of the Board of
Directors and the Company. There are no specific minimum qualifications that the
C/N/G Committee believes must be met by a nominee. The Board of Directors
believes that its nominees should reflect a diversity of experience at a
policy-making level in businesses and in areas relevant to the Company's
activities, and that the Board shall not discriminate among qualified candidates
based on gender, race, ethnicity or age. The C/N/G Committee will select
qualified candidates and review its recommendations with the Board of Directors,
which will decide whether to invite the candidate to be a nominee for election
to the Board of Directors.
THREE-YEAR INDEPENDENT DIRECTOR EVALUATION COMMITTEE. The Three-Year
Independent Director Evaluation Committee (the "TIDE Committee") has the
responsibility, among other things, to review the Company's Qualified Offer Plan
Rights Agreement (adopted in November 1999) at least every three years and, if
it deems it appropriate, recommend that the full Board modify or terminate such
Plan. The TIDE Committee held no meetings in 2003.
AUDIT COMMITTEE. The Audit Committee operates under a written charter
adopted by the Board of Directors, which is posted on the Company's website
(www.Pactiv.com) under the Investor Relations link. In addition, the Company
will provide a copy of the Audit Committee's charter to any shareholder who
requests it by writing to the Secretary. The Audit Committee reviews and
reassesses the adequacy of the Audit Committee charter annually. The charter,
which reflects the standards set forth in the Securities and Exchange Commission
regulations and the New York Stock Exchange rules, identifies the Audit
Committee's primary duties and responsibilities 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.
All members of the Audit Committee are independent Outside Directors and
must be, and are, financially literate. Mr. Brooksher, the Committee's Chairman,
is the Company's "Audit Committee Financial Expert." The Audit Committee held
twelve meetings in 2003.
OTHER GOVERNANCE MATTERS
The Board has adopted three other policies related to corporate governance,
which are summarized below. All of these policies are posted on the Company's
website (www.Pactiv.com) under the Investor Relations link. In addition, the
Company will provide a copy of the policies to any shareholder who requests them
by writing to the Secretary.
CODE OF BUSINESS CONDUCT AND ETHICS. The Company has adopted a Code of
Business Conduct and Ethics, which requires all employees, officers and
directors of the Company to respect and comply with all applicable laws, rules
and regulations, and, beyond that, to act with honesty, integrity, and in the
8
best interests of the Company. The Code of Business Conduct and Ethics outlines
the key principles of expected behavior for Pactiv employees, officers and
directors, including matters relating to conflicts of interest, confidentiality,
fair dealing, and accounting complaints and procedures for reporting illegal or
unethical behavior as well as the expected ethical behavior in many other
business areas.
CODE OF ETHICAL CONDUCT FOR FINANCIAL MANAGERS. The Company has adopted a
Code of Ethical Conduct for Financial Managers, which (in addition to the Code
of Business Conduct and Ethics) is applicable to the Company's Chief Executive
Officer, Chief Financial Officer, Controller, Treasurer, Tax Director, Audit
Director, Assistant Controller, Assistant Treasurer and managers reporting to
each of these positions who are responsible for accounting and financial
reporting, and any other persons performing similar functions. Financial
Managers also include the Controllers of business units and all managers
reporting to them. This Code covers a range of financial and non-financial
business practices and procedures, requiring Financial Managers to act with
honesty and integrity, including the ethical handling of actual or apparent
conflicts of interest between personal and professional relationships, to fully
and fairly disclose appropriate information in a timely and understandable
manner, and otherwise to act in good faith, responsibly, with due care,
competence and diligence, without misrepresenting material facts or allowing
their independent judgment to be suborned. Any waiver of the Code of Ethical
Conduct for Financial Managers may be made only by the Audit Committee and will
be promptly disclosed as required by law or the NYSE rules.
CORPORATE GOVERNANCE GUIDELINES. The Company has adopted Corporate
Governance Guidelines which set forth certain standards for the Company's Board
of Directors and management. These include director qualification standards,
director responsibilities, and other matters relating to the function of the
Board of Directors, its interaction with management and with the Company's
advisors, and other matters.
COMPENSATION OF DIRECTORS
RETAINERS AND MEETING FEES. The Company pays each Outside 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 Outside Directors $1,000 for each meeting of the Board of Directors
attended. The Chairman of the Audit Committee and the Chairman of the C/N/G
Committee are each paid an annual fee of $9,000, and Outside Directors who serve
on such committees are paid an annual fee of $6,000 per committee membership.
Members of the TIDE Committee receive $1,000 for each meeting of that committee
attended. Outside 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
2003, each Outside Director received 1,102 Common Stock Equivalents. Such Common
Stock Equivalents are held under the Deferred Compensation Plan and are payable
in shares of the Company's Common Stock after an Outside 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 Outside 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, an Outside 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 Outside Directors with various
9
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. Darnall, Porter and Wesley are the current members of the C/N/G
Committee of the Board of Directors, none of whom is an officer or employee of
the Company. During 2003, none of the executive officers of the Company served
on the board of directors or compensation committee of any entity whose officers
served either on the Board of Directors of the Company or on the C/N/G Committee
of the Board.
Until his resignation from the Board on October 27, 2003, Paul T. Stecko
was also a member of the C/N/G Committee. Mr. Stecko was formerly an executive
officer of the Company and of its former parent, Tenneco Inc., until April 1999.
Mr. Stecko is Chairman and Chief Executive Officer of Packaging Corporation of
America ("PCA"), which purchased the Company's former containerboard business in
April 1999. In 2003, the Company purchased approximately $95 million of
corrugated containers and containerboard from PCA. 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.
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 2003 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 2003, 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 may be
modified or supplemented. In addition, the Audit Committee discussed with Ernst
& 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) as may be modified or supplemented.
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, 2003, for filing with the Securities and Exchange Commission.
Respectfully submitted by the members of the Audit Committee:
K. Dane Brooksher, Chairman
Larry D. Brady
Mary R. (Nina) Henderson
Norman H. Wesley
10
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 C/N/G Committee, which is composed of
the Outside Directors named below, each of whom is independent. The C/N/G
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:
- 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.
- Place greater emphasis and leverage on variable performance-based "at
risk" (versus fixed) compensation as executives assume increased
responsibility.
- 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.
- Provide an executive compensation package that attracts, retains, and
motivates key executives.
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 C/N/ G Committee analyzes data from
several independent compensation surveys and solicits information and advice
from independent compensation consultants. The competitive market data used by
the C/N/G 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 C/N/G
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.
11
In designing and administering the components of the executive compensation
program, the C/N/G 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 Plan was
amended in 2004 to adopt a ten-year (rather than indefinite) term; this
amendment was not material, and therefore shareholder approval was not required.
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 C/N/G Committee with regard to 2003 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 C/N/G 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 C/N/G 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 C/N/G Committee establishes a target incentive compensation
fund. The C/N/G Committee also approves individual awards after reviewing
management's evaluation of the individual's contribution to the overall
performance of the business. In 2003, the goals established by the C/N/G
Committee were met, and bonuses were paid accordingly.
LONG-TERM INCENTIVES -- STOCK OPTIONS AND PERFORMANCE SHARES
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 C/N/G 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 2003, the C/N/G Committee granted stock options and performance shares:
- Stock option grants were approved based upon the C/N/G 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's 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 C/N/G Committee granted performance share awards to the executive
officers for the three-year performance cycle beginning January 1, 2003.
These grants were based upon the C/N/G
12
Committee's analysis of competitive levels of stock awards and an
assessment of individual performance. The C/N/G Committee establishes
interim annual quantitative performance targets based on earnings per
share and return on capital employed (the "Value-Model"). The amounts
earned based on a value model measuring performance against the targets
established are called "Conditionally Vested Units" and can range from 0%
to 200% of target. These Conditionally Vested Units are contingent upon
continued employment with the Company through the end of the three-year
performance cycle and the C/N/G Committee's discretion to change the
amounts based on its evaluation of performance over the entire three-year
period. The Conditionally Vested Units would be entitled to receive
dividends if declared and paid on the Company's common stock, which would
be paid at the time of payout. At the end of the three-year performance
period, the amount paid is a function of the Company's stock price,
performance against established interim annual quantitative performance
targets, and the C/N/G Committee's assessment of performance over the
entire three-year period. Payment can be made in the form of cash or
stock or a combination of cash and stock. 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 C/N/G Committee approved the percentage
payout of the 2001 performance grant based on the Company's achievement
of its earnings per share and return on capital employed performance
goals and the C/N/G Committee's assessment of performance over the entire
three-year period. The 2001 performance grant for the 2001-2003
performance period exceeded target and was paid out above target. The
award was paid out in cash to those participants who had reached or
exceeded their share ownership requirements.
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 its 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 to Common Stock Equivalents 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 C/N/ G
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 C/N/G Committee approved an increase in Mr. Wambold's base salary for
2003 to $830,000. 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 C/N/G Committee approved a 2003 annual
incentive award of $900,000 for Mr. Wambold. In addition to meeting the
quantitative financial goals, the C/N/G Committee also considered the
performance of the Company relative to its competitors and cumulative total
shareholder return. In 2003, the C/N/G Committee granted 250,000 stock options
to Mr. Wambold. The C/N/G Committee considered competitive market practice, the
Company's performance, and Mr. Wambold's leadership in determining the size of
his option grant. The C/N/G Committee also approved a performance share grant of
45,000 units to Mr. Wambold for the year 2003, which will be earned based on
performance over the three-year period beginning January 1, 2003. Mr. Wambold's
performance share award earnout for 2003 was determined against the Company's
performance against the "Value-Model" (discussed above) over the three-year
period and was at the same percentage of the target amounts as the other
participants. After consideration of other factors, the C/N/G Committee elected
not to exercise its discretion to change the amount of the award.
13
$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:
Robert J. Darnall, Chairman
Roger B. Porter
Norman H. Wesley
14
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, 2003, 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 31-DEC-03
- ------------------------------------------------------------------------------------------------------
Pactiv Corp. $100 $87 $102 $146 $179 $196
- ------------------------------------------------------------------------------------------------------
S&P 500(R) $100 $114 $103 $91 $71 $91
- ------------------------------------------------------------------------------------------------------
Custom Composite Index (6
Stocks) $100 $97 $70 $87 $90 $110
- ------------------------------------------------------------------------------------------------------
</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.
15
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 key executive officers of the Company, other than the Chief
Executive Officer.
<Table>
<Caption>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------- --------------------------------------
AWARDS PAYOUTS
------------------------- ----------
RESTRICTED LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) STOCK AWARDS(3) OPTIONS PAYOUTS(4) COMPENSATION(4)
- --------------------------- ---- --------- -------- --------------- ------- ---------- ---------------
Richard L. Wambold.......... 2003 $878,104 $ 900,000 -- 250,000 $298,559 $15,264
Chairman and Chief 2002 $847,600 $1,557,000 $1,238,174 250,000 -- $13,762
Executive Officer 2001 $767,100 $ 800,000 $ 786,911 275,000 -- $92,341
Andrew A. Campbell.......... 2003 $375,218 $ 260,000 -- 120,000 $134,345 $59,411
Senior Vice President and 2002 $364,625 $ 558,500 $ 553,526 105,000 -- $75,038
Chief Financial Officer 2001 $346,808 $ 315,000 $ 370,975 110,000 -- $69,902
Peter J. Lazaredes.......... 2003 $370,080 $ 260,000 -- 120,000 $ 89,563 $15,282
Senior Vice President and 2002 $347,760 $ 485,696 $ 349,600 105,000 -- $14,058
General Manager -- 2001 $355,117 $ 300,000 $ 247,311 110,000 -- $53,450
Food/Foodservice
James D. Morris............. 2003 $356,721 $ 200,000 -- 105,000 $ 89,563 $16,240
Senior Vice President and 2002 $342,817 $ 395,696 $ 305,900 105,000 -- $64,744
General Manager -- 2001 $355,117 $ 190,000 $ 247,311 110,000 -- $14,148
Protective & Flexible
Packaging
John N. Schwab.............. 2003 $332,782 $ 240,000 -- 120,000 $ 74,651 $61,864
Senior Vice President
and..................... 2002 $320,147 $ 351,996 $ 320,474 105,000 -- $12,914
General Manager -- 2001 $302,998 $ 220,000 $ 191,097 110,000 -- $32,895
Hefty 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 earned under the grant for the three-year period of 2000-02, which was
paid in January 2003, less the amounts earned under such grant that were
previously reflected as restricted stock awards in the Summary Compensation
Tables in the Company's proxy statements. 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) The Company has a performance share program under which key executives can
earn awards based on the Company's performance over a three-year period.
These awards are granted at a "target amount" for each three-year period,
and the participants can earn between 0% and 200% of the target amount based
upon the Company's performance against a value model based on earnings per
share and return on capital employed each year (subject to change by the
C/N/G Committee based on other qualitative and quantitative factors related
to the Company's performance over the three-year period of the award). The
awards vest three years from the date of the grant, and can be paid in stock
or cash or a combination thereof.
The grants covering the three-year periods 2000-02, 2001-03 and 2002-04,
are reflected in this table as follows:
2001: The amounts listed under the restricted stock award column for
2001 represent the value (based on the closing price of the Company's
common stock on December 31, 2001) of the portion of the 2000-02 and
2001-03 grants that were tentatively earned by a named individual in
2001 based on the Company's performance against the interim annual
targets during 2001.
16
2002: The amounts listed under the restricted stock award column for
2002 represent the value (based on the closing price of the Company's
common stock on December 31, 2002) of the portion of the 2001-03 and
2002-04 grants that were tentatively earned by a named individual in
2002 based on the Company's performance against the interim annual
targets during 2002. The 2000-02 grant was paid out in January 2003, and
the total amount of such grant earned, less the amounts previously
reflected as restricted stock in 2000 and 2001, is included in the named
individual's bonus for 2002.
2003: The 2001-03 grant was paid out in January, 2004, and the total
amount of such grant earned, less the amounts previously reflected as
restricted stock in 2001 and 2002, is included in the named individual's
LTIP Payout in 2003.
The 2002-04 performance shares granted, other than the shares whose value
is reflected as restricted stock awards in 2002, and the 2003-05
performance shares granted are shown on the "Long-Term Incentive
Plan -- Awards in 2003" Table below.
The portion of the awards reflected as restricted stock awards are
"Conditionally Vested Units," which amounts are subject to change by the
C/N/G Committee based on other qualitative and quantitative factors related
to the Company's performance over the three-year period of the award, and
payment of any amounts is subject to the individual's continued employment
with the Company. The Conditionally Vested Units would be entitled to
receive dividends if declared and paid on the Company's common stock, which
would be paid at the time of payout.
The total number of such Conditionally Vested Units held by the named
individuals and the value as of December 31, 2003 (excluding performance
share units that were settled on January 30, 2004), based on the closing
market price of the Company's common stock on December 31, 2003, of such
holdings is as follows: Mr. Wambold: 30,000 units ($714,600); Mr. Campbell:
13,333 units ($317,592); Mr. Lazaredes: 8,000 units ($190,560); Mr. Morris:
6,000 units ($142,920); and Mr. Schwab: 8,000 units ($190,560).
(4) Represents amounts paid, excluding amounts previously reported, with respect
to the Company's Performance Share Program for the three-year period of
2001-2003 (the "2001-03 Grant"). Prior amounts related to such 2001-03 Grant
were reported as "restricted stock awards" for 2001 and 2002 in the Summary
Compensation Table in the Company's proxy statements and are not included in
the LTIP Payout amounts shown above. All amounts earned under the 2001-03
Grant were paid out in cash on January 30, 2004.
(5) Includes amounts attributable during 2003 to benefit plans of the Company as
follows:
(a) The Company contributed $12,000, $4,845, $12,000, $12,000, and $9,121
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 $3,264, $2,566, $3,282, $4,240, and
$4,743, respectively.
(c) Under the Pactiv Corporation Deferred Compensation Plan, participants
who elect to invest a portion of their annual cash incentive bonuses 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 2003 for named individuals is as follows: Mr. Wambold:
$0; Mr. Campbell: $52,000; Mr. Lazaredes: $0; Mr. Morris: $0; and Mr.
Schwab: $48,000.
17
OPTIONS GRANTED IN 2003
The following table shows the number of options to purchase common stock
that were granted by the Company during 2003 to the persons named in the Summary
Compensation Table above.
<Table>
<Caption>
PERCENT OF
SHARES OF TOTAL OPTIONS
COMMON STOCK GRANTED TO GRANT DATE
UNDERLYING OPTIONS EMPLOYEES EXERCISE EXPIRATION PRESENT
GRANTED(#) IN 2003(%) PRICE($)(1) DATE VALUE(2)
------------------ ------------- ----------- ---------- ----------
Richard L. Wambold.......... 250,000 11.1 $20.25 9/17/13 $1,882,500
Andrew A. Campbell.......... 120,000 5.3 $20.25 9/17/13 $ 903,600
Peter J. Lazaredes.......... 120,000 5.3 $20.25 9/17/13 $ 903,600
James D. Morris............. 105,000 4.7 $20.25 9/17/13 $ 790,650
John N. Schwab.............. 120,000 5.3 $20.25 9/17/13 $ 903,600
</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: 36.80% volatility, 3.08% risk-free interest rate, 0% expected
dividend rate and 5.0-year option life.
OPTIONS AT YEAR-END 2003 VALUES
The following table sets forth the number of stock options held at December
31, 2003 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 2003.
<Table>
<Caption>
TOTAL NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 2003 DECEMBER 31, 2003
----------------------------- -----------------------------
EXERCISABLE NON-EXERCISABLE EXERCISABLE NON-EXERCISABLE
----------- --------------- ----------- ---------------
Richard L. Wambold......... 1,371,667 508,333 $12,265,170 $2,649,080
Andrew A. Campbell......... 508,334 226,666 $ 5,125,772 $1,153,628
Peter J. Lazaredes......... 421,542 226,666 $ 3,897,072 $1,153,628
James D. Morris............ 455,622 211,666 $ 3,897,072 $1,098,878
John N. Schwab............. 325,585 226,666 $ 2,938,472 $1,153,628
</Table>
LONG-TERM INCENTIVE PLANS -- AWARDS IN 2003
<Table>
<Caption>
PERFORMANCE OR
NUMBER OF SHARES, OTHER PERIOD UNTIL ESTIMATED FUTURE PAYOUTS
UNITS OR OTHER MOTIVATION OR ----------------------------
NAME RIGHTS PAYOUT THRESHOLD TARGET MAXIMUM
- ---- ----------------- ------------------ --------- ------ -------
Richard L. Wambold............ 45,000(1) 3 years 0% 100% 200%
30,000(2) 3 years(2) 0% 100% 200%
Andrew A. Campbell............ 20,000(1) 3 years 0% 100% 200%
13,333(2) 3 years(2) 0% 100% 200%
Peter J. Lazaredes............ 25,000(1) 3 years 0% 100% 200%
8,000(2) 3 years(2) 0% 100% 200%
James D. Morris............... 12,000(1) 3 years 0% 100% 200%
6,000(2) 3 years(2) 0% 100% 200%
John N. Schwab................ 12,000(1) 3 years 0% 100% 200%
8,000(2) 3 years(2) 0% 100% 200%
</Table>
- ------------
(1) Performance share units awarded under the Company's Performance Share Plan
for the three-year term 2003-05 (the "2003-05 Grant"). Each award will be
earned in an amount between 0% and 200% of the target amount, based on (i)
the Company's performance against a value model based on earnings per share
and return on capital employed, with (ii) the amounts so determined subject
18
to reduction by the C/N/G Committee based on other factors related to the
Company's performance, measured both quantitatively and qualitatively, over
the three-year period. Performance share units may be paid in cash, common
stock, or a combination thereof, as determined by the C/N/G Committee.
(2) Represents performance share units awarded under the Company's Performance
Share Plan for the three-year term 2002-04 (the "2002-04 Grant"), excluding
the Conditionally Vested Units relating to the year 2002 which are reflected
as "restricted stock awards" received in 2002 in the Summary Compensation
Table in the Company's proxy statements. The total award of performance
share units in the 2002-04 Grant for Messrs. Wambold, Campbell, Lazaredes,
Morris and Schwab was 45,000, 20,000, 12,000, 9,000, and 12,000
respectively. Such units, including such Conditionally Vested Units, will be
earned in an amount between 0% and 200% of such amounts based on the
Company's performance against the value model referenced above, subject to
change by the C/N/G Committee based on other factors related to the
Company's performance, measured both quantitatively and qualitatively, over
such three-year period.
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
$2,100,000 $165,000 $330,000 $495,000 $660,000 $825,000 $ 990,000
$2,200,000 $172,857 $345,714 $518,571 $691,428 $864,285 $1,037,142
</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 25, 4, 22, 28 and 7, 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
19
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 $5,310,012, $2,017,500,
$1,980,000, $1,669,005, and $1,685,007, respectively, if their positions had
been terminated on December 31, 2003, 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.
RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR 2004
(PROPOSAL 2)
Financial statements of the Company and its consolidated subsidiaries as of
and for the year ended December 31, 2003, 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 2004. 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 2004, the Audit Committee would reconsider the
appointment.
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 2003 and 2002, and fees for other services rendered by Ernst &
Young LLP for 2003 and 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 2003 and 2002
fiscal years were approximately $1,540,980 and $1,225,650, respectively.
AUDIT-RELATED FEES. The aggregate fees for professional services rendered
by Ernst & Young for audit-related services including benefit plan audits and
due diligence related to mergers and acquisitions in 2003 and 2002 were $174,690
and $201,987, respectively.
TAX FEES. The aggregate fees for professional services rendered by Ernst &
Young LLP in the 2003 or 2002 fiscal year relating to tax services were
approximately $9,800 and $0.
No fees were paid to Ernst & Young LLP for other services in 2003 or 2002.
All audit and non-audit services rendered by Ernst & Young LLP were approved by
the Audit Committee, which considered
20
whether the provision of non-audit services was compatible with maintaining
Ernst & Young LLP's independence.
The Audit Committee has adopted a policy with respect to pre-approval of
certain types of audit and non-audit related services specifically described by
the Audit Committee on an annual basis. In general, the Audit Committee has
pre-approved the provision of certain audit services and audit-related services,
for up to an annual amount which varies by the type of services. Individual
engagements anticipated to exceed such pre-established thresholds must be
separately approved. This policy also sets forth certain services which the
Company's independent public accountant is prohibited from providing to the
Company. The policy authorizes the Audit Committee to delegate to one or more of
its members pre-approval authority with respect to permitted services. In 2003,
approximately 35% of the non-audit services that were approved by the Audit
Committee were approved pursuant to its pre-approval policies and procedures.
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 2004.
OTHER INFORMATION
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information of each person that, as
of December 31, 2003, 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................................ 12,701,701 8.07%
45 Fremont Street
San Francisco, CA 94105(1)
Lord, Abbett & Co........................................ 10,981,676 6.98%
90 Hudson Street
Jersey City, NY 07302
Wellington Management Company, LLP....................... 10,102,285 6.425%
75 State Street
Boston, MA 02109(2)
</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,
11,023,571 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.
(2) The shares shown are owned of record by clients of Wellington Management
Company, an investment advisor. Those clients have the right to receive, or
the power to direct the receipt of, dividends from, or the proceeds from the
sale of, such shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who are beneficial owners of more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission and the New York Stock Exchange, and to furnish the Company
with copies of these forms. To the Company's knowledge, based solely on its
review of the copies of Forms 3, 4 and 5 filed on behalf of the directors and
executive officers, the Company believes
21
that all officers and directors of the Company complied with all filing
requirements imposed by Section 16(a) of the Exchange Act during 2003, except as
follows: In January, 2003, Andrew A. Campbell, Senior Vice-President and Chief
Financial Officer, John N. Schwab, Senior Vice-President and General
Manager -- Hefty Consumer Products, and Henry M. Wells III, Vice President and
Chief Human Resources Officer, each elected to defer all or a portion of his
2002 bonus into the Pactiv Stock Index Fund under the Pactiv Corporation
Deferred Compensation Plan. Because such deferral is deemed to result in the
acquisition by such persons of Pactiv common stock equivalents, a Form 4 should
have been filed for each such person, but the Company inadvertently failed to
file such forms on behalf of Messrs. Campbell, Schwab and Wells at the time of
the deferral. Upon discovery of this oversight in January 2004, the Company
filed the appropriate Form 4s on behalf of Messrs. Campbell, Schwab and Wells.
The Company does not know of any persons who hold more than 10% of the
common stock of the Company.
SHAREHOLDER NOMINATIONS AND OTHER PROPOSALS FOR 2005 ANNUAL MEETING OF
SHAREHOLDERS
NOMINATIONS FOR DIRECTORS. A shareholder of the Company may nominate
persons for election to the Company's Board of Directors by submitting such
nomination, together with certain related information required by the Company's
By-Laws, in writing to the Secretary of the Company at the Company's principal
executive offices, at the times set forth in the following paragraph regarding
notices for shareholder proposals. The Company's policy with respect to
nominations by shareholders of candidates to the Board of Directors is described
above in "Corporate Governance -- Board
Committees -- Compensation/Nominating/Governance Committee."
SHAREHOLDER PROPOSALS -- INCLUSION IN 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 2005 Annual Meeting
of Shareholders, the proposal must be received by the Company at its principal
executive offices by December 4, 2004.
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 15, 2005, or later than February 14, 2005.
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, 2003, 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).
22
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, 2004, as the record date for determining the shareholders
of record who are entitled to vote at the Annual Meeting. This means that all
shareholders of record at the close of business on March 19, 2004, may vote
their shares at the Annual Meeting. On the record date, the Company had issued
and outstanding 157,102,796 shares of its common stock (of which 153,902,796 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, Robert J. Darnall, 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.
23
HOW WILL MY SHARES BE VOTED? All properly completed and unrevoked proxies
that are received by May 12, 2004 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 2004; 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.
24
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.
25
EXHIBIT A
PACTIV CORPORATION
COMPENSATION/NOMINATING/GOVERNANCE COMMITTEE CHARTER
A. NAME
There shall be a committee of the Board of Directors (the "Board") which
shall be called the Compensation/Nominating/ Governance Committee (the "C/N/G
Committee").
B. PURPOSES
The purposes of the C/N/G Committee shall include the following:
(1) Discharging the Board's responsibilities relating to compensation
of the Company's executives, including review and approval of corporate
goals and objectives relevant to compensation of the Chief Executive
Officer ("CEO"); and, either as a committee or together with the other
independent directors (as directed by the Board), evaluation of the CEO's
performance in light of those goals and objectives, and determination and
approval of the CEO's compensation level based on this evaluation; and
recommendations to the Board with respect to non-CEO compensation,
incentive-compensation plans and equity-based plans;
(2) Producing an annual report on executive compensation for inclusion
in the Company's proxy statement or annual report on Form 10-K in
accordance with applicable rules and regulations;
(3) Identifying individuals qualified to become Board members
(consistent with criteria approved by the Board), and selecting and
recommending to the Board the director nominees for the next annual meeting
of shareholders;
(4) Developing and recommending to the Board the Corporate Governance
Guidelines applicable to the Company and reviewing such Guidelines, as
appropriate, but at least annually for the Board;
(5) Overseeing the evaluation of the Board and management; and
(6) Conducting an annual performance evaluation of the C/N/G
Committee.
In fulfilling its purposes, the C/N/G Committee shall undertake those tasks
and responsibilities that, in its judgment, would most effectively contribute to
and implement the purposes of the C/N/G Committee, including those specifically
listed in this Charter.
C. COMMITTEE MEMBERSHIP AND PROCEDURE
The C/N/G Committee shall consist of no fewer than three directors. Each
member of the C/N/G Committee shall satisfy the independence requirements of the
New York Stock Exchange and, if deemed appropriate from time to time, meet the
definition of "non-employee director" under Rule 16b-3 under the Securities
Exchange Act of 1934, and "outside director" for purposes of Section 162(m) of
the Internal Revenue Code of 1986, as amended. The Board shall appoint the
members of the C/N/G Committee annually, considering the recommendation of the
C/N/G Committee, and further considering the views of the Chairman of the Board
and CEO, as appropriate, and shall designate the Chairman of the C/N/G
Committee. The members of the C/N/G Committee shall serve until their successors
are appointed and qualify. The Board shall have the power at any time to change
the membership of the C/N/G Committee and to fill vacancies in it, subject to
such new member(s) satisfying the above requirements. Except as expressly
provided in this Charter or the by-laws of the Company or the Corporate
Governance Guidelines of the Company, the C/N/G Committee shall fix its own
rules of procedure.
A-1
D. COMMITTEE AUTHORITY AND RESPONSIBILITIES
The C/N/G Committee shall have and may exercise all of the powers and
authority of the Board in connection with the performance of its duties and
responsibilities under this Charter, including without limitation the authority
to call upon the Company's officers and employees or outside consultants for
such assistance and support as it deems appropriate, and to institute and carry
out investigations of improprieties or such other matters as it deems necessary.
The C/N/G Committee shall, at least annually, review with the Board the
Company's compensation structure and philosophy.
1. COMPENSATION MATTERS
- Compensation Structure and Philosophy. The C/N/G Committee shall examine
the compensation structure of the Company periodically to determine that
the Company is rewarding its executive personnel in a manner consistent
with sound business practices and, in connection with such review,
determine, in consultation with Senior Management and the Board of
Directors, the compensation philosophy for the Company. Among other
things, the compensation structure should:
- 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; and
- Place greater emphasis and leverage on variable performance-based "at
risk" (versus fixed) compensation as executives assume increased
responsibility.
The C/N/G Committee shall also develop and maintain a program covering
long-range plans for executive compensation for further consideration by
the Board. The C/N/G Committee shall review and approve the list of a peer
group of companies to which the Company shall compare itself for
compensation purposes.
- CEO Compensation. The C/N/G Committee shall review and approve corporate
goals and objectives relevant to CEO compensation; and either as a
Committee or together with the other independent directors (as directed
by the Board), evaluate the CEO's performance in light of those goals and
objectives; and determine and approve the CEO's compensation level based
on this evaluation. In determining the long-term incentive component of
CEO compensation, the C/N/G Committee shall consider the Company's
performance and relative shareholder return, the value of similar
incentive awards to CEOs at comparable companies, and the awards given to
the Company's CEO in past years.
- Compensation Plans. To the extent permitted by law, the C/N/G Committee
shall establish, administer, amend or terminate, and to otherwise act for
and on behalf of the Board with respect to the executive compensation,
incentive and deferred compensation, and equity-based compensation plans
and programs of the Company and affiliated companies ("Compensation
Plans"), including other similar compensation plans the C/N/G Committee
deems desirable to establish, terminate or amend from time to time. The
C/N/G Committee shall review and approve the performance or operating
goals for participants in the Company's Compensation Plans. The C/N/G
Committee shall have the power to determine eligibility, size of awards,
and set maximum number of shares that may be issued each year under such
Compensation Plans, in such manner as the C/N/G Committee shall deem in
the best interests of the Company, in all cases in which specific
directions shall not have been given by the Board.
A-2
- Employee Benefit Plans. To the extent permitted by law, the C/N/G
Committee shall have the right to establish, administer, amend or
terminate, and to otherwise act for and on behalf of the Board with
respect to the employee benefit plans of the Company and affiliated
companies including both welfare and pension plans ("Benefit Plans"),
including any supplemental Benefit Plans, and any other similar plans or
arrangements which the C/N/G Committee deems as desirable in the best
interests of the Company to establish from time to time, in all cases in
which specific direction shall not have been given by the Board. The
C/N/G Committee shall receive at least annually a report from management
with respect to the performance of the assets in the Company's Benefit
Plans.
- Other Plans and Arrangements. To the extent permitted by law, the C/N/G
Committee shall have the right to establish, administer, amend or
terminate, and to otherwise act for and on behalf of the Board with
respect to Change in Control and severance arrangements, employment
contracts, special retirement programs and any other similar plans or
arrangements which the C/ N/G Committee deems desirable in the best
interests of the Company to establish from time to time.
- Board Compensation. The C/N/G Committee shall advise the Board on
changes in compensation for Board and committee members.
- Consultants and Advisors. The C/N/G Committee shall have the sole
authority to retain and terminate any compensation consultant used to
assist in the evaluation of director, CEO, executive officer and senior
management compensation or Company Compensation Plans or Benefit Plans
generally and shall have sole authority to approve the consultant's fees
and other retention terms. The C/N/G Committee shall also have authority
to obtain advice and assistance from internal or external legal,
accounting or other advisors.
2. AUTHORITY AND RESPONSIBILITY RELATED TO NOMINATING AND GOVERNANCE MATTERS
- Director Qualifications. The C/N/G Committee shall, consistent with
criteria approved by the Board of Directors, determine the desirable
balance of experience, qualifications and expertise among members of the
Board. The C/N/G Committee will review all proposed nominees for the
Board of Directors, including those proposed by shareholders, in
accordance with the charter of the C/N/G Committee and the Corporate
Governance Guidelines to determine whether they might make good
candidates for consideration for membership on the Board of Directors.
This will include a review of the person's judgment, experience,
independence, diversity of experience at policy-making level in
businesses and in areas relevant to the Company's activities, and such
other factors as the C/N/G Committee determines are relevant in light of
the needs of the Board of Directors and the Company; there are no
specific minimum qualifications that the C/N/G Committee believes must be
met by a nominee. The Board shall not discriminate among qualified
candidates based on gender, race, ethnicity or age. The C/N/G Committee
will select qualified candidates and review its recommendations with the
Board of Directors, which will decide whether to invite the candidate to
be a nominee for election to the Board of Directors.
- Annual Recommendation of Directors. The C/N/G Committee shall review and
recommend to the Board a management slate of directors to be proposed for
election at the annual shareholders' meeting and included in the Proxy
Statement for such meeting.
- Board Performance Review. The C/N/G Committee shall solicit and receive
comments from all directors and report annually to the Board with an
assessment of the Board's membership, structure and performance.
- Committees' Performance Review. The C/N/G Committee shall review the
function and composition of the committees of the Board (including the
C/N/G Committee), and recommend to the Board qualified persons for
membership on such committees. The C/N/G Committee shall review annually,
or more often if appropriate, the directors who are members (including
qualifications,
A-3
requirements, rotation of Committee assignments and term limits of
Committee memberships), the structure (including authority to delegate)
and the performance of such committees and report to the Board the
results of such review.
- Organization and Governance Generally. The C/N/G Committee shall serve
in an advisory capacity to the Board and Chairman of the Board on matters
of organizational and governance structure of the Company and the conduct
of the Board generally.
- Officers. The C/N/G Committee shall review, as appropriate, the
qualifications of candidates for election as officers of the Company and
recommend such candidates for election by the Board.
- Succession Planning. The Board of Directors and the C/N/G Committee (to
the extent directed by the Board) shall review at least annually with the
CEO the availability of qualified replacements for key executive
positions in the company and its subsidiaries and the nature and adequacy
of the Company's plans for developing and providing necessary
replacements both on a current and a long-term basis, so as to ensure
continuity and orderly succession of capable and qualified management for
the Company as well as policies regarding succession in the event of
injury to, or retirement of, the CEO.
- Search Firms and Advisors. The C/N/G Committee shall have the sole
authority to retain and terminate any search firm to be used to identify
director candidates and shall have sole authority to approve the search
firm's fees and other retention terms. The C/N/G Committee shall also
have authority to obtain advice and assistance from internal or external
legal, accounting or other advisors.
- Corporate Governance Guidelines. The C/N/G Committee shall review and
reassess at least annually, and more often, if appropriate, the adequacy
of the Corporate Governance Guidelines of the Company and recommend any
proposed changes to the Board for approval.
- Code of Business Conduct and Ethics. The C/N/G Committee shall develop
and recommend to the Board a Code of Business Conduct and Ethics, and
shall consider any requests by directors or executive officers for
waivers from the Company's Code of Business Conduct and Ethics. The
Company shall make disclosure of such waivers to both the New York Stock
Exchange and the Securities and Exchange Commission. If appropriate, the
C/N/G Committee shall develop and recommend to the Board a separate Code
of Conduct for Financial Managers.
3. GENERAL AUTHORITY AND RESPONSIBILITY
- Regular Reports. The C/N/G Committee shall make regular reports to the
Board. In addition, the C/N/G Committee shall develop a Master Calendar
of Committee responsibilities and the meetings at which such
responsibilities will be addressed.
- Review of Charter and Committee Performance. The C/N/G Committee shall
review and reassess the adequacy of this Charter at least annually and
recommend any proposed changes to the Board for approval.
- Delegation. The C/N/G Committee may form and delegate authority to
subcommittees when appropriate.
- Meetings. The C/N/G Committee may request any officer or employee of the
Company or the Company's outside counsel or other advisors to attend a
meeting of the C/N/G Committee or to meet with any members of, or
consultants to, the C/N/G Committee. The C/N/G Committee shall meet at
least four (4) times per year.
E. MISCELLANEOUS
This Charter supercedes and replaces any prior resolutions or actions of
the Board, or any committee thereof, to the extent such prior resolutions or
actions are inconsistent with the provisions of this Charter.
A-4
PACTIV CORPORATION
1900 WEST FIELD COURT
LAKE FOREST, ILLINOIS 60045
(847) 482-2000 [PACTIV ADVANCED PACKAGING SOLUTIONS LOGO]
April 1, 2004
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 14, 2004. 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 2004, 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 in any case so that it can be
received no later than May 12, 2004, 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
----------------------------------------
VOTE BY TELEPHONE
(PACTIV ADVANCED PACKAGING LOGO) ----------------------------------------
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 and follow the
CLEVELAND, OH 44101-4301 simple instructions presented to record
your vote.
----------------------------------------
VOTE BY INTERNET
----------------------------------------
Have your proxy card available when you
access the website
HTTP://WWW.VOTEFAST.COM and follow the
simple instructions presented to record
your vote.
----------------------------------------
VOTE BY MAIL
----------------------------------------
Please mark, sign and date your proxy
card and return it in the POSTAGE-PAID
ENVELOPE provided or return it to:
National City Bank, P.O. Box 565800,
Pittsburgh, PA 15253.
- --------------------------------------------------------------------------------
VOTE BY TELEPHONE VOTE BY INTERNET VOTE BY MAIL
Call TOLL-FREE using a Access the WEBSITE and Return your proxy
Touch-Tone phone: cast your vote: in the POSTAGE-PAID
1-800-542-1160 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 WEDNESDAY, MAY 12, 2004 TO BE COUNTED IN THE FINAL TABULATION.
IF YOU VOTE BY TELEPHONE OR INTERNET, PLEASE DO NOT SEND YOUR PROXY BY MAIL.
--------------------------------------
CONTROL NUMBER:
--------------------------------------
PROXY MUST BE SIGNED AND DATED BELOW.
o PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING. o
- --------------------------------------------------------------------------------
PACTIV CORPORATION PROXY/CONFIDENTIAL VOTING INSTRUCTIONS
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF SHAREHOLDERS ON MAY 14, 2004.
The undersigned does hereby appoint Richard L. Wambold, Robert J. Darnall 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, 2004, and entitled to vote at the Annual Meeting of Shareholders of
Pactiv Corporation to be held at 10:30 a.m., May 14, 2004, or at any adjournment
thereof, and to vote, in their discretion, upon such other matters as may
properly come before the Annual Meeting.
BENEFIT PLAN PARTICIPANTS:
This card also serves as voting instructions to the Trustees of the various
Plans. By signing below, you are instructing the Trustees of the plans to vote
all shares of Common Stock of Pactiv Corporation represented by your
proportionate interest in the Trusts at the Annual Meeting of Shareholders to be
held on May 14, 2004, and at all adjournments thereof, upon the matters set
forth on the reverse side hereof and upon such other matters as may properly
come before the Annual Meeting. Only the Trustees can vote your shares. Your
shares cannot be voted in person at the Annual Meeting. How you vote these
shares is confidential. The Trustees will not disclose how you have instructed
the Trustees to vote. If the Trustees do not receive your voting instructions by
May 12, 2004, either by telephone, Internet or receipt of this signed voting
instruction card, the shares credited to your account will not be voted at the
Annual Meeting.
------------------------------------
Signature
------------------------------------
Signature
Date:
------------------------------
INSTRUCTIONS: Please sign exactly
as shown hereon. Joint owners
should each sign. When signing as a
fiduciary, attorney, executor,
administrator, trustee or guardian,
or on behalf of a corporation,
bank, trust company, or other
similar entity, your title or
capacity should be shown.
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/CONFIDENTIAL VOTING INSTRUCTIONS
- --------------------------------------------------------------------------------
Please indicate how you wish your shares to be voted. UNLESS OTHERWISE
INDICATED, THE PROXIES WILL VOTE "FOR" ALL PROPOSALS.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ALL PROPOSALS.
1. ELECTION OF DIRECTORS
Nominees:
<Table>
(01) Larry D. Brady (02) K. Dane Brooksher (03) Robert J. Darnall (04) Mary R. (Nina) Henderson
(05) Roger B. Porter (06) Richard L. Wambold (07) Norman H. Wesley
</Table>
[ ] FOR all nominees listed above. [ ] WITHHOLD AUTHORITY
(except as listed to the to vote for all nominees listed
contrary below) above.
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)